April 23 (Bloomberg) -- A few years ago, according to the Justice Department, publishers decided on a strategy to fight the grave and gathering menace posed to their business model by the rise of digital books: They would meet about it.
“These meetings took place in private dining rooms of upscale Manhattan restaurants,” says the department’s complaint in its antitrust lawsuit. Later meetings took place in Europe, though presumably not at the Paris Chipotle.
The case will turn on whether the publishers were meeting to fix prices. If they were merely discussing new ways of selling digital books and their effect on prices, the publishers may beat back the government. Of the six defendants -- the Hachette Book Group, HarperCollins, Simon & Schuster, Macmillan, Penguin and Apple -- the first three have already settled.
Apple, for its part, was not present at any of these meetings (its corporate cafeteria is reportedly quite good). So why is it being charged? The government’s theory of the case is that Apple was part of the conspiracy to limit price competition. More likely that, like the co-worker who encourages the office gossip, Apple acted as an enabler.
If it were a crime for New York publishers to gather at fancy restaurants, then the entire industry would be doing time. Whether this was collusion is for the courts to decide. The larger question raised by the lawsuit is not legal but existential: Can publishing be saved?
The main villain, in the publishers’ account, is their once-loved, now-hated coopetitor: Amazon -- specifically, its “wretched $9.99 price point” for most digital books on its Kindle device.
There is no doubt Amazon has reduced publishers’ profit margins. And it has been known to use bullying tactics. At the same time, Amazon has made it easier for authors to publish and promote books, and for readers to find and buy them. Its impact on the publishing industry, it almost goes without saying, far exceeds the wretched $9.99 e-book. Yet publishers and even the Authors Guild are irrationally antagonistic toward Amazon.
One mistake publishers have made is viewing digital books more as a threat (to the prices of physical books) than as an opportunity (to gain more readers in all formats). One in five Americans have read a digital book, a proportion that will only grow, and there are signs that reading books is more popular now than ever. Revenue from digital books doubled in 2011, accounting for almost $2 billion of a $27 billion industry, and sales of digital books for younger readers were up an astounding 475 percent in January from a year ago.
Publishers obviously see the potential -- that’s why they were so excited about the iPad in 2010. Where they erred was in seeing it merely as a shiny new cudgel with which to battle Amazon and raise the price of digital books. But who’s to say they weren’t just exchanging one master for another? Apple has sharp elbows, too.
Perhaps the saddest aspect of this lawsuit is its portrayal of desperation. The complaint reads like the minutes of a support group for publishers with PDSD (post-digital stress disorder). The predominant emotion, and verb, is fear, as in “publisher defendants feared that …."
We do not dismiss the anxiety that new media causes old media. We are familiar with the many scary charts and graphs. But technology has enabled writers (and even, dare we say it, retailers) to foster deeper relationships with readers. Publishers have not seized the same opportunity, even though they have a valuable asset. The modern term is “content,” but it has also been called “literature” -- and technology greatly expands its market.
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