Honza Dvorsky More than two years ago, Apple presented an application for reading e-books called iBooks and the iBookstore - another section of iTunes, probably few expected how controversial the e-books would later become. The main attraction for using iBooks was, of course, the first generation iPad, introduced on the same day.
The connection between books and the iPad is not surprising. When we think back to 2007, when the first iPhone saw the light of day, then Apple CEO Steve Jobs defined it as a combination of three devices: a mobile phone, an Internet communicator and a wide-angle iPod. The iPad has retained two of these main features. Instead of a phone, it's a book reader. And the great success of Amazon's Kindle line of readers proved the unceasing interest in books even in the 21st century.
Amazon's strategy
If you wanted to buy an e-book in 2010, you probably went to the absolute largest online store for both paper and digital books, Amazon. At that time, this company sold over 90% of all e-books and a large proportion of printed books. Although Amazon bought both types of books from publishers at the same price, it mostly sold the digital ones for a significantly lower price of $9,99, even though it made a profit on them. He earned even more from Kindle readers, the number of which was rapidly increasing on the market.
However, this "golden age" of Amazon was a nightmare for all other companies trying to enter the e-book market. Selling books below cost would not be sustainable in the long term for any seller who could not offset these losses with profits in another industry. However, Amazon made money as an online store from advertising and sales shares. Therefore, he could afford to subsidize the sales of e-books. The stressed competition had to either cut prices disproportionately or stop selling books altogether. Publishers could not do anything about this situation, however, because in the so-called "wholesale model" (wholesale model) the seller has the right to set the prices in any way.
New approach
The release of the iPad preceded several months of negotiations by Steve Jobs with e-book suppliers for the iBookstore. This online e-book store was supposed to become one of the reasons for buying an iPad. The suppliers approached were largely book publishers forced out of the market by Amazon's pricing policy. However, Jobs wanted the fledgling iBookstore to work on the same sales model that had created the first major legal online music store, the "iTunes Store," and later the iOS software "App Store," a few years earlier. They worked on the so-called "agency model", in which Apple acts only as an "agency-distributor" of content supplied by its authors and keeps 30% of sales for distribution. The author therefore fully controls both the price of the work and his profits.
This simple model allowed individuals and small businesses to enter the market and break the dominant influence of large corporations that had ample advertising and distribution resources. Apple supplies over 300 million potential readers to authors in its ecosystem and takes care of advertising and the infrastructure of the iBookstore. Thus, for the first time, we have entered a world in which the quality of the content matters and not the amount of money that the creator can afford to spend on advertising.
Publishers
American publishers Hachette Book Group, HarperCollins, Macmillan, Penguin and Simon & Schuster are among the many who have welcomed the "agency model" and become content suppliers for the iBookstore. These companies account for most of the books published in the United States. After the arrival of Apple in the e-book market, they were already given the opportunity to choose the way of selling their books, and Amazon gradually began to lose the absolute majority of the market. Publishers broke out of their subordinate position with Amazon and through hard negotiations either obtained more favorable contracts (e.g. Penguin) or left it.
[do action=”citation”]The 'forced market-wide price fixing' did happen - it just got it wrong by whom. In fact, Amazon did.[/do]
The popularity of the "agency" model is also evidenced by the fact that only four months after the start of its operation (i.e., after the release of the first generation iPad), this sales method was adopted by the vast majority of publishers and sellers in the United States. This revolution in the creation, sale and distribution of e-books stimulated the development of the industry, the arrival of new authors and companies and thus the emergence of healthy competition. Today, instead of a fixed $9,99 per book, prices range from $5,95 to $14,95 for the bulkier e-volumes.
Amazon is not giving up
In March 2012, everything indicated that the "agency model" is an established and functioning way of selling, satisfying the vast majority. Except Amazon, of course. His share of sold e-books has fallen from the original 90% to 60%, plus he has added competition, which he is trying to get rid of by all means. In the fight for a safe majority in the market and absolute power over publishers, hope has now dawned on him in the form of a lawsuit filed by the US Department of Justice (hereinafter referred to as "DOJ") against Apple and the above-mentioned 5 publishers for alleged cooperation in alleged "forceful price fixing ” for the entire market.
