So far discussion of the Justice Department’s suit against Apple and several major book publishers for conspiring to fix retail prices of e-books has omitted the major issue: the impact of digitization on the book industry generally. The immediate symptoms are Amazon’s own pricing strategy—which, unlike Apple’s and the publishers’, is to sell e-books below cost to achieve market share and perhaps a monopoly—and the federal suit challenging Apple’s and the publishers’ counterattack.
The revolutionary process by which all books, old and new, in all languages, will soon be available digitally, at practically no cost for storage and delivery, to a radically decentralized world-wide market at the click of a mouse is irreversible. The technologically obsolete system, in which physical inventory is stored in publishers’ warehouses and trucked to fixed retail locations, will sooner or later be replaced by the more efficient digital alternative. The government’s case against book publishers arises from this continuing transformation—Amazon’s pricing model for e-books reflects the digital imperative while Apple’s and the publishers’ response attempts to delay it.
The problem began when Amazon set out to charge $9.99 per e-book download, considerably less than it was paying publishers for their e-book inventory. Since Amazon’s competitors could not afford such a costly strategy, Amazon hoped to dominate (or even monopolize) the e-book market and dictate future e-book pricing. Should Amazon’s $9.99 price become the industry standard—a reasonable assumption since e-books like iTunes are merely disembodied electronic information—publishers might then be obliged to sell e-book content to Amazon for perhaps as little as $6.00, too little to contribute their share of pre-digital legacy costs for warehousing, inventory and traditional marketing. Publishers, unable to support these residual costs by physical book sales alone, might eventually submit to the digital imperative and market their books directly to the web to be read on digital screens or printed on demand one copy at a time at diverse locations. Though Amazon’s strategy, if successful, might force publishers to shrink or even abandon their old infrastructure, demand for physical books, printed and bound, will not disappear. Publishers might thus find it necessary to subcontract their physical inventory to specialized distributors.
Independent editorial start-ups posting their books on appropriate web sites have already begun to emerge and more will follow. The cost of entry will be slight. The essential capital will be editorial talent and energy, as it had been in the glory days before conglomeration when editors were themselves de facto publishers, publicists, and marketers. Many start-ups will fail. Some will not. Specificity, reflecting the structure of the web, will matter: a guide to the cultivation of daffodils will more likely succeed than a more diffuse gardening title.
Amazon may also attempt to reduce or eliminate its own inventory expenses by printing orders for backlist titles on demand on its own presses. Traditional publishers have resisted this proposal and Amazon has responded by threatening not to stock slower-selling backlist titles.
To counter Amazon’s pricing policy, publishers have adopted the so-called agency pricing model, in which inventory is not sold to retailers, including Amazon, but consigned to them as agents who are compensated by a fee. Since Amazon in this scheme does not purchase content but acts only as the publishers’ representative, it has no right to determine the retail price. This defense seems to have been suggested to the publishers by Steve Jobs, whose own products are sold either by Apple’s own stores or by the agency method, and who did not want to match Amazon’s costly strategy for his iPad e-book sales.
The Justice Department has sued Apple and the publishers not because the agency model is illegal—it is not—but because Apple and the publishers may illegally have conspired to adopt the agency model to restrain Amazon from creating a monopoly by determining its own pricing. The outcome of the Justice Department’s suit is unclear: some publishers have settled with the Department of Justice, others have not. But what seems inevitable is that this tangled web in which the government helped give Amazon a possible monopoly, will be chuckled over by law students and their professors for many years.
The underlying issue is more significant than the lawsuit and its outcome. What matters is Amazon’s attempt to force publishers to conform to the digital imperative by resisting prices that include traditional publishing costs. This is more than a conflict between Amazon and publishers. It is a vivid expression of how the logic of a radical new and more efficient technology impels institutional change.
Few technological victories are ever complete, and in the case of books this will be especially true. Bookstores will not disappear but will exploit digital technologies to increase their virtual and physical inventories, and perhaps become publishers themselves. So will libraries, whose vast and arcane holdings will soon be available to everyone everywhere. E-books have been aggressively marketed for five or six years in the United States. Yet despite rapidly acquiring market share they show no sign of displacing actual books, with which they will comfortably coexist in the digital future.
Today’s publishers, still entangled in the dying Gutenberg age, will, one hopes, spin off their talented editors as semi-autonomous units and gradually disencumber themselves of their obsolete infrastructure. Barring a nuclear disaster, life will go on as it always has: past, present, and future all at once.