Publishing still has problems DoJ suit will not fix

Here are a couple more interesting points of view on the DoJ’s anti-trust lawsuit against some publishers and Apple.

On ReadWriteWeb, Joe Brockmeier points out that for all the noise around the suit, it really isn’t going to change the major problems with the e-book industry right now. He points out three such problems: the rampant proliferation of DRM and platform lock-in, the perpetual copyright implemented by Congress and backed by the Supreme Court, and Amazon’s problematic relationships with publishers (including those who aren’t the Big Six).

If you’re taking sides in the DoJ vs. Apple suit, you might want to think again. The DoJ isn’t doing consumers a big favor here. Amazon isn’t championing your interests by offering cut-rate pricing on Kindle e-books, and the publishers aren’t (necessarily) acting against the long-term interests of the consumer by trying to establish a right to price books how they see fit.

Of course, as Charlie Stross suggested, the effects of the decision could spell the eventual end of DRM as publishers decide to drop it themselves, but that’s not a direct effect of the suit.

Meanwhile, blogger David Pakman takes a look at the question of why e-books have to be $15—because the publishers say they can’t price them at $10 and make a profit. He starts by talking about economics, and how items with zero marginal cost should, in a rational market, be priced lower than objects that have those costs to cover.

If publishers can’t afford to sell e-books for $10, Pakman argues, they should reduce their overhead (by paying execs less and moving to cheaper physical facilities). After selling millions of books and e-books, he adds, Amazon has to have a pretty good idea of what kind of price is going to move the most copies, and that price is closer to $10 than $15.

If the profit-maximizing price for an eBook is $10, then publishers must adapt to set a wholesale price lower than that, even if it means your legacy cost structure doesn’t allow it. And that’s the rub. [By the way, as publishers continue to resist this market force, new "publisher" models are appearing and will replace the traditional functions of publishers with more digital-friendly models.]

He also pokes at the issue of DRM and interoperability, noting (as many have, including Stross) that insisting on DRM was the publishing industry’s biggest mistake prior to agency pricing: not only was it inconvenient for consumers, but it also let e-book sellers build their own empires, keeping consumers locked into their own platforms.

In the end, he suggests, the real winners will be the readers who want to buy e-books at lower prices. And if Amazon does manage to kill off publishers with its insistence on lower prices, it won’t mean the end of books—it will just mean the end of those particular legacy publishers, and leaner digital publishers will arise to replace them. (Found via Techdirt.)

I have to admit, like Pakman I’m not particularly sympathetic to publishers’ moaning and groaning that Amazon Will Kill Us All. If they’re really in that much trouble, they ought to be looking at their budgets and seeing what fat they can cut.

To use an example from my own life, over the last few months I had given up trying to take my lunch to work after people kept stealing my Mountain Dew from it, and gotten in the habit of going out to eat lunch, then buying supper out on the way home, often spending upwards of $10 to $15 a day. But when I came up short in the last couple of weeks of March, I didn’t look for a bail-out from someone (though I undoubtedly could have gotten fifty bucks or so from my parents if I’d asked)—I changed my spending habits, buying a loaf of bread, some lunch meat, peanut butter and jelly, and other cheap staples and spending hardly anything on food until my next paycheck came in. And I’ve made some other changes to support decreasing my fast food spending into the future, obtaining a lunchbox that no one will be able to burgle so my Mountain Dew will be safe again. (Isn’t it awesome?)

Heck, even big businesses have been cutting back lately. Best Buy closed fifty big-box stores, Yahoo is laying off 2,000 employees, T-Mobile is laying off 1,900. Why don’t we ever hear anything about publishers cutting back if they’re so severely under threat?

And those new digital publishers (including self-publishers) are coming. It kind of puts me in mind of an EDS Super Bowl commercial from a few years back—the large, slow competitors aren’t the ones you really need to worry about; it’s the small and nimble ones who are the most dangerous.

Anyway, it seems like something big changes every day in the world of publishing lately. Perhaps the changes are accelerating with this DoJ suit, or perhaps it only seems that way. Either way, it’s past time publishers stopped fighting the change and started adapting to it. Time will tell whether or not they actually can.

6 Comments on Publishing still has problems DoJ suit will not fix

  1. The problem with Pakman’s argument is this: It fails to recognize that very few of the ebooks that are priced higher than $9.99 have their price reduced by Amazon to $9.99. The $9.99 price point was only for certain bestsellers and not a ceiling price for all ebooks. Consequently, Amazon HAS NOT established that $9.99 is the correct price point for both increased sales and profitability. In fact, Amazon has been very coy about profitability of its ebook division.

    The bestseller $9.99 price point might increase hardware sales, which some analysts have speculated is the reason for the price point, but not necessarily profitability.