The DOJ made a very interesting point that I agree with: "forced market-wide price fixing" did happen - it just got it wrong by whom. In fact, Amazon did so when, as one company with 90% of the market, they kept the price of most books (below purchase price) at $9,99. On the contrary, Apple was able to break Amazon's monopoly, making room for competition.
Conspiracy theory
The DOJ further accuses the aforementioned firms of holding "secret meetings" in Manhattan restaurants. It is apparently an attempt to prove the alleged "cooperation" of all mentioned companies in the overall transition to the "agency model". A global transition and change in the entire industry would be illegal, but the DOJ would also have to condemn all record companies that supply music for the iTunes Store, because exactly the same situation happened 10 years ago. Apple then needed content and negotiated special terms of cooperation with each company. The fact that all these companies started using the "agency model" at the same time (the time of the iTunes Store) did not seem to hurt anyone, because it was the first attempt to legalize the sale of music over the Internet.
These "secret meetings" (read business negotiations) then helped everyone and no big company started losing profits by this move. However, in the case of the e-book industry, Amazon's toys have been "unearthed", and it must offer better conditions to publishers. So it would be useful for him to show that the publishers did not deal with Apple individually, but as a group. Only then could they be convicted. However, the statements of several bosses of the mentioned publishers completely deny that it was not an individual decision of individual companies.
Furthermore, suing Apple for "price fixing" seems absurd to me, given that their agency model does the exact opposite - it puts power over the prices of works back into the hands of authors and publishers instead of being set globally by the seller. The whole process thus indicates a strong involvement of Amazon, since it alone would gain something by banning the already functioning "agency" model.
Process flow
On the same day the lawsuit was filed, three of the five defendant publishers (Hachette, HarperCollins, and Simon & Schuster) withdrew and agreed to very tough out-of-court settlement terms that include partial restrictions on the agency model and other benefits for Amazon. Macmillan and Penguin, together with Apple, expressed confidence in the legality of their actions and are ready to prove their innocence in court.
So everything is just beginning.
Isn't this about the readers?
No matter how we look at the whole process, we cannot deny the fact that the e-book market changed for the better after the arrival of Apple and enabled healthy (and predatory) competition. In addition to the legal battles over every definition of the word "collaboration", the court will also be about whether Apple and the publishers will be able to prove this fact and be freed. Or they will really be proven to have illegal behavior, which in the extreme case may mean the end of the iBookstore and digital textbooks for schools, a return to the wholesale model and the re-establishment of Amazon's monopoly.
So hopefully that won't happen and book authors will still be allowed to set prices for their works and simply share them with the world. That common sense will prevail over Amazon's efforts to eliminate competition through the courts and we will still have the option to choose from whom and how we buy books.
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Well, Apple isn't much more worthy of competition either :D
I have to say that the defense of Apple on the server dedicated to this brand is on point and I understand it. Well, we should also look at it from the consumer's point of view, which is why I welcome any competitive struggle that lowers book prices, regardless of any sales method. So I don't mind Amazon selling books below cost at all. After all, it's up to the publishing houses whether I will cooperate and with whom. Well, the fact that Amazon had a 90% share of this market probably also speaks to something, namely that nobody was able to figure out how to sell books. I don't want to defend either of these companies here, so it would be good if they both kept healthy. As I said, we have a choice, it is a democracy, etc.
But always from the point of view of the consumer, there was a competitive battle here, namely the battle of the book author vs. Amazon, as it is written in the article, on the iBookstore the books range from 5.95-14.95 USD, while Amazon generally has a uniform price of 9.99 USD ;)
Isn't it a battle of sellers vs publishers? That is, sellers vs. sellers, since the costs of producing an e-book are minimal. The authors of the books are completely off the mark as always…
Well, it seems strange to me... if one authority set up a monopoly of another brand by its decision, then the (mostly quite harsh) American antitrust authority should intervene, right? Otherwise, very very interesting article.