The Coming Book Wars: Apple vs. Amazon vs. Google vs. the U.S.

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Unresolved conflicts among publishers, sellers, libraries, and the U.S. Justice Department cloud the future of the publishing industry.

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Reuters 

Unless you are embedded somewhere in the publishing industry spectrum as an author, editor, bookseller, or librarian, the odds are that you will find it very hard to keep up with the pace of sweeping changes underway connected to the impact of the enormous expansion of digital reading. The latest authoritative survey came from Pew Research, reporting that 21 percent of American adults say they have read an eBook in the past year, with the average number of books at 24, compared to 15 for those who said they purchased only printed books -- confirmation that digital readers represent, generally speaking, very good news for literacy.

But there are three ongoing issues that greatly complicate the evolving book culture and the publishing business. In the summaries that follow, my goal is to provide as nearly as possible an unbiased consumer's guide to what is happening in these complex and contentious clashes in the industry.

PUBLISHERS AND THE DEPARTMENT OF JUSTICE

After months of investigation, the Department of Justice last week filed antitrust cases against Apple and five of the country's largest publishers -- Penguin Group USA, Hachette Books Group, HarperCollins, Simon & Schuster, and Macmillan -- accusing them in a civil action of colluding to raise the price of newly released and bestselling eBooks. Three of the publishers -- Hachette, HarperCollins, and Simon & Schuster -- settled with the DOJ and accepted limitations on how they can sell eBooks going forward, but all insisted that they had done nothing wrong. They said the settlement was intended to cut short a protracted and expensive litigation. Apple, Macmillan, and Penguin refused to settle, and will confront the consequences of DOJ's copious evidence of meetings among the publishers and e-mails quoted in the lawsuit that support the allegations that publishers "took steps to conceal their communications with one another."

The origin of the dispute was the launch in 2007 of Amazon's Kindle reader, which ignited eBook sales that previously had been negligible. From the outset, Amazon's prices ($9.99 for bestsellers) were considered by publishers to be loss-leaders intended to drive sales of the Kindle, which soon numbered in the millions. Publishers believed that Amazon's plan was to condition consumers to expect these low prices, and that eventually the accrued losses would be passed along to publishers if they wanted to maintain their place in what was the dominant digital market. In 2010, Apple prepared to release the iPad, considered a viable competitor to Kindle. Apparently, at the suggestion of Apple's CEO Steve Jobs, the publishers came to favor what was called "agency" pricing, in which publishers set the price to consumers, instead of the long-standing practice known as "wholesale" pricing, in which booksellers purchased books from publishers and decided whether and how to discount them. Under the agency model, Apple's iBookstore and other retailers (including Barnes & Noble, whose Nook devices have developed a popular following) would receive a 30 percent commission on prices set by the publisher. Apple insisted on the principle that books would not be sold by anyone at a price lower than Apple's, and publishers agreed. This accord, known as "most favored nation" pricing, seems to be the crux of the assertion that publishers were acting as a group in dealing with Apple. Amazon bitterly complained that it was being pressured to accept agency pricing, but relented because the publishers, uncharacteristically, seemed so firm in their resolve. The net effect overall was to raise the price of many of the most popular e-books by several dollars, to the range of $12.99-$14.99.

As it stands, the DOJ suit is a major victory for Amazon, and the New York Times headline succinctly captured the fallout: "Cut in E-Book Pricing by Amazon Is Set to Shake Rivals." It is by no means clear how Macmillan, Penguin, and Apple will fare going forward, but there is little question that the results of the DOJ's actions will in time have a significant effect on these major publishers, all of whom already have what they describe as a difficult relationship with an increasingly powerful Amazon. Publishers can expect Amazon's already stiff demands for promotional payments, for example, to increase. At their best, publishers rarely register robust profits. Ultimately, customers should recognize that books priced attractively but too low will undermine the ability of publishers to meet their costs -- including royalties to authors (Scott Turow, president of the Author's Guild, has expressed alarm) and the overheads for maintaining their businesses.

