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Why The DoJ Lawsuit Is Good For EBooks

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The e-book market has continued to grow while sales of paper books have declined, and the suit the United States Department of Justice brought against five of the six biggest corporate publishers in America--Random House was excluded--will advance that trend.

It's going to make things even more difficult for those who have based their business models on the production, distribution, and sale of paper books, but it could well be a boon to smaller publishers, authors, and--most importantly of all--readers.

The suit alleges the publishers involved colluded, and that their actions were in violation of the Sherman anti-trust act. To "collude" means "to act together with secret understanding, especially with evil or harmful intent." The DOJ's suit builds a compelling case that, through a combination of phone calls, e-mails, and secret meetings in the wine cellars of upscale Manhattan restaurants, five of the six big publishers (Macmillan, HarperCollins, Hachette, Penguin, and Simon & Schuster) arranged agreements with Apple to enter into agency-model publishing, wherein retailers act as retail agents (and take 30% of every sale).

From the DOJ's press statement: 'We allege that CEOs of the publishers bemoaned the "wretched $9.99 price point." One executive said that, "the goal is less to compete with Amazon as to force it to accept a price level higher than 9.99." And yet another said, "we've always known that unless other publishers follow us, there's no chance of success in getting Amazon to change its pricing practices." Our complaint also quotes Apple's then-CEO Steve Jobs as saying, "the customer pays a little more, but that's what you [he's referring to the publishers here] want anyway."'

All that is exactly what Sherman--who authored the anti-trust act these agreements violated--hoped to prevent. In Sherman's words, the act was intended "To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer."

The act has come to be held as a measure against trusts and monopolies, but its intention was prohibiting monopolies formed through collusion, not merit. Its co-author, George Hoar, said someone "who merely by superior skill and intelligence...got the whole business because nobody could do it as well as he could was not a monopolist..(but was if) it involved something like the use of means which made it impossible for other persons to engage in fair competition."

People have criticized the suit, claiming that the DOJ is reducing one monopoly (publishing & Apple) to make way for another (Amazon), but Hoar's distinction is important. Amazon has gained its dominance in the digital marketplace, particularly with regard to e-books, not by conspiring against its competitors but rather by, at every juncture, innovating, advancing, and refining its business model to better serve its customers--readers.

Publishers have maintained they can't sustain their business model on $9.99 e-books, and have attempted to justify that stance by claiming that though creating an e-book obviates costs of production and distribution (like printing and shipping), they must also consider costs of overhead, personnel, and maintenance. Amazon, on the other hand, has worked hard to deliver to readers a ubiquitous reading platform (Kindle), an excellent digital reading device (Kindle), and a terrific store designed with discoverability and efficiency in mind (also Kindle).

Amazon has also done better marketing and offers authors--at least directly--better royalties, all while delivering less expensive books to readers. I also note, here, that I direct a nano-press through which I digitally publish books by both myself and other authors, and Amazon has helped make that possible.

The problem is that corporate publishers (particular the five in question here) clung to a business model despite innovations that could have helped lower their costs. Did any publishers design e-readers? Have any of the publishers named in the suit built retail functionality into their websites?

Case in point: one of my favorite authors is Neil Gaiman, whose books are published by HarperCollins. But although Neil Gaiman has an author page at the HarperCollins site, readers are redirected to various sites to purchase his books. If HarperCollins wants $12.99 for one of Neil Gaiman's titles, why not offer a Mobi or ePub file directly through its site? (The fact that publishers adopted ePub only after Amazon bought Mobipocket is another discussion entirely.)

With J.K. Rowling's Harry Potter series and Pottermore site, Amazon demonstrated it was willing to reach new and innovative web retailing models/agreements with publishers. I think that's more than can be said of corporate publishers who tried to save their failing business model through collusion rather than innovation.