Apple, Publishers & Collusion

Rumors developed over the past week that the Department of Justice was considering a suit against Apple and publishers over “alleged electronic book price fixing for ebooks.” On April 11, 2012, DOJ formally filed an antitrust lawsuit against Apple and five books publishers, which have been under investigation for some time. Three of the publishers—CBS Corp.’s Simon & Schuster Inc., Lagardere SCA’s Hachette Book Group, and News Corp.’s HarperCollins Publishers LLC—immediately agreed to settle the suit, reportedly agreeing to terminate their agreements with Apple and “refrain from limiting any retailer’s ability to set ebook prices for two years.” Two remaining publishers: Pearson PLC’s Penguin Group and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, are still charged with having conspired to raise prices in the fast-growing ebook marketplace for their own advantage. “The terms the DOJ demanded were too onerous,” noted Macmillan’s John Sargent.  “After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model.”

Filed in U.S. District Court for the Southern District of New York, the lawsuit charges that the “defendants’ ongoing conspiracy and agreement have caused ebook consumers to pay tens of millions of dollars more for ebooks than they otherwise would have paid.” Citing violations of Section I of the federal Sherman Act, 15 U.S.C. § 1, which declares illegal any contract, combination or conspiracy in restraint of trade or commerce, the suit charges assert that the alleged conspiracy happened when Apple was preparing the iPad launch and made agreements with the publishing defendants that Apple would be guaranteed a 30% commission on each ebook it sold—but only making this deal with Apple. “To effectuate their conspiracy,” the lawsuit contends, “the publisher defendants teamed up with defendant Apple, which shared the same goal of restraining retail price competition in the sale of e-books.”

An Associated Press article on the suit asserts that “when Apple launched the iPad two years ago, publishers saw two ways to balance Amazon.com’s power: Enough readers would prefer Apple’s shiny tablet over the Kindle to cut into Amazon’s sales and the agency model would stabilize prices. Apple’s iBookstore has yet to become a major force, but publishers believe the new price model has reduced Amazon’s market share from around 90 percent to around 60 percent, with Barnes & Noble's Nook in second at 25 percent. The iBookstore is believed to have 10 to 15 percent.”

“This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” Amazon noted in a press statement. According to U.S. Attorney General Eric Holder, “our investigation even revealed that one CEO allegedly went so far as to encourage an ebook retailer to punish another publisher for not engaging in these illegal practices.” DOJ Acting Assistant Attorney General in charge of antitrust issues, Sharon Pozen, noted in a press conference that the scheme added $2 to $3 to the prices of individual ebook prices for consumers. “The settlement will begin to undo harm and restore price-competition. It will result in lower ebook prices and provide a more open and fair marketplace.”

“Ebooks are transforming our daily lives, and improving how information and content is shared,” Holder explained. “For the growing number of Americans who want to take advantage of this new technology, the Department of Justice is committed to ensuring that ebooks are as affordable as possible.”

The European Commission continues its investigation into ebook sales as well. Expect to hear much more about this suit in coming months.

Google Drops Indies From Its Reseller Program

Starting Jan. 31, 2013, Google Play will become the only sales channel for ebooks through the search giant. “With the launch of Google eBooks in 2010, we introduced a multi-faceted approach to selling ebooks: online, on devices, through affiliates and through resellers. One part of that effort—the reseller program—has not gained the traction that we hoped it would, so we have made the difficult decision to discontinue it by the end of January next year,” Google explained in a post. “This change will help us focus on building the best ebooks experience we can across hundreds of devices with millions of books.”

After his first year as Google CEO, Larry Page, in his first effort at tweaking Google’s wide-based research and service programs, explained that one of his chief priorities was to protect shareholder value—the measure of a company’s success by the degree to which shareholders profit or otherwise benefit from corporate actions and priorities. At the time, Page was announcing the end of numerous beta efforts. However, the Google posting about the changing ebook policies had the same tinge of profit-focus: “Looking at the results to-date, it’s clear that the reseller program has not met the needs of many readers or booksellers. While our role as an ebooks wholesaler to booksellers will be coming to a close next year, we remain as committed as ever to making the ebooks experience from Google the best it can be for readers around the world.” Every company needs to watch its flank, and in his first year as CEO, he received some high marks recently from Time: “Page has done an admirable job of consolidating Google’s position and stripping away distractions. The company’s vision has been re-sharpened and its goals have been identified.”

However, the American Booksellers Association had a very different take on the action. Issuing both an FAQ to help member independent publishers understand and deal with Google’s decision, ABA president Oren J. Teicher broke the news to its membership in an email letter stating that, “to say the least, we are very disappointed in Google’s decision, but, we have every confidence that, long before Google’s reseller program is discontinued, ABA will be able to offer IndieCommerce a new alternative e-book product, or choice of products, that will not only replace Google eBooks as it currently works on IndieCommerce sites, but that will be in many ways a better product.” No further details on ABA’s plans were available at press time.

Ebook Use and Preference Grows

Pew Research Center’s Internet & American Life Project just released an important study of “The Rise of E-Reading,” that provides insightful information on ebooks and the people who use them for information, research, or pleasure. Some of their survey results are striking. First, a profile is emerging of at least early ebook adopters. “They are relatively avid readers of books in all formats: 88% of those who read e-books in the past 12 months also read printed books. Compared with other book readers, they read more books. They read more frequently for a host of reasons: for pleasure, for research, for current events, and for work or school. They are also more likely than others to have bought their most recent book, rather than borrowed it, and they are more likely than others to say they prefer to purchase books in general, often starting their search online.”

Other key results include the following:

• 21% of American adults have read an ebook in the past year
• Where the average non-ebook reader reported reading 15 books in the past year, ebook readers reported reading a mean of 24
• 41% of tablet owners and 35% of e-reading device owners report they are reading more than before ebooks
• Print books still dominate reading in general, but four times more people are reading ebooks than 2 years ago
• Ebooks are preferred when they wanted to get a book quickly, when they were traveling or commuting, and when they were looking for a wide selection. Print was strongly preferred for reading to children and sharing books with others. They were about split on reading preferences while in bed.

The study noted interesting trends in terms of reading by age. Where the number of book readers tended to decrease by age, the oldest readers (age 65-plus) read the most books on average. In another related study, Verso Advertising projects that, for the near-term future, we are seeing the development of a “hybrid market” of both ebooks and print books. With older Americans (Boomers, Silents, and Eisenhowers) responsible for 60% of book-buying today, their recent survey results beg the question of whether this is a “generational or chronological phenomenon: Will young Americans read (and buy) more books as they age?” The study urged “the maintenance and nurturing of a diversified retail ecosystem (indies, chains and online).... [as] a matter of business necessity because it mirrors consumers’ preferences.”

This report is critical reading for anyone in the information sector. Especially interesting to librarians is the low ranking that they and their institutions have in terms of recommendations for reading materials—which was rated the lowest of all of the options presented.

ProQuest’s ebrary released its 2011 Global Student Ebook Survey in January finding that “books whether electronic or print, again provide assurance of validity to the highest percentage of students in this survey as in the 2008 survey. Five of the six top slots were given to books in both surveys. Print was also viewed as trustworthy by higher percentages of students than electronic resources with four of the top six resources in both years. The perceived viability of print is not surprising given the constant refrains of caution about, and personal experience with, the reliability of information on the Internet versus print. Students know that electronic information is transient and easy to produce compared to the product and processes of print publication. The barriers to print publication afford an intuitive impression of higher integrity.”

Bowker recently announced its new Bowker Market Research’s Global eBook Monitor, a study that “tracks consumer attitudes to and purchasing of ebooks in major world markets.” The study found “Australia, India, the U.K. and U.S. lead the world in adoption, while France and Japan are the slowest to embrace the new format.” The study goes on to say that “age and gender are consistent predictors of purchase behavior globally. For example, in most countries surveyed, men are more likely than women to buy an ebook. Germany shows the greatest divergence, with 18 percent of male respondents having bought an e-book in the past six months, compared to only 8 percent of women. In almost all markets, the older the respondents, the less likely they are to have recently purchased an e-book.” The sometimes conflicting results from these various studies perhaps reflect the nascent nature of the ebook marketplace today.

