Posts Tagged Apple

Shakeup, Shakedown

Today is Monday, April 16th.  The 11th, with its suit from the DOJ against Apple and five of the Big Six publishers is most of a week behind us, and lines are still being drawn in the sands.  In the end there’s one guarantee, this entire issue is bringing the future of publishing to much more public light than anything has in a good long time.  That’s probably for the best, it’s good that there is an informed public seeing, perhaps for the first time, just how their sausages are being made.  Even if it comes hand in hand with many of the predictable questions about why digital books should be so “expensive,” considering there’s no price to printing.

So a rundown of what I’ve been reading and what I’ve been thinking, starting with what’s turning into one of the bigger lightening rods, Charlie Stross’s weekend post “What Amazon’s ebook strategy means“.

And the peculiar evil genius of Amazon is that Amazon seems to be trying to simultaneously establish a wholesale monopsony and a retail monopoly in the ebook sector.

He makes an interesting point about DRM as a player in this game.  I’ve always had a rather funny feeling about DRM, embedded technology intended to prevent pirating of copyrighted digital material.  As a producer of intellectual property (even if it’s not all that intellectual), I’ve got a stake in the protection of copyright.  However, in the end, most DRM technology has proven only to make it difficult for legal owners of material to enjoy it, rather than stemming any actual piracy.  DRM on music, DRM on eBooks, DRM on movies, all are non-trivial to overcome, but all are also nothing more than annoyances for those who know their various workarounds.  So in the end, DRM misses its mark by hindering not the pirate but the casual user.

Stross says that DRM allowed Amazon’s near monopoly of the eBook market, they very one that the alleged collusion of Apple and the publishers was meant to combat.  It was the DRM/wholesale one-two punch that created the problem.

So, because Amazon had shoved a subsidized Kindle reader or a free Kindle iPhone app into their hands, and they’d bought a handful of books using it, the majority of customers found themselves locked in to the platform they’d started out on. Want to move to another platform? That’s hard; you lose all the books you’ve already bought, because you can’t take them with you.

By foolishly insisting on DRM, and then selling to Amazon on a wholesale basis, the publishers handed Amazon a monopoly on their customers—and thereby empowered a predatory monopsony.

Amazon could take a loss on its sales of eBooks purchased under a wholesale basis (this loss is not in question), then have books locked to the Kindle thanks to the DRM.  Publishers didn’t entirely understand how the DRMs would work, but they wanted them because they would prevent piracy.  This was the advent of the modern eBook market, where most selling sources lock you into one format readable on only one reader or a family of readers.  Which means that consumers aren’t buying books, they’re buying licenses.  Stross sees the next move being the death of DRM.  Even as a content creator, I’m for this, as I don’t believe there would be any significant uptick in piracy, but there would be a significant uptick in availability of intellectual properties.  This is a net positive.

Want a dose of pessimism?  Baldur Bjarnason in his post Today is Not Tomorrow (reblogged with some additional commentary by Charlie Jane Anders on io9) looks at what the effect of an Amazon ruled eBook market could have on eBooks as a whole.  He identifies five problems:

  1. No margins (mostly due to hardware)
  2. No moat
  3. Subsidised hardware
  4. Integrated silo
  5. Specialised user-base (expert readers)

Basically by creating a specialty market, like the rise of the comic book store, Amazon ends up bracketing off a portion of the market that is more than happy with the developments, but makes it harder for someone new to get into reading eBooks.  They’re not on the newsstand, so to speak.

But, having captured the expert reader populace, Amazon is in the position to squeeze the market dry as it slowly fades away over the next twenty years. They won’t have the margins to expand novel reading and the Kindle is in many ways as unfriendly to casual readers as a comic book store is.

The Kindle as a device is a shibboleth for expert readers and as such drives casual readers away. ‘Why should I buy a Kindle? I only read a couple of books a year.’ It’s a symbol for a clique they know they won’t ever be a member of.

A free app, on the other hand, is a no-brainer decision for most people. They’ll download it, just in case.

But none of that addresses the problem of renewal once novels are removed from the public sphere. Comics have taught us that you can’t rely on parents training their children to love a medium, it needs to be instilled through exposure. The industry needs strong, healthy, and vibrant libraries. Ask any adult expert reader and they’ll all rave about how much time they spent in libraries as kids.

And here we get into another core issue, one that I don’t talk about much.  Libraries.  Publishers serve libraries in a way Amazon as yet doesn’t.  This makes sense.  Publishers support libraries because they benefit from people stumbling across new and interesting stories.  Amazon doesn’t because libraries buy one copy once and there’s no profit margin in that.  Publishers envision better profit through support, Amazon through neglect.

So what do we do?  We the writers who are just pounding away on keyboards and seeing the publishing world outside our windows going to hell in a handbag?  We do what we should always do: listen to Chuck Wendig on Prepping For The Publishing Doomsday:

Calm down.

Breathe easy.

In. Out. In. Out.

Maybe have a drink. Take a walk. Sip some oolong tea.

