Friday, March 9, 2012

The DOJ Lawsuit Threat Against Publishers for E-Book Price Fixing

by Scott Rhoades

If you pay attention to such things, you've no doubt seen the stories in the news about the U.S. Department of Justice threatening a lawsuit against Apple and five publisers for allegedly colluding to fix ebook prices. The five publishers involved are Simon & Shuster (owned by CBS), Hachette Book Group, Penguin (a division of Pearson PLC), Macmillan, and HarperCollins (owned by NewsCorp).

As I understand it, the issue is that Apple demanded that publishers sign an "agency contract" with them that determined the pricing model and gave Apple a 30% cut on books sold through their market. The contract also prohibited publishers from selling the same book at a lower price through other markets. The goal was to put more money in Apple's already bulging pockets while undercutting Amazon and other competitors. The result was an overnight jump in e-book prices for consumers.

In the recent biography of Steve Jobs, Jobs is quoted as saying "We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.'" The book says that Apple "went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"

So what does that mean to us? It's hard for me to figure it out exactly. I'm not an economist and have little knowledge of the inner financial working of major corporations. But, as a consumer, I like lower prices and don't like the allegations of unfair practices that resulted in higher prices. I'm not sure I can really buy the comment from publishers that e-book prices are high because printing and delivery of books are a tiny part of the cost of producing a book. I understand the claim and that there are a lot of other costs involved in publishing, but from my life as a technical writer I know that switching from printed documentation to online doc and changing from delivering software in boxes to online delivery both result in significant cost savings to the company, and think I can fairly assume that the same is true for book publishers.

As a writer and friend of authors, I want writers to receive as much as possible from the books they publish, and understand that lower margins mean less money goes to the author. On the other hand, I'm not so sure the opposite is true. I don't think higher prices necessarily mean that the author gets that much more money. That some authors have come out against Apple and the publishers for this policy. For one thing, higher prices can mean fewer sales, especially when it comes to discretionary items like books. The ideal is a lower price that encourages more sales but is not so low that it cuts deeply into the writer's share. There's a balance there somewhere.

Being heavily involved in the tech world, I also recognize that Apple, whose products are awesome and world-changing, has developed a business model that is tightly closed and is built around technologies like iTunes, which is technologically unnecessary but brings big money into Apple's coffers. Yes, that's what capitalism is about, but it's also disturbing from a company that emerged from near ruin by claiming to be the antidote to the unfair closed business practices of Microsoft. When it comes down to it, Apple has become far worse that Microsoft ever was, way more closed and with ways to grab your money that Gates & Co. probably wish they would have thought of.

I'm also concerned with Amazon's move into publishing and the piece of the pie they are taking. They basically want the whole pie. I love Amazon, as a consumer, and have thrown a significant amount of cash their way, and will continue to do so, probably. But the power they wield concerns me, and their effect on book stores and the publishing world in general has not been positive. There are several reasons why I chose a Nook over a Kindle, but one is is because the closing of Borders scares me and I want to transition some of my book spending from Amazon to Barnes & Noble, although I'm not so sure the Amazon juggernaut can be thwarted in their attempt to rule the world.

There's not an easy answer here, at least not for me, with my limited knowledge of the bean-counting side of the business involved. I think this kind of deal and the reaction against it are probably the inevitable result of a quickly and drastically changing market that bridges multiple business sectors. I tend to come down on the side of consumers, but I also want publishers to be successful and book sales, whether printed or electronic, to rebound so business is better for authors than it has become. I want books of whatever sort to remain relevant, and the market to remain vibrant and competitive, because I think everybody wins when the publishing industry is healthy and people are reading.

What about you? What's your take on all of this?

No comments: