Publishing spent the 2010s fighting tooth and nail against ebooks. There were unintended consequences.
At the beginning of the 2010s, the world seemed to be poised for an ebook revolution.
The Amazon Kindle, which was introduced in 2007, effectively mainstreamed ebooks. By 2010, it was clear that ebooks weren’t just a passing fad, but were here to stay. They appeared poised to disrupt the publishing industry on a fundamental level. Analysts confidently predicted that millennials would embrace ebooks with open arms and abandon print books, that ebook sales would keep rising to take up more and more market share, that the price of ebooks would continue to fall, and that publishing would be forever changed.
Instead, at the other end of the decade, ebook sales seem to have stabilized at around 20 percent of total book sales, with print sales making up the remaining 80 percent. “Five or 10 years ago,” says Andrew Albanese, a senior writer at trade magazine Publishers Weekly and the author of The Battle of $9.99, “you would have thought those numbers would have been reversed.”
And in part, Albanese tells Vox in a phone interview, that’s because the digital natives of Gen Z and the millennial generation have very little interest in buying ebooks. “They’re glued to their phones, they love social media, but when it comes to reading a book, they want John Green in print,” he says. The people who are actually buying ebooks? Mostly boomers. “Older readers are glued to their e-readers,” says Albanese. “They don’t have to go to the bookstore. They can make the font bigger. It’s convenient.”
Ebooks aren’t only selling less than everyone predicted they would at the beginning of the decade. They also cost more than everyone predicted they would — and consistently, they cost more than their print equivalents. On Amazon as I’m writing this, a copy of Sally Rooney’s Normal People costs $12.99 as an ebook, but only $11.48 as a hardcover. And increasingly, such disparities aren’t an exception. They’re the rule.
So what happened? How did the apparently inevitable ebook revolution fail to come to pass?
To figure out the answers, we’ll have to dive in deep to a lawsuit filed by the Department of Justice in 2012 against Apple — newly entered into the ebook market with the advent of the iPad — and five of what was then the Big Six publishing houses. The Department of Justice accused Apple and the publishers of colluding to fix ebook prices against Amazon, and although the DOJ won its case in court, the pricing model that Apple and the publishers created together would continue to dominate the industry, creating unintended ripple effects.
The case of US v. Apple encapsulates the dysfunction of the last decade of publishing. It’s a story about what we’re willing to pay for books — and about an industry that is growing ever more consolidated, with fewer and fewer companies taking up more and more market share. What happened to the ebook in the 2010s is the story of the contraction of American publishing.
“To my mind it’s game over for this business.”
When the Kindle entered the marketplace in 2007, Amazon had a simple sales pitch: Anyone with a Kindle could buy all the ebooks they wanted through the online marketplace, and many of those ebooks — in fact, all New York Times best-sellers — would cost no more than $9.99.
$9.99 is a steal for a new book. At the time, most hardcovers were averaging a list price of about $26, and many cost more. But for Amazon, this price point was an apparent no-brainer. The first generation Kindle was expensive, and value conscious customers needed some incentive to buy into it. Why would anyone spend $399 on an e-reader if they couldn’t expect to make up at least part of the cost in a discount on ebooks?
And while this point is often glossed over, Amazon was actually following a precedent set by publishers in its pricing model. In her opinion for US v. Apple, Judge Denise Cote noted that before 2009, most publishers discounted ebooks by 20 percent from the price of a hardcover, which often led to a suggested list price of around $9.99.
But by 2009, publishers had changed their minds. Now they considered the idea of $9.99 ebooks to be an existential threat. Printing and binding and shipping — the costs that ebooks eliminated — accounted for only two dollars of the cost of a hardcover, publishers argued. So the ebook for a $20 hardcover book should cost no less than $18. And according to publishers, by setting the price of an ebook at $9.99, Amazon was training readers to undervalue books.
“The big concern — and it’s a massive concern — is the $9.99 pricing point,” David Young, the CEO of Hachette Book Group USA, told the New Yorker in 2010. “If it’s allowed to take hold in the consumer’s mind that a book is worth ten bucks, to my mind it’s game over for this business.”
Here’s where book prices come from
Before we delve further into the weeds here, a quick primer on how book prices are set. Print books are generally sold under a wholesale model, which works like this: First, the publisher will set a suggested list price for a book; say, $20. Then it will sell the book to resellers and distributors for a discount off that suggested list price. So if Simon & Schuster wants to sell a $20 book to Amazon, Amazon might negotiate a discount of 40 percent for itself and end up paying Simon & Schuster only $12 for that book.
