Apple, Amazon, the Big 6 and the Future of Publishing.

In May, Apple and three of the Big Six lost the first round in what looks likely to be a long and costly fight (two of the other three had reluctantly settled and one, Random House isn’t involved). What’s at stake is, not to put too fine a point on it, the future of publishing. So here, very briefly, is the story so far.

When Amazon began selling ebooks through their Kindle in 2007, the price they charged for them was a lot less than for actual physical books. For one thing they didn’t cost as much to produce. But much more importantly, ebooks were a completely new idea, and people had to be encouraged into trying them out. So frequently, Amazon would sell their ebooks at a loss, for even less than they had purchased them from the publisher in the first place.

Culturally then, this discount selling was both welcome and necessary. Economically however, it meant that Amazon quickly established a stranglehold on a rapidly expanding market. Not only that, but the rise of ebooks threatened to render the traditional bookstore and indeed the conventional publishing world redundant.

Nobody wanted to let what had happened in music take place in publishing. So when Apple entered the ebook market with the iPad two years later (followed by Barnes & Nobles and their Nook), a new pricing system was put in place; the agency model.

Instead of publishers selling at a discount to retailers, who would then take their cut from the price they sold it on to the public for, publishers would set the price that the public would pay for a book, and the retailer (whether Amazon, Apple or whoever) would get a flat 30%. This is what Apple did in music.

But Apple would only agree to enter the market in the first place if a minimum of four of the big six (see image below) agreed to implement their new agency model. In the end, five of them did, and the sixth Random House joined in a year later.

So Amazon had no choice but to play along. But they were as the Americans say pissed. They made more money from the books that they sold now, but their share of the still growing ebook market had gone down from 90 to 60%. And culturally, they were being forced to sell books for more than they might have liked. Or to put in another way, they were being prevented from so dramatically undercutting their rivals.

So they went to the courts, and in May the US Department of Justice found in their favour. After all, as Ken Auletta says in his much more in-depth piece in the New Yorker here, the letter of the anti-trust legislation is crystal clear. Didn’t Apple say that they would only go ahead if they got agreement from at least four of the big six? And hadn’t the cost of books to the public gone up once their agency model had been put in place?

But wait a minute. The cost had gone up, but the publishers were now receiving less. So how can it be a cartel, if the people organizing it end up making less money? What’s more, Amazon was now getting more. And wasn’t the whole spirit of the anti-trust legislation designed to curb the likes of Amazon, and prevent them from putting the much smaller publishing companies out of business?

Of course Amazon could afford to sell its books at a loss. Books make up just a tiny fraction of what Amazon sells. But books is all the big six do.

All of this has been brilliantly charted by publishing (and now digital publishing) guru Mike Shatzkin, whose blog (here) is a must for anyone interested in the world of publishing. But what it all seems to boil down to is this:

The publishing world allows for a wide variety of books to be published by using the money it makes from the few books that sell hugely, to fund a plethora of books that might, but almost certainly won’t do anything like as well.

And the physical bookstore is the best and only place for some of those smaller titles to get noticed. And who knows, maybe even take off.

By siding with Amazon against them, the DoJ is seriously putting that whole eco system in grave danger. And there is a very real possibility that the only thing that will result is a significantly narrower choice of books to read from, with significantly fewer writers making a living from it.

And the question then is, if Amazon is the only player left standing once bookstores and the world of publishing have been dismantled, will they have any interest in trying to do anything about that? Or will they just be far too preoccupied in having to compete with rival monoliths Apple, Microsoft, Google and Facebook for an ever-narrowing choice of profitable content?

Oh, and for all of you who still think that e-readers are a fad, have a look at this one year old trying to operate a magazine, here.

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