Apple recently announced that five of the big six publishers — everybody except Random House — were signing deals to provide content for the iPad. The driving force behind the publishing companies’ exodus from Amazon to Apple is their claim that Amazon’s $9.99 price for new best-sellers is a loss-leader that cuts into their revenues. Whether this is in fact true is the subject of heated debate, particularly since Amazon has been paying the publishers up to$14 per book and eating any loss itself (as part of the upfront costs of convincing people to buy a Kindle). Macmillan, whose defection from Amazon’s e-book pricing policy caused Amazon to briefly drop all Macmillan titles from its catalog, publicly claimed that Amazon’s pricing “devalued” books, although this hardly makes sense given that millions of people are still willing to queue up to pay $29.99 for new releases (average price of new release: $26).
Publishers seem to be having trouble getting comfortable with the concept of a $9.99 best-seller in the same way the recording industry had trouble swallowing the $0.99 single. Despite the tantalizing possibility that the new technology could drive people to actually read again (which one would think was a plus) publishers appear to be suffering from the same shareholder-induced nearsightedness that has crippled much of the entertainment industry the last two decades. Remember Jack Valenti’s claim to the Senate in 1982? — “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Fast-forward 28 years to the present, where Valenti’s hyperbolic predictions have exploded into meaninglessness. VCRs drove untold billions into the studios’ pockets, and were followed by the DVD, the DVR, and streaming video, all of which have been or will be enormously profitable for the studios. The publishers’ pronouncements of dire consquences if Kindle pricing doesn’t adjust upwards is similarly absurd. Market pricing demands that prices go down when competition heats up, not that all the competitors band together to keep prices unnaturally high. As much as the publishers would like it to be so, that’s the sort of anti-competitive behavior the Justice Department frowns upon. And sure enough, despite the hoopla surrounding the publishers’ alliance with Apple, their reprieve appears to have been short-lived; Apple’s initial announcement that e-books on the iPad would range from $12.99 – $14.99 was misunderstood by the publishers and the market as a minimum price, when it apparently is a ceiling. Apple intends to price the hottest best-sellers at — surprise, surprise –$9.99.
Amazon’s response to the defection of the largest publishers to Apple is interesting — Amazon has been meeting with literary agents to discuss buying authors’ e-book rights directly, before publication. Although this may seem Byzantine to those not familiar with the publishing industry, in the world of books the author’s rights are parsed as finely as gold dust. First, there is the right to print the book on paper, bound and packaged with a cover. Second, there is the right to license or sell the book in other countries. Third, there is the right to sell the book on other platforms: movies, television, video, audio, digital (e.g., e-books), among others.
This new move by Amazon is striking because it is both creative and obvious (in hindsight) at the same time. Someone in Amazon’s legal department woke up in a cold sweat in the middle of the night with the brilliant realization that there was simply no legal reason e-book rights couldn’t be sold like movie rights — i.e., completely independent of print publication rights. Nobody has done it yet in the United States, and publishers have been loathe to admit that they may not have digital rights to literary works where the contract itself is silent on the issue, but in the world of intellectual property if you can envision a right, then you can usually find a way to sell it. Amazon may just have just figured out a way to adapt to hostile market conditions, and not only survive, but thrive.
Your move, Apple.
I am a commercial litigator and intellectual property lawyer in Orange County. Although my practice encompasses a wide variety of business disputes, I have a particular fondness for, and am prone to wax philosophical on, the subjects of copyright and trademark infringement in music, literature, art, and film.