But once Amazon owns the book, it has the right to set whatever price it would like for consumers. The $20 list price that Simon & Schuster set was just a suggestion. Under the wholesale model, Amazon is free to decide to sell the book to readers for as little as a single dollar if it chooses to.
Until 2010, ebooks were sold through the wholesale model too. So if Simon & Schuster was publishing a $20 hardcover, they could choose to set a suggested list price of $18 for the ebook — two dollars less than the hardcover — and then sell that ebook to Amazon at a 40 percent discount for $10.80. And Amazon could, in turn, feel free to sell that ebook for $9.99 and swallow a loss of 81 cents.
To be clear, the numbers we’re using here to get a handle on how pricing works are imaginary. (Amazon negotiates different discounts for itself at different times from different publishers, sometimes around 40 percent, but at other times higher and at other times lower.) But we do know that Amazon was making very, very little money off ebook sales in 2010, and was in fact probably losing money on most of them.
For a company as big as Amazon, it’s perfectly reasonable to lose money on a new initiative if that will help them dominate the market space. But publishers were terrified of what would happen once Amazon had established itself as the only game in town, ebook-wise.
Would Amazon keep pushing prices ever further down? And once publishers had nowhere else to sell their ebooks, would Amazon start demanding lower and lower discounts from them to subsidize those low prices? Would Amazon start to demand that publishers sell them ebooks for $5 so that it could maintain that customer-facing $9.99 price point but now make a profit?
It was in the midst of this tense and paranoid atmosphere that Apple made its entrée into the ebook market.
Publishers hoped that iBooks would do for books what iTunes did for music. It didn’t quite work out that way.
In 2010, Apple launched the iPad, and with it, the modern tablet computer. And part of what made the iPad so exciting was that it contained iBooks, an app that publishers were hoping would do for ebooks what iTunes had done for music: be so convenient and easy to use that consumers would flock to it rather than turn to piracy. Crucially, publishers hoped that iBooks would be so streamlined and sleek that it could undermine Amazon’s book-selling dominance.
Apple was offering publishers an incentive to root for it over Amazon. With its App Store, Apple had established a resale model that worked differently from the wholesale model publishers were used to. It was called the agency model, and it worked like this: publishers would decide on what the list price for their book should be, and then put it up for sale at that price in the iBooks store. Apple would take a 30 percent commission on every sale.
Apple wasn’t willing to sell ebooks for $18, but it thought a cap of $14.99 was perfectly reasonable. And if publishers decided to go along with Apple’s plan, they could set a list price of $14.99 for an ebook and be sure that no one in the iBooks store would ever discount it without the publisher’s express permission. Apple, meanwhile, would pocket $4.50 from each sale.
But Apple couldn’t enter the ebook market while charging consumers five dollars more per unit than its biggest competitor was. It needed some assurance that no one would have a cheaper product than it had. So it made a deal with five of the Big Six publishers (Simon & Schuster, Penguin, HarperCollins, Hachette, and Macmillan; Random House, then the biggest trade publishing house, abstained): They could all sign on to Apple’s agency model, as long as they guaranteed that they’d also use that same agency model with every other retailer they worked with. That way, Amazon, too, would be forced to sell its ebooks for $14.99 — and if it refused, publishers could withhold their ebooks from Amazon and make them exclusive to Apple.
Publishers agreed to the deal. And just like that, everything changed.
“That’s the kind of thing that’s very clearly illegal”
“Overnight, because of this conspiracy, ebook prices went from $9.99 to $14.99,” says Albanese. “That set the tone for the future of the ebook right there.”
The word “conspiracy” is important here. As far as publishers were concerned, they weren’t conspiring; they were just acquiring the leverage they needed to deal with a company they considered an existential threat to their business. They were preventing Amazon from forming a monopoly, and thus they were promoting a healthier economy for books and for the American book-buying public, too.
According to the Department of Justice, however, publishers were conspiring. They were colluding with Apple to fix prices.
“They [publishers] agreed with each other what the resale prices would be for their electronic books,” says Christopher Sagers, a law professor at Cleveland State University and the author of United States v. Apple: Competition in America. “That’s a horizontal pricing conspiracy, and generally speaking, that’s the kind of thing that’s very clearly illegal. In fact, it’s often prosecuted criminally.”
