Justice Department to Apple, Publishers: Here we come.
- Thread starter meStevo
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Wow, you know business too!
I "know" lots of stuff. At least half of what I "know" is wrong at any given moment!
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The first e-book delivered costs $100 million + to deliver. The next might cost $0.05. How many books does a company have to sell to break even on the upfront costs on their margin alone?
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Don Landis said:
Don, your argument cuts both ways, unless you're privy to Amazon's costs as related to offering the NYTimes 100 books at $9.99, you can't make the argument that they will stop selling these books at a discount once some nebulous goal has been achieved. Considering that so many stores offer products as loss leaders to attract customers to their stores in the hopes that they buy other non-discounted items (and considering how that is a long held fixture in the traditional book marketplace), there is no indication that amazon will choose to discontinue discounts. They may, they may not, but ascribing nefarious intent to their potential future actions seems premature.
The point of collusion may not yet have been legally determined (that's what the legal process is for), but you can't really dispute that this cartel of companies, in establishing the agency model for ebooks, colluded to prevent retailers from independently setting prices for the ebooks. This gave the publishers the ability to set retail price higher without fear of anyone offering any sort of discount. And thanks to most favored nation clauses, prices were fixed across the different streams of commerce/outlets of sale.
And then there's the factual results, which anyone that reads ebooks can attest to, after the agency model was imposed on retailers, ebook prices went up (to the point where some new releases were priced higher than hard cover versions of the same book). If that's not an indicator of these companies colluding to increase pricing of ebooks to consumers, I'd be very interested to see how they try to explain away the correlation between agency model adoption and ebook price increase.
well then if you want to put it that way, printing presses are not cheap either
Correct, they are not. The profit is long term, not on the first of any widget / gadget / e-book / printed book whatever. It's also in accurately or underestimating sales volume which (should) help determine pricing.
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Don Landis said:
Wow Don. Could you be any more condescending? Not even going to justify with it a response.
I am not stupid and have followed this issue closely. Sorry If there is a chance it could impact your stock portfolio. I know I am being a bit sarcastic, but come on....
BS! The printing cost is not nearly as great as all the time spent researching and writing a book. The cost of a book should be whatever the people who create the book want to sell it for.
mperdue said:
Sorry, but if the publisher sets the retail price of the physical book at $7.99 for a paperback (which includes all the costs associated with producing, transporting, and selling the physical book as well as encompassing the research and writing costs you mentioned), then there's no justification for pricing the ebook at a higher price. Unless someone can provide a breakdown of costs that shows the production and distribution of ebooks exceeds that of a physical book, I won't be convinced otherwise.
This also doesn't even factor in the facts that ebooks cannot be resold by a purchaser and are exceedingly difficult to lend to a friend (both features of physical books which add to their base value).
Loss leaders are not isolated to a class product but rather are used to entice people into the store and while there it is hoped that they will find additional items to buy at full price. Amazon uses this technique on just about every item. You find this in play when you scroll down on your item and see, " What others have also bought when purchasing this item."
Personally, I use Amazon "loss leaders" to buy many items for photography and save hundreds of $$. Good example are filters. Normally lens filters will cost between $25-$100. Buying them when they run a ,loss leader, I can pay as little as $1.99 for a $50 filter. Having Amazon Prime, I also get free shipping on some of these. But these are true loss leaders and not a revenue class price policy. I can't tell you that a Tiffen soft effects #3 filter is $1.99 because yesterday I paid that. It was a loss leader that Amazon ran for the hour and I just happened to be there and get lucky. The books at $9.99 as the legal case is being made is a policy for a class of products that is consistent over time. It does not fit the retail definition of "loss leader"
Did Amazon sell books at $9.99 as a class policy or as a Loss leader? I don't know but if they did as a loss leader then I doubt a case for suit could be made. If they did this as a policy for all ebooks, similar to what is done for music on itunes without regard to titles then it is not a loss leader.
Gross profit vs. net profit. Gross Profit is unimportant except to academics. Remember the college professor in "Back To School"? Dangerfield wrote the academic's text book definition a whole new chapter in business in less than 2 minutes while other students took notes. Gross profit is for academics. Net profit is what matters in your pocket and in real world business. When we talk profits in business we always understand it is net profit. The question was how much was made, not what the gross profit was. The answer for one who understands business is No.
