Amazon v. Apple
Two years ago, Hachette, one of the world’s largest publishers, whose books include Stephenie Meyer’s Twilight series, insisted that Amazon sell its ebooks under an ‘agency’ agreement. This meant that Hachette, rather than Amazon, would be allowed to determine the price of its books. Amazon didn’t like the idea and, for several days, took Hachette books off its site.
The stakes on both sides were high. Hachette wanted to prevent Amazon from selling ebooks at what it regarded as unacceptably high discounts, undermining sales of print books and shaping customer expectations of low prices in a way that would be impossible to reverse.
Amazon, on the other hand, wanted to keep prices low, even if it meant making no money, or taking a loss, on its ebook business, in order to make it difficult for competitors to get a foothold in a market dominated by its Kindle reader. It was no coincidence that the fracas with Hachette occurred just as Apple was preparing to launch its new iPad, which, among many other diversions, can be used to read ebooks.
Other publishers followed Hachette’s lead. Five of the big six, the exception being Random House (who joined the others later), imposed agency agreements on Amazon of a sort they had already agreed with Apple. The prices of many of their ebooks, especially bestsellers, rose from the standard $9.99 being charged by Amazon to between $15 and $20.
The response from Amazon customers was fast and furious. The big five were cast as price-fixers, monopolists using their clout in the market to protect their bulging bottom lines and fat cat executive salaries at the expense of the benighted consumer. The novelist Barry Eisler, in a recent blog conversation about the purported price fixing, adopts the heavy sarcasm of the little guy standing up to the man:
Oh, come on. Amazon’s lower prices were intended to “destroy bookselling?” Not to sell more books and gain market share? It’s ipso facto evil to compete via lower prices? I really wish all companies would collude to charge higher prices. The world would be a better place.
Reflecting such frustration, a number of civil suits were filed last autumn, claiming that the big publishers had worked together to keep prices high. The Department of Justice has advised Apple and the publishers that it is probing possible collusion in setting up the agency agreement last spring. If evidence emerges of different companies conferring about what the terms of such an agreement would be, they could face fines of up to 10 per cent of global sales.
In all of this, Amazon is sitting pretty. The 800-pound gorilla in the front room of the book business prides itself on being the consumer’s champion ‘Amazon gives the customers what they want,’ its CEO, Jeff Bezos, recently wrote to shareholders: ‘low prices, vast selection and extreme convenience.’ Though the agency agreement has provided some space for others to get a foothold, it’s unlikely that Amazon’s main competitors, Apple, Google and Barnes and Noble, will be able to wrest away more than a narrow slice of the ebook market, at least in the foreseeable future.
Considering that it holds an estimated 70 per cent share of ebook sales, a market that grew in the US by 117 per cent last year to $970 million, and is projected to treble from that by 2013, there would appear to be good grounds for any antitrust legislation in the pipeline being directed at Amazon. ‘The irony bites hard,’ Scott Turow, the president of the Author’s Guild, recently wrote: ‘our government may be on the verge of killing real competition in order to save the appearance of competition.’
But the big five and Apple are not in a good position to cry foul. First, the publishers, at least, are terrified of speaking out at the risk of upsetting relations with their largest customer. Second, they and Apple have been quite happy to exploit their own monopolistic position when it’s suited them in the past. And third, it may be that they did indeed collude and, under the letter of the law, are guilty.
Whatever the outcome of the DoJ investigation, it seems unlikely that the agency agreement in ebooks has much of a future. If and when it collapses we’ll see whether the brief period of publisher determined prices has allowed Amazon’s competitors to gain the momentum to prosper in the ebook market. We’ll probably also see Amazon resume its relentless discounting to retain and expand its market share, demanding higher discounts from publishers so they pay for the privilege of having their books sold at prices that undermine their print sales. And Bezos will no doubt be lauded in the Amazon chat rooms and beyond as the champion of the little guy, the man who stuck it to the voracious cartel of New York publishing. What these customers won’t see is the hollowing out of mid-list books that price-cutting is inflicting on the business that produces what they read.
With margins shrinking, the big publishers will concentrate ever more on what they hope are big, sure-fire bestsellers. Advances and promotion money for second-tier books will continue to shrink. Some of these writers will get picked up by the plethora of tiny, independent firms. Others will elect to self-publish. But neither of these routes is likely to produce books as well-resourced or well-promoted as in the old days of a healthy mid-list in established houses. (OR Books, the company I started a couple of years ago with John Oakes, attempts to circumvent this problem by selling direct to readers and printing only on demand, redirecting the savings this creates into extensive promotion.)
It seems probable that reader distribution, like the size of publishing houses, will continue to bifurcate between the very large and the very small, with ever less in between. Readers might be revelling in the lower prices they find on Amazon, but if the books they’re buying are ever less worth reading, it doesn’t seem much of a bargain.