Monday, September 10, 2012

Winner (Amazon) & Losers (Everybody Else): E-book Anti-Trust Settlement

Amazon, the little start up company that has grown to be the 900 pound gorilla of the publishing industry, is about to become an even more dominant force in the growing e-book market.

Publishers, independent book stores, the Authors Guild and prominent literary agencies are aghast at the government's settlement of its anti-trust suit against the last three of the big five publishers to settle.  It seems everyone involved in book publishing (except Amazon) maintains that the settlement has handed the keys to the ebook kingdom to Amazon.  They fear this resolution will return Amazon to market dominance approaching 90% of all ebooks sold.  It may also be the death knell for many independent booksellers.

The settlement resolved the anti-trust lawsuit brought by United States Justice Department (DOJ) against the big five publishers and Apple.  The lawsuit claimed that the big five conspired with Apple to set prices for ebooks.  Specifically, the conspiracy was aimed at Amazon's practice of selling best-sellers at $9.99, a price other booksellers cannot match.   The big five and Apple agreed to set book prices at higher levels, and forbid Amazon from selling those books below the set price - usually $14.99 or higher.

The business plan worked.  As the Nook and Ibooks took off, Amazon's share of the ebook market dropped to 60 percent.  But the problem was that the collusion to set book prices violated anti-trust laws.

Hachette Book Group, HarperCollins Publishers and Simon & Schuster were the latest to settle. The DOJ earlier settled with MacMillian and Penguin.

Some have likened this situation to a playground fight where the school bully is beating up on a smaller kid.  Seeing the fight, a teacher intervenes by grabbing the smaller kid and holding his arms behind his back while the bully gets to punch away unimpaired.

In more of a business sense, it is like Wal-mart moving into a small town and driving out all the local mom and pop stores due to Wal-mart's incredible volume buying power. In the short term, the customers win.  Lower prices - $3-5 on best selling ebooks.  But in the long run, what is the price of driving competitors from the market place?  What happens when Amazon becomes the virtual sole source of ebooks - and the dominant seller of all books?

The big five publishing houses now have to recognize that Amazon is the piper of the book business.  Publishers will have to dance to Amazon's tune. So will everyone else.

No one knows exactly how this situation will impact authors.  But if Amazon sells 90% of ebooks, and it will not price them for more than $9.99, what happens to author royalties?  How can publishers offer author advances when their price ceiling is under $10?

 And those independent book sellers that most writers - most readers - have so dearly loved?  They seemed destined to go the way of the record player, the typewriter, and film cameras.

For a detailed account of the law suit and its settlement, check out the New York Times article "E-book settlement has publishing world in turmoil."  (Click HERE)

UPDATE:  HarperCollins has implemented the settlement agreement by allowing retailers to set the price of its ebooks.  Amazon has already reacted. Two of HarperCollins bestsellers, Fallen Angel and Solo, are already available on Amazon for $9.99.  Simon & Schuester and Hatchett Book Group must follow within 30 days but have not yet commented on when they will take action.  For Publishers Weekly article providing details: Click Here.

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