Then, when you’ve relaxed: keep writing.

Stay the course.

Which is what I’m going to do.  Because it’s all I can do right now.  Anything else is a course to madness, or worse, distraction from writing.  So yesterday I finished the rough draft of Chapter 34.  The outline goes 38 chapters plus an epilogue.  So I’m just going to keep writing it.  Then editing it.  Then see what comes when it comes.

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April 11 2012 News Wire

Rare direct cross post from Unleaded. There are two big developments today in the battles between Amazon, Apple, the publishers, and the DOJ, both of which deserve attention of anyone who cares about the future of ebook and regular book pricing, with the potential of both affecting the future of author compensation.

First, from The Bookseller, Two US publishers turn backs on Don’t let the headline underplay this, this isn’t another dispute between Amazon and a smaller group like IPG, this is at least two of the Big Six fighting back, though specifically which two is not yet known.

At least two of the big six publishers in the US are refusing to renew contracts with, with the giant internet retailer said to be downplaying the promotion of their titles as a result of the dispute.

The news was first reported by Salon reporter Alexander Zaitchik, who noted in a longer piece on Amazon, that “for the first time, the ‘Big Six’ publishers—HarperCollins, Random House, Hachette, Simon & Schuster, Penguin and Macmillan—have refused to sign Amazon’s latest annual contract”. Overnight PaidContent reported that “people familiar with the situation” confirmed to its reporter that at least two of these big-six houses have refused to sign new annual contracts, but it could not confirm whether the remaining four had taken a similar stance.

Interesting to see they’re not completely yanking the titles like they did with IPG, but then I always suspected they went after IPG because Amazon felt they were a weaker target, someone that would just roll over, and someone whose business they could afford to lose. Can’t yank two of the Big Six, that’s a significant portion of the market, and that’s going to hurt Amazon far more than it would likely hurt the publisher.

Second, from the Washington Post, among others, Justice Dept. sues Apple, publishers over e-book prices. This is what we’ve been expecting for a few weeks now, ever since the threats came down. This follows close on the heels of HarperCollins, Simon & Schuster, and Hachette settling with the government.

The U.S. Justice Department announced Wednesday it was suing Apple and five major publishers, alleging they colluded to keep the price of e-books artificially high.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” U.S. Attorney General Eric Holder said. “We allege that executives at the highest levels of these companies–concerned that e-book sellers had reduced prices–worked together to eliminate competition.”

The suit was filed against Apple as well as HarperCollins, Simon and Schuster, Hachette Book Group, Penguin Group, and MacMillan.

I’ve made my side in this fight known. I side with the publishers, which means I side with Apple, largely because I stand by a standardization of prices across digital formats. I’m not going to say that the Agency Model is the end all and be all, but as I say in that post:

If I comparison shop between Barnes, Amazon, and my local independent book seller, I may get three different prices for a book. I can pick the cheapest one, and I can read it without any worries. However with three major formats for eBooks, comparison shopping is limited by my ability to then read the book I picked up. Finding a book cheaper through the Nook store isn’t going to do me a damned bit of good when I have a Kindle. So if one company, say Amazon, consistently undercuts the other two, it’s going to push people exclusively to the Kindle. One company can control the market by being the most able to sustain a loss.

The DOJ isn’t intentionally acting to help Amazon create a monopoly, but stand by my concerns that that will be the outcome.

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1 Comment

Get the Popcorn Ready

It’s time to watch the battle lines form and opposing sides to form.  The DOJ is threatening action against Apple and five of the six big publishers, suggesting collusion in the pricing of eBooks.  Even though the issue is complicated and the sides are the DOJ vs Apple and the publishers, I suspect within a few days the narrative will be presented as Amazon vs iBooks, as this looks to be a battle between the Wholesale and Agency pricing methods.  However, I’m sure it’s also going to morph into questions of why eBooks are “so expensive” and play into the standard debate of whether or not traditional publishers still have a place within publishing.

The agency pricing method is a product of the last round of scraps, which saw the combined force of Apple and the publishers on one side, and legitimately Amazon on the other.  The iPad was a new piece of technology, iBooks looked to be the first Kindle competitor Amazon would take seriously, and Apple offered the publishers a more lucrative pricing arrangement whereby the publishers set prices for books and got better revenue splitting than Amazon offered at the time.  It was a move that stabilized publisher profits and writer royalties, though in doing so created a model unlike how books were distributed to brick and mortar locations.  Not that Amazon’s old Wholesale pricing method was exactly the same, either.

The crux is just how the Agency model came into place.  Apple offered it to the publishers, knowing that it would result in higher eBook prices than Amazon was offering, but also knowing that the publishers would readily agree and use it as ammunition to strong-arm Amazon into the same changes.  The publishers at the time felt that Amazon was undercutting prices on eBooks, even to the point of taking a loss on best sellers.  This created arbitrary price points that were lower than could sustain profitability, but were also training consumers that these were the prices eBooks were “supposed” to be.  To that extent there probably was some collusion that happened, these companies worked together to set a price point that they were able to enforce on Amazon through the power of their collective bargaining might.  Amazon didn’t want to lose the publishers to Apple, they folded, and today we have the Agency model ruling the day.

