One year when I was a kid, my older brother received an electric guitar for Christmas. It was one of those cheap Harmony guitars, the kind you used to find in the back of a Sears catalog. It even came with a matching amplifier that would get all distorted if you turned it up real loud (which we loved, but I’m sure my parents soon regretted that purchase). For a young beginner, it was perfect.

Although it was officially my brother’s guitar (you know how important these distinctions are when you’re a kid), we both shared it. But as the following Christmas approached, I was spending more time playing it than he was, and it was clear that I would soon need a guitar of my own.

Around that same time, I had started taking lessons from a local musician at the corner music store. His name was Chris, and I remember he had curly red hair that ran all the way down his back. And he was always wearing an army jacket for some reason. I think professionally he played bass guitar in multiple bands, but he picked up a few bucks tutoring kids like myself on weeknights.

To Chris’s credit, he never did say anything about the cheap Harmony guitar I lugged to practice every week. Its frets buzzed like a fly caught in a screen window, and it would only stay in tune for about half a song. But when you’re a kid who’s just learning to play, none of that’s important. Honestly, even if I’d had a classic Les Paul Custom, I still would have sucked. It wasn’t the cheap Harmony guitar holding me back.

That being said, there does come a point where inferior equipment will hinder your progress. About a year into my guitar studies, I was approaching that point. Tuesday nights, while waiting in the music shop for my lessons to begin, I would sample the other guitars on display. The first thing I would notice is how much heavier they were. They made my brother’s Harmony feel like a toy, like it was made of balsa wood (it might have been balsa wood, for all I know). Then I would notice the smooth fret action, how much easier it was to form chords–all without that infernal buzzing! Yeah, even at that early age, I knew that Harmony was a pretty bad guitar. And being my brother’s, it wasn’t even my bad guitar!

As the year drew to a close, I knew I was going to ask for a guitar of my own that Christmas. Since I would be stuck with it for a long time, I wanted to make sure it was a good one. But my parents were not wealthy. They could not afford most of the fancy guitars on display in that music shop. So, I turned to my guitar instructor, Chris, for some advice.

“Chris, I’m wanting a new guitar for Christmas. I was hoping you could recommend one to my father.”

“Sure,” Chris said, brushing his stringy red hair from his face, “I could do that. What did you have in mind?”

“Well, I’m not sure. My parents won’t spend a lot of money on a guitar, so it needs to be something cheap.”

“Inexpensive,” Chris corrected me, “not cheap.”

To a little kid, this was a zen-like moment of clarity, as if I’d just been Miyagi’d by my secretly-wise rock-and-roll instructor in the back of the music shop. It sounded very profound, at least to my young ears. Before that moment, I had always used the two words interchangeably. But now, for the first time in my young life, I heard a real distinction between the two.

That Christmas, I received a used Epiphone guitar that Chris had recommended to my father. Epiphone makes quality guitars with the Gibson look, but without the Gibson price. For an intermediate player like myself, it was  perfect–leaps and bounds above my brother’s Harmony. In fact, I still have that guitar today. It’s the best Christmas present I ever got. But perhaps the most valuable thing I received that year was not the guitar, but the words of wisdom from my guitar instructor:

“Inexpensive, not cheap.”

The fact that something could be inexpensive without being cheap (like my Epiphone guitar) was a revelation. Quality for a low price. As a consumer, of course, this is the Holy Grail.

Which is all my long-winded way of bringing up the subject of ebook pricing.

Historically, authors haven’t been involved in pricing their books. This was always the publisher’s job, and to give them credit, they did a pretty good job of it. But recent innovations (i.e. the rise of ebooks) have threatened to disrupt legacy publication.

Leading the way has been Amazon, the number one ebook seller. Amazon has been able to dominate the ebook market through technology, efficiency, and perhaps most importantly, low prices. Amazon is willing to take a loss on items like ebooks just to attract customers and keep competitors away. From a publisher’s point of view, this creates a problem: the potential cannibalization of their physical book sales by inexpensive ebooks. Whether this fear is justified or not, they would like to see their ebooks priced higher, despite the reduced costs.

How did this situation come about? Well, you see, publishers had been offering their ebooks to distributors under the same model they sold paper books: the wholesale model. Under this model, the publisher sets a wholesale price. The retailer is then free to sell the book for less than this price, but they would still owe the publisher a cut based on the full wholesale price.

Sounds great for publishers, no? After all, whatever price Amazon sets on a book, the publishers were still guaranteed to receive their full cut. But what they didn’t count on was Amazon’s ruthless ability and determination to lower prices, even to the point of selling at a loss. Consumers, of course, loved this,  but publishers were dismayed. They quickly found their ebooks selling for much less than they desired (often $9.99), which disrupted their ability to set higher prices in other stores and threatened the sales of their physical books. Furthermore, Amazon was establishing a near-monopoly on ebooks, which put them in a position to dictate terms to the publishers. By 2009, Amazon’s share of the ebook market was estimated to be 90%. Publishers remembered what happened to the music industry when iTunes became the dominant music store and Apple insisted tracks be sold at 99¢. By the time the music industry realized what was happening, it was too late.

