The anchor on ebook prices is gone. Now we'll see where they float

Don Linn on the DOJ's lawsuit and the shifting ebook landscape.

The publishing space remains abuzz in the aftermath of the Department of Justice (DOJ) lawsuit filing last week against Apple and publishers Hachette, HarperCollins, Macmillan, Simon & Schuster and Penguin. Much remains to be seen on how the suit will play out with Apple, Macmillan and Penguin (as the others have settled), and how the Big Six will now respond in relation to Amazon.

For a wider view and some insight into what needs to happen next for publishers to survive the tumult, I reached out to Don Linn, president at Firebrand Associates. Our interview follows.

What is the big-picture view of the DOJ lawsuit?

Don_Linn_Headshot.jpgDon Linn: The combination of the lawsuit, circumstantial evidence that’s been revealed, and settlements by several of the parties, is a very big event. The point I think has been missed in much of the discussion is the perception that the agency model — and the alleged collusion that had led to it — affected consumers negatively via higher prices. The price umbrella agency effectively created benefitted only the alleged co-conspirators. That’s something that never makes anti-trust enforcers happy.

The circumstantial evidence certainly suggests the DOJ had grounds for pursuing an action. “Double deleting” emails is pretty damning, among other things. The fact that three parties have settled, while legally having no effect on the others, clearly weakens the case of the remaining defendants, at least in public, that something happened. We will look back on this as an important date; the date that ebook prices once again were allowed to float. And things seldom float upward.

I’m not an attorney, but I believe that Macmillan, Penguin and Apple have a very difficult legal battle ahead. One I doubt they can win.

Does this strengthen Amazon’s position in the marketplace?

Don Linn: Amazon’s already dominant position has been further strengthened as their ability to set low prices locked into the Kindle ecosystem should only grow their share of the market. Whether this is a good thing for publishers over time remains to be seen, but most readers will cheer short-term price declines and Amazon’s superior customer experience.

Cory Doctorow and others have argued that the DOJ has missed the point with this suit, saying that the DRM lock-in is the bigger anti-competitive threat. Over time this may prove to be true. However, when consumers benefit, regulators can claim a victory.

What do publishers need to do now?

Don Linn: Clearly, the most important thing for those who have settled is to get into — and stay in — compliance with the agreement. Additional legal battles are in no one’s interest, which is why I was surprised that two publishers chose to fight.

Separately, the Big Six and others have to determine whether low prices are their enemy and by extension whether Amazon’s low pricing is sustainable for them. The choices are pretty stark: either withhold content from Amazon until acceptable terms can be agreed upon, or further adapt business models to adjust to lower pricing. I would expect to see major pushback from the Big Six on Amazon, and some may take IPG’s approach of trying to hold out.

Whether that strategy can be successful is questionable, but it may be the only viable approach if they don’t believe lower prices can work. If the publishers yield to Amazon, consumers should hope they could — as Mike Cane has argued — extract something in return … perhaps Amazon’s willingness to adopt EPUB as a way to loosen the lock-in.

What do you think readers will get out of this?

Don Linn: As I mentioned before, consumers get the immediate benefit of lower prices, though there are those who argue that Amazon, once it controls the market, will ultimately raise prices for their locked-in consumers. The DOJ may have inadvertently created a less competitive marketplace with this action, though I feel sure they will be back if Amazon or any other party misbehaves to the detriment of consumers.

This interview was edited for clarity.

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