Ebook Price Fixing and Bad Journalism

You may have heard that the Department of Justice decided to launch antitrust litigation against Apple and some major publishers for alleged price fixing and that most of them decided on the same day to settle. The alleged sin was that Apple and the publishers decided to go with the agency pricing model in which the publishers get to set the prices for their books in the iBooks Store, while Apple takes, I believe, a 30% cut.

So late last night I read this:

How Steve Jobs Got Apple Into Trouble Over Ebooks” by Lance Ulanoff, Editor-in-Chief of +Mashable.

Wow, is this guy clueless.

And if Steve Jobs really thought Amazon screwed up, he was clueless as well. Amazon is WINNING.

Jobs pushed the agency model on the publishers? I don’t think so. They preferred that model but couldn’t get Amazon to go along with it without Apple’s help. It’s the screw-your-customers model and it wouldn’t have been good for the publishers over the long haul. They want high ebook prices so that they can hang onto their outdated IP-dependent business model of selling paperbacks and hardcovers in big box brick & mortar stores for as long as possible.

“Over the years I spoke to numerous people in the publishing industry who were somewhat shocked and not necessarily happy with this turn of events [Amazon’s low ebook prices and domination of the ebook market].”

Oh, boo hoo.

“[Best-selling author James] Patterson’s books have long been on ereaders, but back then he was clearly feeling the pinch of lost royalties as his bestsellers which once sold for over $20 at Barnes and Noble and were now selling for $9.99. Was it any wonder he was riding coach?”

I doubt he was riding coach because Amazon’s ebook pricing was preventing him from doing well financially. The guy writes (or lends his name to) and sells a shit-ton of books. If he wasn’t making out better on his ebook sales than he was on his hardcover sales, then he had a shitty contract deal with his publishers, because Amazon offers much better royalty rates for ebooks than you’ll get from a traditional publisher for hardcovers.

“Amazon’s $9.99 pricing insistence did not sit so well with government types, either. Back in 2010, the Connecticut Attorney General called Amazon’s $9.99 pricing scheme potentially anti-competitive. Certainly, undercutting brick and mortar competitors by more than half on new hardcovers made it difficult for anyone else to compete in the ebooks space.”

Oh, boo hoo. It’s not anti-competitive to offer your customers a better deal than the other guys; that’s what competition is! If you’re not going to call government officials on their ignorant bullshit, you’re not doing your job as a journalist. If you didn’t realize it was ignorant bullshit, then you shouldn’t be reporting on economic matters.

“Without Apple to force Amazon to rethink its pricing model, book publishers might have had to resort to draconian measures to stay afloat and deliver product (for all I know, they did anyway). Authors might have seen their publishing and sales platform opportunities shrink as fewer publishers took risks on unknown or no-name authors. Oh, and surely Amazon would be making less money on ebooks than it is today.”

So much FAIL in this paragraph. Where to begin…

“Without Apple to force Amazon to rethink its pricing model…”

Amazon didn’t “rethink” its pricing model. It reluctantly gave in to pressure from the Big 6 and Apple. As soon as Amazon can ditch the agency model, it will.

“…book publishers might have had to resort to draconian measures to stay afloat and deliver product (for all I know, they did anyway).”

Book publishers will have to resort to draconian measures to stay afloat and deliver product anyway. They need to make radical overhauls of their organizational structure, business and distribution models, accounting practices, contract terms, and more. Apple was just helping them maintain the status quo a bit longer. This was neither a good thing for consumers nor for authors.

“Authors might have seen their publishing and sales platform opportunities shrink as fewer publishers took risks on unknown or no-name authors.”

Are you serious!?! That’s the situation today under the traditional publishing model! It’s been that way for a long time.

Amazon is disrupting the status quo, opening up new opportunities for publishers and authors. Small presses seem to be flourishing. And, thanks to Amazon, authors can now easily self-publish, reach a wide audience, and develop a steady income stream through Amazon’s Kindle Direct Publishing platform, Barnes & Noble’s Pubit!, and various other platforms. The stigma of self-publishing is disappearing. Thanks to Amazon, traditionally published authors are able to put their out-of-print backlist back into publication (if they can get the rights back from their publishers) and generate a steady income stream from books that had long since ceased to generate any income due to an antiquated business model and publisher neglect.

“Oh, and surely Amazon would be making less money on ebooks than it is today.”

Wow. Just… wow. You think major publishers going out of business wouldn’t be a boon to small presses, lead to the creation of more small presses, and swell the ranks of self-publishing authors in Amazon’s KDP program and other self-publishing platforms?

I haven’t researched the precise timing of events, but I wouldn’t be surprised if the agency-model deal between Apple and the Big 6 pushed Amazon into starting its own publishing imprints or accelerated plans it already had to do so. Likely the Big 6 encouraged Amazon to go into direct competition with them on the publishing front, either period or earlier than originally planned, thus hastening their own demise. They can’t compete with Amazon on their own turf, at least not without radical changes. Amazon has lower costs, better distribution and marketing, better data, better accounting practices, better contract terms, treats its authors better, has better customer service.

