Publishing/Writing: Insights, News, Intrigue

03/11/2012

Is the Justice Department’s Antitrust Division Allowing the Buying of Publishing Monopolies ?


Buying Publishing Monopolies?

It’s publishing intrigue time again 🙂 This time in the form of the wholesale model versus the agency model in digital publishing — OR, in other words,  Amazon versus Apple. 

Both models are monopolistic. The wholesale model allows the e-book retailer to fix a below cost (to them) flat price of $9.99 (very suspicious for future price gouging). The agency model allows the publishers to price-fix a higher, colluded price range. So, pick your poison or your monopoly. 

Which is better for the industry as a whole ? For the consumer ? For the financial sustainability of good writers and attracting future talent ? Etc., Etc., Etc. 

There are points on both sides of this issue, but one thing should remain clear while the Justice Department is trying to sort it all out:

Open and aggressive competition always promotes ingenuity, improved products, promotes quality industry growth AND  is the only safe and fair way to set prices. Something we have forgotten in a greedy rush to set or protect an unfair advantage or status quo.

 Washington Post columnist   gives an in-depth explanation of the publishing wholesale and agency models along with an insight into the industry politics and nuances involved in this flushing out of the new publishing landscape: 

Pick your monopoly: Apple or Amazon

As a general rule, we don’t prefer monopolies. We know that, over the long run, monopolists tend to raise prices, reduce choice and stifle innovation.

But are monopolies so bad that we might want to tolerate a little price-fixing by customers or suppliers in order to break them?

Could a little anti-competitive behavior actually be pro-competitive?

That is what five leading book publishers are arguing in explaining why they simultaneously accepted an offer from Apple, just before the release of the iPad, to change the way e-books are priced and distributed. Their actions moved the industry from a “wholesale” model, in which they sold e-books to retailers and let them set the retail price, to an “agency model,” in which the publishers set the retail price and pay the retailers a fixed commission on every sale. In the process, they managed to break up Amazon’s e-book monopoly and raise the price of online books by 30 to 40 percent.

Now you might ask at this point why breaking up a monopoly would raise prices rather than lower them.

The answer has to do with how Amazon went about building its e-book monopoly in the first place — namely, by setting a price that was lower than what Amazon was paying publishers for the book. What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.

So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?

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4 Comments »

  1. A two thirds market share is not a monopoly… 😉 Amazon started off with a very high share because it was first. Its control of the ebook market is now very similar to Apple’s control of the tablet market or Google’s control of the search market. About 2/3. None of the above are a monopoly; all of the above are companies with a very high market share in their field.

    Publishers broke the law (allegedly) in order to retain hardcover sales and thus retain their old business model as long as possible. Amazon discounting ebooks would have, they feared, pushed more readers to ebooks even faster.

    Of course, this happened anyway, and now the ebook market is dominated by thousands of indie writers selling in the $1-6 range, and major publishers have lost half (or more) of the ebook market. So not only did they break the law (allegedly) to try to keep their old game going – they did it in a way which let Amazon circumvent them so the same end effect was reached, only with the major publishers now being bit players in a market they could have had a controlling interest in.

    When the dust settles I think history will look on agency pricing, more than any other one decision publishers have made, as the one which cost them the most income and market share. For some publishers, recovering from the mistake will be costly. For others, it may simply be too late.

    Comment by Kevin McLaughlin (@KOMcLaughlin) — 03/12/2012 @ 6:31 pm | Reply

  2. Kevin,

    Thanks for your great comment 🙂

    Market share is only ONE measure of being monopolistic or a monopoly (and sometimes has nothing to do with being a monopoly). Another (and more sinister) measure is a control that makes possible the manipulation of prices (Compare duopoly, oligopoly).

    Definition of monopoly: exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. Compare duopoly, oligopoly.

    “… for others it may simply be too late.” — Kevin, remember this: it is never ever too late 🙂

    Both the current biz models promulgated by Amazon and the publishers are flawed — and both will damage writers, creativity and open competition to set fair market prices in the future. Let’s hope that the Justice Dept.’s grownups come forward and provide a fair judgement for all.

    Comment by gator1965 — 03/12/2012 @ 9:20 pm | Reply

    • Ah, but by that definition the Big Six are an oligopoly in print, with over 60% of print sales in the US and well over 90% of the books sold through the big chains…well, chain, now.

      I just don’t buy that doing well enough at business to grab a 60% market share is a bad thing. Did Amazon have more than that? Sure, but that was when they had no competitors. As soon as other companies hopped in, their share went down, and it’s still in slow decline. That’s again pretty typical for internet business.

      Would not shock me to see eventually Amazon at 40%, the runner up next three smaller businesses splitting another 40%, and the last 20% split between scores of smaller stores. At which point it’ll mirror the pre-Amazon print industry pretty much exactly.

      Comment by Kevin McLaughlin (@KOMcLaughlin) — 03/12/2012 @ 10:29 pm | Reply

      • Kevin,

        I have always been a critic of the old TP publishing model and have written mucho on how flawed and ruthless and inefficient it has ALWAYS been.

        To point, that’s why the appearance of digital publishing and it’s associated new tech has forced the DOJ to look at all of the publishing industry’s flaws (even if it is from the digital view right now — the fallout should retro correct the print TP models as well and break up the big 6 monopolistic practices).

        I feel this forced correction will eventually benefit writers and their work even more than scraps given from under-valued, one-price-fits-all, cookie-cutter, internet booksellers’ pricing … This correction is long, long overdo, but, mark my words, what will be happening in the next year will be very interesting to watch — Just don’t prejudge now or get too hung up into ANY existing model now, especially one that tries to manipulate the all important (to the creators) PRICE. The market will take care of that, as well it should. You think you can make money now? You just wait!

        Comment by gator1965 — 03/12/2012 @ 11:06 pm


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