The Danger in Quashing Apple’s Anticompetitive Publishing Deal

I find myself in a somewhat unusual position when it comes to the ebook antitrust battle royal quietly occurring between the U.S. Department of Justice, Apple, and the major publishers, with Amazon, Barnes & Noble, mom and pop book stores, and even authors all serving as interested parties.

The DOJ is (so very probably) right that anticompetitive collusion occurred between Apple and the publishers, but I think it is making a mistake trying to undo that collusion. Doing so will clear the way for Amazon to dump books below price, taking ever more share (and power) in the book industry—that is the greater anticompetitive threat in my never humble opinion.

Apple, Publishers, Amazon

The Issue

The issue is that the DOJ is concerned that Apple and five major U.S. publishers colluded to raise ebook prices and is actively investigating the situation on antitrust grounds. The investigation centers around the deal Apple and these publishers came to in bringing ebooks to the iPad in the form of Apple’s iBooks store.

That deal effectively shifted the power of ebook price control to publishers, away from retailers like Amazon, Barnes & Noble, or Apple. If I may, let me explain it by reusing the description I wrote in Wednesday’s news coverage on the subject:

Before the iPad and this deal with the major publishers, retailers like Barnes & Noble and Amazon paid publishers a fixed price and were then free to sell those books at whatever price they wanted. Amazon would frequently sell Kindle editions of those books below cost in an effort to promote the platform and take share away from brick and mortar retailers like Barnes & Noble and the now-defunct Borders.

Apple had no desire to lose money on ebooks and offered publishers the above-described agency model, but it include an enforcement clause that has since been nicknamed the “most favored nation” clause, a takeoff on the international trade agreement term of the same name.

By including that clause, publishers agreed to not sell its books for less elsewhere. Armed with that agreement, publishers were able to force Amazon to renegotiate their deals with that retailer to fall in line with Apple’s, thus ending Amazon’s ability to dump books.


Half of my problem is that I think colluding to raise prices is exactly what Apple and these publishers did, and the result is that some ebook prices—especially best sellers—went up overnight on Amazon. The other half of my problem is that I believe this was actually good for consumers.

Oh, not in the short term. In the short term, consumers are paying higher prices for ebooks, and that sucks. In the long term, however, I think that this was the only way for the publishing industry to keep Amazon from wrecking the publishing industry and gaining monopoly power in the process.

I know, that seems like a strong statement, but publishers agree with that, too. They believe that the agency model has allowed more book sellers to stay open, most recently telling that to The Wall Street Journal, off the record of course.

Amazon’s endgame is not only to have a choke hold on retailing, but on publishing books, too. I’m not the only one to think so, either.

As someone who loves to read—and full disclosure, I am in the process of trying to get a publishing deal on a novel I recently completed—I don’t think Amazon is fit to be the sole steward of the future of books.

Double, Double Toil and Trouble; Publishers Burn and Retailers Bubble

To be fair, this isn’t all about Amazon, or even Apple. The publishing industry is in trouble, and just like the music, TV, and movie industries before it, publishers are having a dickens of a time adjusting to the pressure being exerted by the Internet.

Print sales are still the bread and butter of the industry, but they are down. At the same time, the same chains that took out mom and pop book stores by the hundreds are either gone or are troubled.

The sale of ebooks is the only thing on the rise thanks mostly to (and mostly because of) the success of Amazon’s Kindle platform. The result of that success, though, is less choice.

Yes, we, as consumers have cheaper prices because of Amazon, but today there are fewer places to buy books. I don’t think that’s a great trade off, largely because if you take Amazon’s game plan to its ultimate conclusion, we’d only have one place to buy books, and I can guarantee you that when that happens, Amazon will finally, after all these years, recognize the importance of profits and margins and jack up those prices.

Admittedly, we may be headed to a future where the book business shakes out as follows: Great mom and pops like Powell’s, Book People, Strand Bookstore, and Book Passage serve an increasingly niche print business, while ebooks are available in three or four flavors: Kindle, Nook, iBooks, and “ePub” books published by major authors like J.K. Rowling who have such a big brand they can publish directly to end customers, and to hell with publishers.

