March 22 (Bloomberg) -- Are Apple Inc. and the big trade publishers colluding to manipulate the market in electronic books?
The U.S. Justice Department seems to think so, and is said to be near filing an antitrust lawsuit. Let’s hope it doesn’t: Putting an end to the deal Apple and the publishers have reached on selling e-books would be grim news for authors and readers alike.
The Justice Department has been investigating whether the publishers colluded in adopting, for the sale of e-books, the same “agency model” pioneered by Apple in selling iTunes. Under that setup, Apple acts as the publishers’ sales agent, taking a cut (usually 30 percent) and leaving it to publishers to set the prices of the e-books they publish.
I have no way of knowing whether the publishers colluded. My friends in publishing insist that price was never part of the discussions, but the Justice Department prosecutors seem to think they have a compelling case. All I can say as an author -- and as president of the Authors Guild, the nation’s largest membership organization of professional book writers -- is that if the government wants to intervene in the literary marketplace, I hope it will consider the complex ecology of bookselling in the U.S.
Because if we reinstate the status quo before Apple’s agency-model breakthrough, then bookstores and publishers are going to be the first casualties. Right behind them will be readers, who will see the diversity of titles and authors diminish while leading titles get more expensive.
Bookselling Darth Vader
Looming over this whole discussion is, of course, Amazon.com Inc., which I consider the Darth Vader of the literary world. I admire its success in creating a new, wildly successful business model, but it has a deserved reputation as a frequently unscrupulous competitor. Last December, for example, Amazon infuriated retailers for products such as electronics and DVDs when it encouraged its customers to enter brick-and-mortar stores to gather pricing info on items that Amazon then promised to sell them at a discount.
When it comes to books, Amazon has often used its huge market power to further increase its influence. Some analysts project that Amazon will own more than half the U.S. book business across all formats by the end of this year. Not only does Amazon have 75 percent of the market in online sales, but it is spreading its tentacles to other areas. It now owns Audible.com, the largest seller of downloadable audio books, and BookSurge, an on-demand printer of self-published and other books offered only by publishers as individual copies. Last May, Amazon announced it was launching Amazon Publishing, headed by the redoubtable industry veteran Larry Kirshbaum, to compete hand-to-hand with the publishers.
Competitors fear that Amazon will use its very deep pockets to buy up the most profitable authors, whose success generally supports trade-book publishers’ other titles. Amazon already offers Kindle Singles, shorter works by established authors available solely on Kindle, leading many to suspect that the day isn’t far off when readers wanting, say, the latest by James Patterson will be able to buy it only from Amazon.
Even without Amazon, trade publishing would be a troubled business. The competition from free content on the Internet -- and the growth of video games and cable TV -- has caused a steady drop in sales since 2001, with reading as a pastime declining. While there has been some recovery since 2008, fueled by the growth of e-books and young adult titles, publishing remains an industry dominated by pessimism and uneven revenues.
Bricks, Mortar, Failure
Chief among the reasons is the death spiral of the traditional brick-and-mortar bookstore. The discounting of bestsellers by the large chains destroyed the financial underpinnings of independent stores, and the rise of online bookselling, led by Amazon, cut the legs off the chains, with Borders Group Inc. closing all of its doors last year and Barnes & Noble Inc. struggling to survive.
Amazon initially achieved e-book market dominance by doing two things: publishing new digital titles at the same time they were released in print, and selling them at a loss -- at $9.99, they were often several dollars less than what publishers charged Amazon, which inhibited bookstores and other online retailers from selling e-books.
Without real competition, Amazon has historically made suppliers knuckle under. Last month, it pulled from its site all e-books offered by the Independent Publishers Group, a collection of small publishers, because IPG balked at Amazon’s terms when its contract came up for renewal. In the print-on-demand market, where Amazon’s platform has become the principal sales venue, Amazon has demanded that smaller publishers use BookSurge at higher prices than competitors charge, or else have their “buy” buttons disappear from Amazon.com.
Given all of this, publishers and authors saw a situation approaching where Amazon was the dominant publisher and seller of books, increasing profits by offering fewer titles at higher prices. Enter an unlikely white knight: Steve Jobs.
The iPad -- unveiled in January 2010, shortly after Barnes & Noble’s Nook became available -- made Apple’s proven iTunes-and-apps agency model for digital content relevant to book sales. Five of the largest publishers jumped on with Apple’s model, even though those publishers knew they would make less money on every e-book they sold through Apple than what Amazon was paying them. (Which shows that the alleged price-fixing conspiracy is one of the oddest in history, since it was, by the government’s logic, collusion to lose money.)
Amazon responded with a typical show of power. When John Sargent, the chief executive officer of Macmillan Publishing, went to Seattle in that month to tell Amazon executives about his company’s adoption of the agency model, Amazon pulled the buy buttons for every Macmillan title on its site -- not just e-books -- for a week. Yet now, it seems, the government is taking Amazon’s side.
Diverse Literary Culture
As someone lucky enough to be a best-selling author, I have personally profited from many of the tactics I am decrying. The heavy discounting of best-sellers meant I sold more books and thus made more money because royalties on physical books are paid as a percentage of the cover price. Even Amazon’s e-book pricing practices were better for me than the agency model.
But I am also a reader who believes that our literary culture and our democracy are at their best with the greatest diversity of voices. This comes from allowing the largest number of authors possible to maintain careers as professional writers.
Physical bookstores offer not simply an intoxicating experience for serious readers. They have an irreplaceable role in introducing new writers. Market research consistently shows 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. A robust book marketplace demands both bookstore showrooms to properly display new titles and online distribution for the convenience of customers. (Apple thrives on this very model: a strong retail presence to display its high-touch products coupled with vigorous online distribution.)
It may seem strange to hear the president of the Authors Guild expressing sympathy for the plight of American publishers. We have been at each other’s throats since the guild came into being a century ago, and we still have serious differences.
But publishers, big and small, have played a vital role in broadening American literary culture. They add value for authors with editing and marketing, and most importantly by advancing the money so that writers can write. If publishing ultimately goes under, to be replaced by a model in which authors sell their books directly to the reading public online, it will become a winner-take-all fiasco in which the best-known authors make enough to live between books and new authors have a far harder time breaking in. Not all writers are blessed at self-promotion; ironically, success in an introvert’s calling would depend even more on extroverted behavior.
Competition Is Rising
That is why the government’s apparent decision to sue the publishers and Apple seems so shortsighted. Two years after the agency model came to book selling, Amazon is losing its chokehold on the e-book market: Its share has fallen from perhaps 90 percent to roughly 60 percent. It has real competitors in iPad’s bookstore, Barnes & Noble’s Nook, and the partnership between brick-and-mortar bookstores and Google Inc.’s Google Books. Even direct-selling authors have benefited, as Amazon doubled its royalty rates rather than lose titles.
All of this looks like a more robust and competitive market, as opposed to the world we will be left with if the Justice Department paves the way for Amazon to return to its predatory practices.
(Scott Turow, a lawyer and president of the Authors Guild, is the author, most recently, of the novel “Innocent.” The opinions expressed are his own.)
To contact the writer of this article: Scott Turow at Scott@scottturow.com.
To contact the editor responsible for this article: Tobin Harshaw at firstname.lastname@example.org.