More details on Connecticut agency pricing investigation

Sharp-eyed TeleReader Aaron Pressman noticed this article yesterday, though it didn’t show up in my Google Reader until today. Though he mentioned it in his comment, and we did link a video earlier today, we never actually linked this rather informative article from the Wall Street Journal which sets the issues down in print.

The Connecticut Attorney General has followed in the footsteps of the Texas Attorney General in investigating the possible anticompetitive ramifications of Apple’s and five of the Big Six publishers’ agency pricing scheme, which they have forced on Amazon and every other e-book seller.

The article also points out that the FTC and the Justice Department have also been looking into other possibly anticompetitive behavior on the part of Apple, and a source says that the agency pricing deals are being looked into as part of that investigation.

Update: Also interesting: the FTC turned down a Freedom of Information Act Request by Wired for information pertaining to the Apple/Adobe third-party development environment spat. “These records are exempt… because disclosure of that material could reasonably be expected to interfere with the conduct of the Commission’s law enforcement activities.” (Found via BoingBoing.)

Whether agency pricing is legal or not hinges on an interesting legal argument. As Doug pointed out in a comment:

[It] has long been legal in the US for sellers to set minimum selling prices on consignment sales. That’s what the “Agency Model” terminology is intended to suggest: that the publishers are the actual sellers of the product. That the bookstores aren’t buying product and then re-selling it; they’re just taking orders from customers and delivering the product.

(See also C.E. Petit’s legal analysis of the agency pricing deal, from back in January.)

I just want to know how that electronic goods can be “consigned” at all. Wikipedia defines “consignment” as “placing a person or thing in the hand of another, but retaining ownership until the goods are sold or person is transferred.” Can an electronic file really be considered to be placed in someone’s hands, or owned? It’s not exactly physical goods we’re talking about here.

Regardless, there can be no doubt that this scheme has had deleterious effects from the consumer point of view, and has had potentially unpleasant financial ramifications to publishers and authors. Consumers have seen prices go up from $9.99 to $12.99 or more, and have seen titles vanish altogether from smaller e-book stores. Meanwhile, publishers and authors have seen revenues fall from half of hardcover ($12-$13 or so in many cases) to 70% of $12.99.

So, the prices go up, which in terms of the laws of economics means it’s going to sell fewer copies—and at the same time the revenues go down, which means that those fewer copies are going to bring in even less money each. And Amazon stops losing money on every sale and starts gaining money on each of fewer sales.

But that’s all right because now consumers are forced to realize that e-books should cost more money, because they’re all valuable and stuff. Yeah, sure, that’s going to work.

Yes, Amazon was probably going to browbeat the publishers into dropping their wholesale prices sooner or later, so it could stop losing money. There may not be an easy solution here. But it might have been better for publishers to ride the money train as long as they could while trying to come up with a new business model that could let them beat Amazon at its own game, rather than yank on the emergency break and bring it screeching to a halt.

And anyway, none of that really matters to most consumers, who only care about paying an e-book price that has three significant digits rather than four, and about all the coupon and discount programs that agency pricing brought to an end with its strict publisher control of price.