The Department of Justice Sues Publishers Over E-Book Pricing

It has been speculated for several weeks now that the DoJ was going to sue five major publishers for alleged ebook price fixing and general collusion, and as the Wall Street Journal broke today, they have done just that.


Publishing does not often hit the forefront of business news, so it presents a very interesting and unique case to analyze. Today I am going to present some basic facts and milestones that led to the official lawsuit:


In 2007, Amazon debuted the Kindle and, it is fairly safe to say, single-handedly made ebooks successful for the first time in history. Other electronic book devices and formats had existed before, but never before was it commonplace to see people reading from them, or finding that they sometimes preferred ebooks to print books.


To promote Kindle device sales, Amazon began selling ebooks at low prices. Amazon arguably has the best selection of content among the top tablet makers (including powerhouses like Apple, Samsung, or Sony) and that is also arguably the biggest draw to purchase those devices. Making a wide range of content suddenly very affordable is a huge draw.


Publishers were alarmed at this practice because, although they were used to selling their books wholesale to Amazon, they saw low ebook prices as threats to their hardcover and even paperback sales, through which they still make a majority of their revenue. Why would someone buy a new John Grisham novel for $27 in hardcover when they could get it on their Kindle for $9.99? Some publishers began to see Amazon's new practice of discounting bestsellers and new books in the electronic format as predatory pricing.


Predatory pricing is one of the more difficult anti-competitive cases to prove because true proof can only be shown after the practice has already done its damage; competitors must already have been driven out of the market. A company will price something so low, at a loss to themselves, that they drive other companies out of the market. That company has to expect that they will be able to succeed even after taking hits on extreme prices. Even if the company is sued at that point, simply ceasing predatory pricing will not bring back the competition-- they may even already be a monopoly. There must also be high costs to entering the market for the strategy to have any hope of success, and a lawsuit would also have to prove that the pricing was in fact staggeringly low, rather than the product of common price competition. In short, even if Amazon was ever investigated for predatory pricing, it would be almost impossible for the charge to hold water.


The publishers thought they had such a case on their hands. And if the DoJ's lawsuit finds what it's looking for, then they will find evidence that the next step was to collude and create their own anti-competitive strategy.


It's not terribly hard to find, though. In fact, I found it a few months ago when I read Walter Isaacson's popular biography of Steve Jobs.


In a discussion that the author had with the computer tycoon, Jobs revealed that, prior to unveiling the iPad, he had a meeting with the largest publishing houses in the United States, known as the "Big Six": Hachette Book Group, Simon & Schuster, HarperCollins, Macmillan, Penguin Group, and Random House. Jobs wanted to let them use a retail model known as "agency pricing" for the iBooks store and corresponding app that would open with the iPad. Unlike the wholesale model that had originally allowed Amazon to set its own prices once it purchased books from the publishers, the agency model would force a retailer to allow the publisher to set its own prices and retain a larger portion of the sale. Publishers, as they have been doing on the Kindle book store, could set their ebooks at $14.99 or higher, in theory to match whatever the print book price is. In order to get Amazon to change to such a drastically different model, however, they would have to force their hand.


One publisher couldn't withhold their books; they would just get blacklisted by Amazon in all likelihood. A collusion of publishers, however, could threaten to withhold the most sought-after book titles, essentially forcing Amazon to allow the new pricing model in order to sell the best content. It had nothing to do with perceived "value" of ebooks versus print books-- multiple authors have already sold millions of dollars worth of ebooks on Amazon, often by self-publishing and selling at $1.99 or even lower. And it led to higher prices in ebooks, so it wasn't about getting better prices for the customers. It was all about getting a larger cut of the sale for these massive publishing houses.


In Walter Isaacson's book, Steve Jobs is quoted as saying, "We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway."


And so the E-Book Price Fixing Scandal was born. Of the Big Six, only Random House stayed out of the alleged collusion, at the time willing to continue with the traditional retail model, and they alone remained free of the Department of Justice investigation. Hachette, HarperCollins, and Simon & Schuster settled with the DoJ and agreed to break their price fixing contracts with their retailers-- Penguin, Macmillan, and Apple (the supposed competing retailer looking to get an edge on their Amazon rival) are willing to fight it out.


