Preston Gralla

Readers are the ultimate victims in the federal suit against Apple and publishers

April 12, 2012 11:40 AM EDT
Readers might think that the federal suit against Apple and publishers will be good for them because it may lower prices for e-books. In fact, if the suit is successful it will be the worst thing that could happen to readers, cutting down on their choice of books, establishing a book-selling monopoly, and eventually leading to higher prices, not lower ones.

At the heart of the suit is the "agency model," in which publishers set a price for e-books, and then those who sell the books, such as Amazon, Apple, and Barnes & Noble, take a percentage of the sales of the books. Previous to that model, publishers would sell books to the outlets, who then set prices for the books they sell.

Amazon had been selling books at a loss to gain market share and increase demand for the Kindle. Apple and a group of publishers worried that Amazon was purposely driving down the price of books, which would allow Amazon to monopolize the e-book marketplace. So Apple and the publishers agreed on the agency model, and Amazon followed along. Before the agency model agreement, in 2010, Amazon had a 90% e-book market share, essentially a monopoly. Since then, Amazon's market share has dropped to 60%, and its monopoly was broken up.

The federal suit, if successful, will allow Amazon to gain back that monopoly, and the biggest victim will be readers. Start off with e-book prices. Amazon can sell e-books at less than the price they pay publishers because they want to increase Kindle sales, and put competitors out of business. Once it's done that, though, it won't sell e-books at less than cost. It'll jack up prices, and given that it won't have any serious competitors, it'll raise them higher than if it had competition. So you may pay less for e-books today, but you'll pay more in the future.

An even bigger problem will be the choice of books you can buy, and where you can buy them. Retail book stores will be hurt badly, particularly independent ones that typically stock  hard-to-find books. Lorraine Shanley, a publishing consultant, told this to the New York Times about the suit's effect, if successful:

"It will look like blue skies. But in the longer term, competition erodes as the spread between e-books and physical books grows greater. There will be fewer retail stores."
Fewer retail stores will mean less access to the the greatest variety of books, because Amazon simply won't stock many hard-to-find books. It's doing that already. Amazon now refuses to stock e-books from the Independent Publishers Group, which distributes books from small presses and speciality presses. (Amazon still stocks print books distributed by the group.) The New York Times notes that Amazon:
has been taking a more aggressive stance toward publishers in recent months. When it failed to get better terms from a large Chicago distributor, the Independent Publishers Group, it removed IPG’s nearly 5,000 e-books from sale.
What happens to small presses when they don't have independent bookstores to stock their books, and Amazon refuses to stock their books? With no way to sell their books they'll go out of business, and readers who value those types of books suffer the consequences.

It's not only small presses who will be victimized by an Amazon monopoly. So will large publishers, because Amazon now has a publishing arm. So Amazon is creating the content as well as controlling the means of distribution. How fair do you think Amazon will be when it comes to promoting publishing competitors? What happens when it decides to charge higher prices for competitors' book compared to its own? What if it simply decides not to carry competitors' books? The competitors go out of business, which means readers get fewer choices in books.

There's really no good news in this suit for readers. If the federal government wins, the few dollars saved in the short term will pale compared to higher long-term prices and fewer choices in books to buy in the long run.