I think Amazon would do just fine without the Big 6.

“Ultimately, this whole drama is just another little piece of Steve Job’s legacy laid bare. He was a hard-nosed business man who knew how to win — at almost any cost. Do we judge Apple or him more harshly for it?”

Was this a fluff piece? Or what? It’s not all about Steve Jobs. I think Mashable’s editor-in-chief over-estimates Jobs’s role in this. It’s not like the agency model had to be shoved down the throats of desperate publishers. They wanted to set their own prices. They just needed Apple’s help to create an alternative store and publishing platform and to push the agency model on Amazon.


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  • A good overview of this issue may be found at Everything you need to know about the e-book lawsuit in one post.

    Basically what is going on is a mixture of corporatism and capitalism. State interventions such as copyright and antitrust law itself gives rise to oligopolies and gatekeeper industries like the big publishing industry. Of course collusion, price fixing, etc., ought not be illegal; antitrust law should be abolished. But on the other hand, in a free market, we would expect to see fewer oligopolies anyway and thus less monopolistic abuse or price fixing in the first place. Not that we can trust the state, through the DOJ and antitrust law, to fix a problem partly caused by state policies in the first place.

    The right response here is: for the state to leave this alone and let the companies involved work out whatever contractual terms they wish, whether agency model, wholesale model, or some hybrid; stop employing antitrust law against even nominally private companies; stop enacting and enforcing laws that give rise to monopoly prices and oligopolies and corporatism and crony capitalism in the first place, such as copyright law, antitrust law, pro-union legislation, minimum wage, taxation in general, inflation and the business cycle, and other business regulations. All of these laws redound to the benefit of bigger corporations who can handle the overhead and whose oligopolies are thereby entrenched, at the expense of smaller competitors and consumers in general.

    As I noted in FTC: Western Digital and Hitachi must give assets and IP rights to Toshiba: Patents, Antitrust, and Competition,

    As I have discussed before, the state is schizophrenic. It grants monopolies aimed at limiting competition (patents and copyright), and then penalizes companies for using (“abusing”) them, in contravention of state antitrust law–so that there is a “tension” between these state laws. Then courts have to “balance” these against each other. Each state law gives the state an excuse to ratchet up its power. Here’s an idea: get rid of both antitrust and patent law. (See EU newsflash: patents are anticompetitive!; State Antitrust (anti-monopoly) law versus state IP (pro-monopoly) law; The Schizo Feds: Patent Monopolies and the FTC; see also When Antitrust and Patents Collide (Rambus v. FTC); Antitrust vs. Trademark Law; Price Controls, Antitrust, and Patents; IP vs. Antitrust; The Schizophrenic State; Intel v. AMD: More patent and antitrust waste.)

    (Likewise, there is also a “tension” between copyright censorship, and the right to free speech.) (Should Copyright Be Allowed to Override Speech Rights?)

    • Agreed, Stephan.

      Also, as I mentioned in a comment on Jeffrey Tucker’s post “The Future of Books“:

      The origin of the current wasteful publisher/brick-and-mortar bookstore relationship is also interesting. The strip-and-return system has its origin in the Great Depression (thanks Fed!).

      Publishers wanted to encourage booksellers to buy more books and take a chance on unknown authors, so they stupidly started allowing stores to return unsold inventory for a refund. This system became entrenched and publishers became stuck producing massive print runs. The tendency to gamble on publishing and stocking potential blockbusters is tied in with this.

      What the booksellers do — with paperbacks at least — is strip the covers, return those for the refund, and recycle the book bodies. Book prices factor in this waste. I think it’s something like one hardback is priced to pay for two, one paperback for three. Because so many are not sold. Sometimes, before being destroyed, a book will go back and forth between store shelves and warehouses in a purchase, return, purchase, return cycle until it is finally sold or destroyed. Lots of transportation and storage waste there in the interim.

      This system has hurt small presses and indie and self-publishers because booksellers often insist on this strip-and-return policy and they often can’t afford it. And the small indie bookstores can’t afford gamble on large inventories of books and to wait on refunds on the inevitable returns. So you get that concentration of power in a relatively small number of big publishers and bookstore chains.

      Thankfully, the rise of POD and ebook publishing is disrupting this wasteful, cartelizing system.


  • As an anecdote, I would also add that being a recent convert to the Ebook world, I’ve found the iBook store to be lacking in selection compared to Amazon or even Barnes and Nobles. I prefer using the Kindle app on my iPad and iPhone rather than using the iBook store, and have even thought of buying a Nook just to be able to read graphic novels (comic books). Just more evidence of the market sorting things out and government regulators and “Big Books” being late to the digital party.

    • Thanks for the anecdote, Tom. You can also read comics on the Kindle Fire and other tablets. I have Marvel and DC apps powered by Comixology on my 7″ Android tablet. It’s got a higher resolution screen than most tablets that size, so most comics look just fine on it whereas you often have to zoom or use the guided reading mode in others. I don’t like Marvel and DC’s distribution model, however, with the DRM and whatnot. We’re paying too much money for less control over our copy of the comics than when we bought physical copies.