Greedy publishers have banded together to fix a price for ebooks which is higher than the cost of a hard copy.
Six of the top publishers have banned together and agreed to fix ebook prices so that they are above that of hardback. This is despite the fact that the cost of making an ebook is a fraction of the cost of a hardback.
Needless to say something this evil must have some Dr Evil behind it, steering the whole operation from his island volcano.
According to the Wall Street Journal, the price fixing was done at the behest of Steve Jobs who wanted to set up an Amazon style ebook store but did not want to get into all that discounting which has made Amazon so successful.
He and the big six negotiated a new pricing model. The publishers were happy because they felt the new arrangement preserved the value of books and encouraged other retailers to enter the e-book market.
The new arrangement means guaranteed profits on best-selling titles for retailers like Barnes & Noble, which today claims about 27 percent of the digital books market, as well as Amazon. So tremendous profits for the publishers, and Jobs got a foot in the door, but not so hot for the consumer.
The new pricing agreement among publishers effectively prevents retailers from discounting e-books without a publisher's permission, and no such agreement exists when it comes to printed books.
While shops can still slash the price for physical books as much as they please in order to entice readers to buy, but they'll have to comply with the new, higher prices for e-books set by the publishers.
It seems that the publishers believe that people will now pay more money for the advantages of ebooks such as portability, convenience, and the ability to highlight and take notes.
But this has to be one of the biggest own goals in the history of publishing. At the moment an ebook reader is forced to chose between a product that is more expensive, they have to get mailed to them but they can keep on their shelves and a product which is instant but much cheaper.
If the publishers force customers to pay higher prices for ebooks they will abandon the idea in droves.
It is also not clear how publishers can justify the margins in the scam. At the moment a typical book contract pays three to 10 percent of the final cost to the author. The distributor and retailer gets between 50 and 60 percent with the publisher getting the rest. Distribution of a traditional book was expensive, it required a lot of shipping and storage. However an ebook, which is stored on a server costs a fraction of that. It could even be as low as five percent after the distributor takes a cost for delivering the book to the punter. A hard copy of a book used to have a unit cost of some £2.50 which suddenly does not have to be paid to anyone.
Publishers have not increased what they pay to authors who are still left with contracts which mean they do not see much money at all.
What we have here is profiteering by the distributors who are taking an extra 150 per cent profit, and publishers who have just saved £2.50 and are cutting into the distributors once sacrosanct 50-60 percent cut.
By agreeing to keep the copy of ebooks high, they are further increasing their profits. It is not as if they are trying to protect hard copy sales either. The hard copy model was much less profitable.
The only card that the publishers have at the moment is that they have established authors writing for them. If you want the latest Terry Pratchett or Stephen King you are going to have to buy from a publisher.
This is where the cunning plan fails. If I were an established author, such as Mr Pratchett, and wanted to earn more than the two per cent royalty, I would put out my own ebooks. I would charge £5 for them and stick them on Amazon. Amazon might take 20 percent but the publisher would be out of the loop. Instead of making 20 pence on a £10 book sale, I would make £4.50 on a £5,00 sale.
Meanwhile, independent publishers with less well known authors will be pushing their ebooks with much better contracts which favour the author and distributor. Their business model will involve flogging large numbers of books with publishers taking a smaller margin. The next generation of authors might even get a liveable salary.
Either way the big publishers have made a huge cock up by trying to give Apple a leg up in the publishing market. Word on the street is that the US Department of Justice is already looking into the deal which could break lots of competition rules.