Why everyone is probably wrong about the DoJ ebooks case

I didn’t mean to write a post about this, but I couldn’t help myself.  Some of you won’t like what I have to say.  I have been following the Department of Justice versus Apple and the Big Five case for a little while now.  Or rather, I have been following the commentary online.  Reading the posts and the comments, there seem to be two main themes - either what could be loosely summarised as “DoJ #FAIL” or “Amazon gives me cheap eBooks what’s the problem?”  Let’s take a moment to embrace the assumption that the legacy publishing industry will continue to exist and examine both arguments.

DoJ #FAIL

There appear to be many people who don’t actually understand what the US Department of Justice is alleging and what their job is.  The claim is that several major publishers and Apple colluded to fix eBook prices.  The Department of Justice is not empowered to pass judgement on Amazon’s business model, unless it breaches US law, and nobody appears to have any evidence that it does.  The Wall St Journal reports that Macmillan CEO John Sargent complained the decision will “have a very negative and long-term impact on those who sell books for a living” but this misses the point.  Jordan Weissman in the Atlantic also wanders into the irrelevant when he complains that “Amazon isn't simply a garden variety retailer, or a helpless, well-meaning innovator.”  The Department of Justice is required to investigate when businesses appear to be colluding on price.  Whether their competitors are large and successful or not doesn’t matter.  Whether the people running the businesses believe colluding on price is the only way to maintain a profit is also of no import.  It is not the DoJ’s job to keep publishers’ and writers’ incomes high, but rather to keep the price consumers pay low.  The law states that you can’t collude to artificially hold up the price consumers pay.  Everything else is noise. If publishers can’t work out how to make money from $9.99 eBooks, then so be it.

Amazon gives me cheap eBooks what’s the problem?

The problem is that although it is not the Department of Justice’s job to make publishers’ lives easier, Amazon still currently holds what amounts to a virtual monopoly on the sale of eBooks.  Estimates I’ve seen range from 70% to 90% of the entire market which even at the lower end is still high enough to be overwhelming.  When you buy an Amazon ebook you will only ever be able to read it on a Kindle or within a Kindle app. When you buy a Kindle you will only ever be able to read books you bought from Amazon in AZK format or ebooks in PDF or ePub format that don’t have DRM restrictions.  So once Amazon has you it’s very difficult to escape, because your books can’t be transferred between devices.

The other issue is that, as Charles Stross has noted in his excellent overview of this issue, Amazon could be said to be engaging in predatory pricing.  By charging less than it costs publishers to produce an eBook, Amazon is ensuring that nobody else can charge less than them. Although Apple could in theory have spent some of its mountain of cash in a price war with Amazon, nobody else can afford to burn money like that.  Once the competition is gone, Amazon can increase prices again or simply use cheap ebooks as a way to sell something else, like expensive Kindle readers or simply other goods once they have hundreds of millions of customers.

A monopoly of the publishers' own making

The complaint of many is that Amazon has a monopoly and it is therefore they who should be under investigation.  This argument may have a small amount of merit due to the factors above, but there are a few problems.  The main reason for Amazon’s stranglehold on ebook sales is the publishers’ own pig-headed insistence on a model that has already failed once before - Digital Rights Management.  By insisting on DRM, publishers have pushed out small independent online retailers and ensured Amazon maintains control over ebook sales through it’s domination of the ebook reader market.  Since Kindles don’t read non-DRM ebooks, publishers insisting on DRM cede their power to Amazon.  Basically, Amazon has a monopoly of the publishers’ own making.

If publishers want to survive, they need to end the use of DRM. One senior Hachette executive publicly stated that he thinks it is unnecessary just a few weeks ago - if Hachette’s board have any brai