From today’s Wall Street Journal:
Book authors wonder about long-form writing in an attention-deprived world, publishers fret about revenue models as bookstores disappear, and consumers develop new reading habits that include both electronic and printed books.
No one knows the next chapter in the future of books, but lawyers in the Antitrust Division of the Justice Department claim to know precisely how this industry in transition must be structured and operated, down to the correct price for an e-book. The government’s certainty is the basis of a threatened price-fixing lawsuit against Apple and top book publishers.
At issue is an agreement publishers made with Steve Jobs in 2010, as he was about to launch the iPad. At that time, Amazon’s Kindle had 90% of the market for e-books. Book publishers had imported the “wholesale model” from the print world, where they sold retailers books for roughly half the recommended cover price. This made sense in the bricks-and-mortar world of returns of unsold books and expensive inventory. It was in the interests of publishers and booksellers to sell at whatever the market would bear.
. . . .
Publishers wanted competition among e-readers instead of a Kindle monopoly and worried that the subsidized price established artificially low prices. Jobs proposed that book publishers move to the “agency model”: Publishers set the price for each book and e-reader companies take an agreed percentage of the revenues. “We told the publishers . . . you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway,” Jobs told his biographer, Walter Isaacson. Jobs recalled that publishers then “went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’”
. . . .
It was about treating book publishers like every other industry. This is the same 30% revenue share that Apple takes for selling newspapers, magazines and games on the iPad. Publishers didn’t have to collude to accept it. While publishers ended up earning less per book because of the revenue share to e-reader companies, they regained control over their property.
. . . .
Government lawyers failed to learn that industries undergoing massive change brought on by technology are likelier to be flailing for sustainable business models than flouting market power to fix prices. Book publishers are still trying to predict the full impact of technology. As consumer choice widens, some people want beautifully produced printed books, while others want enhanced e-books with video and other graphics. There are e-books selling for 99 cents and others at premium prices. Perhaps a hardcover should come with access to digital versions. Contrary to the assumption by government lawyers, there’s no reason to think the price of e-books must be $9.99.
Link to the rest at The Wall Street Journal (Link may expire)
Passive Guy doesn’t agree with this opinion piece, but it’s always good to listen to differing viewpoints.
The statement that Apple wanted to sell books the same way it sold songs on iTunes, taking 30% of the selling price, is key in this context.
With music, Apple had no real competition two years ago and it was making plenty of money from the iTunes/iPod/iPhone combination of products and content. The ebook business was a different story. Apple was facing Amazon as a competitor and, unlike Apple, Amazon was willing to cut prices and sell below cost on occasion. Apparently Jobs didn’t want to do price competition with Amazon. That’s not his style, after all.
Apple’s interests combined nicely with Big Publishing’s interests, which were to limit Amazon’s price cutting in order to protect hard copy book sales and the bricks-and-mortar bookstores.
Contrary to the assertion of the article that government lawyers think the price of ebooks should be $9.99, what the antitrust investigation and likely suit is about is that government lawyers and PG don’t think Apple and five large book publishers should conspire to force pricing rules on Amazon or anybody else.
The fact that such a conspiracy means in Jobs’ words, “the customer pays a little more” goes to the heart of the public policy behind antitrust laws.
David Gaughran commented as follows:
The Irish Times (reputable paper) is reporting today that the EU regulators are open to the idea of a settlement (they launched their own probe in Dec, but have been investigating since they raided publishers’ offices across Europe around a year ago).
Parsing the article, it sounds like Agency would have to be dropped (or at least modified) for a formal suit to be avoided.
It should be noted that the EU have the power to levy considerable fines (up to 10% of *global* revenue) and haven’t been shy in doing so in the past (Microsoft).
PG has mentioned it before, but David has an excellent post discussing the Justice Department announcement.