|WSJ: Steve Jobs, Price Fixer|
By L. GORDON CROVITZ
Book authors wonder about long-form writing in an attention-deprived world, publishers fret about revenue models as bookstores disappear, and consumers develop new reading habits that include both electronic and printed books.
No one knows the next chapter in the future of books, but lawyers in the Antitrust Division of the Justice Department claim to know precisely how this industry in transition must be structured and operated, down to the correct price for an e-book. The government's certainty is the basis of a threatened price-fixing lawsuit against Apple and top book publishers.
At issue is an agreement publishers made with Steve Jobs in 2010, as he was about to launch the iPad. At that time, Amazon's Kindle had 90% of the market for e-books. Book publishers had imported the "wholesale model" from the print world, where they sold retailers books for roughly half the recommended cover price. This made sense in the bricks-and-mortar world of returns of unsold books and expensive inventory. It was in the interests of publishers and booksellers to sell at whatever the market would bear.
But in the e-reader world, Amazon could sell e-books at very low prices, usually for $9.99, losing money on many of them. Amazon's strategy was to price books as loss leaders to support sales of the Kindle, hoping to keep the device's near-total market share.
Publishers wanted competition among e-readers instead of a Kindle monopoly and worried that the subsidized price established artificially low prices. Jobs proposed that book publishers move to the "agency model": Publishers set the price for each book and e-reader companies take an agreed percentage of the revenues. "We told the publishers . . . you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway," Jobs told his biographer, Walter Isaacson. Jobs recalled that publishers then "went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.
Government antitrust lawyers interpret these comments as a smoking gun proving collusion among Jobs and the top publishers (including HarperCollins, a unit of News Corp., which also owns The Wall Street Journal). But Jobs's proposal was not about price fixing. It was about treating book publishers like every other industry. This is the same 30% revenue share that Apple takes for selling newspapers, magazines and games on the iPad. Publishers didn't have to collude to accept it. While publishers ended up earning less per book because of the revenue share to e-reader companies, they regained control over their property.
Ironically, the government had spent much of the pre-digital 1980s and 1990s filing lawsuits arising from the wholesale model. The issue then was also technological change—advances in supply-chain logistics that created the then-giant booksellers including Waldenbooks, B. Dalton and Crown Books. Independent booksellers complained that publishers gave them a lesser discount than the volume discount they gave big chains. Years of antitrust litigation were a total waste of time: Almost every superstore has succumbed to competition from online sellers, chiefly Amazon.
Government lawyers failed to learn that industries undergoing massive change brought on by technology are likelier to be flailing for sustainable business models than flouting market power to fix prices. Book publishers are still trying to predict the full impact of technology. As consumer choice widens, some people want beautifully produced printed books, while others want enhanced e-books with video and other graphics. There are e-books selling for 99 cents and others at premium prices. Perhaps a hardcover should come with access to digital versions. Contrary to the assumption by government lawyers, there's no reason to think the price of e-books must be $9.99.
Amazon still has a large share of the e-book market, but it's no longer 90%. This should have made antitrust regulators happy, instead of leading them to threaten to sue Apple and the publishers. Instead, as Authors Guild president Scott Turow wrote to members, "our government may be on the verge of killing real competition in order to save the appearance of competition."
Steve Jobs was at the center of one of the better known disconnects between Silicon Valley and Washington. President Obama had asked him for a one-on-one meeting in 2010. Jobs told the president he was "headed for a one-term presidency" because Washington was smothering the innovation that had been the country's growth engine. According to his biography, when Jobs organized a dinner of Internet executives with Mr. Obama, he concluded, "The president is very smart, but he kept explaining to us reasons why things can't get done." He added, "It infuriates me."
Jobs was called many things when he was alive, good and bad. We can only imagine what he would say in response to "price fixer" being added to the list by an overreaching, innovation-suppressing government.