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Actually, I do know a little bit.

Amazon used to “buy” e-books from big publishers in a way that resembled the way they bought print books from them. That is to say: they paid a set price — set by the publisher — for each e-book, then they owned it. As the owners of this e-book, they were entitled to sell it at whatever price they wanted to set, when they re-sold it to a consumer. They sold the e-books to consumers for less than the publishers’ list price in almost every case. In some cases (big bestsellers), they sold the e-books for less than they had actually paid for them.

Publishers were not happy about this.

You may wonder why. After all, they were still getting paid exactly what they had asked Amazon to pay for each and every e-book. If I sell you an orange for a dollar, and you sell it to the next guy for fifty cents, where’s the harm to me? I still got my dollar. Right?

One reason the publishers were unhappy was that Amazon’s pricing lowered the perceived value of their product over the long haul. If I own all the oranges, but you keep buying them from me and then selling them to any and all comers for fifty cents, at some point the vast supply of oranges I own are not worth a dollar each anymore, in the public perception. They’re only worth fifty cents. I didn’t lose money today, because you still paid me a dollar, but I proactively lost a lot of money in the future, when I won’t be able to move my oranges for a dollar anymore, because nobody thinks they’re worth that much.

Another reason the publishers were unhappy was that Amazon’s practice of losing money on each sale could be interpreted as a predatory move on the marketplace itself: only a large, wealthy, monopolistic player can afford to lose money with every sale while it starves its less-wealthy competition. If Amazon had managed to cut out all competition for e-book sales, then the publishers would be left with only one monopolistic gateway to the public, Amazon. As a wholesaler, you never want to be in a situation where you only have one retail outlet, because when that happens, you are completely subservient to the monopoly’s whims.

Those reasons make sense to me. They are the only reasons that make sense to me. I’ve heard lots of other “reasons” that do not make sense to me, that may or may not be true (the notion, for example, that big publishers are desperate to keep the print book business alive may or may not be true — it doesn’t make sense to me as a motivation for agency pricing).

You may never have heard that term agency pricing. It’s a funny term. Here’s how it came about:

When the iPad came along, big publishers saw an opportunity to break Amazon’s perceived monopoly, and they did so with gusto. The deal they made with Apple worked like so: instead of selling the e-books outright to Apple, who then owned them and could re-sell them at whatever price, the big publishers contracted with Apple to be their “agent” in selling books to readers. Apple never “owns” the books; it’s more of a consignment deal. They’re just “holding” them until a sale is made. The publishers set the price, Apple handles the marketing and “storefront” and individual transactions, delivers the book to the consumer, and gets a cut. Apple is an “agent” for the actual seller, the publishers, who set the price. That’s why it’s called agency pricing.

So far so good.

Then the publishers turned on Amazon and demanded the same deal, and Amazon, after some bawling and tantrum-throwing, caved.

I’ve heard that publishers actually make less per e-book sale now than they did in the old days, when they were selling at standard wholesale rates to Amazon, even though the final retail price is higher for the buyer. I do not know if this is true.

I’ve also heard that Amazon makes significantly more per e-book sale than it did in the old days, since it is no longer allowed to lose money on every sale, or even on any sale. I’m certain this is true.

Anyway, the DOJ decided that the action of the big publishers in enforcing agency sales on Amazon amounted to “collusion” and was potentially illegal. That’s what the lawsuit is about.

Here’s some analysis from a smarter person than me.

People in the book industry, from copy editors to agents to publicists to bookstore owners, are great at spreading FUD. They got into the book industry because they were and are articulate, passionate people who know how to argue their own case, and who are (because most people in publishing are New Yorkers*) willing to do whatever it takes to win, including trashing the reputation of their perceived opponent, fairly or no. Generally I side with Amazon on all things FUD-related.

I’m not so sure on this one. It seems to me that their “loss-leader” pricing was a textbook example of a predatory monopolist trying to shut down the rest of the industry. How could it have been anything other than that?

But, like I said, I know nothing. Now you know what I know!

*I’m not bitter about the time I spent living in New York. Really, I’m not.