GOOGLE AND THE INDEPENDENT BOOKSELLERS 

Google has informed the American Booksellers Association, the trade organization for independent stores, that it is ending its partnership with them as an eBook provider. The agreement was reached in 2010, but despite 350 stores signing on, the alliance never developed momentum. Google's statement was blunt: "The program has not gained the traction that we hoped it would with customers and retailers, so we have made the difficult decision to discontinue it." On behalf of the ABA, Oren Teicher, the chief executive, wrote members: "To say the least we are very disappointed. . . . As an enormous multinational corporation, Google has interests far beyond independent bookstores and the book world at large, and at times, it has lacked understanding of many basic principles of our industry."

The Google deal ends next January, but the ABA says it is certain to find alternative means for selling e-books before then. "We know that our volume of e-book sales has been modest," Teicher said in his letter; "We also know that being able to offer e-books to your customers is an indispensable feature of any bookstore's web offerings." The failed Google partnership highlights a continuing reality: It is no longer viable to consider digital sales as marginal, so the independents have to learn to market eBooks in whatever formats are devised. From what I understand, only a handful of stores made the full-on effort to draw customers to download from them. Quality delivery and technical support will be essential components in the success of bookstores going forward. The magnitude and implications of the Department of Justice's lawsuit adds yet another component of pressure on the booksellers to find the means to compete with the vast resources of the digital behemoths. The task is formidable.

LIBRARIES AND DIGITAL READING

The New York Public Library has a key committee drawn from the Board of Trustees called the Task Force on the Virtual Future, a high-powered group grappling with how to integrate e-books into the traditional role of lending libraries. For now, the largest publishers remain wary of making current e-books available through libraries, because of the likelihood that potential buyers instead will become borrowers of digital books that never wear out. The largest publishers either do not sell to libraries at all, or limit their availability. Random House recently announced a policy that would as much as triple the price of e-books to libraries. "We believe that pricing to libraries must account for the higher value of this institutional model which permits e-books to be repeatedly circulated without limitation," the publisher said in a statement. Of those books that the libraries do have on hand, the Kindle, Barnes & Noble's Nook, and the vast number of books scanned by Google are principal means of access.

The leaders of major library systems are focused on strategies that will attract borrowers who favor e-readers while reassuring publishers that they do not risk a substantial fall-off in sales from consumers able to download library books from home. For now, the terms of libraries' new relationships with their patrons are matters of debate and are far from settled. Lending libraries are great community assets, and the challenge they face is to remain relevant by increasing the universe of material that is available electronically, while also maintaining their venues as destinations people choose to visit. The New York Public Library, for example, is in the midst of a major effort to explain a controversial and expensive renovation plan for its main branch at 42nd Street and Fifth Avenue that would make it more of a digital hub incorporating the Science, Industry, and Business Library operations. To make room for the changes, a large portion of the three million volumes now in the stacks would be placed in a storage facility in New Jersey. Anthony Marx, president of the library system, has written an extensive Q&A, "NYPL Embraces the Future of Libraries," responding to critics by assuring them that the books would remain easily accessible. Whatever your position on the shift, Marx made a pledge in his extensive response to critics that will be the standard on which the changes will be judged: "Our absolute priority is to preserve the integrity of the library and its collections as well as the unparalleled quality of the services we offer. This is the baseline we must maintain in order to do even more."

How all these issues are resolved will determine the shape of the digital publishing and reading experience, but only for a short time, if the recent past is a valid guide. As the use of devices increases and their multiple functions evolve, new problems in the commercial and technical arenas are bound to emerge -- that is the pattern of progress -- and new ways of dealing with them will have to be found.

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Peter Osnos is a contributing writer for The Atlantic. He is the founder and editor at large of PublicAffairs books and a media fellow at the Century Foundation.

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