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Today’s Question for High School Civics Class or Harvard Law School Students: Can a competing retailer (Apple) really dictate individual item prices to another retailer (Amazon) by colluding with a publisher/wholesaler (MacMillan)?

By Stephen Windwalker

  • Originally posted February 1, 2010 at Kindle Nation Daily – © Kindle Nation Daily 2010

I received this email overnight entitled, “Steve, Stock up on Audiobooks for Less,” and it got me thinking, which is always dangerous.

Yesterday, as Kindle Nation and others were fanning the flames of consumer revolt against the inside-dealing, self-dealing, double-dealing, dealing-with-the-devil tactics of Steve Jobs, Apple, and the big publishers who are conspiring to send ebook prices into turmoil, Amazon took what seemed in the moment to be a surprisingly meek move: it apparently threw in the towel with an announcement on one of its own community forum pages that “ultimately … we will have to capitulate and accept Macmillan’s terms.”

Then I received that email from Audible.com, which is owned by Amazon, showing me a picture of an iPod Touch and urging me to buy a ton of audiobooks and listen to them on my iPod Touch. That’s an Apple device, by the way. I don’t happen to own an iPod Touch myself, although I have given them as gifts to my son, one of my daughters, and my girlfriend. I do have an Audible.com account, and in most cases I listen to the associated audiobooks on my Kindle. In about three months I’ll be getting a 3G iPad, now that I am persuaded that the iPad will run the Kindle App, Skype, and my blogging service. I own a little Amazon stock, and my best friend owns a little Amazon stock and a little Apple stock. Not enough in either case that it would ever affect what I write in Kindle Nation, but enough so that I occasionally think about what Amazon does not only from a Kindle owner’s perspective but also from a shareholder’s perspective. Since I make limited use of my cellphone, I’ll probably cancel my month-to-month Verizon wireless account in favor of using Skype on board that iPad, although my sister works for Verizon, and the savings will pay the wireless costs for the iPad. Perhaps I won’t mention this to my sister when we have dinner next week. I’ll continue buying a lot of Kindle books and subscribe to Kindle blogs, newspapers, and magazines, and I will probably even buy books published by MacMillan, although I will not spend over $9.99 for them unless they involve a clear case of some expensive technical or professional book for which the dead-tree edition would be priced at least 20% above the Kindle edition price. I will even continue, occasionally, to buy a paperback or hardcover from MacMillan or other publishers. I have nothing against paperbacks or hardcovers now and then, and I was even charmed recently that one of Japan’s largest business publishers contacted me through an agent and offered me a nice sum for paperback Japanese translation rights to my Kindle guide. I’m just glad the publisher in question isn’t part of MacMillan’s global publishing empire, because that would be just too confusing.

Er, what’s my point?

It’s just that all of this is very confusing and entangled. And if it’s confusing for me, can you imagine what it’s like for Jeff Bezos? However much he and his Kindle team might like to take names and kick ass in these battles over ebook pricing, it’s certainly reasonable for Amazon’s shareholders to expect the company to play nice with its vendors and even with those competitors, such as Apple, with whom it is involved in various strategic or de facto partnerships (what I mean here, for instance, is that the availability of the Kindle App on the iPhone, iPod Touch, iPad, and Mac are extremely beneficial for Amazon, just as it is also extremely beneficial to Amazon to be an authorized reseller of most of these devices in the Apple-branded store at Amazon.com.

So, yes, I was disappointed to read Amazon’s apparent capitulation yesterday. When I read the last line where Amazon said “Kindle is a business for Amazon, and it is also a mission,” I wondered if it have been more transparent to change a few words so that it read “Kindle may be a mission for Amazon, but at the end of the day it’s all just business.”

Maybe that’s fair, but maybe not. It is clear to me that Amazon is treading carefully here, and setting things up for future strategic steps.