Personally, I feel a retailer should be able to sell any of their inventory they own for any price they want and suppliers should not be allowed to dictate MSRP as a rule for sales. Only exception to this is when the inventory is not owned by the retailer. This inventory is normally considered to be floor planned or delayed payment to the supplier or a lender. A retailer who sells a floorplanned item at a loss is forcing that loss on the at risk lender of the item. The inventory exists as collateral.
Personally, I use Amazon "loss leaders" to buy many items for photography and save hundreds of $$. Good example are filters. Normally lens filters will cost between $25-$100. Buying them when they run a ,loss leader, I can pay as little as $1.99 for a $50 filter. Having Amazon Prime, I also get free shipping on some of these. But these are true loss leaders and not a revenue class price policy. I can't tell you that a Tiffen soft effects #3 filter is $1.99 because yesterday I paid that. It was a loss leader that Amazon ran for the hour and I just happened to be there and get lucky. The books at $9.99 as the legal case is being made is a policy for a class of products that is consistent over time. It does not fit the retail definition of "loss leader"
Did Amazon sell books at $9.99 as a class policy or as a Loss leader? I don't know but if they did as a loss leader then I doubt a case for suit could be made. If they did this as a policy for all ebooks, similar to what is done for music on itunes without regard to titles then it is not a loss leader.
Gross profit vs. net profit. Gross Profit is unimportant except to academics. Remember the college professor in "Back To School"? Dangerfield wrote the academic's text book definition a whole new chapter in business in less than 2 minutes while other students took notes. Gross profit is for academics. Net profit is what matters in your pocket and in real world business. When we talk profits in business we always understand it is net profit. The question was how much was made, not what the gross profit was. The answer for one who understands business is No.
Personally, I feel a retailer should be able to sell any of their inventory they own for any price they want and suppliers should not be allowed to dictate MSRP as a rule for sales. Only exception to this is when the inventory is not owned by the retailer. This inventory is normally considered to be floor planned or delayed payment to the supplier or a lender. A retailer who sells a floorplanned item at a loss is forcing that loss on the at risk lender of the item. The inventory exists as collateral.
Might be the most over thought and incorrect post I've read in a long time. You clearly don't understand the lawsuit if you think Amazon's pricing and being able to classify a product as a loss leader has much to do with the lawsuit being valid or not.
Stop trying so hard and participate in the thread IMO, rather than trying to make reading it worth a college credit.
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Stop trying so hard and participate in the thread IMO, rather than trying to make reading it worth a college credit.
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Don:
I must have just imagined reading and hearing the words gross profit in the quarterly earnings calls I used to attend when I was working at IBM.
Since my imagination is active already, I'll have to say that I must imagine that you use the term "academic" frequently when points of view differ from your own.
I must have just imagined reading and hearing the words gross profit in the quarterly earnings calls I used to attend when I was working at IBM.
Since my imagination is active already, I'll have to say that I must imagine that you use the term "academic" frequently when points of view differ from your own.
You have conveniently left off the message I was responding to and have addressed an issue that I never did. I said it was BS that no ebook should ever exceed 1/2 the price of a paperback book. Printing costs are frequently not that big of an issue so I can easily see some books selling for the same price as the printed versions. Some, due the the effort of creating the ebook and the expected sales might even cost more as you don't get the advantage of economies of scale. In any case a blanket statement such as the OP made is typically wrong.
Gross profit is not a subject of interest to academics only. It is key indicator of the efficiency of individual managers and companies as a whole. Investors watch it to measure the efficiency of a company and are particularly concerned when they sharp sudden movements in the indicator as it may mean accounting irregularities etc.
I am not saying this is the only indicator used by investors or even the most important one but it certainly is an indicator.
I am not saying this is the only indicator used by investors or even the most important one but it certainly is an indicator.
I find it intriguing that three major publishers settled so quickly. Makes you think there actually is something to the "conspiracy" (Attorney General Holders' words not mine) or collusion argument.
