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The e-book wars

4/12/2012 1:08:00 PM

Yesterday’s news that the U.S. Department of Justice has filed an antitrust lawsuit against Apple and five major U.S book publishers set off a firestorm of debate in the publishing world and beyond. While the companies are accused of colluding to prevent Amazon and other retailers from setting lower prices for digital books, the DOJ action prompted a much wider discussion of how the public buys books and the future of the publishing industry as a whole.

And while Apple and the publishers have been accused of anti-competitive behavior, many believe that Amazon is the true villain in this story, and the move to dismantle the publishers’ current pricing arrangements will only concentrate even more power in the hands of the vast online retailer.

Without going into too much detail, the anti-trust suit stems from a deal the publishers made with Apple before it introduced the first iPad in 2010. Reacting to the way Amazon was selling e-books at a loss to promote the sale of its Kindle e-reader, the publishers saw Apple as a “white knight,” coming to their rescue by agreeing to a minimum pricing structure which was 30 percent or more above Amazon’s popular $9.99 model.

While there was nothing wrong with the publishers trying to cut a better deal with another online distributor, the arrangements with Apple went much further. According to the DOJ filing, Apple insisted on a “most favored nation” clause, which prohibited the publishers from allowing anyone to sell their e-books at below the Apple price. This had the inevitable result of pushing up Amazon’s prices and led to the accusations of collusion and price fixing.

Of course, Amazon spent yesterday heralding the DOJ action as a major victory over one of its deadliest rivals and wasted no time in announcing plans to drop prices back to pre-iPad levels. “This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” said Amazon spokesman Andrew Herdener in a statement.

So what could be wrong with dismantling an arrangement which has been estimated to have cost U.S. consumers up to $100 million in higher e-book prices? Well, quite a bit according to the publishers and many others in the publishing industry. They claim that one of consequences of Amazon selling e-books at heavily discounted prices is the rapid disappearance of the traditional main street bookstore. Here’s Scott Turow, President of the Authors Guild in a letter to his members:

“Our concern about bookstores isn’t rooted in sentiment: Bookstores are critical to modern bookselling,” wrote Turow. “Marketing studies consistently show that readers are far more adventurous in their choice of books when in a bookstore than when shopping online. In bookstores, readers are open to trying new genres and new authors: It’s by far the best way for new works to be discovered. Publishing shouldn’t have to choose between bricks and clicks.”

But isn’t this the same claim that music publishers made when online distributors – chief among them, Apple – first appeared on the scene, offering alternative formats at more affordable prices? While many aficionados may lament the disappearance of the local bricks and mortar music store, it can hardly be said to have negatively impacted consumer choice or pricing.

In fact, there are numerous parallels to be drawn between the current state of the book publishing industry and the music business circa 2004. Those that enjoyed the inefficiencies – and the profits – of the traditional music publishing model fought a determined battle to retain the status quo, but they were ultimately overrun by an unstoppable combination of technological innovation and public demand.

In seems unlikely that the outcome will be any different for the book publishing industry. Nobody is arguing that the content creators – in this case, the authors – should be fairly rewarded for their endeavors. What is harder to understand is why there are so many other layers of add-on cost before that content can be delivered unbound and unprinted to an e-reader, a computer screen, or a smartphone.

Although Amazon may be the early winner of the DOJ action, it is unlikely to become the monopolistic force in publishing and distribution that many in the industry fear. While enjoying an early lead in the e-reader stakes, the Kindle now faces stiff competition from the iPad, Barnes & Noble’s Nook, and any number of other tablets and electronic devices. And the more Amazon tries to hang on to its proprietary e-book format, the more consumers will continue to look elsewhere. The publishers may be blaming Amazon now, but the real enemy is their own antiquated infrastructure.

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