In the words of New York Times media critic David Carr: “Why the crumbling book business is worthy of so much attention from Justice while Wall Street skates is a broader question we’ll leave for another day.”
It’s the first part of that sentence that counts.
Carr’s observation appeared in his article documenting the trial and tribulations of Apple and five major publishing houses. Simon & Shuster, HarperCollins, Hachette, Macmillan and Penguin have been charged by the Department of Justice for price collusion in an attempt to loosen Amazon’s stranglehold on the e-book market.
According to the allegations, back in 2010 Apple and the five publishers worked out a deal behind closed doors to fix e-book prices and adopt the agency-model. The publishers arranged to sell their books through Apple’s iBookstore for $12.99-$14.99 (versus Amazon’s bargain price of $9.99).
In contrast to the wholesale model, where retailers (i.e. Amazon) determine the value of e-books, the agency model allows publishers to set the price and the retailer (i.e. Apple) takes a 30 percent cut of the earnings. So far, three of the five publishers have settled, leaving Apple, Macmillan and Penguin to defend in court.
This is where Carr’s throwaway line gains significance. It’s no secret that the industry is struggling to cope with technological drift: People just don’t buy books in print like they used to. Instead, as a 2011 report indicates, the future of publishing lies in e-books, while print sales are at best flat lining and at worst, dropping.
And that’s what makes this case so important. The competing business models (wholesale versus agency) will directly impact the nascent (but growing) industry.
Mark Coker of Smashwords, an indie e-book publishing and distribution company, argues that while conspiracy is never a good thing, the agency-model is far superior because it gives the smaller fish a chance to compete with the big ones.
When retailers set the price, not only does it kill competition, but authors and publishers don’t see the same profit margins. It boxes out the competition and may even lead to higher prices for consumers in the long run.
Coker also contends that the conditions of the settlement are especially burdensome because at the very moment when publishers should be given the flexibility and nimbleness to react to technological change, they’re being forced to spend money complying with monitoring requirements that will slow them down: They’re being legally mandated to stay dinosaurs when what they need is to evolve.
While this particular chapter may have come to a close, expect the saga to continue as Penguin, Macmillan and Apple do their battle in court. In the meantime, check out the Justice Department’s Competitive Impact Statement for a more technical version of the case. If you rather know how this will affect e-book pricing as a consumer, check out Paid Content’s predictions.
What do you think, is the lawsuit killing the publishing industry? Let us know in the comments section or on Twitter.