I will continue to follow this case as more details of the settlement-- and potentially the visible changes to Amazon ebooks sales-- begin to come to the surface.

The Forest for the Trees

Mark O’Connell, contributor to The Millions and fellow Borges enthusiast, published an article last August titled “The eReader of Sand,” an article I have only now had the good fortune to read. To summarize for all of my Teal Deers out there: he does not believe it is possible to become attached to an ereader the way one can become attached to print books, and he comes to the conclusion that ebooks will never measure up to the quality of print books. To summarize my reaction: I disagree with about half of his points. Point by point, however, his article makes a great conversation piece for the “book object” arguments. In that vein I would like to break down my rebuttal in the style of a DVD commentary:

To begin with, O’Connell is a self-professed bibliophile with “shelves… all two rows deep, stuffed with a Tetris-like emphasis on space-optimization , and pretty much every horizontal surface holds some or other type of reading material.” First, HA about the Tetris description, and second, I have experienced the same phenomenon myself, so I totally get where he’s coming from.

He has also loved books “almost as much for their physical properties as for their intellectual ones.”

"I like the way a well-made paperback flops open in the hand, the briskly authoritative slap of its pages as it closes. I enjoy the feel of a hardback, its solidity and self-enclosure, its sober weight, the whispering creak of its stretching spine. I like the way they smell, too: the slightly chemical tang of new books and the soft, woody scent of old ones. (If you’re picturing me crouched in a corner of your local bookstore like some sort of mental case, a Library of America edition of [italicize]Pale Fire pressed to my face, you can stop right there: it’s an incidental pleasure, not something I pursue with any kind of monomaniacal intensity)."

My whole point here is the point I have been making all week: the book object has no intrinsic value (assuming it’s not made of gold). What if the only books that existed were Calculus books? I don’t think people would have the affection for this fragrant paper object that they do. Therefore, the object holds extremely little value—it is the book content that means so much. For reading and publishing to survive and thrive, the print technology will give way largely to the digital technology. It was Bill Gates who once said, “Content is king,” and that was never more applicable than in the publishing industry of today.

O’Connell then recaps for us the Jorge Luis Borges story “The Book of Sand” (El libro de arena), which you can read in English in its entirety for free here. He says that the Kindle (or Nook or other ereader) is like a real life “book of sand”; a (for all intents and purposes) neverending collection of literature can be contained inside a single volume. He also, paraphrasing the Borges description, calls the book of sand “monstrous” and “obscene.” The (e)Book of Sand corrupts “the natural, Godly order.” For one thing, I am thinking at this point, “Yes, this is like when they say the title of the movie in the movie,” and for another, I am non-plussed by the dramatic style. O’Connell is quick to point out that he is certainly not “frightened” of the ereader, but he is sad because he knows it “can’t even hope to compete” with the historically enormous invention of the book.

The problem with statements like these is that they are not properly defining what a “book” is. Is a book the content or the paper? Does a book only exist if it is content printed on paper? If the latter, then yes, I guess books are going away. Funny, I could have sworn I just really enjoyed reading The Marriage Plot by Jeffrey Eugenides on my Kindle, but I guess I must be mistaken—real books are only on paper, after all.

Next, O’Connell concedes to a number of benefits from ereaders, such as size and ability to download something instantly. On the second part, he does delve into the “we don’t know how to wait for things anymore” criticism that places ebooks on the “instant gratification cult” shelf, but he does note it as a convenience. And, to circle back around to the beginning of his article, he does note the convenient simplicity of containing many books on one small device. He ends the article reluctantly conceding that ebooks are the way of the future, saying, “Ultimately, you’re never going to win an argument against convenience, no matter how much you love the anachronistic, heavy, unwieldy, and beautiful thing you want to save.” Ultimately, I agree with his concession that the ebook technology has proved to be a success.