What specifically launched all this was a quote by Steve Jobs in his recent biography:

We told the publishers, “We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”  They went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.”

That’s pretty damning when read on its own, but it’s also the kind of bravado that Jobs was well known for in life.  On the flip side you have the CEO of Barnes & Noble allegedly testifying to the DOJ that abandonment of the agency model would likely give Amazon the power to create a monopoly.

When you boil the fight down to Apple v Amazon, it’s hard to take sides.  As a reader, I don’t want to see book prices set arbitrarily high.  As a writer, I don’t want to see them set arbitrarily low.  In the end, what I care the most about is writers getting the royalties they deserve, whether purchases come from a printed copy or from a digital edition.  Right now the Agency model protects those better than the Wholesale model did, but neither protects them as well as the model actually used in bookstores.  The model whereby an author gets the same royalty for a hardback whether bought full priced on day one of sale or for $1 on the ultra discount rack eighteen months later.

The central issue of all of this is the question: how much should an eBook cost.  And it’s a question with lots of strongly held opinions.  Amazon’s original theory was $9.99.  Apple and the publishers put into place a plan similar to the way print books are priced, with a premium for books that are in hardback, on recent releases, and from well known authors, with lower prices on older or back catalog releases.  Compounding the issue are two variables: the recent move by the self proclaimed “indy” authors to undercut novels put out by publishers by putting their novels out there for 99 cents, or even free, and lack of consumer understanding on just what portion of a book’s cost is related to the physical production.

Go into any discussion about the pricing of eBooks, and there will be a lot of them over the next few days, and you’ll inevitably see the question as to why eBooks are “so expensive.”  After all, the argument goes, the publishers are saving money on printing and distribution, so why aren’t those savings passed on to the consumer.  In large part it’s because these savings aren’t that great.  The costs of publishing a book are largely tied up in those things that don’t go away with eBooks.  Things like acquisition, editing, and advertising.  Digital distribution even has its own unique costs that offset the savings from printing and distribution.  Questions about why eBooks aren’t cheaper also don’t get into the above mentioned premium that the publishing industry has always put on new publications, especially by established authors.  A premium that has largely been understood in the past, and that exists across all media.  A new movie, a new DVD, a new game, a new CD, they’re all going to be more expensive than the movie in the second run theaters, the bargain rack DVD or CD, or the game from last year.

The Agency method also standardizes prices across formats, which is something that you don’t need to worry about with books.  If I comparison shop between Barnes, Amazon, and my local independent book seller, I may get three different prices for a book.  I can pick the cheapest one, and I can read it without any worries.  However with three major formats for eBooks, comparison shopping is limited by my ability to then read the book I picked up.  Finding a book cheaper through the Nook store isn’t going to do me a damned bit of good when I have a Kindle.  So if one company, say Amazon, consistently undercuts the other two, it’s going to push people exclusively to the Kindle.  One company can control the market by being the most able to sustain a loss.

This discussion is understandable.  And it needs to happen.  This is a new economy, and people are now paying money for things they feel less of a physical connection to.  You have a digital song, not a CD.  You have a file, not a paperback.  It’s probably fair that people pay less for these items, as they have fewer options of what to do with them.  I can’t sell back an eBook to a second hand dealer to recoup some money, for example.  It’s likely going to take a few more years for a pricing model that is fair to the electronic distributors, the publishers, and the writers to get sorted out.  This DOJ warning (and it’s good to stress it is only a warning at this stage) may end up being a very positive move towards finding something that is more evenly equitable for everyone involved in the production and distribution of intellectual digital property.  But it’s not going to be pretty along the way.

Final note, since I’m a day late on posting this due to yesterday’s technical difficulties, Apple has now responded:

But this allegation just strings together antitrust buzzwords.. Nor does this “Kindle theory” make sense on its own terms. For example, if Amazon was a “threat” that needed to be squelched by means of an illegal conspiracy, why would Apple offer Amazon’s Kindle app on the iPad? Why would Apple conclude that conspiring to force Amazon to no longer lose money on eBooks would cripple Amazon’s competitive fortunes? And why would Apple perceive the need for an illegal solution to the “Kindle threat” when it had an obvious and lawful one which it implemented – namely, introducing a multipurpose device (the iPad) whose marketing and sales success was not centered on eBook sales?

All we as readers and entry level writers can do is watch this play out.  If I had to pick a side…damn, it’s tough.  I’d stand with the Apple/Publishers side, largely because I’m concerned that this is happening so close to Amazon’s push to change revenue distribution with those publishers and distributors it believes it can push around.  That’s going to be pretty standard for me.  I’m usually going to side with content producers, because I am one, but I suspect there will be content producers on both sides of this.  As you may have figured out, this post is largely me just trying to make sense of it all myself.  Ultimately this fight will affect us all, but so many of us are going to have so little say in the resolution.

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