To believe publishers and authors, the government just handed Amazon a monopoly over the book market: The price-fixing suit against Apple and the nation’s top publishers filed by the Justice Department last week will free Amazon to offer ruinous discounts in the booming new market of electronic books, drive brick-and-mortar bookstores out of existence and kill off publishers’ lucrative business of ink on paper.
Tony Avelar/Bloomberg News
Steve Jobs, chief of Apple, talked about the iBook function during the introduction of the Apple iPad tablet in 2010.
Yet there is a different reading to this story. Publishing companies — like bookstores — fear they are on the losing end of a technological whirlwind of digital distribution that will make much of what they do obsolete. They would like to stop it. But though publishers may be happy to subvert competition to protect their business, this can entail a heavy cost for the rest of society.
The media industry’s efforts to limit competition date at least as far back as the 1920s and 1930s, when the emergence of radio threatened newspapers’ stranglehold of local markets.
At a meeting at the Biltmore Hotel in New York in December 1933, newspaper executives offered what was essentially a plan to divvy up the audience between radio entertainment and newspaper news. The newspapers would stop their campaign against radio and reinstate radio listings if the major radio networks would limit their news offerings to a couple of short bulletins a day from the newspapers’ wire services.
The Biltmore Agreement, as their pact was known, soon fell apart, as independent stations not part of the deal started buying information from new radio news services and offering real news. Despite that cartel’s failure, the anticompetitive impulse survives to this day.
The Internet is walloping media perhaps like no other technology before. And the media establishment again looks upon competition as a hindrance to its survival.
Flailing under the loss of readers and advertisers to online competition, newspaper executives approached regulators three years ago floating the idea of an antitrust waiver. They wanted to coordinate on a strategy to charge readers for their online news and take steps against the aggregator Web sites that were republishing much of their content. Though they gained the sympathy of crucial members of Congress, the government rightly shot down the idea.
The top record labels, meanwhile, are facing a class action antitrust suit that accuses them of colluding to keep the price of online music artificially high to protect their lucrative CD business.
The suit filed last week against Apple and five of the nation’s six main publishers has a similar plot. Amazon had been buying e-books wholesale and selling many best sellers at a heavily discounted $ 9.99, taking the loss to encourage sales of its Kindle e-reader. Fearful that this discounting could destroy the $ 25-a-book hardcover business, publishers took advantage of Apple’s entry into the market to change the terms. According to the lawsuit, they colluded with the computer colossus to establish an “agency model” under which publishers would set e-book prices in a range of $ 12.99 to $ 14.99, and give the distributor — be it Apple or Amazon — a 30 percent cut.
It’s natural to feel some sympathy for old media firms as technology juggernauts bear down on them. To many of us, book publishers and newspapers are more than just businesses. They are the keepers of the culture, the guarantors of our democracy. And they are small compared with Amazon, which controls 60 percent of the growing e-book market, as well as a big share of the market for books on paper. Absent any collusion, Apple’s entry into the e-book market would be the kind of competitive challenge we should welcome in the digital world.
But the charges aren’t trivial. The kind of collusion alleged by the Justice Department is called price-fixing. It has been illegal for a very long time, even if one is fighting a very large rival. According to the Consumer Federation of America, it would cost readers about $ 200 million this year alone. More important perhaps, this behavior could arrest the development of innovative platforms to sell digital goods on the Web.