The US Department of Justice plans to file suit against five corporate publishers and Apple yesterday reported the Wall Street Journal.
The five publishers are HarperCollins; Simon & Schuster; Macmillan; Hachette and Penguin. Five of the Corporate Big6. Random House is not included because they didn’t immediately switch to Agency. The others went live with Agency when the iPad was introduced. Random House waited a year.
What does this mean?
The DOJ claims that the publishers worked together to raise prices and therefore it was more expensive for the consumers. Agency allows the publishers control pricing. Every retailer is required to sell ebooks at the same price. The DOJ claims that this has been bad.
Amazon would agree. Apple would disagree. B&N would disagree.
Before Agency and when the accounts controlled pricing, the prices of best-sellers from the Big6 were generally set at $9.99 (even though accounts were paying $10-$15 for the books – yes they were taking a loss). After Agency, the prices went up to $12.99 or $14.99. The prices did go up for a certain section of books.
Before Agency, Amazon had over 85% market-share. Today that is closer to 60-65%. By forcing the same price everywhere, the advantage Amazon had in being able to sell below cost was eliminated. Sure, B&N matched some of the prices, but they didn’t have the ability to accept losses per book as Amazon can.
So, what will happen?
1) If Agency is eliminated and the retailers control pricing on all titles, the prices for the big best-sellers will come down. The barriers to entry for new eBook retailers will be higher. The ability of being able to make money selling eBooks will be much more difficult.
2) Apple will need to figure out a new way to sell eBooks (iBooks?). Their entire platform is based on Agency.
3) B&N will be caught in the middle. B&N has benefitted by not having to compete on price with Amazon. If Agency goes away, they lose that protection.
4) Google (and selling through Independent bookstores) may also have issues as the pricing would be driven down. Google recently opened up a new store called GooglePlay. It coordinates all media, music, books etc. Just yesterday, they prices some non-Agency books at $0.25. This is the first time Google has used pricing to aggressively grab market share.
5) Kobo and Sony will also be affected because the pricing protection will cut into their profits.
I don’t have an opinion on the outcome of the DOJ’s actions. But regardless it will have a profound affect on the future of who sells eBooks. I tend to think in the long run the prices will be what they will be. The question is how many retailers will find selling eBooks profitable.
It would be a shame if eBooks become reduced to ‘just content’ and something to give away to control the device market. I hope books remain above that.
Maybe I’m naive? But that’s how I see it.