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

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."

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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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