I understand the independent bookseller's concern about the juggernaut that is Amazon, but e-books are a big problem from their perspective -- a problem because they are so successful. I have had a Kindle since late 2008, and have bought, according to my Kindle library, over 400 books. I guarantee I would NOT have bought a fraction of that in actual paper. For five years Amazon has worked to keep the price of e-books reasonable, and has made a LOT of money because of that. Is there a monopoly risk? Sure. Its already there. But we are seeing a paradigm shift in the publishing world, and the publishing world is going to have to adapt. And they will sell a lot more books if the prices are kept reasonable.
I understand the independent bookseller's concern about the juggernaut that is Amazon, but e-books are a big problem from their perspective -- a problem because they are so successful. I have had a Kindle since late 2008, and have bought, according to my Kindle library, over 400 books. I guarantee I would NOT have bought a fraction of that in actual paper. For five years Amazon has worked to keep the price of e-books reasonable, and has made a LOT of money because of that. Is there a monopoly risk? Sure. Its already there. But we are seeing a paradigm shift in the publishing world, and the publishing world is going to have to adapt. And they will sell a lot more books if the prices are kept reasonable.
John- my point is that the overly simplified gross profit doesn't tell the true story of how a company is doing. But, you are correct in that I have found that many social scientists in the academic world often miss reality. Thus my association with academia often not understanding real world business. The best business courses I have taken were not taught by tenured professors but rather real world CEO's and CFO's. I understand that companies often gloss over the true picture with talk of numbers that paint an entirely different picture. If the quarterly earnings calls you listened to were official then maybe you missed the real numbers which were the net, not the gross. I prefer to read the 10Q's or quarterly earnings reports for companies I'm interested in. Here the report lists Net sales. There is really no mention gross profit. I suppose if it is a curiosity, you could extrapolate it from the numbers in the report using the inventory value and cost of sales and other costs but I continue to ask why? I just want to really know what the net earnings per share is as an outsider. If I were the comptroller and wanted to analyze where there was a problem in making a profit then the text book accounting tools can be applied. Geronimo, you are correct as I used the cost of materials and gross profit as a starting point when I used to work up my product P/L statement. But, it was never the end point, only a starting point to determine where we stood. As an investor, I see the number as a suspicion red flag and want to know the bottom line.
Don Landis said:
Amazon's $9.99 pricing is not for all ebooks, just the NYTimes top 100. So yes, it can be classified as a loss leader.
mperdue said:
Sorry, I'm responding from an iPad, no multi-quote functionality (that I've found) in the sat guys app. But, the whole purpose of my post was to respond to your second sentence, that ebooks should be priced at whatever price point someone wants to price them. I was disagreeing and giving my opinion as to why I think they should be cheaper than their physical counterparts. I wasn't arguing for a specific % discount, that can be worked out through trial and error. But there's no reason to bend consumers over by charging more than what physical books cost. I agree that a blanket statement like 1/2 of paperback price is wrong.
Printing shipping storage costs all come into play. As for economies of scale, that's where the huge benefit of ebooks come in. You typeset and convert to the ebook format once and aside for encryption to tie the book to a specific buyer (which I imagine is automated), you're done. You don't have to mass produce something and guess at how many books to print for a first run based on sales forecasts. You don't have to rush to print another run of books if it proves more popular than expected. You don't have to worry about dealing with excess inventory if something unexpectedly flops. This is better than economies of scale because the cost is in producing the first digital copy of the book and then all additional copies are essentially close to free to produce. Scale is irrelevant which should give the publishers a lot more flexibility.
And if a book doesn't sell well, that's not any different than a physical book with a large initial run not selling well. Either way, the substantive book didn't justify the publisher's investment to produce it.
The big losers here will be the publishers and retailers of physical books. They will probably fall by the way side and that is progress. Apple... They don't need ebooks and could stand to lose it and it wouldn't impact the company much at all. Amazon will be the big winner. What I want to know is how Amazon will acquire new books if the publishers go out of business? Will Amazon become a publisher of ebooks?
Now all we need to do is get the airlines to use airplanes that won't have the navigation screwed up when you turn on your Kindle below 10,000 ft.
Now all we need to do is get the airlines to use airplanes that won't have the navigation screwed up when you turn on your Kindle below 10,000 ft.