In 2012, the Department of Justice sued both the five publishers who had agreed to Apple’s agency model plan and Apple itself. And the presiding judge, Denise Cote, was not impressed by the argument that Apple and the conspiring publishers had only acted to prevent a monopoly. “Another company’s alleged violation of antitrust laws,” she wrote in her opinion, “is not an excuse for engaging in your own violations of the law.” She imposed sanctions of $166 million on publishers to compensate those who bought ebooks at inflated prices.
But while Cote’s sanctions required publishers to briefly modify the agency model so that resellers could set their own prices, within a few years, those sanctions expired. Today, the agency model that Apple developed is once again the standard sales model for ebooks.
“The Department of Justice suit in hindsight was corporate squabble,” says Albanese. “It hasn’t done much to address Amazon’s market position. Would the ebook trajectory have continued to grow had that suit not happened? Probably we would be in about the same place.”
“The answer is to sue both of them”
Ironically, by winning when it comes to ebook pricing, publishing seems to have hurt its ability to convince readers that print books are worth spending money on.
“Amazon can still discount whatever they like on the print side,” explains Jane Friedman, a publishing consultant and the author of The Business of Being a Writer. On the ebook side, however, Amazon now lists publisher-mandated prices, often with the petulant italic addition “Price set by seller.” “So the market is very weird, and often the ebook costs more than the print,” Friedman says. “Sometimes it feels like Amazon is trying to make the publishers look ridiculous.”
And because ebooks are often more expensive than Amazon’s heavily discounted print books, traditional publishing’s ebook sales seem to have fallen off — and Amazon is more dominant than ever in the print book market. “It’s so much cheaper,” says Friedman.
In this new market, high ebook prices make it harder than ever for young authors in particular to survive. “The split has really hurt debut novelists,” says Friedman. “It’s hard to ask readers to take a chance on someone unproven at that high price point, and since the ebook market does lean towards fiction, it’s hurting the new people.”
Self-published authors, meanwhile, are flourishing. They’re allowed to set their own ebook prices just like publishers are — and consistently, they set their prices very, very low. “It’s a shadow market,” Friedman says. “Novelists with huge backlists go and put them out as ebooks independently. And if a reader has a choice between reading this great series at $2.99 a pop or a $12 novel, what are they going to pick?”
Antitrust law professor Christopher Sagers argues that the outcome of the DOJ’s ebooks case shows that the real problem with the industry is not just that Amazon has a monopoly. The big trade publishers, he says, have a monopoly too.
“There used to be hundreds of publishing companies. They’re now mostly owned by five,” Sagers says. (After that Department of Justice lawsuit, Penguin merged with Random House, and the Big Six became the Big Five.) “Why are ebooks expensive? It’s not because Amazon is vicious. It’s because there’s no competition at the wholesale level.”
For Sagers, the solution to the ebooks problem was not to let publishers fix prices to prevent an Amazon ebook monopoly. He thinks that instead, the government should have prosecuted everyone involved. “Critics of the case all said, ‘It’s terrible to sue the publishers and not let them have a cartel if you’re going to let Amazon have a monopoly,’” he told Vox over the phone. “I say that’s crazy. The answer is to sue both of them.”
The Big Five publishers “are huge, and they have been able to put in place practices that are kind of unfair and that authors have to put up with,” Friedman allows. “That said, they need that kind of size to be able to effectively deal with something like Amazon. If you look at an indie publisher, I wouldn’t want to be one of them.”
Friedman points to the way the entire book market has contracted and consolidated itself, so that nearly every phase of a book’s life is dominated by a tiny subset of companies. “People complain about Ingram’s terms, too, because nobody can compete with Ingram,” Friedman says.
Ingram is a distributor, and it’s one of the only companies that currently exists to handle book distribution: It’s the Amazon or the Penguin Random House of this portion of the process of putting books out into the world. In December 2019, Publishers Weekly reported that Ingram had begun putting out feelers on buying Baker & Taylor, one of its competitors; this May, Baker & Taylor stopped selling to bookstores. Ingram now faces virtually zero retail competition.
Ingram benefits from an industry that has consolidated to the point that there is almost no competition, and entering the marketplace as a new and independent player is nearly impossible, along every single level. In that, it’s in a position almost identical to that of both Amazon and the Big Five.
“You have to accept them, because who else are you going to go to?” Friedman says. “It’s hard to get around these last men standing.”
Author: Constance Grady