The battle between online giants Apple and Amazon to control the lucrative ebook market took an unexpected turn three weeks ago when the US Department of Justice (DoJ) filed an antitrust lawsuit against Apple and seven major trade publishers for colluding to “substantially increase the prices that consumers pay for ebooks.”
Bestselling author and President of the US Authors Guild, Scott Turow, called the DoJ decision “grim news for everyone who cherishes a rich literary culture” and warned that the government “may be on the verge of killing real competition in order to save the appearance of competition.”
Amazon’s critics claim that it unfairly used its overwhelming dominance in the online sale of books to price rivals out of the market. In 2009, the company startled most trade publishers by selling ebooks at a loss in order to win control of the emerging market. When Amazon offered Kindle readers thousands of new titles for just $9.99 it soon became clear that traditional booksellers – who often sell hardcover titles for two or three times that price – were doomed in the new marketplace. Amazon’s “loss-leader” approach also unsettled trade publishers, who stood to lose control over the pricing of their product. Meanwhile Amazon’s bold new strategy quickly allowed the company to assume control over a 90% share of the market.
Apple capitalized on the publishers’ discontent and cleverly offered them an alternative model to Amazon’s ‘wholesale’ distribution. (Wholesale ‘e-tailers’ like Amazon determine the price at which they sell a product.) Instead, Apple’s iTunes store would act as an agent, with no authority to discount prices. This was less profitable for publishers since Apple insisted on a 30 per cent commission, but, crucially, it gave them control in an unpredictable market, and desperately needed leverage in negotiations with Amazon.
In April 2010, with the release of the iPad, the new agency deals took effect. Within four months every other major ebook retailer, including Amazon, agreed to similar arrangements. The collusion between Apple and the seven trade publishers who wished to impose the new model is what lies at the heart of the DoJ’s antitrust suit.
The argument over ‘wholesale’ and ‘agency’ models ultimately transcends the immediate crisis in the publishing industry and has far-reaching implications for e-commerce in general. Fixed commissions – the agency model – gives retailers an incentive to expand their market; the wholesale model encourages competition for a larger slice of existing markets. The latter can, as Amazon’s critics allege, shrink the market or drive it into a death spiral, but the former usually means higher prices. Either model has associated costs. The disappearance of several major chain stores and thousands of independent booksellers has altered the cultural landscape in America, but this loss has arguably been compensated for by the arrival of e-book readers and the potential for readers to download millions of titles more affordably. The quarrel over the future of books then is, largely, a quarrel over the relationship that ought to exist between culture and free markets.
Beyond its obvious aesthetic and cultural setbacks, the loss of traditional bookstores has had profound consequences on books which are sold. Marketing studies show that the physical presence of books encourages readers to try new authors and genres. The narrowing focus of ebook sales inevitably makes publishers less adventurous too – likelier to stick with proven authors than take risks with new voices. This would have far-reaching consequences on the way ideas and information emerge and are circulated not just in America but anywhere that adopts the new technology. Ultimately, therefore, the struggle between Amazon and Apple’s visions for the future of book publishing will probably be settled by whether readers and consumers prefer to have a wider range of culture or more efficient markets and cheaper products.
