walkitout (walkitout) wrote,

DOJ, anti-trust rumor, Amazon, Apple, Big 5, etc.

There's a rumor going around that the Department of Justice may be pursuing some sort of anti-trust action against some combination of large publishers and/or Apple involving the Agency Model. The Agency Model, in case you've forgotten, is where publishers of ebooks say what the price of the ebook is and retailers only get to sell it if they agree to sell it at that price and take a 30% cut for themselves. The Agency Model had the effect of reducing payments from Amazon to publishers and increasing Amazon's margins. It also had the effect of increasing Barnes & Noble's market share of ebook sales. It further had the effect of reducing the ability of other ebookstores (yes, there are many) to move e-books published by the Big whatever (mostly because of delays in getting paperwork to the retailers and then getting it processed upon its return, as near as I can tell from reading gossipy comments threads online). It also had the fairly obvious effect of increasing the price of ebooks.

Amazon does not appear to have lost absolute market in ebooks. In fact, other ebookstores didn't seem to lose any ebook sales -- sales just shifted to independents who were not involved in the Agency Model. While smaller publishers attempted to ride the Agency Model train, Amazon appears not to have played along; independent publishers have remained on a wholesale basis for ebooks as well as pbooks. But as the ebook market grew, Barnes & Noble seems to have been picking up ebook book market share (at least for the Agency Model publishers) since this change. Apple's share of the ebook market has remained tiny.

There were several class action lawsuits filed against the publishers and/or Apple for the Agency Model; some of these have been consolidated and are currently being tried (so filings are trickling out). This action is separate from whatever the DOJ might choose to do.

People have been predicting an anti-trust action more or less since the Agency Model was announced; it really looked illegal from day one. Many of the arguments being rallied in support of the publishers actions (I regard them as proxies but you may not) amount to, hey, they had to break the law to prevent Amazon from dominating the market and being in a position to break the law. DOJ and FTC theory of monopoly and trust and so forth have evolved over time (<-- there's probably a grammar error there); currently, they don't seem to have a problem with selling below cost per se nor do they have much if any problem with vertical integration. The publishers (and Apple's) action however are horizontal, not vertical, and they seem to involve several companies acting in concert and these are still on the No Go list.

Quite a lot of the hostility to Amazon involves the belief that Amazon was selling hardware and content below cost and that they would eventually turn around and raise prices; once all the publishers and other booksellers were out of business, there would be nothing to stop them from doing so. I believe this thesis to be wrong for several reasons, including, but not limited to how freaking easy it is for third parties running their own websites to sell books readable _on_ a kindle, and for super cheap (e.g. Baen books), as long as they're willing to ditch DRM. I also think -- and have always thought -- that the Amazon is selling below cost theory is overdone. I used to do breakdowns of the Amazon bestseller list to show that Amazon was selling tons of stuff they priced themselves at less than 9.99 but at a price point that was above their probable wholesale cost (not knowing exactly how good a discount they were getting made this a little tricky, but they surely weren't getting worse than what Random House was offering to the trade in general at the time, which is what I used as a basis for doing the analysis) -- and very few items on the bestseller list were losing them money, and the amount of money not that much per book anyway.

Finally, while Amazon is very likely to raise prices at some point (inflation, while low, is real), they probably won't raise them to higher than they generally were before; this is their usual practice following whatever price war they kicked off. And _that_ is the threshold for the government taking an interest. You set off a price war? Knock yourself out. Literally. You survive the price war? Congratulations. You raise prices afterwards in hopes of recovering a little? Go right ahead -- as long as you don't raise them to a point where you would profit more than if you hadn't done anything in the first place. At least, that's how I read what the FTC had to say on the subject.


Even if you could convince the FTC someone Did a Bad, however, good freaking luck getting any court to agree. They tend to be skeptical on the basis that if prices are really that high, someone new will enter the market and undersell.

I'm going to point one response out, because I just cannot seem to resist the temptation to take a shot at Mr. One-L in his capacity as head of the Author's Guild. Here he is at Salon, answering some of Laura Miller's questions:


The whole discussion is interesting, but I want to point something out in particular, because he took this opportunity to take a shot at the first sale doctrine.


Remember, First Sale is a big deal in the US; it is _not_ the law everywhere. And publishers would _dearly_ love to reverse this in the US (thus converting pbook purchases into licenses in much the same way that ebooks are licenses) but are generally smart enough to not try.

"Now, the reason you don’t see used bookstores within new bookstores is that the used books compete with the new books and the publishers supplying the new books would object."

He's bringing this up to show just how big and scary Amazon was to publishers, and I wouldn't want to dismiss this point. Amazon _is_ big and scary to publishers, and Bezos picked books as a place to start doing web retail because producer power was diffuse in books, unlike music, where it was tightly consolidated, making it really difficult for retailers to innovate.

But his example is essentially showing how publishers are accustomed to shoving retailers (their customers) around, so as to maintain high prices down to the end customer(s). I'm not sure how this is supposed to make a customer feel happy about publishers.

In any event, it is one of the steep ironies of the rise of online retail that bookstores which sell both new and used books have become much more common in brick-and-mortar land. Which I, personally, view as a good thing.

Parsing this a little fine, the next two sentences are: "Either you’re doing business with me or you’re competing with me. I’m not going to sell you books so you can take some percentage of sales."

I find this so breathtakingly _wrong_ it's hard to respond. I could name call (fundamentalist, atavist, juvenile, asinine). I could deploy a neologism: coopetition. I could ask a snarky question: what's your BATNA? Oh, rely on the end customer's "need" for your product to make Amazon cave? You will notice that Amazon and the end customer are turning out to have a variety of strategies to avoid buying what you are selling (including, but not limited to, buying used copies of the things you are overcharging for the ebook version -- and Amazon starting its own publishing imprint). If Amazon and the end customer decide they actually don't need your product anymore, what are you going to do then?

What's your BATNA? Because that is where you are headed.

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