There is certainly a level of choice preserved in such a future. Three ebook stores and big name authors isn’t much different than the Borders vs. Barnes & Noble reality that most cities in the U.S. were limited to before Borders closed.

Practical Reality

But, and this is the big but, I don’t think we’d even get to that point. I believe that as soon as Amazon can, it will start dumping best sellers once again, and that this pressure will be the final straw for Barnes & Noble. The Nook may survive as a separate company, but that’s hardly guaranteed.

Apple’s collusion with five of the six major U.S. publishers served as a lifeline to everyone who isn’t Amazon. It leveled the playing field, which helped keep the market diversified. Take away that lifeline, and all bets are off.

Indeed, if the DOJ enforces the end of the agency model or Apple’s most favored nation status, there’s no guarantee that Apple will keep iBooks open. The company does a half-assed job of competing as it is. I intend to write a separate column on that topic, but Apple doesn’t want to compete on price, and already does a poor job of securing premium titles (where the hell is The Hunger Games on iBooks? Why is Harry Potter on Kindle and Nook, but not iBooks?)

iBooks brings in about $50 million a year for Apple—not even a blip on the P&L statement—and if sales drop because Apple isn’t willing to take a loss on books, too, I can easily see it reaching the point where it’s not worth Apple’s while to maintain it. The company could become quite willing to let Amazon supply ebooks for the iPad through its Kindle app.

Let’s Lynch the Publisher!*

Back to the publishers, there is another serious issue with Amazon gaining too much power in the publishing industry. The company is already working hard to court authors to publish directly to Kindle without going through a publisher.

This has already attracted scads of unpublished authors, many of whom immediately engaged in a race to the bottom by selling their books for $0.99, hoping to be the one in a hundred thousand who sells a bunch of them.

In addition to devaluing books as a whole by doing so, the reality is that many of these authors were unpublished for a reason. Most published authors have a love-hate relationship with their editors and publishers, but the truth is that they serve some important roles in the world of publishing, including gate keeper, nurturer, babysitter, trainer, and editor.

In a world where everyone self-publishes, great books will be few and far between. That’s not just my opinion, it’s the opinion of many authors who talk about how much their editors have helped them. As part of my path to getting published, I’ve been reading a lot of essays by published writers on these topics, and this is one of the areas in which they have been quite consistent.

Big Authors Thrive, While Everyone Else Struggles

Another consistent theme I’ve read is that the future Amazon is pushing us towards is one where big name authors continue to do quite well due to the power of their brand, while it becomes difficult or impossible for new authors to be discovered by readers. In that world, even mid-level authors can’t make a living writing full time.

Again, that means fewer great books. I happen to love great books.

There’s also the issue of Amazon’s self-publishing terms and conditions. Check out Jim Hines’s  story about how Amazon cut the price of one of his self-published books from $2.99 to $0.99 without his permission, and without even telling him. Not only did that cut how much he made per sale simply because the price was lower, it had the side effect of changing his percentage from 70 percent to 35 percent, the amount Amazon pays to self-published authors on book priced less than a dollar.

Cute, huh?

When he asked about it, Amazon restored the original price, but pointed out that the terms and conditions of his self-publishing deal allow the retailer to change the price of his books without notice, and that it can change its terms and conditions at any time, without notice or further agreement required.

Amazon couldn’t pull that with a publisher, and it couldn’t pull it with, say, twenty, maybe thirty authors who are big enough to have a voice. The rest of them, however, are subject to Amazon’s whims and will have even less recourse the more power Amazon accumulates in the world of books.

Don’t Miss the Forest for the Trees

For all these reasons, and more, I believe the DOJ is missing the forest for the trees in wanting to bust Apple’s chops for collusion. There’s no doubt to me that Apple was colluding with most of the publishing industry, but its practical effect is to promote choice and diversity, and to limit the biggest book seller on the planet from gaining even more market share by dumping books on the market.

*With apologies to Jello Biafra