So, perhaps it’s ironic that it was Apple who came around with a new proposal that would severely hamper Amazon’s ability to discount prices, potentially disrupting their dominant position in the market. The publishers leapt at it. Apple and 5 of the 6  major publishers agreed to establish an agency model (Random House declined). This is a sales model where the publisher sets the price of a book, not the distributor. In effect, the publishers established a price floor on their offerings, making it difficult for retailers to undercut this price. The major publishers, eager to maintain their margins and protect their legacy business, quickly jumped on board.

There was just one problem: how is this not considered price fixing? The Department of Justice must have agreed, as they soon filed charges of collusion against Apple and the five major publishers. In the end, the publishers all settled with the DoJ, but Apple went to court–and lost! Now that the agency model for ebooks is dead and buried, Amazon is once again free to set whatever prices they like on ebooks, though their dominant marketshare has been somewhat diminished.

So, why do I still feel most ebooks are too expensive?

My sister recently recommended a new book to me on Goodreads. I clicked on the link and immediately balked at the price: $9.99. I’m not sure why–after all, ten bucks isn’t all that much to pay for the hours of entertainment a book could provide.

Perhaps it’s the rise of self-published books and their lower prices. The last book I purchased was Hugh Howey’s Wool, and it only cost me $1.99. Granted, it was on sale, but even at its normal price of $5.99, am I to believe that Wool is only 60% as good as this other book priced at $9.99?

If not, then how do you explain the price difference? Easy: one is offered by a traditional publisher, and the other is self-published. Now, I understand that traditional publication involves a lot more overhead (like executives, sales people, marketing, warehousing), and they need to set their prices higher in order to maintain profits. But as a consumer, how does any of that benefit me? Quite frankly, it doesn’t.

This is one thing that publishers don’t seem to understand, or maybe they just don’t want to admit it. As a reader, I don’t care who published a particular book. I just care about the contents of the book, and perhaps its author. The intricacies of the publishing business are not my concern.

Ah, you might say, but as an author yourself, you should care about maintaining higher prices. After all, writers need to make a living, too!

Well, I do care, so let’s examine that statement closer. Let’s say the traditionally published author’s ebook has a wholesale price of $16 (I don’t know if that’s accurate, but let’s be generous). That author gets a 15% royalty rate, so for each sale, they earn $2.40. Now, let’s look at the self-published author’s $6 ebook. For each sale on Amazon, they earn 70%, or $4.20. That’s a huge difference in the self-published author’s favor!

As you can see, the traditionally published ebook not only costs consumers more, but the author earns less per sale. So, if it’s not good for consumers, and it’s not good for authors, who is it good for? Again, that’s an easy answer: the publishers. And how do the publishers justify this? Experience? Marketing? Exposure?

Call me dubious. As self-publishing becomes more prevalent, traditional publishers are in serious trouble if they don’t adapt. They will be forced to cut prices and raise royalty rates at some point. But if they do, how will they be able to sustain their businesses?

I’m not sure they can. Reducing their own expenses would help. We’ve already seen some consolidation among the publishers (e.g. the Random House/Penguin merger, aka “Randy Penguin”), and there will certainly be more to come. But there’s only so much you can squeeze out of a lemon. At some point, the publishers will need to offer additional value that readers can’t get elsewhere if they hope to continue their current business practices.

What will that added value be? Well, I’d like to think they’ll do something innovative–something consumers will love–but I’m not holding my breath. For instance, what if they offered a digital copy free with every purchase of a paper book? That’s something that would interest me. It probably won’t ever happen, but we’ve already seen similar moves from record companies and comic book publishers (why aren’t we seeing more of this in the book world?). But that’s probably too consumer friendly for the big publishers. Besides, self-published authors could do the same thing if their books are available in print (all for a lower cost), so I’m not sure it would give traditional publishers much of an advantage.

More likely, traditional publishers will just keep signing big name authors to exclusive contracts to ensure they don’t self-publish. This will force readers to pay big publisher prices if they want the latest works from these big name authors. And that will postpone the inevitable… at least for a little while. Eventually, those same big name authors will realize that it’s their name that sells books, not their publisher, and they could be making even more money publishing their own work. When that happens, they’ll be leaving their publishers as well.

It won’t happen overnight, but it will happen. In the meantime, I’ll just keep browsing the “bargain bin” for ebooks from this rising class of self-publishing stars like Hugh Howey, and I’ll keep an eye out for the yet-to-be-discovered up-and-comers. If you look hard enough, you’ll find their books are just as good as the traditionally published ones.

As my wizened guitar instructor once told me: “Inexpensive, not cheap.”