Amazon might be in a better position to charge some of the other players with price-fixing and anti-competitive collusion, after all, if it takes a step back (as it has just done) and lets things develop a bit:

  • if it restores MacMillan titles to the Kindle Store (and the main Amazon store) and MacMillan sets exorbitant and, more to the point, fixed prices for its ebooks;
  • if the other Big Six publishers all move into lockstep with MacMillan and insist upon $12.99 to $14.99 ebook price points combined with the “agency model”; and
  • if the entire scenario plays out just as Steve Jobs said it would.

Perhaps I am working too hard at harvesting inferences from Amazon’s statement yesterday, but given what I have already said about treading carefully here, I have to think Amazon chose its words — especially its use of the word “monopoly” — very carefully. Corporations seldom throw such words around without consulting with their in-house counsel.

Such consultatons, or any related communications that Amazon or its barristers might be holding these days with representatives of, say, the Federal Trade Commission, might properly revolve around some fairly simple questions:

  • Can publishers — or any wholesalers, for that matter — really dictate individual item prices to retailers?
  • To focus a little more precisely on what seems actually to have happened in this instance, can a competing retailer (Apple) really dictate individual item prices to another retailer (Amazon) by colluding with a publisher/wholesaler (MacMillan).
  • What about “it’s a free country?”

Perhaps Amazon will rely on market forces to sort these issues out over time, or perhaps it will seek the intervention either of the courts or of regulatory agencies. Amazon may also be reticent to engage ebook pricing issues in a courtroom if it feels that some of its own strategies may be vulnerable to judicial or regulatory scrutiny, given the claim by some publishers that the Kindle Store currently has an effective monopoly with respect to ebook content, with 90 per cent market share.

But to the extent that either the Big Six publishers (Random House, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster) or their authors believe that they will somehow protect themselves from Amazon by lying down with Steve Jobs and Apple, an old caveat comes to mind: “Be careful what you wish for.”

For starters, don’t underestimate the market power of Kindle Nation’s citizens. Neither Kindle owners nor iPad/iPhone/iPod Touch owners nor those who have both are stupid, thank you very much. Price points matter enormously in influencing sales velocity. The same downward pressures that we have all seen on Kindle ebook prices and for that matter on discounted hardcover prices have also been a powerful force in Apple’s Apps store. If you are thinking that Steve Jobs’ 125 million i-customers are suddenly going to start springing for $14.99 ebooks, well, that’s just silly.

Publishers would be wise to spend a little time going to school on the rise and fall of the music industry as chronicled in Steve Knopper‘s Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age. It’s available in hardcover for $26 (discounted to $18.82 by Amazon), in paperback for $16.95 (discounted to $11.53 by Amazon), and a Kindle edition for $10.38.

Amazon’s "Delete You!" Tactics Creates Other Opportunities, but Will It End in Global Thermonuclear War? Or Just a Lawsuit Against Jobs, Apple, and the Publishers?

By Stephen Windwalker

This is ugly, for now.

The no-holds-barred Kindle pricing struggle between Amazon and one of the world’s largest publishers, MacMillan (and its dozens of imprints) continues. The huge headline remains the same:

Amazon Deletes Buy Button 
From Thousands of MacMillan Titles 

But now some of the backstory is beginning to unfold, and we’ll continue to hear more of the details in the coming days. MacMillan CEO John Sargent has taken the uncommon step of releasing a somewhat self-serving open letter that makes it clear that Amazon stopped shipping all MacMillan print and ebook editions only after MacMillan unilaterally imposed a total transformation of pricing and terms for editions to be sold in the Kindle Store. It’s interesting reading, and it quickly becomes clear that this is no petty spat: it is the continuing high-stakes unfolding of the major book business story of the past few months, one that may well end up in serious litigation and could spell doom for some key players.