The argument that O’Connell has overcome, but one that is extremely common (and especially on the Internet) is that “ebooks are ruining publishing, and everything else, and I don’t want them.” There are many people who not only do not ever want to read ebooks, but who also hold out hope that the print book technology will eventually win out. Unfortunately for many people, the print publishing model has already been shown to have many flaws. Ebooks will become more common than print books. So why is there still an outcry against them, if we know there is no stopping them? Why the rejection of what has been shown to be a more convenient technology? Why the demand that the publishing industry keep printing books that are losing them millions of dollars?

While the transformation of the publishing industry requires a complex analysis that I hope to break into as my blog progresses, from the “book as object” standpoint of this week, I think it’s the all-too-human, all-too-simple resistance to change. Print books are easy to use, and hey, they served us just fine when we were in school, didn’t they? The rejection of ebooks is part and parcel of the cult of nostalgia that has become very popular of late. In photography there are people who miss lomo cameras and will do everything to avoid using a DSLR. Many music fans still collect vinyl records, attesting to better sound and quality than cassette tapes, CDs, and MP3s (check out that dedication!).


In the end, who is to say what is truly the" better" technology? Does not the survival of the written word, whatever package it comes in, ultimately prevail over all?


I hope you've enjoyed these last couple of entries on the "book" as an object. I will absolutely revisit this in the future, although I plan to begin next week by delving into another of the wide range of topics in publishing.

The Revolution Will Be Digitized

Evening bliss-- a mug of tea and the latest Jeffrey Eugenides novel on my Kindle.

Printed books have a dedicated, passionate following that often seems to rival that of digitized books. For the reading public, this passion is derived largely from emotional memories associated with books. As I previewed on Friday with the link to the articulate essay at the New York Review of Books, this week I will be writing from the other side of the aesthetics argument: in praise of ebooks. Forgoing the economic or business arguments in favor of epublishing, it is time to focus on the benefits that the general reader can get out of ebooks.

Considering that ebooks have only risen to popular use in the last decade, I, like everyone else, grew up reading printed books. I enjoyed reading as a hobby and was (and remain) a frequent visitor to the local public library. Memories of my formative years are interspersed with plots from my favorite novels, some of which I read over and over until they became a part of my own past. Having moved away from my hometown and favorite book-reading spots, I look back fondly at those times and places, and I associate that happiness with everything involved in the memories. I remember perusing the library aisles for hours at a time, waiting for just the right book to capture my attention. I think back on the many nights I stayed up far later than I should, turning page after page under a burning-hot reading lamp. And when I visit a used bookstore, or a library, or return to my own bookshelves, it is fun to riffle the yellowed pages of an old paperback, to gaze at a beautiful or funny book cover, and even to smell the mustiness of decaying paper, comforting in its familiarity.

Nevertheless, those memories mean nothing if not for the books—the stories and histories and freely-given knowledge—associated with them.

My battered copy of Malafrena, which I laid out for maximum shame viewing. Note the enormous tear on the back cover, now held together by clear duct tape. Also believe me when I say I bought this book in pretty bad shape as-is because it is long out of print-- I would never treat my books like this.

Libraries can be rather unpleasant, after all, if they’re too crowded or noisy or cold. I often turned down plenty of books that I might have enjoyed because the cover was so horrendous I couldn’t believe the actual book would be any good (witness the impetus for this hilarious website "Good Show, Sir: Only the Worst in Sci-Fi Book Covers"). And that musty, dusty smell and those yellowed pages are actually signs of the damage we have done to these beloved books, now full of bacteria and old water stains. When I pull the sense away from the memory, I strip it down to what I really remember fondly—the book itself.

I didn’t really like my fluorescent-lit college cafeteria all that much, but I find I occasionally dig up pleasant memories of the cafeteria when I think of lingering over The Secret History with a cup of tea after lunch. My copy of Ursula Le Guin’s Malafrena is rather malodorous and hanging on for dear life due to some emergency duct-taping, but I keep it around due to my appreciation of the beautiful story that plays out within its pages. It is the content that makes these places and pages special, not the pulp and glue (and tape) that contain them.

