Chief among the reasons is the death spiral of the traditional brick-and-mortar bookstore. The discounting of bestsellers by the large chains destroyed the financial underpinnings of independent stores, and the rise of online bookselling, led by Amazon, cut the legs off the chains, with Borders Group Inc. closing all of its doors last year and Barnes & Noble Inc. struggling to survive.
Amazon initially achieved e-book market dominance by doing two things: publishing new digital titles at the same time they were released in print, and selling them at a loss — at $9.99, they were often several dollars less than what publishers charged Amazon, which inhibited bookstores and other online retailers from selling e-books.
Without real competition, Amazon has historically made suppliers knuckle under. Last month, it pulled from its site all e-books offered by the Independent Publishers Group, a collection of small publishers, because IPG balked at Amazon’s terms when its contract came up for renewal. In the print-on- demand market, where Amazon’s platform has become the principal sales venue, Amazon has demanded that smaller publishers use BookSurge at higher prices than competitors charge, or else have their “buy” buttons from Amazon.com.
Given all of this, publishers and authors saw a situation approaching where Amazon was the dominant publisher and seller of books, increasing profits by offering fewer titles at higher prices. Enter an unlikely white knight:
The iPad — unveiled in January 2010, shortly after Barnes & Noble’s Nook became available — made Apple’s proven iTunes- and-apps agency model for digital content relevant to book sales. Five of the largest publishers jumped on with Apple’s model, even though those publishers knew they would make less money on every e-book they sold through Apple than what Amazon was paying them. (Which shows that the alleged price-fixing conspiracy is one of the oddest in history, since it was, by the government’s logic, collusion to lose money.)
Amazon responded with a typical show of power. When John Sargent, the chief executive officer of Macmillan Publishing, went to in that month to tell Amazon executives about his company’s adoption of the agency model, Amazon pulled the for every Macmillan title on its site — not just e- books — for a week. Yet now, it seems, the government is taking Amazon’s side.