6 February 2010

Amazon wounded?

by Matt Rubinstein at 9:28 pm

Amazon.jpgIt didn’t take long for Amazon to cry uncle in The Macmillan Impasse (worst thriller title ever), and since then both HarperCollins and Hachette have indicated that they’re moving to a similar agency model, under which each publisher will set the retail price of e-books and share a percentage of revenues with its selling agents; rather than the old sale-and-resale model, under which the publisher would only set the wholesale price and the retailer had control over the price you and I had to pay.

Nobody has missed the fact that all three of these publishers were listed up there on that big screen behind Steve Jobs at the iPad launch, and few expect that the remaining two (Penguin and Simon & Schuster) will be far behind. Again, I have to wonder whether the publishers’ commitments to Apple include at least an attempt to renegotiate their existing deals in order to protect the iBook Store. And again, it’s not like Apple would be twisting any arms here: this is clearly something the publishers think they want.

Amazon has copped a bit of ridicule over the terms of its surrender:

We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles

…particularly from people who think Amazon has a pretty tidy monopoly itself or is trying its best to establish one. Through its sorrow and betrayal Amazon hasn’t expressed itself very elegantly, but it’s getting at something interesting, I think: something that shouldn’t be dismissed out of hand.

After all, Macmillan does have a certain kind of monopoly over its own books: it’s the monopoly provided by the copyright system. That’s not the kind of monopoly recognised by microeconomics or competition law or even by everyday usage, which is more to do with the ability to control and dominate markets. But the two aren’t unrelated. Books and other cultural goods are different from other kinds of commodities, have fewer true substitutes, and may come a little closer to forming the elusive single-product markets that are often argued and never accepted.

In any case, it’s clear that if Amazon ever had a lot of market power in the distribution of electronic books, it doesn’t now. It’s always had competitors and now it has Apple, in this market probably the most chilling competitor imaginable. The publishers have a good deal of countervailing power since everyone knows that to survive as a mainstream bookstore Amazon has to carry all the books, electronic and otherwise—and to survive as a product the Kindle definitely has to have access to all the e-books (ask HD DVD).

Many have argued that Amazon is only in the business of e-books so it can sell Kindles, pointing to the fact that under the current model Amazon makes a loss on most Kindle books. This is thought to be nefarious and Microsoftine, but really it’s only a problem if Amazon already has a monopoly in either market. Otherwise it’s just a competing value proposition: Kindles are expensive but you get cheap books, and it’s up to you to decide what’s more important. It’s like buying a printer that’s going to need refills, or a mobile phone that needs a cellular connection. It’s not always easy to know which is the best deal in the long run, but it’s good to have a choice.

I don’t have any problem with the graduated pricing model proposed by Macmillan, where books may start out more expensive but become cheaper over time. That’s the way it’s always been in conventional publishing, and it’s the way it should be: everyone has either time or money, so everyone gets to read the book sooner or later. But you don’t need an agency arrangement to achieve that: if the retail market is competitive, adjustments to the wholesale price will be reflected down the line. And an agency arrangement forecloses the possibility of a competitive retail market—especially if you apply it across the board, as at least Macmillan and Hachette say they’re doing.

Back when the Internet was first commercialised there was a lot of talk about disintermediation or “cutting out the middleman”. But middlemen have their uses; they have more power against suppliers than we have, and we have more influence on them than we would on suppliers. Even in disintermediated industries like travel and insurance, new middlemen have risen up to help us compare all the options and save time and money.

The bookseller is, of course, the world’s most important and beloved middleman—in the real world, at least, and why not online as well? Is an electronic book so different from a physical book? I would have to argue that it’s not: the book itself, and not what it’s made of, is the essential thing. And I’d prefer to see all of them sold in different ways by different people at different prices. Otherwise Macmillan and the others really might as well have their own monopolies.