On Wednesday morning, Judge Denise Cote issued her ruling against Apple in the ebook price fixing trial. Deciding that Apple acted in violation of United States antitrust laws when it entered into agreements with five of the biggest book publishers in advance of the iBookstore opening. The five publishers in question have already settled out of court with the United States Department of Justice while Apple maintains it did nothing wrong and intends to appeal the ruling. Personally, I don’t think the ruling against Apple is much of a shock.
Instead, I’m going to talk today a little bit about how the book publishing world changed between 2008 and 2010 which may have caused the book publishers to decide the questionable practices proposed by Apple were a good idea. In their trial, Apple repeatedly claimed that their actions were justified/not-illegal because they were working to break up the ebook monopoly held by Amazon. Amazon continues to hold a large section of the ebook market, and what I’d like to talk about today is how that came to pass and what the large publishing houses could do to change the current ebook climate.
In 2007, Amazon became the first major retailer to venture into the ebook market with the release of its kindle device. The deal Amazon negotiated with publishers at the time was for the wholesale model of ebook sales which allowed Amazon to set the price of the ebooks it sold. Amazon sold many of the original kindles at a loss and set ebook prices low to entice readers to switch over. The ebook market rapidly grew as more books were released in the format, and Amazon maintained a dominant presence in ebook market share allowing the sales gaint to largely set prices for the entire ebook industry. Publishers didn’t like this as Amazon’s prices were lower than they would have liked. When Apple offered them a new deal, the agency model which allowed publishers to set the sale price and gave Apple an automatic 30% cut, publishers agreed.
It’s easy to see why publishers jumped on board with Apple’s scheme. In addition to a potentially greater profit margin and more control over ebook pricing; busting into Amazon’s market share would decrease the companies arguments to authors that all they need is Amazon and self-publishing through kindle direct and other programs is the way to go. While the logic is pretty clear, my sympathies for the publishers in this situation still remain low. In the ebook boom, publishers were caught between a rock and a hard place, but, in my opinion, this was entirely a problem of their own creation.
Publisher’s insistence on the use of DRM essentially gave Amazon the bricks on which to build the foundation of their monopoly. By making it so that book purchased through Amazon could only be read on a kindle device, publishers feed into Amazon’s plan to dominate the market early and maintain early adopters. Not being able to take your ebooks with you to another device, essentially locked in many readers who might otherwise have switched platforms as newer and shinier ereaders came on the market. The recent experiment of the publisher Tor also suggests that selling ebooks DRM free doesn’t have a drastic impact on sales numbers.
If publishers wanted to cut into Amazon’s market share and regain pricing control, the simplest way would not have been conspire with Apple in a scheme now deemed illegal. The simplest way would have been to cut out DRM, and allow any retailer to sell an ebook to any device. This would have allowed existing retailers like Barnes and Noble or Borders or indie bookstores to compete with Amazon on a level playing field. (Note I am hardly the first person to make this assessment, see here, here, and here.)
That’s my opinion, now what’s yours. What are your views on the ebook price fixing trial? What do you think about DRM?