You may not have felt them, but there were several tremors in the publishing world this past month.
Apple and Publishers sued for price-fixing
At the start of the month, the U.S. Justice Department sued Apple and six major publishers for conspiring to limit e-book price competition. Legal documents are usually pretty dry, but there are some juicy drama nuggets in the feds’ complaint, found here on the Wall Street Journal’s website. Assuming you don’t want to read through thirty-one pages of “defendants did this” and “defendants said that,” I’ll summarize the facts and the timeline of events.
Customarily, books are sold by a wholesale model. A publisher sells the book to a retailer who then can charge whatever the retailer thinks the reading public will be willing to purchase. When Amazon came out with its Kindle in 2007, it started to sell new and best selling e-books at wholesale cost, about $9.99. In order to try to be competitive, other retailers attempted to do the same. This was a boon for reading consumers, but a bane for publishers who began to feel economic pressure to lower their wholesale rates, especially for e-books. By September 2008, the big publishers listed in the complaint were trying to find a solution to the “$9.99 problem.”
Then along came Apple in February 2009, about a year before releasing its iPad. Apple wanted to expand its media offerings through e-books. The computer company didn’t think it could compete with Amazon and maintain a 30 percent profit margin on e-books. Executives for Apple and the publishers started informal, bilateral discussions. Each publisher was fearful that it would be the only one to go along with Apple. No one wanted to be the first to walk on thin ice. At the start of 2010, Amazon announced to prominent authors that they could e-publish directly with the company and be paid royalties up to 70 percent.
That was the catalyst for publishers to work closely with Apple. The wholesale model was ditched, and a new agency model was created. Apple would work for the publishers as their “agent,” collecting the retail price as set by the agreements between the publishers and Apple. Apple further stipulated that all other e-retailers of the publishers also would be made agents, setting the same price for bestsellers and newly published books. With the new agency model in place, the publishers—which collectively supplied Amazon with half of its e-books—forced Amazon to accept the agency arrangement. And that’s when the Justice Department began investigating.
Some commentators have said, “So what if some publishers and Apple attempted to fix prices? So what if they attempted to contain Amazon’s monopsony?” (A monopsony, in economic parlance, is when there is only one buyer in a market.) The publishing landscape is transforming rapidly. By the time that a legal verdict is rendered, the effect could be minimal. Legal pundits, however, contend the Justice Department had no choice. Under the Sherman Anti-Trust Law, price-fixing is a first degree no-no. Federal law protects competition but not competitors.
Time—and a legion of lawyers for both the government and the defending corporations—will tell how things play out.
Publisher to end DRM
The Tor publishing label, which specializes in science fiction and is a subsidiary of Macmillan, will release its e-books without digital rights management starting in July of this year. DRM has been used in the music and other media companies as a means to prevent piracy. However, it makes it difficult for consumers to transfer their legitimately purchased e-books to another platform. Science fiction author Charlie Stross has been a vocal proponent for DRM-free e-books. He contends that consumers will be able to keep their e-copies in perpetuity and that it can level the playing field between e-retailers.
Will other publishers follow suit and dump DRM? Will DRM-free e-books increase demand?
Microsoft and Barnes & Noble
The last rumble in April was an announcement from Microsoft that it would invest $300 million in Barnes & Noble’s Nook and college book business. Microsoft will have 18 percent ownership in the spin-off company, tentatively called Newco. Techies panned the news, saying it was a marriage between the desperate (Barnes & Noble) and the hopeless (Microsoft). Others have said it will be a game-changer to the publishing industry. Amazon could face new competition. Expect the Nook to drop its Android operating system (supplied by Google) and switch to a Windows-compatible platform.
A turbulent month, indeed. What will be the opportunities—or the risks—for authors?
by Reed
Comments