Friday, April 13, 2012

My Take on the Whole DOJ Debacle

If you have even a passing interest in the publishing industry, you’ve no doubt heard of the lawsuit the Department of Justice (DOJ) filed against Apple and the Big Six, less Random House, earlier this week. When I noticed that every industry professional I followed was taking the publishers' side (especially since most of those industry professionals were agents and thus not directly affiliated with any of the major players), I suspected something was fishy. And now, after reading Nathan Bransford’s excellent post on the topic, I know it is.

The background is complicated, but here’s the basic idea insofar as I understand it: E-books used to be--and in many cases, still are--priced according to the wholesale model of distribution, in which e-sellers pay a publisher’s wholesale price for e-books, then turn around and sell them at whatever end price they choose. In 2010, Apple convinced five of the six major publishers to switch to the agency model, in which the publishers set the end price for their titles, then split the revenue with the e-seller according to a predetermined percentage.

The DOJ’s claiming that Apple and those five major publishers colluded--that is, got together in some secret lair (read: upscale New York restaurant) and decided as a group--to set artificially high prices. Which is illegal. Which has been illegal ever since they first put the antitrust laws on the books back in the days of big oil and railroad barons.

But here’s the thing: The government implemented antitrust laws to PROTECT CONSUMERS FROM MONOPOLISTS. And even if Apple and Company got together in their upscale New York restaurant and agreed to fix prices--which is a big "if," one that Macmillan, Penguin, and Apple have already decided to challenge in court--you could argue that they were colluding to PROTECT CONSUMERS FROM A MONOPOLIST.

Which monopolist? Well, that would be Amazon, of course.

See, if you want to understand why publishers switched to the agency model--which, as Mr. Bransford pointed out, actually cost them revenue (and continues to do so)--you have to understand what, or who, they were facing. Amazon sets their prices so as to be the lowest-priced seller of every good on the planet, and I daresay they are. In fact, they price many e-books below cost, which means they actually lose money every time one of those e-books sells. And why would they do that? To drive every other e-seller out of the market, thus leaving them free to do whatever they want (which, according to this article, they kind of already are).

It’s called predatory pricing, and it’s also illegal under the government’s current antitrust laws.

I guess what I’m saying is that, like always, the government is a little late to the party and not quite up to speed on what’s actually happening. Even if they can prove that the major players colluded, how are they going to explain why they never came after Amazon, who, arguably, threw the first punch? And how are they going to handle a group of sellers who, even if they are found liable, were only acting to insulate themselves--and consumers--from the market effects of a monopolist?

It’s not often that the best interests of buyers and sellers align, but in this case, I can’t help but wonder if that’s precisely what happened…

14 comments:

T. Drecker said...

Interesting... and enlightening. Thanks!

Martin Willoughby said...

As normal, there's a lot more to the story than meets the eye, or you see on the news.

Ben Spendlove said...

Amazon is the new Wal-Mart. I'm kind of wishing I'd bought a Nook instead of a Kindle.

Rachel Pudelek said...

When music became available online, through Apple and other various sources, there was lots of ironing out to do. That of course took years. Then movies and TV began the online access and issues involving the access started to be fought over. Now books.

I assume book access will follow a similar pattern as the entertainment forms that came before (online I mean).

It does me sad though to watch the book stores close around me as Amazon gets bigger.

A.J. said...

Well said, Krista! You explained a very complicated issue in a way that makes it accessible to many.

Kelley Lynn said...

Thanks so much for this summary Krista! I must admit I was a wee bit confused :) But no longer :)

Tamara said...

Thank you for that! I wasn't sure what was going on with this whole drama.

I sure hope the publishers can explain the way you did...

Escape Artist said...

Perhaps, you should link your post to them!
Great job, Krista! You little superstar you!

Yvonne Osborne said...

Bottom line: who is driving prices down so writers, agents and publishers receive less and less return on their labor? Is Amazon the new Walmart? Should I buy an E-reader? As a writer, I feel I should to stay on top of things. But if so, which one?

A really wonderful insightful post.

Krista Van Dolzer said...

You're welcome, T. Drecker!

Very true, Martin.

Ben, can you only buy e-books from Amazon for your Kindle? I guess what I'm asking is, once you buy an e-reader, are you committed to buying e-books on that e-reader's platform for the rest of forever, or can Kindles read Barnes and Noble's e-books and vice versa?

Good point, Rachel, although, so far, piracy hasn't been nearly as big of an issue with books as it was--and is--with music and movies. I wonder if that will change...

A.J., you can thank my degree in Economics for that. Glad it finally came in handy:)

Kelley, I'm happy to hear that! Nathan Bransford's post was the one that finally blew the smoke out of my eyes.

Tamara, what's even crazier is that the DOJ's settlement terms with the other three publishers, Hachette, HarperCollins, and Simon and Schuster, don't even force them to do away with the agency model. Seems like that'll be a good argument the others' lawyers can make. ("If you're allowing those other publishers to keep using that pricing scheme, why are you suing us in the first place...?)

Linda, I'm sure all the big wigs have already figured this out:) But thank you for your enthusiasm. *blushes*

Yvonne, I don't think low prices are bad in and of themselves. In general, lower prices equal more book sales. The problem is that Amazon is setting their prices below cost, which no one else can do and stay in business for long (and which Amazon can't do forever, either), so everyone's worried about what horrible horrors Amazon's going to unleash once they've driven their competitors out of business.

Liesl Shurtliff said...

This is very interesting Krista, and so much clearer than anything else I've read on the matter.

I'm curious as to why Random House never entered all this? I guess I could find out. :)

And if you buy a Nook, you can really only get e-books from b&n and Kindle e-books only from Amazon. They're not compatible, much to my annoyance. However, if you have an iPad, you can get a Nook and a Kindle app and buy e-books from basically anywhere.

Actually I rarely buy books on my Nook, I mostly get library e-books on it. You can't get everything, but a fair few books on my list. I love that!

Sierra Gardner said...

I suppose I stand in the middle on the issue. While it definitely is a problem that Amazon is cornering the market, I also think that the solution shouldn't be an illegal collaboration among the competitors (assuming that is actually what happened of course). It will be interesting to see how the DOJ case plays out.

Karen lee Hallam said...

Thank you Krista for clearing up my understanding of this. Now to see what happens next.

Krista Van Dolzer said...

Liesl, thanks for your comment. If I write something you appreciate or approve of, I feel like I succeeded:) And that's really kind of dumb that e-readers only support one format. I mean, I guess that's kind of wise on the sellers' part but really kind of stupid on the whole...

Agreed, Sierra. It just doesn't seem fair that the publishers are the ones getting punished for responding/retaliating, depending on how you want to look at it. The whole thing reminds me of personal fouls in football: The referees often miss the first shove but usually catch--and penalize--the second.

You're welcome, Karen! And yes, now to see...