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Leadership / Strategy

Is Amazon’s ebook market dominance as bad as Apple’s price fixing for the book industry?

While Apple prepares to appeal its guilty verdict in the ebook price fixing scandal, the publishers involved have now all settled, agreeing to terminate their existing contracts with the tech giant.

Penguin was the last to settle, announcing it today, after US District Judge Denise Cote ruled against Apple in the antitrust suit earlier this month which had set out to consider whether the company had conspired with major US publishers to raise the retail price of ebooks.

The whole thing started back in 2009, as Apple sought to challenge Amazon’s screw-tight grip on the ebook market, secured by selling them as loss-leaders online.

Amazon bought bestselling ebooks through the wholesale method, paying publishers an agreed price of roughly half the RRP but then instead of making a profit, it slashed the prices to $9.99 on its website, a strategy which gave it a 90% stranglehold on the US market.

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When Apple introduced the iPad in 2010, it wanted to cut in on the ebook market, but could not find a way to squeeze past Amazon’s vast presence.

So Apple went to the biggest publishers (if you’re curious, they were – still are – Simon & Schuster, HarperCollins, Hachette Livre, Macmillan and Penguin) to negotiate an agreement to sell their books.

The publishers, too, hated Amazon’s strategy, fearing it would change readers’ perceptions about what a book should cost, and the threat cheap ebooks would pose to brick and mortar stores and hardback prices (though because of the wholesale buying deal they weren’t losing money themselves on these sales).

So the publishers came to a deal with Apple to adopt an agency model, where the publishers would take a percentage share of the company’s sales of their books.

However, they were pretty miffed when Apple insisted on a caveat allowing them to match any prices Amazon might be selling at – which would hit the publishers’ sales too, under this model.

This move pretty much eliminated price competition because, to ensure their income didn’t suffer every time an ebook was sold as a loss leader by Amazon (meaning Apple would then match that, meaning the publishers would see less income), the publishers then went around and renegotiated their deals with Amazon and Google to put them on the same agency model.

Ebook prices predictably rose under this new model, and sales predictably fell.

This is where Judge Cote decided Apple violated antitrust laws, fixing ebook prices to ensure they rose.

The whole problem with all this, though, is that it leaves us where we started. Amazon is once again free to dominate the ebook markets – with more than a little help from its Kindle sales – and prices will once again grow competitive.

Obviously this is great for the consumer, but what if publishers’ fears come true? What for the future of hardbacks? Of local bookstores? What about new retailers trying to enter the ebook market?

As much as Apple’s strategy would have removed any competition, hence preventing anyone coming into the market, won’t market dominance for Amazon and a select few – achieved through selling books at a loss – do the same thing?
This article is from the CBROnline archive: some formatting and images may not be present.