Why We Should Fear Amazon
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Late last week, the Justice Department warned Apple and five of the nation’s largest publishers that it was planning to sue them for price fixing. At issue is the agency model, a method of wholesaling e-books in which the publisher sets the retail price and the retailer takes a 30 percent cut. Most print and many e-books are sold under the traditional wholesale model, in which publishers sell books at a discounted price, and the retailer can resell them for whatever price it likes.
The unnamed player in this drama is Amazon, which had been selling e-books at a loss until two years ago, when the iPad came along and publishers used the emergence of the new device to pressure the online megaretailer into adopting the agency model, too. If Amazon wanted to sell e-books from the Big Six (as the six largest book publishers are called), it could no longer sell those titles for $9.99.
Publishers actually make less money with the agency model, so why have they insisted on it? The change was designed to limit the growing dominance of Amazon over American book retailing. On Monday, Scott Turow — the bestselling author of “Presumed Innocent” and other legal thrillers, and the president of the Authors Guild — posted a letter to members on the Guild’s web site. In it, he pronounced the Justice Department’s actions bad news for authors, “grim news for everyone who cherishes a rich literary culture,” and (contrary to first impression) ominous for book consumers. I called him up to find out more.
What are some of the Guild’s problems with Amazon?
First of all, so that I don’t get dismissed as an ingrate, I should say that Amazon has been a boon for bestselling authors. Authors get paid on the basis of the cover price for a hardcover book. By discounting, which is something that chain stores started and Amazon continued, they have lowered the barriers to book buying in ways that have been personally extremely beneficial to me.
Because you get paid the same amount regardless of how much the retailer charges for the book, and the discounting encourages more people to buy the book?
Exactly. These are not personal complaints. There are lots of things about Amazon for which they deserve credit. They’re innovative. There are lots of very, very happy Amazon customers. I’m not here to dispute that Amazon has been personally good for me or to say that they haven’t been, so far, good to their customers.
So what’s the problem?
The concern is that they are getting so large and they compete so ruthlessly that there’s a lot of fear for what the world with Amazon in charge is going to look like.
The Guild’s beefs with Amazon became pronounced over the issue of the resale of new titles some years ago. This was something that Amazon pioneered. They would sell you a [just-released] book on Day One, buy it back from you on Day Two, and then resell it to another customer on Day Three. This was legal, but certainly not what anybody ever intended.
Traditionally, in hardcover, that’s been basically a split of the proceeds between the author and publisher. (An aside: That’s something we’re fighting with publishers about in the digital world.) So Amazon decides to go into competition with the publishers by reselling the book they just bought. The publisher gets paid nothing, and neither does the author. It’s a pure profit for Amazon.
Now, the reason you don’t see used bookstores within new bookstores is that the used books compete with the new books and the publishers supplying the new books would object. Either you’re doing business with me or you’re competing with me. I’m not going to sell you books so you can take some percentage of sales.