Kobo dominance in Canada: good luck or good business?

Kobo Dominance in CanadaI’ve long chalked up Kobo’s success in Canada at least partly to good business: they’re aces at local content, have a huge presence in Canadian retail thanks to their origins as a subsidiary of our major bookstore chain, Indigo, and recently they were acquired by the deep pockets at Rakuten, a leader in the Asian market.

Two recent articles, however, suggest that Kobo’s successes to date have been more a result of good timing than anything else. Nate at The Digital Reader wrote a great summary of Kobo’s recent wranglings with the Canadian Competition Bureau. A day later, Michael at GoodeReader (in a somewhat erroneously titled ‘exclusive’) reported on much the same thing, albeit with a more inflammatory point of view.

Here is the short version:

When Kobo launched, Amazon was in the midst of agency pricing. This allowed Kobo to get a foothold in the market, because they could undercut them (being in Canada and so not bound by agency agreements) and gain market share. Now that agency pricing is done, they don’t have this advantage anymore and their market share is slipping. So they are asking the competition bureau to restore agency pricing, at least in a modified fashion, so they can be competitive again.

The even shorter version, as Nate neatly summarizes:

“In short, Kobo is saying that when Amazon was allowed to discount ebooks in the US, Kobo was unable to compete effectively, not even by means other than price (marketing, CS, features, community).”

It seems unlikely that the Competition Bureau will conspire to help Kobo raise book prices for Canadians. So, what are we left with?

Buy Kindle next time. Soon, it will be the only option.

1 Comment on Kobo dominance in Canada: good luck or good business?

  1. Know any smart, aggressive lawyers in the U.S. and/or Canada? I shouldn’t be hard to smash at least one of Amazon’s price-fixing, you-can’t-sell cheaper-than-with–us schemes in court.

    Here’s the issue. Imagine an ebook that, because of its limited market, must earn $20 per copy to recoup the cost of creating it. I usually have as an example a nurse or parent’s guidebook to caring for children with a rare disability. Such a book is infinitely more valuable than the silly NYT bestsellers that were part of the DOJ’s case against Apple.

    Sold on Apple, that book could earn that money back priced at $20/0.7 = $28.57. The fact that authors can recoup $20 for an ebook that sells for under $30 is one of the marvelous advantages of digital publishing. They can even include numerous video illustrations. Apple won’t charge them for that larger file size.

    Sold on Amazon, there’s no way these nurse-authors could earn $20 priced at a maximum of $9.99, so they must price it higher, even though that only earns them 35% royalties. To earn that same $20, they must price it: $20/0.35 = $57.14. That’s precisely twice as much.

    Amazon’s no-higher-price than at Amazon then places these dedicated nurses in a terrible dilemma.

    * Price it at around $28.57, and the authors go heavily into the red. Remember, these are ordinary nurses not billionaire Jeff Bezos.

    * Price it at about $57.14 and they may do a bit better than breaking even. But they’ve also priced it far above what many parents and nurses can afford and what the market requires. Note too that Amazon is pocketing $37.14 of the price, far more than the author/publisher. That’s why Jeff Bezos is a billionaire. Can you spell “g.r.e.e.d.y.”

    A good lawyer could make an excellent case that forcing on these nurses and parents either option is a manifest injustice. By paying half the royalty rate as Apple and many other ebook vendors, Amazon can no longer demand that an author price an ebook the same with Amazon as with Apple. If it could, Amazon is either forcing that author to earn half as much or to price it twice as high as they would like and many can afford.

    And yes, Amazon’s lawyers could argue that by signing a contract, an author gave up the right to make that sort of argument. Sleazy lawyers love to stick to every jot and tiddle of a contract, however coercively signed. I’ve spent months forcing pig-headed lawyers to remove all those jots and tiddles. You can’t out-stubborn me.

    But Amazon (and Amazon alone) faces a serious problem making that stick. That’s its own market success. Its 70+% market dominance and the fact that it has sold millions of fairly expensive ebook readers that were deliberately designed to make it hard for readers to display ebooks from any other vendor, reduces its freedom of action. Amazon, a court could argue, should not be able to use that huge market share to not only pay authors less but to force the general public to pay more.

    And that raises two questions:

    1. Where has the DOJ been while all this has been going on? As we are starting to discover, probably busily hiding the administration’s other crimes (i.e. IRS).

    2. Why hasn’t Apple and/or Kobo either challenged this directly in court or perhaps helped set up a class-action lawsuit for both the general public and authors?

    It’d be sweet, sweet revenge for Apple. Amazon might find itself paying back that 35% of the royalties it has withheld from authors/publishers and paying many, many millions of its ebook customers a rebate for the resulting overpricing. Amazon has, after all, clearly been guilty of using its inordinate market share to fix book prices and author royalties. And it has done so in a way that places the cost of its price fixing on authors.

    I really can’t understand why this hasn’t already happened.

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