Apple Bites Amazon

I read with disappointment but no great surprise (nothing about big business surprises me any more) two stories in The Wall Street Journal last week. On the 7^th we had EU Launches E-Book Pricing Probe, then the next day appeared Justice Department Confirms E-Book Pricing Probe. Of course, there may be nothing to this, but I’m seeing a lot of smoke so I assume there must be a big fire somewhere.

The U.K.’s Office of Fair Trading has been investigating this since February (and will now fold its investigation into the EU one), and the U.S. DoJ has been rumoured to be investigating since last year but has only just confirmed.

The basis of these investigations is the same: to establish whether five publishers and Apple “have engaged in illegal agreements or practices” to keep e-book prices high. The publishers in question are Hachette Livre, HarperCollins, Simon & Schuster, Penguin, and Macmillan.

Specifically, investigators are looking at Apple’s “agency pricing model”, adopted in the hope that “Apple’s iBookstore would eventually prove an important rival to Amazon.com Inc., which was then heavily discounting new e-book best sellers”. Amazon’s reason for discounting was to speed sales of its Kindle.

This standard replaced the previous “wholesale model” which allowed retailers like Amazon to discount books. Publishers then told Amazon it had to abide by the same rules and stop discounting, which it did.

Steve Jobs is quoted by his biographer, Walter Isaacson, on the subject: “We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.’ … So [the publishers] went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’”

I doubt any of you will have keeled over with shock at this news – you all know how crooked and self-serving big business can be. The thing that strikes me is that this doesn’t appear to be the best business model anyway. We are in an extremely down economy, and it’s set to get a lot worse for huge parts of the world. Book-buying has probably already shifted into the “luxury” category for many people. You can do without a good read; you can’t do without food. That type of stark choice is already facing a lot of people.

If high book prices don’t put people off buying, then high book prices that are known to be high through possibly illegal and definitely immoral agreements certainly should do.

Penguin – one of the accused publishers – recently announced it was halting e-book sales to libraries because it feared pirating (Penguin Halts E-Book Sales to Libraries). I’m sure the fact that e-books never wear out therefore never need costly replacements has nothing to do with it. Personally, I’d have thought that artificially inflating e-book prices is only going to make the chance of pirating more likely. No one likes to feel they are being ripped off.

As for the published writers, especially the hordes of smaller fish in the pond, I suspect they may find it even harder now to earn out on their advances and move into royalty payments.

I hope all this only serves to accelerate the shift we are seeing to publishers being cut out of the loop entirely, as more and more writers shun the pitiful percentages publishers are willing to pay and publish online for far greater rewards.