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Amazon’s monopoly is as real as dragons

11 Jul
Don't look now but it might be time to slay the big evil dragon named Amazon.

Substitute gold coins for books and this big, evil dragon’s name could be Amazon.

If you haven’t slapped your forehead recently, you should try paying attention to what’s going on in book publishing. On Wednesday, a U.S. judge pronounced Apple guilty of conspiring with publishers to raise book prices – a verdict the company plans on appealing. Far more interesting, though, was a New York Times story  last week that suggests Apple’s enemy in this matter – Amazon – has finally accomplished its mission of establishing a book-selling monopoly. Smack!

The two are very related. The Apple situation came about in 2010, when the company launched the iPad. Knowing that e-books would be a big selling feature of the tablet, Apple arranged an “agency model” with several book publishers that would allow them to set their own prices. The publishers were keen on the agreement because they felt that Amazon was amassing too much power. As a retailer, Amazon was also free to set its own prices, and it was selling many e-books cheaply. The publishers didn’t like this because they felt that Amazon would establish a psychologically low price level in the minds of consumers.

As the judge in the case ruled, Apple played “a central role” in convincing publishers that its model would raise e-book prices, which it did.

But, according to the Times story, other publishers and authors are now complaining that it’s Amazon that is raising prices. With U.S. bookstore chains such as Borders bankrupt and Barnes and Noble on the ropes, and with Apple thoroughly chastened, Amazon now has that book monopoly that so many feared it was after. With its mission accomplished, it’s raising prices.

It’s a crazy suggestion on several levels, starting with how amazing the concerns of some authors and publishers are. At first, they complained that Amazon was selling books too cheaply and now they’re griping that they’re getting too expensive. Huh?

Amazon buys books and e-books at the same price from publishers, then decides what to retail them for – and therefore decides its own profit margin. The company has steeply discounted books for years and reaped low profits as a result, which has been its business strategy. If it now wants to raise prices and therefore margins, that’s well within its prerogative. That’s how retailing works. Ultimately, consumers will decide if they want to pay those prices or not.

Whether those higher prices are happening or not is an open question. Amazon says it isn’t, but as the Times article itself states, “It is difficult to comprehensively track the movement of prices on Amazon, so the evidence is anecdotal and fragmentary.” Indeed it is. My book’s price hasn’t budged in either print or electronic format. How’s that for anecdotal evidence?

Even if Amazon is raising prices, the suggestion that it has a monopoly in either print or e-books is absurd. As per the Times article, “Amazon sells about one in four printed books, according to industry estimates, a level of market domination with little precedent in the book trade.” Little precedent? Not in Canada – that 25-per-cent market share seems quaint compared to Indigo, which is enjoying a fifty-per-cent-plus cut of the pie thanks to cultural protection laws that have prevented foreign competitors from starting up.

That notwithstanding, since when is 25-per-cent a monopoly? In the United States, Barnes and Noble has an estimated 17 per cent of the market – that’s not far off from Amazon.

Electronically, Amazon’s market share estimates range from 25 to 65 per cent, but consumers may actually have more choices digitally than physically. Even with its current troubles, Barnes and Noble has somewhere around 20 per cent of the U.S. e-book market while Apple, despite its court problems, recently said it also had 20 per cent. Japanese-owned, Canada-based Kobo, meanwhile, says it has 20 per cent share of the global e-reader market, although it hasn’t said how much of the actual e-book pie it has.

Nevertheless, as more digital reading shifts to tablets from single-use e-readers, Apple’s share is sure to grow, despite its legal setbacks. Google, the other big tablet software maker, will also certainly become more of a player in the future. Globally, consumers will likely have three big giants in the form of Amazon, Apple and Google to choose from for e-books, with some other players like Kobo in the mix as well. That’s not a bad starting point, to be supplemented by other smaller options including independent bookstores selling physical products.

Authors and publishers are also forgetting one key factor amid all this – they are all free to publish and sell e-books (and physical) books for whatever prices they desire through their own websites. So long as that’s possible, no one – not Amazon or anyone else – will have a monopoly. Moreover, authors can also self-publish through Amazon and other outlets, also at whatever prices they desire.

They’re also forgetting that it’s ultimately not Amazon who decides what books will sell for – consumers do that. Some of the authors mentioned in the New York Times story worried that they’d sell fewer books if the company put higher price tags on them. Well, duh, yeah. Welcome to the marketplace, where books must compete with everything else for the consumer’s dollars. Cue forehead slap.

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3 Comments

Posted by on July 11, 2013 in amazon, apple, ebooks

 

3 responses to “Amazon’s monopoly is as real as dragons

  1. Marc Venot

    July 11, 2013 at 2:48 pm

    Maybe you can show us a diagram on who has the leverage to make money in this domain. How efficient the hurdle some countries have established like a single price and how some magazines like Nature can sell for thousand of $ a few subscriptions usually to public library?

     
    • russellmcormond

      July 11, 2013 at 4:03 pm

      You don’t want to ask the “leverage” question, given authors and their associations have for decades been DEMANDING that copyright holders give up any leverage in digital distribution negotiations. It’s called TPMs, DRM, or a variety of other acronyms and terms, but the effect is a transfer of negotiating power in the marketplace from copyright holders to device manufacturers.

      While the music industry has given up on DRM, recognizing consumers don’t want it, there has yet to be the recognition that DRM greatly harms the interests of copyright holder. Book authors and their associations seem to be some of the least technologically literate in this area, so will likely turn out to be the hardest hit.

      Good luck getting authors to recognize this, and to either demand a chance in policy from their associations or drop membership to form more modern associations which won’t be pushing their membership under the DRM bus.

       
 
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