It’s clear that, along the way, even if only temporarily, there will be surprising winners and losers:

  • For starters, both Amazon and MacMillan are sure to be short-term revenue losers.
  • Short-term winners will include Barnes & Noble, the major book club operations, thousands of independent booksellers whose stores are well-stocked with MacMillan titles, any Amazon Marketplace third-party sellers who similarly have good MacMillan inventory, and distributors like Ingram and Baker & Taylor.
  • Authors with MacMillan contracts are sure to be short-term losers, but those authors who have the freedom to begin dealing directly with Amazon and the Kindle publishing platform hold a powerful trump card that could soon lead them to the land of direct 70 percent royalties.
  • Apple, whose share price has fallen a stunning 12 percent since its iPad announcement Wednesday, will be a winner in terms of short-term buzz, but without any iPads to ship or iBooks to sell yet, it remains to be seen if that buzz will turn into dollars.
  • Lawyers will do pretty well with this by the time the story plays out. Of course, with enough lawyers involved, it may never play out.
  • And last but not least, we as citizens of Kindle Nation, and book buyers in general, may suffer some from fewer reading choices in the short run, but it is likely that in the long run the result of the war and the underlying transformations taking place in the book business — and perhaps (see below) our own action — will be that more and more books will be made available to read on the Kindle and other devices, and that their prices, even if they are bumped up in the short term, will settle back to the $9.99 range for new-release bestsellers.

There is a long history of serious struggle between trade book publishers and retailers. Such struggles are not generally marked by open, transparent communication from the publishers or, for that matter, from the retailers. When the rubber really hits the road on this chapter of such struggles, one hopes that due attention will be paid to the utter ridiculousness of the notion that, with the actual discounted pricing of most sold units of new release hardcovers ranging between $12 and $18, it is somehow fair or justifiable to charge $12.99 to $14.99 for ebook editions that have no significant production, warehousing, return, or fulfillment costs.

Indeed, such prices could only come about in a seriously manipulated marketplace.

For now it is very clear that Amazon’s move late Thursday to delete the buy button from MacMillan’s titles amounts to a preemptive deployment of “the nuclear option” in this struggle, and it’s not surprising that it has caused a great din of whining on the part of MacMillan and its authors, most of whom seem to be marching in lockstep with MacMillan CEO Sargent whether it is in their long-term interests or not. And I will admit here that Amazon’s “Delete You” move is a bit troubling, for the moment.

But that is partly because it is not yet clear to me what Amazon’s next move will be. As a reader and a minor functionary in Kindle Nation, I want the next moves to lead to a situation where all titles are available in the Kindle Store, and where something close to the $9.99 price point is preserved.

Let’s be clear that none of this would be happening were it not for Apple’s launch of the iPad, and more importantly, were it not for Apple’s recent “negotiations” with publishers in which Apple promised them it would give them a place to sell their ebooks for $12.99 to $14.99. The underlying, anti-consumer shadiness of that deal with the devil seems especially evident in the imprompu interview where Jobs smugly assured journalist Walt Mossberg that “the prices will be the same” between the Kindle Store and the iBooks store:

The more I watch that interview, the more I believe that it is being watched with surpassing frequency on the computer screens in and around Jeff Bezos’ office at Amazon, and especially on the displays of Amazon’s top anti-trust lawyers. If this week’s “Delete You” tactic was the nuclear option, perhaps we should be preparing for the next phase, Global Thermonuclear War, in which Amazon sues Steve Jobs, Apple, and one or more publishers for colluding to fix — and raise — prices for ebooks. 

If I were managing that campaign, I’d consider another step first: I’d ask Kindle owners to join Amazon in any such anti-collusion lawsuit, because it is us whose right to read is being infringed upon by this collusive conspiracy, and who would suffer if Apple and the publishers were to succeed in manipulating the marketplace so as to raise the prices of ebook new releases by 30 to 50 percent.

But come to think of it, why should we wait for Amazon to initiate such an action? If you’d like to join other Kindle Nation citizens as a plaintiff in such an action, or if you are an attorney who is interested in offering your services, I hope you will add a comment below or send an email to kindlenation@gmail.com.