eBooks Pricing and Antitrust: Pricing Collusion or Draining a Fetid Swamp?

Today’s news of the antitrust suit filed by the DOJ against Apple and a consortium of large book publishers raises some interesting questions. First, here’s what the government alleges (h/t Wall St. Journal)

In a civil antitrust lawsuit, the Justice Department alleged that CEOs of the publishing companies met regularly in private dining rooms of upscale Manhattan restaurants to discuss how to respond to steep discounting of their e-books by Amazon.com Inc., a practice they disliked. The executives also called and emailed each other to craft a solution to what one of them called “the wretched $9.99 price point,” the suit said.

The five publishers and Apple hatched an arrangement that lifted the price of many best-selling e-books to $12.99 or $14.99, according to the suit. The publishers then banded together to impose that model on Amazon, the government alleged.

Now, this can be read two ways:

1. The book publishers and Apple got together to put the vise on Amazon to fix the prices of books at a level that benefitted the publishers (and Apple) by allowing them to jack up the prices of ebooks to be more in line with the print versions (thus protecting what the publishers see as still their core business, dead-tree editions).

Problem: Apple is being a total hypocrite here. One of the biggest gripes that the music industry has had about Apple over the years has been the 99 cent price point for songs. Labels fought to adjust that pricing – to make great hit songs cost more, while cutting the price of up-and-coming bands to give them a chance to get traction in the market. Apple relented enough to go for .69, .99, and $1.29 … which was rather too late to really do much good. 

2. Amazon successfully lobbied to be allowed to reinstitute its price-cutting schemes that allow Amazon to consistently have lower prices on the stuff they sell.

Problem: They can do this for the same reason that Wal-Mart has lower prices. Amazon is pretty much the only game in town. And if you don’t like it, tough. Go find somewhere else to peddle your stuff (good luck with that one, pally).

What does this mean for indie authors, and larger startup publishers, such as small-to-midsize newspapers that want to bundle up special editions and monetize their content by selling it via as an eBook (as enthusiastically proposed by the estimable Robert Niles)? Nothing good, I’m afraid.

Here’s what author Jim Hines found out when Amazon started cutting the prices on his books: 

A certain champion of self-publishing recently decried all of the “whiny bitches” complaining about Amazon, and argued how Amazon treats authors so much better than commercial publishers.

While there are certainly advantages to Amazon’s program, anyone who thinks Amazon is in this to help authors is a fool. Amazon, like pretty much any other business, is in this to make money. As for how they treat authors, let me share what I’ve experienced over the past week and a half.

Amazon can and will adjust your price as they see fit.

(snip)

So what’s the big deal? Don’t retailers put things on sale all the time? Well, sure … which leads me to my second lesson.

Amazon can calculate royalties based on the sale price, not your list price.

With my DAW books, if a bookstore offers a sale, I still get my royalties based on the cover price. Amazon is selling Libriomancer for pre-order at almost half-off, but I’ll get paid my full amount for every copy sold. Not so with self-published titles. Looking at my reports for last week, my royalties were slashed by 2/3 for every copy sold, because Amazon paid me 70% of the $.99 sale price, not my list price.

The lesson here is that when you’re looking to get paid for the creative work that you do, and when the opportunities for you to sell said work are increasingly running through only two channels (Amazon or Apple), then you are going to get paid what they feel like paying you. And they are going to take just as big a cut out of your earnings as they feel like taking.

Yeah, sure, they built up the stores. But those stores would have nothing to sell without the efforts of millions of creative people. Amazon and Apple are benefiting from being classic middlemen. They are the bottleneck between the consumers and the content that audience wants to consume. And they are starting to throw some very, very sharp elbows.

Read more detailed analysis about this dirty deal at The Verge:  

• The DOJ says Apple “knowingly served as a critical conspiracy participant” by promising all the publishers the exact same deal and keeping everyone informed about the status of negotiations. When Penguin explicitly said that it wouldn’t sign unless at least three other companies signed, Apple “supplied the needed assurances.”
• To persuade other publishers, Steve Jobs himself had to get involved. He wrote an email to one publishing CEO saying that the only existing choices were to “keep going with Amazon at $9.99” or “hold back your books.” He then offered a third choice: “Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.”

The details read like some kind of overheated Mafia book by a cut-rate author – secret meetings at restaurants, high-level collusion, contemptuous disregard for the customers, and finally – yes – DOJ wiretaps on the guilty parties. Christ. It’s like they were dealing with garbage-hauling contracts in New Jersey.

It’s hard to know who to root for in this situation. Both sides seem to have rapaciously eyed the book-buying consumers the way velociraptors eyed up the poor heifer being lowered into their pen.