How the e-book antitrust suit will affect publishers, authors, and readers

Apple has been illegally conspiring with five large publishers to keep e-book prices high, according to a Department of Justice lawsuit filed today.  The lawsuit has been pending for a while, and several of the publishers are expected to settle, while Apple will fight the case.  Here's the story.

Amazon used to pay for e-books like a distributor with a "wholesale pricing" model.  The publisher suggested a list price, and Amazon paid the publisher 50% of that price after selling the e-book at whatever discount it chose.  So eager was Amazon to sell Kindles that it often sold e-books at a loss. Needless to say, smaller e-book distributors couldn't compete with this, and the low-priced e-books competed against the publishers' physical books, thus lowering publisher profits and author royalties.

Enter Apple, with a new model, called the "agency model."  Apple lets the publisher set the sale price, and Apple takes 30%.  All at once, publishers took home another 20% of the list price on e-books.  Moreover, they set the e-book price at a level that would no longer cannibalize their own print book sales.  Authors got higher royalties, and publishers could afford good editing and marketing.

Two problems.  First, customers were asked to pay more for e-books.  Under the Amazon regime, everyone had gotten used to a maximum price of $9.99. Now they found themselves paying up to 80% of the price of a paperback or even more, and they didn't like it.

Second, Apple allegedly told the publishers that they could not let other distributors for less than the price negotiated with Apple.  The DOJ calls that collusion to keep prices artificially high, which is illegal.

Will it be a good thing if the DOJ wins its case?  That can be debated depending on how much you fear Amazon, respect the work of traditional publishers, and treasure your local bookstore. It's probably easier to look at who will profit and who will suffer.

Amazon will profit and will become once again a near monopoly provider of e-books.  Under the agency model, Amazon market share had dropped from 90% in 2009 to around 60% today.  Barnes & Noble, with its Nook, picked up much of the difference, around 27% of market share. If Amazon is able to go on another round of price-slashing, Barnes & Noble may be unable to keep up.  Already shaky, it may end up closing its doors. Ironically, this anti-trust lawsuit may end up pushing Amazon back up into monopoly territory.

Traditional bookstores beyond Barnes & Noble, including the small independent bookstores like Meg Ryan's Shop Around the Corner will also lose out, as e-books become cheaper compared to physical books.  Maybe this is inevitable anyway, but many book lovers will regret the loss of stores where a reader can page through books, touching and smelling as they read.

Publishers will be left with smaller margins, so they'll take fewer risks, meaning they'll be tempted to stick with celebrities and what's popular now, rather than trying new voices and fresh subjects. In such an atmosphere of cautious frugality, authors will have more difficulty breaking into print with traditional publishers, and when they do, royalties and advances will be low.

Increasingly, frustrated authors, whether new or established, will decide they'll do better by going independent.  They'll bypass print books, format their creations as e-books with or without an intermediary, and go directly to market.  Some analysts consider this a good thing and the wave of the future, and so it probably is -- but with the temptation high to skip the high-cost step of deep editing, the quality of the average book is likely to suffer.  For authors, I think the upshot is that the cost of entry to the publishing marketplace will be low.  More people will be published authors, but even fewer of them than now will make a living at it, and there will be a lot of sloppy books out there.

As for readers, they'll have access to cheap e-books, loads and loads of them. Sorting through them to find the most worthwhile may be difficult, but that's probably all right. If publishers and bookstores acted in the past as censors, their diminishing influence will mean freedom will increase. If they acted as arbiters of taste, people will now express their own taste. If they acted as guardians of culture, culture will slide downhill. But people always think culture is sliding downhill.  We'll figure it out.