Seldom has news of litigation against publishers demonstrated such differences in opinions. But as the Department of Justice signals that it may file suit in a case alleging that the largest U.S. publishers and Apple combined to set high prices for books, the shrill cries from publishers suggesting that “the end of retail competition for books is nigh” remain largely deaf to the myriad benefits for customers. If agency pricing is struck down, readers may once again see reasonable book prices from online retailers that years ago acknowledged that digital music and videos have a very different value than their traditional analogues.
The Justice Department alleges that agency pricing was established to rectify the negative impact of Amazon’s discounting of e-books below the wholesale level. Imposing a uniform price across all retailers benefited Apple by letting it avoid a price war with Amazon. For publishers, artificially inflated digital book income permitted them to maintain a legacy print business for a longer period of time. Bowing to print’s inefficiencies, big media publishing firms are constructed around an outdated model of book production that incorporates expensive printing, warehousing, distribution, and returns; migration to a digital production environment is chained to the liabilities of their past.
In a renewed competitive ebook market, large publishers fear that Amazon will again reduce prices, driving average price points below the magical $10.00 threshold. In their logic, other online book retailers such as Barnes & Noble’s nook and Rokuten’s Kobo are presumed to be ill-equipped to compete with this level of price pressure. Consumers will therefore flock to Amazon, cementing its monopoly hold on the ebook market, thus ultimately leading to unprofitable publishers and customers locked into a single delivery platform.
I think there are a number of problems with this argument. First, existing digital book consumers are restrained from casually switching ebook platforms by dint of vendor-specific DRM that prevents ebook portability; further, breaking a vendor’s DRM to sideload books into another platform is at present technically illegal due to the Digital Millenium Copyright Act. Anticipating a sudden rush of consumers to Amazon would mean people would be willing to ditch existing investments in their book libraries and their dedicated reading devices; this is not a compelling scenario. Additionally, nook and Kobo will inevitably respond to lowered prices by attempting to erase the discrepancy to the best of their ability.
Second, publishers always had more creative ways of reacting to market challenges than price controls. Publishers are not without strategic recourse: for example, if they permitted B&N and Kobo and other retailers to sell DRM-free EPUB books, it would make non-Amazon retailers more attractive, fostering the kind of competitive retailer market whose absence they lament. Alternatively, publishers could make serious investments in selling books and reading experiences through social tools and community building — an approach they’ve pursued only in the most rudimentary forms and with extensive delay, e.g., Bookish. This strategy might shift some book commerce away from discount retailers into higher margin venues.
Publishers argue that one of the benefits of agency pricing was that ebook retailers had to compete on the value of their services, which was (oddly) presumed by publishers to be of higher value to consumers than pricing. Not only is the logic questionable, it is also an extremely book-centric perspective on Apple, Amazon, and to a lesser extent, Google – very large technology companies whose business are not defined by selling books but in building traffic and generating commerce. People who are Kindle customers are likely to be Amazon customers prior to ever picking up a Kindle because they appreciate Amazon’s superb customer service, the Prime subscription offering, and their ability to get a wide variety of goods cheaply and quickly.
It is possible that agency pricing may have forced Amazon to give up some market share to Barnes & Noble, but at most, agency pricing could only be a temporary monkey wrench in the digital transformation that has reshaped the publishing business. Large technology companies can bring efficiencies to bear that are a result of powerful cloud platform services, troves of customer data, and the ability to wring benefits from a wide range of digital commerce. Google introduced its new Google Play media marketplace with extremely steep discounts on books. And, who can doubt that Apple could aggressively adjust its pricing if it wishes to remain competitive; the company that has “enough cash to buy a good part of Western Europe” can manage to subsidize a few more copies of the latest Twilight novel.
It’s also worth noting that publishers’ move to agency pricing helped create the retailer market concentration that publishers now decry as inevitable. Small independent online booksellers were devastated by the move to agency. Books On Board took months to recover, adversely impacting its relations with suppliers. Diesel Books took six months to get agency publisher books back into inventory; All Romance eBooks has reported that it took over a year – and in all that time, their customers were not being well served. All of these retailers, as well as Fictionwise, found their loyalty programs, their “buy one, get one free” (BOGO) promotions, and the ability to do spot sales, immediately crushed. (Fictionwise was absorbed by Barnes & Noble.) These ebook vendors were a serious counterweight in passionate reader communities against Amazon, and agency hurt them badly.
In the long run, there are far bigger transitions ahead of us. I just flew back from a meeting at USC’s Institute for Multimedia Literacy for the Alliance for Networking Visual Culture. The gathering showcased a mixed media authoring environment called Scalar which gives faculty and students a web based tool to help redefine scholarship, and with it, the academic book. Like Inkling’s Habitat and Vook’s new authoring platform, Scalar is one of a growing number of tools that will have a greater impact for readers than the possible rise of a temporary monopoly in book retailing. When books are more like web productions than downloadable bundles of text, we’ll inevitably have a very different reading experience.
Let’s not stop the train of competition now; let it roll on. It’s too early to constrain our future.