Last week, the U.S. Department of Justice indicated that it was looking into the possibility of filing suit against Apple and five of the country’s largest publishers – Macmillan, Simon & Schuster, Penguin Group, HarperCollins, and the Hachette Book Group. The DoJ is alleging collusion and price fixing in the area of e-book sales. At issue is the publishers’ agreement with Apple to adhere to an agency model for e-books, which allows the publishers to set prices and prohibits Apple (and other sellers) from discounting them.
The agency model is opposed to the wholesale model, which allows sellers to set prices, and has resulted in steep discounts from Amazon, an online retailer that has parlayed losses on lower e-book prices into a virtual monopoly in the area of e-book sales.
The conflict between the two business models, and the possibility of action on the part of the DoJ, prompted Scott Turow, best-selling author and president of the U.S. Author’s Guild, to issue an open letter decrying the potential legal action. By selling e-books at a loss, Turow contends, Amazon is actually engaging in a practice of predatory pricing meant to drive competitors – including bricks-and-mortar bookstores – out of business. The agency model, Turow argues, promotes competition, which is essential to a vibrant literary culture:
Two years after the agency model came to bookselling, Amazon is losing its chokehold on the e-book market: its share has fallen from about 90% to roughly 60%. Customers are benefiting from the surprisingly innovative e-readers Barnes & Noble’s investments have delivered, including a tablet device that beat Amazon to the market by fully twelve months. Brick-and-mortar bookstores are starting to compete through their partnership with Google, so loyal customers can buy e-books from them at the same price as they would from Amazon. Direct-selling authors have also benefited, as Amazon more than doubled its royalty rates in the face of competition.
Let’s hope the reports are wrong, or that the Justice Department reconsiders. The irony bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition.
The vitriolic responses from proponents of cheap books and digital publishing were as swift as they were predictable. Writing on Joe Konrath’s blog, author Barry Eisler takes Turow to task for foolishly suggesting that Amazon is killing bookselling by selling a metric shit-tonne of books:
Watch the linguistic dodge: Scott is implicitly arguing that the only model that counts as “bookselling” is the current model, built and maintained by legacy publishers and brick-and-mortar stores. That is, “bookselling = physical bookstores. Online bookselling doesn’t count as bookselling.” He’s arguing as though physical booksellers are the only legitimate organisms in the forest, while Amazon is some sort of exotic interloping alien species rampaging through a healthy native ecosystem. This is the only way to make sense of an argument that states, “Amazon is destroying bookselling by selling so many books.”
Well, actually, that’s not what Turow is implying, although that is clearly what Eisler is inferring. What Turow is actually arguing has less to do with the volume of Amazon’s sales and more to do with the reason behind them. It’s the artificially depressed prices Amazon offers that are the problem, at least in Turow’s conception, and it is this point that often gets lost in these arguments.
One side-effect of the steep discounts Amazon offers – discounts that, at the risk of being repetitive, mean Amazon takes a loss on sales because they sell their e-books at a price point lower than their own cost – is that they condition consumers to expect books to be so cheap. The consumer advocate will argue that he or she should not pay more than what the market will bear, but this conceals a basic fallacy. Amazon’s prices do not reflect what the market will bear, and they sure as hell don’t reflect fair market value. Professionally produced books – whether they be digital or otherwise – require editing, type design, marketing, and sales support. None of this comes for free. (In point of fact, most people performing these tasks in any publishing house in North America are likely being paid much less than their skills are worth.) Other booksellers don’t artificially mark their prices up; Amazon artificially marks its prices down. This is what has convinced consumers that $30 is too pricey for a hardback novel, and it is also what has contributed to Amazon’s monopoly over the e-book marketplace.
The problem, as The Washington Post‘s Steven Pearlstein points out, is that breaking this monopoly will result in higher prices for consumers.
So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?
Pearlstein’s own answer is, at least provisionally, the latter:
[T]he danger of regulators and judges focusing solely on short-term price effects is that it can mean turning a blind eye to business practices that temporarily lower prices even as they drive competitors out of business, lock in customers or limit entry into the market by new firms with better products.
Or to put it another way, it’s great to be able to buy e-books for $9.99, but maybe not if the alternative is accepting an Amazon monopoly that drives Barnes & Noble and your local bookstore out of business.
The only really safe mechanism for setting price is open competition, says Andy Gavil, an antitrust expert at Howard University, and anything that prevents that ought to be viewed with suspicion.
Meanwhile, Konrath reprints a letter author Suzanne White sent to the Author’s Guild in response to Turow’s own missive, in which she criticizes the guild for not working on behalf of authors, but rather trying “to protect what is obsolete”:
Where in the traditional publishing industry can an author command 70%? Where can an author have utter dominion over cover art? Formatting? Content? Illustrations? Impact? Marketing? The answer is Amazon. And a little bit Pubit and sometimes Smashwords or Apple as well. Where in the standard publishing industry can an author revive a book that he or she wrote in 1982, sold to a publisher who printed it, didn’t sell very many and took it right off the market? Amazon, that’s where. Author gets rights back, re-formats the book, slams it up for sale on Kindle and in six months is making money with that book.
Where? Tell me. Where can an author do better?
Why does a Guild for Authors rail on about monopolies and decry the demise of old-fashioned publishing as we knew it? Dinosaurs still prowling the streets of Manhattan want their good old boy industry back. Give it up already.
Any publisher worth her salt knows that in many cases, giving authors “utter dominion” over things such as cover art, formatting, and marketing is a recipe for disaster. By the same token, no publisher worth her salt is currently resting on her laurels, hoping to exploit authors and consumers by raising prices above all reason, or acting like a “dinosaur” prowling the streets of Manahttan or Toronto. Indeed, most of Konrath, Eisler, and White’s despised “legacy publishers” are bending over backwards in an attempt to innovate. ECW Press now offers free digital copies of their frontlist books when customers purchase a hard copy. Coach House Books has done the same. Penguin Canada has recently experimented with modestly priced e-book “singles” publishing. None of these is the action of so-called “dinosaurs.”
Perhaps the time has come for both sides in this debate to tone down their rhetoric, to shelve the righteous indignation on the one side and the frequently paranoid defensiveness on the other and try to find some common ground. Of course, in order for this to happen, each side will have to admit that the other has some valid arguments. In my experience, the “legacy publishers” have historically been much better at this than the upstart digital evangelists.