    Pakman also claims that readers who want cheaper prices will be the final winners. That has yet to be demonstrated over the long-term. Yes, for a few select titles over the short-term consumers will pay less, but if Amazon’s own statements are to be believed, such steep discounting is done only for a handful of ebooks. No one knows what Amazon’s pricing scenario will be for its long-term exclusives. What will be the pricing for the James Bond books or the Ed McBain books for which it has struck decade long exclusivity? The James Bond books are 50 years old; will Amazon sell them for $2.99? It doesn’t need to input anything but minimal production costs for the ebooks — all the major editorial work was done decades ago. There is no warehousing or returns and overhead should be very slight. Will we see a $2.99 price or will it be higher? And if it is higher, how will Amazon fans justify/excuse the higher pricing?

  2. I’m not sure the argument that it’ll be healthy to get rid of the “legacy publishers” with their Fifth Avenue office and large executive salaries, replacing them with “leaner digital publishers” who’ll invariably be smaller and weaker. Amazon’s long demonstrated a willingness to bully the smaller independent and POD publishers. It’s far more difficult the bully a publisher so large that Amazon will be hurt if it yanks their titles. Sometimes it’s good, as a little guy, to have big guys around with the same interests. When they protect themselves, they protect you.

    I find this DoJ action highly suspicious. By any reckoning Amazon, with 90% of the market at the time these Apple with Big Six discussions took place, posed a vastly greater threat to a healthy, competitive market than Apple, which at that time had 0% of the market. And yet the DoJ doesn’t merely go after Apple but not Amazon, it goes after Apple in precisely the way that makes Amazon the prime beneficiary of their action. Like I said, suspicious.

    What was it that the Washington Post reporters were told during Watergate: “Follow the money.” I suspect there’s an interesting money trail lurking somewhere behind this dispute. That or those DoJ lawyers are incredibly stupid.

  3. Well said. DoJ seems to be basing their case on “collusion” more than protecting consumers from higher prices, and it probably puts them on firmer legal ground. The arguments against publishers sound like the old arguments against record companies but they aren’t analagous. There really were five record companies that controlled everything. There are tens of thouasands of publishers. Most are small, devoted to niches and to quality publishing. The notion that they are all fat cats moaning about $9.99 pricing is ridiculous. Apple, who demonstrably cares more about quality than Amazon, was a remarkably sympatico partner for these kinds of publishers. Amazon, despite the many benefits it brings consumers, is a scorched earth retailer, creating the big parking lots and strip malls of the cloud, destroying small downtowns, and moving jobs to China as surely as Wal-Mart. Why should they, rather than Cormac McCarthy, or Edmund Wilson, or Margaret Atwood, decide what price their e-books should be? And how will those authors works be treated, when Amazon is the biggest publisher?

  4. The author seems not to have bought any ebooks. Amazon, for example, actually encourages authors/publishers to set a price below $10. they give a 70% royalty rate for books priced at $9.99 and lower. Amazon let’s authors/publisher price their books at whatever price they want, but encouraging them to price below $10, which kind of defeats the premise of the person who wrote this article.

    There is also an option when you publish your ebook on Amazon to eliminate DRM on your books. It’s up the the author to decide to make their books available with or without DRM.

    There are success stories of people pricing their book at 99 cents and selling 50,000, 100,000 even more copies.

  5. Responding to “Why don’t we ever hear anything about publishers cutting back if they’re so severely under threat?”:

    Apparently, the past 3 years of news from the publishing world hasn’t hit this column. The publishers HAVE cut back. As a 20-year employee who lost her job at one of the “Big Six” because of these cuts, and watched several magazines fold, get sold, or get moved (dumping all their employees in the process), I can attest first-hand that they’re cutting jobs, salaries, benefits, quality/size of paper stock, outsourcing even more IT functions/digital photography processing & management. They do, however, have to spend a lot of money to “stop fighting the change and start adapting to it.” There’s an entirely new business model to develop by exploring production of new products to develop within niche markets.

    As I’m now working with a VERY lean company who doesn’t have much more than 2 paper clips to rub together, I’m glad that the Big Six are paving the way to help set the standards, so the smaller guys don’t have to use their minimal dollars for all those development costs.

  6. The “blame the publisher” mentality is forcing some real gaps in basic logic.

    I have never seen a publisher complain that -they- can’t afford to sell ebooks at $9.99, because that is exactly what they were asking to do with agency. Under the wholesale model the publishers are selling ebooks for whatever price they feel like and Amazon subsidizes it down to $9.99. Under agency, the publishers actually got less than $9.99 even though price went up.

    We all know that. To claim anyone is saying otherwise is a straw man argument. So what was the point of the agency model?

    The point of the agency model was that with Amazon selling at cost, and not sublicensing their ebook format, the ereader market wasn’t attractive to new -distributors- who would actually manufacture ereaders. And the publishers knew the ereader industry needed more competition because, quite frankly, the first and second generation Kindles were overpriced and sucky.

    And even today, Amazon is still consistently waiting for nook to “go first” when new hardware technologies become available. First with wifi, then with color, now the glowlight.

    Part of competing is giving us good hardware as soon as its available, Amazon!

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