On eBooks, Oligopolies, Monopolies etcetera

There is a very interesting situation developing developing with eBooks in the USA - Matthew Ingram at GigaOm sums it up well:

As expected, the Department of Justice launched an antitrust lawsuit against Apple and several of the major book publishers on Wednesday, alleging collusion and price-fixing behavior on e-books as a result of the “agency pricing” model. As my colleagues Jeff Roberts and Laura Owen have reported, three of the publishers named in the suit have decided to settle while two have chosen to fight the charges, and the states have jumped into the fray as well. The argument from publishers is that they need to be able to set prices on e-books, because otherwise Amazon will increase its monopoly and decimate the book industry. So who should we be rooting for, the giant electronic retailer or the giant publishing houses?:

This echoes an interesting debate at the FT Digital media Conference a few weeks ago, where a panel discussion was held on just this topic, Tim Hely-Hutchison, the CEO of Hachette made the following points:

- Hachette's eBooks went from 1% of sales in 2009 to 10% in 2010, 30% set for end 2012. Mainly substitution, mainly driven by black and white eReaders, kids and young adults are most vibrant market. eBook readers continue to buy print books.

- Agency model pricing (as it is called) was introduced by publishers to stop giant corporations with deep pockets giving away books as a freebie (aka Amazon et al) to sell their other stuff - the aim is to keep competing distribution channels viable.

- Alternative is wholesale model where one large player (ie Amazon) often sells at below cost, will mean one or few dominant players and the whole industry bing "pwned" by it.

- In early days consumers can't understand open v closed options, so Hachette et al have to act to save market.

- eBook prices initially went up, but are coming down now - steady decline across all countries and genre, also in UK for eg there is 20% VAT on eBooks, but not on paper books.

So you can see this as anti-trust, or as anti-anti-trust, just as easily (Adam Tinworth liveblogged the panel session over here).

Clearly the book industry is determined to avoid music's fate, and determined not to be screwed by one dominant supply chain. Now I think these disruptive technologies must be left to disrupt in part, but I hope the US DoJ looks at the "anti-anti trust" issues of handing supply to one or two dominant players, and ensures that it doesnt inadvertently tip us from Publisher oligopoly to Amazon/Apple monopoly.

But eBooks still have a bigger strategic problem in my view, around DRM and the restrictions in usage. As one panelist demonstrrted by showing a paper book with a big padlock on it (as in the picture above) and pointing out you don't own the Ebook you buy, you rent it - and you can't read it and can't share it if its owner doesn't want you to. That is going to continue to drive piracy no matter who wins.