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Scott Turow: Apple didn't collude, it offered an e-books life raft

March 13, 2012 |  4:47 pm

"Winnie the Pooh" on Apple's iPad.

Last week shivers shot through the world of publishing when news broke that the U.S. Justice Department warned Apple and five major publishers that it was investigating them for alleged collusion, the Wall Street Journal  reported. At issue was the price of e-books: When Apple launched the iPad, five major publishers adjusted their pricing schemes from a wholesale/retail model to an agency model.

In December, Justice Department official Sharis A. Pozen told a House subcommittee that the antitrust division was investigating e-book pricing. A source told the New York Times that the department hopes to decide by the end of April, when Pozen is leaving, whether to file suit against Apple and publishers  Simon & Schuster, Hachette, Penguin, HarperCollins and Macmillan.

That would be a mistake, writes Scott Turow, a bestselling author, a lawyer, and head of the Authors Guild. In an update on the Authors Guild website, he writes:

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing. We do know that collusion wasn’t necessary: Given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

Just before Amazon introduced the Kindle, it convinced major publishers to break old practices and release books in digital form at the same time they released them as hardcovers. Then Amazon dropped its bombshell: as it announced the launch of the Kindle, publishers learned that Amazon would be selling countless frontlist e-books at a loss. This was a game-changer, and not in a good way. Amazon’s predatory pricing would shield it from e-book competitors that lacked Amazon’s deep pockets.

The latest figures show that Turow is right -- almost. According to the March 5 Publishers Weekly, e-book sales have bitten into print sales, as Turow suggested they would once e-books were published the same day as print books. But it's not hardcovers that are suffering as e-books ascend -- it's mass market paperbacks.

The hardest hit print segment last year was mass market paperback, with sales falling 35.9%, to $431.5 million, at the seven houses (including all the major mass market publishers) that reported results. The drop in mass market paperback sales compared to the rise in e-book sales has been stunning. Between 2010 and 2011, the segment went from having about $220 million more in sales than e-books, to having e-book sales more than double mass market sales in 2011 at the publishers that report to AAP....

The importance of digital sales to publishers’ financial health was touched on by Penguin Group CEO John Makinson in discussing worldwide results for 2011. Although Penguin does not break out sales by subsidiary, Makinson noted that one reason the U.S. did well (with increases in sales, profits, and margins) was the vibrancy of the e-book business compared to its other markets.

So while the Justice Department discusses possible collusion between publishers around e-book pricing, e-book sales have actually grown more robust. The advent of the iPad -- which precipitated the alleged collusion, if any is to be found -- has opened up new audiences to e-books and publications enhanced specifically for tablets.

"The irony bites hard," Turow writes. "Our government may be on the verge of killing real competition in order to save the appearance of competition."

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-- Carolyn Kellogg

Photo: The book "Winnie the Pooh" on Apple's iPad. Credit: Jay L. Clendenin / Los Angeles Times

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