Tuesday, August 23, 2011

The Serpent's Fruit

I posted a link to a news article in the TMD ITN page but thought that it deserved a closer look. It’s not about music per se, but it is about digital distribution, which is definitely something that musicians have to deal with nowadays.

However, this time it is books that are in the news, specifically e-books and how they are priced.

A class action antitrust lawsuit has been filed in a US District Court by the Hagens Berman litigation group alleging that five major publishers conspired to raise the price of e-books and force Amazon to drop its $9.99 e-book pricing.1

According to the lawsuit they didn’t act alone. They conspired with Apple, Inc.

Way back in 2007 Amazon had beat Apple to the e-book market with its popular Kindle reader. As the lone player in the game, Amazon had decided to price, and promote, most e-books for just $9.99. In order to do this, Amazon was buying the e-books at prices set by the publishers but then selling them for the $9.99 price, even if that meant taking a loss. This was, by all accounts, very popular with readers, but according to the lawsuit, not with the publishers, or Apple, who was about to get into the e-book game with their iPad.

The lawsuit alleges that Apple, along with HarperCollins, Hachette Book Group, Macmillan, Penguin Group Inc., and Simon & Schuster Inc wanted to, “neutralize Amazon's Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader." 1

The lawsuit also accuses the publishers and Apple of agreeing to adopt a so called “agency model” in which Apple, acting as an “agent” for the publishers agreed to sell their e-books for a price set by the publishers, taking 30% of the sale. Similar to the 70/30 split that Apple is taking through their App store and iTunes. The publishers then agreed not to sell to any other online retailer at prices lower than what Apple was selling the titles for. A “most favored nation” agreement. At that point the publishers, starting with Macmillan, forced Amazon to raise their prices by threatening to withhold their titles from the giant online bookstore.

Amazon had no choice but to give in. (As a Kindle owner I remember that during the time that all this is allegedly occurred, many e-books were not available through Amazon. It created a big hole in Amazon’s e-book inventory.)

Since Amazon capitulated to the publisher's demands the price of e-books has increased dramatically. Some cost more than their physical counterparts. And Amazon now puts the caveat “This price was set by the publisher” on all of its e-book pages.

So Amazon, being the first to the e-book market, wanted to establish a consistent, low price. And, according to the lawsuit, Apple didn’t like that.

Wait a minute, isn’t Apple the same company that went to the music labels and demanded that they sell albums and single songs for a set price, $9.99 and $0.99 respectively? The same company that wouldn’t let the labels set their own prices, or sell bundled albums? Yet, according to the lawsuit, when someone else beats them to their own game they turn around and cry “foul”?

Do I hear the word hypocrites?

So originally Amazon was paying the publishers their asking price, but would sell the e-book at $9.99. Even if it meant Amazon lost money.

Wow, that is so weird, because, unlike Apple’s iTunes, Amazon changes the price of DIY and Indie digital albums all the time (mostly down). The artist, or label, has no say in the pricing. If Amazon decides to sell for less, the artist gets paid less. Sometimes much less. A DIY artist has no say in the pricing of their own product. (We are mostly talking about DD albums. Most songs still usually sell for $0.99.)

This policy doesn't apply to all digital albums Amazon sells. Power and influence still talk.

So let's get this straight, Amazon is willing to pay full price for e-books but not for music? What’s up with that? Oh, that's right, with music it is Amazon trying to play “catch up” to Apple. Whereas with e-books they were trying to establish market dominance and willing to pay the price to make that happen.

I think I hear that word again... Yes, there it is, hypocrites!

In the mean time how did that supposed dirty deal between the publishers and Apple work out? If you are a publisher, it would appear not so well. Apple is taking on the publishing industry by default by adopting a new policy, now fully implemented, of taking a 30% cut of every e-book sale that takes place from an App running on one of their iOS devices, no matter whether the buyer purchases the e-book from Amazon, Barnes & Noble, Google or any other non Apple App. This also applies to music apps as well...

But before we look at that first a little back story:
Apple has sold so many iPads (15 million as of February, 2011) that Amazon, Barnes & Nobles and Google now all have Apps to allow users to read their e-book formats on the iPad, in addition to Apple’s built in iBook reader. Originally the owner of the iPad could buy an e-book from the Kindle bookstore directly from the Kindle app. But now Apple, flexing its power, will not allow any of these companies to sell directly to their customers through these apps, or else Apple wants 30% of the sale. (You can still read what you have, and buy e-book from their website stores, just not through the app itself.)

Or to look at it from the seller’s side, if you are Amazon and you buy an e-book from the publisher at the wholesale price and then sell it to someone through the Kindle App on the iPad, your profit pretty much goes straight to Apple.

Rather than pay Apple the 30% fee, most companies, like Amazon, have decided to remove any links on their apps that allowed users to even get to their online stores from an iPad or iPhone. So you can’t buy a book through your Kindle App, on your iPad, even if you wanted to. 2 & 2b

So how do the publishers feel about this? In a LA Times article about the publishing world’s reaction to Apple’s plans one quote summed it up best,

"If you're a print publisher, whether it's books, magazines or newspapers, you've seen what Apple did to the music industry — they decimated it," said Porter Bibb, a consultant at Mediatech Capital Partners and the first publisher of Rolling Stone magazine. "Apple owns the music industry now, and publishers are loath to have that happen to them." 3

It almost sounds like the publishers are starting to chafe under the thumb of Apple. The same company they allegedly conspired with to break Amazon’s e-book pricing.

There’s that word again...

1. http://arstechnica.com/tech-policy/news/2011/08/class-action-suit-targets-apple-and-five-publishers-for-price-fixing.ars

2. http://www.hypebot.com/hypebot/2011/08/music-services-raise-prices-drop-buy-links-to-keep-apple-happy.html

2b. http://www.theregister.co.uk/2011/07/25/apple_bookseller_online_sales_ban/

3. http://articles.latimes.com/2011/feb/16/business/la-fi-apple-publishing-20110217

1 comment:

  1. Another thought provoking post. What I find most ironic is that Apple started out as an innovative company whose seemingly sole purpose was to take down the hegemonic monopoly of IBM (as seen in their ground-breaking Orwellian 1984 commercial). However, it turns out that they have become what they set out to destroy.