The View from the Sidelines

And the battle begins. It’s Apple and their posse of publishers in one corner and the ‘feds’ in the other. Amazon claims the winnings.

Last week the US Department of Justice sued Apple and five major publishers for price-fixing ebooks. Simon and Schuster, Hachette and HarperCollins agreed to settle, which meant terminating their contracts with Apple and allowing retailers to sell titles for a discounted price – a return to more of a wholesale pricing strategy. Penguin and Macmillan will fight the case with Apple.

Amazon already sells the most e-books. With Amazon also able to dictate the minimum price, they stand to gain control of the e-book market with monopolistic potential. Charlie Stross explains how this is bad for other retailers, publishers and ultimately – consumers:

Monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only or majority purchaser of a good or service, the “monopsonist” may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers.

Monopsonies suck for their suppliers because the suppliers are systematically starved of profits by the middle-men running the monopsony. Which can lead to suppliers going bust, and a reduction in the diversity and quality of goods available (via the monopsony) to consumers…

And the peculiar evil genius of Amazon is that Amazon seems to be trying to simultaneously establish a wholesale monopsony and a retail monopoly in the ebook sector.

Despite the potential for Amazon to completely eliminate Apple as a competitor, Nick Wingfield writes in The New York Times that Apple wouldn’t lose much of their $2 billion in revenue made in Internet sales over the holiday quarter (only about 4% of their total company sales).

However, the overwhelming thoughts are that this change could cause significant damage to the ebook market. The Wall Street Journal reported a 6.4% loss in market value felt by Barnes and Noble just a day after the settlement.

An important factor for publishers to consider is Digital Rights Management (DRM), the technology intended to stop ebook piracy. Amazon’s DRM standards also prevents Kindles from reading ebooks purchased from other bookstores besides its own.

Stross goes on to suggest a radical step for publishes to take – eliminate DRM on their ebooks and devalue Amazon’s exclusive selling ability.

If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011…

On Paid Content, the founders of independent bookstore Emily Books agree that piracy is a secondary threat compared to Amazon’s potential to hurt the industry and have already implemented this strategy:

Emily Books has gotten around this problem, so far, by selling great books published by smaller companies who either agree with us about DRM’s uselessness or can’t afford to care about it. And we’ve experienced exactly zero problems with piracy so far.


Image courtesy of kodomut CC BY 2.0

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One Response to The View from the Sidelines

  1. Beau Cornerstone May 17, 2012 at 3:17 pm #

    I’m an author of two fiction ebooks and I don’t feel piracy is a threat to the ebook industry. I feel preventing people from having a choice on how they use their ebooks is a greater threat. It has the potential to prevent the ebook industry from really taking off.

    I once had a Nokia Comes with music subscription – but because the music was DRM protected and would only play on one computer and my Nokia phone I never renewed that subscription. The DRM annoyed me – I never felt the music was really mine. DRM restricts the owner of the ebook – it makes them feel like they really aren’t the owner. I can buy a paper book, lend it to friends, donate it to the library, sell it in a garage sale – I feel like the owner. I can buy books for a song from an op shop if I can’t afford the new price – they may be preowned but I still feel like the owner. But when restrictions are placed on me – when a company tells me that I can’t loan MY ebook to a friend – I feel like it isn’t mine… and there’s less incentive to purchase it. And then there’s the issue of affordability. Some families are on limited incomes… young people are on zilch incomes – why should anyone be excluded from the world of ebooks because they can only afford to loan books…

    (I might add it’s frustrating being an author on Amazon too – I spent the time writing my books, formatting them, researching them – if I want to give some copies away – or make my books available to kindle readers on a whatever-you-can afford basis – why shouldn’t I be allowed to do so?)

    Beau Cornerstone – (Author of The Weathermakers and The Codetalkers) – available at http://www.smashwords.com DRM free (and at Amazon – in the restricted use kindle format)