The Wall Street Journal’s bombshell (well, for the publishing industry) of a story this morning that the Justice Department is negotiating with Apple and five of the six major book publishers over an anti-trust case involving e-books seems like a stunning case of wrong-headedness. The government appears to have convinced itself (or have been convinced by previous cases in the health-care industry) that any attempt to change pricing must reduce competition.
The case of switching e-books to agency pricing (where the publisher sets the price and gives the distributor a set fee instead of selling the ‘book’ for a set wholesale price) is interesting because the Justice Dept. doesn’t acknowledge that dumping books at a loss was central to Amazon’s e-book strategy. Here’s the WSJ acknowledging the practice:
Prior to agency pricing, Amazon often sold best-selling digital books for less than it paid for them, a marketing stance that some publishers worried would make the emerging digital-books marketplace less appealing for other potential retailers. The publishers’ argument that agency pricing increased competition hasn’t persuaded the Justice Department, a person familiar with the matter said. Government lawyers have questioned how competition could have increased when prices went up. Amazon declined to comment.
More important to the whole case is that the government seems to be ignoring the central issue: Amazon isn’t just a distributor, it’s a hoping to be the major publisher of e-books. When Amazon buys ebooks for $13 wholesale and sells them for $10 retail, and its gargantuan size means it can keep up the practice indefinitely, the strategy isn’t just jarring publishers into adopting lower price points. Because Amazon offers writers a better royalty for publishing directly, its pricing strategy is aimed at squeezing publishers out of the equation entirely.
That’s what makes Amazon’s decision to open it’s own publishing imprint so strange. I don’t think Amazon actually wants to be in the publishing business the way it was formerly constituted. Nonetheless, it has created its own old-style publisher, complete with industry veterans, as a way to continue to pressure the big six New York firms which make most of their money on frontlist hits.
Amazon really wants to be a publishing platform. But the competition has distracted it from working toward that goal. Which is funny because the agency pricing model is patterned exactly on Amazon’s own royalty for authors, a formula that was doing more to encourage writers to adopt the platform than the Amazon’s new imprint ever will.
U.S. Warns Apple, Publishers
By THOMAS CATAN And JEFFREY A. TRACHTENBERG
Wall Street Journal; March 8, 2012