Ebook Sales Are Strong and Growing Fast

The Association of American Publishers recently released its BookStats data covering 2008-2010. The data, showing the fast growth of ebooks in the past 4 years, was described as “unprecedented light on the transformational changes underway in publishing formats and how publishers are serving audiences’ disparate interests.” Ebooks have “grown from 0.6% of the total trade market share in 2008 to 6.4% in 2010. While that represents a small amount in the total market for formats, it translates to 1274.1% in publisher net sales revenue year-over-year with total net revenue for 2010 at $878 million. Net unit sales growth for e-books was equally impressive, increasing 1039.6% for the same three-year period. In 2010, e-book net units were 114 million.” The study found that in the adult fiction category, ebooks now represented 13.6% of the net revenue market share.

Tablet Continue Growth and Preference for Ereading

Some 48.3 million iPads, Android tablets, and e-readers were sold to U.S. consumers in 2011, and about half that many were sold in 2010. IHS iSuppli Market Research also reports that the “total global media tablet shipments are on track to reach 124 million units in 2012, up 90% from 65 million in 2011,” and reaching 311 million units in 2016.

In a December 2011 study published by Juniper Research, ebook sales generated an estimated $3.2 billion in 2012 and estimated at $9.7 billion worldwide in 2016, when 30% of all ebooks will be used on tablet computers. Although dedicated ereaders “help fuel the transition from print to digital,” Juniper sees tablets—not smartphones—as the preferred platform of the future.

Libraries Continue to Negotiate Ebook Terms With Publishers

Facing “an economy still recovering from the Great Recession,” the 2012 State of America’s Library Report notes that “the number of libraries providing ebooks continues to increase, supporting the exploding popularity of the format. More than 67% of libraries report offering downloadable ebooks, up from 38% just four years ago. Last year, nearly 28% of libraries reported providing e-readers and other mobile devices for checkout to patrons.”

The report noted that “in many cases ebook circulation is hindered by e-reader compatibility issues and the complexity of ebook downloads, digital rights management issues, and availability of popular titles,” yet “mobile devices, including ebook readers and netbooks, are available at 27.8% of libraries.” Current ALA president Molly Raphael reported on ALA’s efforts to mediate ebook access and pricing to libraries, believing that “in our discussions, it has become clear that not everyone has a good understanding of how libraries operate, much less how libraries do (or could) operate in the ebook context. Correspondingly, it became clear that we in the library community do not have a good understanding of the ebook business—whether from the viewpoint of publishers or distributors. We all are learning, and I‘m optimistic that this engagement will lead to tangible progress through our assertive efforts on behalf of our communities.”

Amazon—Seeking Global Domination

Amazon—clearly dominating the ebook marketplace in America just 4 years after the Kindle debuted—has been busy working to develop its infrastructure for the global marketplace, opening ebook online stores and ereaders in French, Italian and Spanish languages. Their eBooks Kindle en Español and Tienda Kindle serve both Spanish-speakers in the Americas as well as customers in other Spanish-speaking countries. According to Ethnologue data, these moves allow Amazon a strong foothold in the global marketplace for Latin alphabet language systems with Spanish spoken by 329 million people today, English by 328 million, Italian by 61.7 million, and 67.8 million speaking French. Already carrying large and robust catalogs of titles, authors, and even news publication, these moves clearly put Amazon in the ebook lead.

Prediction is Indeed Imprecise

Albert Einstein perhaps said it best in his 1939 Science and Religion when he noted that “occurrences in this domain are beyond the reach of exact prediction because of the variety of factors in operation, not because of any lack of order in nature.” Today, the ebook tsunami is still in play; new issues, problems, and possibilities occur almost daily. Until the dust settles on 21^st century publishing, we can do little more than watch, wonder, and improvise as the forces of innovation and commercialism work through this time of change.