Now that ebooks and ereaders have become so popular, I predict that future generations, including the one growing up now, will have similar sense memories, just of the digital age. They might not think back fondly to the bright bulb of their reading lamp, but instead the warm glow of their ereader screen, perhaps projecting the text of the well-received novel The Hunger Games. They can collect beautiful covers and skins for their ereaders that they carry with them everywhere. Perhaps someday, they will stay up late refreshing their readers over and over again, waiting for their pre-ordered J.K. Rowling book to “magically” appear on their library screen.

The longing for the “feel, touch, and smell” of books is not really about the book content, but about the book object. Not many arguments that “books are going away” have gained much traction thus far in the digital publishing conversation—more and more books are published every year, after all. It is the book object that we will see less and less of, and that is the argument that I see every day in publishing news. So how do we link the appeal of the “book object aesthetics” to the rising popularity of ebooks?

I predict that it will become easier to print on demand. Most best-selling books today are publishing both digitally and in print-format, and perhaps in the future they will be published primarily in digital format with an option to have a copy printed. The technology for print-on-demand is constantly improving, as popular publishing sites such as Lulu and Blurb will show you, and the option has become vastly more cost-effective. In that way, I don’t think that printed books will go away entirely, at least not for the next few generations—if you want a hard copy, you will be able to get one.

On another note, there are plenty of printed books in existence already. As I commented on NYRB, the printed books that you own will remain your own. Your cherished books won’t disappear or be taken from you Fahrenheit 451-style, and as such I think that used bookstores will have a market for some time to come, likely beyond the lifespan of regular bookstores. These books aren’t all going to get sent to the recycling center—you (and I) will have years and years to snap up those funny little 50-cent sci-fi paperbacks that liven up a rainy weekend.

Furthermore, the book-as-cherished-object argument falls flat when you consider the fact that most people do not personally own every book they have ever read. I know I don’t—I have given away far more books than I currently own, for hoarder risk reduction reasons in some cases (yes, I have bordered on bibliomania—it’s a constant struggle) and sometimes because I bought a book, read it, and didn’t like it enough to ever want to read it again. What is the point of requiring all books to be printed if you cannot ever hope to contain all of them? At the same time, I wonder which of those books I might have kept if they had only taken up the space of a scant few kilobytes on my harddrive.

I don’t share a vision of a future where the only books I have are on my (now, admittedly, beloved) Kindle. I see a value in printed books as art objects of a sort; visible dedications to my favorite authors, or souvenirs of memories, or even just as beautiful objects (hardcovers like art prints, and famous editions as prized possessions).

Like my beautiful hardcover of Queen of Fashion: What Marie Antoinette Wore to the Revolution by Caroline Weber. Also fully illustrated with color photographs and with a personalized signature from the author. Deeeeefinitely not giving this one up any time soon.

But as I have loved printed books, so can I love digitized books. To be able to carry a vast library inside my purse, wherever I go, is, to put a literary spin on it, like having a power akin to something out of Harry Potter. When I received my Kindle two years ago, I forgot I was reading text on a screen mere minutes after I began doing so—the technology is sufficiently advanced to have now removed the “glare” of a screen that is the most common complaint for digital text. Now that bookstores are shutting down all around the country, I frequently rely on my Kindle to get the latest books without having to wait for a package or pay a hefty shipping fee. I have even found it easier to read some books on the Kindle than it was to read them in print format—I find myself picking up books like George R. R. Martin’s A Song of Ice and Fire series much more easily when they’re on my slim Kindle rather than in a hefty paperback or hardcover tome.

Will I get rid of my beloved old, illustrated copy of Misty of Chincoteague? Not any time soon. But as my personal library grows throughout my life, do I hope I can curate it on my digital readers, that can expand like Mary Poppins’ bag to reveal contents so great it’s difficult to believe they can fit inside something so small and unassuming? Absolutely.