In the Consumer’s Name

First the civil suit in California. Then the European Commission investigation. Now, according to the Wall Street Journal, it is the U.S. DOJ. And the attorney’s general for Texas and Connecticut [1]. What do all these folks have in common? They are launching probes into alleged collusion between Apple and publishers over eBook pricing.

The dueling rhetorical exchanges put the consumer in the middle of this fracas. Here’s Hagens Berman, speaking on behalf of plaintiff Anthony Petru, a resident of Oakland, California, and Marcus Mathis, a resident of Natchez, Mississippi. Each purchased a least one e-book at a price above $9.99 after the adoption of the agency pricing model.

[Really? This is their plaintiff list? Or just the published plaintiff list?]:

…the publishers and Apple colluded to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.

Here’a the corresponding statement from one of the named defendants, Hachette Book Group:

Hachette’s “decision to distribute e-books through agency distribution not only better serves our authors and customers, it has also helped to increase competition and consumer choice in e-books and devices,” a spokeswoman said.

So there you have it. As a consumer, you should only be concerned about discount pricing, says the plaintiff’s lawyer. Pretty much the Wal-Mart / Costco argument. No, say the publishers, as a consumer you should also be concerned about choice in e-books and devices. Why? Ask the Authors Guild, which is already recommending that authors not participate in Amazon’s lending library, due to Amazon’s confiscatory remuneration model (royalties based on wholesale rather than retail price).

The book business, like all of the arts, is built on a three-legged stool. Not to be pedantic, but there are creators (authors), distributors (publishers) and consumers (reading public) in the model. The consumer model that focuses on price alone is based on paying lower royalties (wholesale rates), which ultimately hurts authors. A consumer model that adds choice purports that the ability to do so is based on higher participation rates by authors, whose royalties are not discounted (retail rates).

Although I think publishers need to do a better job on their own side of the royalties picture, Amazon’s offer to authors is… well… considerably worse. The wholesale discount is anywhere from 55% to 20%, which means the author is giving away up to half of her money. Yes, that makes for a happy consumer. And a very unhappy author, who’s looking at a potentially deep discount in royalty calculations.

Amazon will argue that author’s (and publishers) will make up in volume what they lose in pricing. What they will have more difficulty arguing is that the agency model has hurt eBook sales, at least according to recent Association of American Publishers numbers:

According to the February results, once again e-Books have enjoyed triple-digit percentage growth, 202.3%, vs February 2010.

Author’s will add that the agency model treats all three-legs in the publishing stool more equitably. Well, at least this author will. We’re already seeing some publishers try to move to the wholesale model. We no like it.

[1] The Connecticut AG can’t seem to decide which way its assets are pointing. First up, it was taking on Amazon and Apple for collusion. Now it’s going to the other party, across the street.