Apple and Publishers: What Went Wrong? (a beginner’s theoretical guide)

Let’s pretend for a second that I don’t know everything there is to know about macroeconomics (done).

Let’s also pretend that I don’t care about Apple and the Big Six (done).

Now, what the hell is going on with the DoJ’s investigation? Basically, it boils down to the accusation that Apple and the other publishers (Hachette, Macmillan, HarperCollins, Penguin, and Simon & Schuster) got together and tried to set the price of ebooks. (Go read Publisher’s Lunch’s thorough breakdown of the case)

Now the interesting thing is that retailers for the longest time have sold things to stores, setting suggested retail prices (MSRP anyone?). Imagine a bookseller going into a bookstore. He has a stack of books with $20 pricetags on them. He sells them to the bookstore owner for ten bucks a pop, letting the owner make some money off of the book. Now it’s up to the owner on whether or not to actually sell it for the MSRP. Typically it would be put on the shelf for that price, because that’s how the owner survives (profit).

Amazon changed it all up. They took that model (the wholesale model), and utilized it to undercut everyone else out in the world. They could discount the MSRP, hoping to make a cent or two, but they made their money on bringing people there to buy all the other crap that they have, using books as a way to increase visitor traffic. Their PR problems have gone back seemingly forever (open letter to Amazon from 2002, arguing that used book sales have been hurting authors).

But let’s not forget that other publishers in different media have been fighting used sales for a long time, the most obvious example being how game developers and publishers have been going after Gamestop (pretty good article about some of that). Their argument rests on the assumption that used game sales (read: discounted prices and no revenue sharing) destroy the profitability of creating games. Now, it’s my opinion that quality content always brings in the new sales (the early-adopters), and IPs that are consistently good will garner consistent sales.

Also, publishers going after companies that sell discounted goods to readers and gamers? Well, that might not sit well with the average content-consumer. I’m not saying that the average consumer doesn’t understand the nuances of the business and all that (okay, maybe I am), but I am saying that for some people, a twenty-dollar ebook is as much a bunch of bullshit as a sixty-dollar game. 9 times out of 10 I’m that same person. I’ve riffed before about how much enjoyment we expect from som of our content, and it’s becoming increasingly difficult for me to justify those prices except for some of the more cherished IPs (and Italo Calvino isn’t coming out with anything new anytime soon that I know of).

Where does the current DoJ investigation fit in with all of this?

In the old world. It seems to me that everyone wants to have cake and eat it, the publishers wanting to change the rules to make sure that they can remain viable in the shifting consumer world out there. Does the apparent fact that these publishers talked to each other and to Apple about fixing prices necessarily mean that they are evil? Probably not. Does the fact that they don’t like Amazon make them evil? Nope. Does it irritate the shit out of me that they didn’t fight Amazon by creating an online retail space to sell their books cheaper than Amazon? Yes, yes it does. European publishers might unite to fight, and cooperation instead of constant competition seems to be the way to move forward…

The fact is that ebooks don’t necessarily fit well within the wholesale model (Amazon doesn’t have to buy an ebook to sell it. It’s zeros and ones for crying out loud) is something that necessitates at least one change in existing pricing models. Period. Does that mean that publishers should go around, colluding on pricing? No. It means that they should have held a meeting, prefaced by press releases and commentaries by industry professionals, seeking to educate the public on why ebook pricing might be different from their previous expectations, and communicating with all sellers (not just Apple) on how to move forward.

Apple should have come out and explained that they don’t use hardware-sales to drive content-sales, and that they would want something easy to understand (kind of like the whole 99¢ per song thing that Itunes has been known for) for the consumer. If I knew that ebooks were all $10 through the iBookstore, and that I could buy chapters or sections for 99¢ a piece, then I no longer search based on price; I would search based on reviews, name-recognition, design, etc.

Like the good ol’ days…

And maybe that’s what this is all about: a fundamental unwillingness to accept the changing nature of the game of publishing. It has to be scary for the big publishers (I know it’s scary for the small publishers… Amazon seems to be fighting harder against the little guys these days, labeling Create Space as an indie publisher… Ridiculous), especially when people like Clay Shirky come out and say that publishers have been replaced by a button. It’s a fundamentally scary shift from hierarchical power structures to a more democratic and egalitarian model, one that changes the way the business has been done for years.

So as the DoJ investigation moves forward, it’ll be interesting to see how it all shakes out. With all of the various forces waiting to see how it unfolds, many different pockets of people have an extremely vested interest. Publishers would want to control pricing (offsetting print-losses with high-priced ebooks). Apple wants consistent pricing and consistent content. Amazon wants to be the bargain-shopping destination for the web. Authors just want to write for a living (damn hippies). Readers want to enjoy affordable entertainment. And the rest of the people in the business? All those designers, editors, and marketers that actually make a good book a great one? Dear god, please enable them to work. Because as much as publishing has changed, not many people can do all aspects of publishing equally well.

Publishing should remain a collaborative process. Process-collusion if you will.

But I guess pricing isn’t collaborative according to the DoJ…


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