I spent close to an hour yesterday ordering a new Apple iPad so it’s very clear I’m a fan of the company’s technology. Yet this morning, I’m equally enthused to learn that the U.S. Justice Department is preparing to do what it should have done two years ago: Sue Apple and five of the biggest U.S. book publishers “for allegedly colluding to raise the price of ebooks,” according to the Wall Street Journal.
Apple’s collusion with book publishers to fix the price of ebooks may be called “alleged” for legal purposes, but it is clearly evident to anyone who purchased ebooks before Apple started selling ebooks vs. after that driving up ebook prices and eroding Amazon.com’s ability to sell ebooks at whatever price it chose was a major objective of the publishers, an objective Apple was clearly a party in enabling them to achieve.
The vehicle for the Apple-Publisher collusion, wait, sorry, alleged collusion, goes by the euphemism, “agency pricing model,” a Newspeak term meant to suggest Apple is serving as the “sales agent” of the publisher, and not the retailer. (This perhaps makes sense to Apple because unlike the vast majority of companies in the world, it has the ability to exert tight control over the price retailers charge for the products it anoints them the privilege to sell.)
“Agency pricing” has been, since its inception, nothing more than a means to control the retail price that Amazon, not Apple, can charge for an ebook — a means to break Amazon’s strategy of using ebooks as loss-leaders to sell the Amazon Kindle. By having Apple as a viable ebook sales channel alternative to Amazon, the publishers were able to use Apple’s might to threaten Amazon that they would not be able to even sell the publishers’ books, unless it offered a publisher-priced option. And it worked: Amazon caved and started offering the publisher pricing model, also.
Price fixing, in this case, not only preserved the publishers’ ability to inflate the retail price of physical books, it helped independent book stores preserve the high retail price they need to compete with Amazon, Wamart and big box bookstores. While I am a fan of small businesses and the independent book store, I’m a bigger fan of book writing and book reading — and the free market. Bottomline: The agency model is for those who want to protect the broken, status quo of the book business who want books to be physical items that are sold for high margins through independently owned bookstores (translation: The American Booksellers Association and the major book publishers). Actions designed to preserve high retail prices and small footprint retail spaces benefit a few authors, a few publishers and a few retailers. Low-priced ebooks benefit readers and authors who aren’t published by Random House (or any house).
Two years ago, I came as close as I could to suggesting that “agency pricing” equals illegal price fixing, when I wrote:
While I don’t know if I’m quite ready to officially declare myself a conspiracy theorist who suggests book publishers are colluding (or, perhaps merely “signaling” one-another) by using the “agency pricing” model to, in effect, “restructure the eBook pricing model” and return the world to a place where publishers had the ability to dictate to Amazon what it must charge customers for a book, when I run across a book pricing strategy demonstrated on the screen shot above, it seems to me rather self-evident that the publisher is using the agency model to undermine eBook sales.
I’m glad to see that the U.S. Justice Department has finally recognized the same thing.