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…


The Complicated Nature of Amazon Hatred

It’s easy in this day and age to fall into the trap of hating a big business just because they are big. We do it all the time with companies that we don’t rely on for our favorite things (it’s easier for a Pepsi drinker to hate Coke and for a PC user to hate Apple), but what about Amazon hatred?

You might be asking, “Who would hate Amazon?”

Well, for me, I’m one of those hapless independent publishers who are trying to figure out what is going to happen with the impending DoJ’s investigation into possible price collusion between Apple and some of the bigger publishers out there.

I get it. It’s kind of a good thing that the government would try to protect the citizens out there, but it does seem a little misguided. I don’t have enough of a background in business to really comment on the macro-level implications with this, but I do know one thing: it’s complicated. As I see it, a bunch of the arguments come down to where priorities lie.

  1. Publishers like the Agency Model, because it helps keep ebook prices up, which in turn help to keep physical books and physical bookstores around. The reasons for this are varied, but many of them have to do with keeping the status quo in place (and consequently employing a lot of people in the publishing-distributing-selling model).
  2. Readers want cheap ebooks. Whether or not they deserve them is beyond the scope of this article as well. The main part of this is that for some reason or another, readers don’t think that they should have to pay as much for an ebook as they do for a physical book. I think that it’s a perfectly valid point, and I don’t know if it’s Amazon’s fault for creating that mindset, or if it’s just common sense. I do know that it’s ridiculous to expect someone to pay $20 for an ebook that didn’t cost as much money to make as a $20 book.
  3. Authors just want to get paid. Go figure. All of these companies are fighting over every little percent, and in the end, it’s the author that gets it up the butt. That’s not fair, especially considering that if the author wasn’t there to begin with, there would be no book.
  4. Apple and Amazon. They want cheap stuff that they can sell for a lot more than they bought it for. Now, it makes sense to me that they should get a cut if they sell something digitally. If I go to Amazon and buy a $10 ebook, then they should get a cut of that. It was their market share, their servers, and their technology that enabled the sale. What should that cut be? I have no idea. 30% seems a bit high, but wholesale discounts could be around 50% sometimes, so who knows?

At the end of the day, there is really nothing left to do except sit around and bitch about prices anyway.

Rent is too damn high, too, by the way.

What’s going to happen is that the reader is going to get screwed somehow or another. It seems like they always do. BP can spill oil all in the Gulf, and then jack up the prices of their gas and people pay it, so there you go.

Ideally, authors would get paid a decent price for their craft, publishers would get a cut for all their work, and the reader would get a quality book for a fair price.

And then somebody would pinch me and I’d wake up.