Whatever your feelings about the Agency Model for publishers–and I know I’m conflicted, ‘cuz once it came out, I went from getting 35% of certain books to 70%, with most ebooks by competitors selling for considerably more than my $3-5 sweet spot–one really strange thing that hasn’t been much discussed in today’s partial DOJ settlement came out yesterday. I didn’t even send John Sargent a Christmas card.
But regardless of your take on “discounted” titles and Most Favored Nation clauses, look at what else has happened with the government’s latest intrusion into the marketplace.
Essentially, Amazon, having ’til now pretty clearly lost money on ebooks in general and the Kindle device in particular, was trying to force the Big Six publishers to pay considerably more for co-op marketing, a situation in which, after giving Amazon favorable discount terms for the books in question, you then kick back a certain addition percentage for “placement” of titles, something that in the music industry is better known as payola but has gone on in publishing for quite a while.
The Big Six said, ahem, no.
That co-op hike, roundly rejected, was Amazon’s real financial motivator. It’s why they wanted 90% of the ebook market at any cost. A monopoly rent, if you will, and one that readers would have ended up paying dearly for in the long run. Without co-op, Amazon loses money on ebooks, Kindle Fire is dead in the marketplace, and, eventually, the gang in Seattle has to start being kind to the content providers again.
So, co-op rejected, the next freaking day, Justice Dept. announces they’ve gone after the Big Six, and will be suing Apple, Macmillan and Penguin. Further, all the gory details that come out make it clear most of the investigation for this case was done by Amazon, largely by the employees they’ve hired from Big Six Manhattan publishing
It’s also been pretty clear that that class-action against Apple’s pricing was largely backed by Amazon, much as years ago, SCO Computing got Microsoft’s help against Linux, in a case that really only benefited Microsoft, much like today’s DOJ action really only benefits Amazon.
As with anything coming out of Washington these days, my predictions for the litigation go something like “who knows?” However the case plays, the Big Six, IPG, and most smaller presses would be better off selling their ebooks direct. But I’ve been saying that for a decade. However if you go by the history of technology companies, the outlook’s pretty clear for one firm. Amazon as a technology player is over. A Microsoft future, where they just rack up cash quarter after quarter while the stock does nothing, is unlikely, as Amazon in fact loses cash quarter after quarter, and sustains its stock price on “revenue growth,” shorts throwing in the towel, and, near as I can tell, one high-frequency trading firm out of Chicago funded by the Federal Reserve whose mission is to keep equity prices high despite lack of interest by the broader public. There is nothing else about that stock to recommend itself, and if you look at the put premiums for Jan. 2013, lot of people are paying quite a bit of money to protect themselves should the stock fall further than 30%.
It’s also clear that Kindle Fire is nothing to Apple’s iPad and the Kindle 8 format has not maintained Amazon’s, let’s call it ebook device market share. iPad 3 is absolutely driving the market; iPad 2, though last year’s model, also blows Kindle Fire away. Apple, though named in today’s suit, and not a firm for whom ebook revenues… matter, is committed to reinventing the textbook. They’ve also got a hundred billion in cash. Amazon’s got a stock price that they use to subsidize relatively meager compensation, declining market share in a core business, have just outsourced bullying, the firm’s go-to business strategy, to the federal government, and despite today’s cave to the government by some players, have seen none of their would-be victims respond in a manner Amazon will find profitable.
I don’t recommend shorting the company. While more and more people are agreeing with me about the “value” of the stock, it hasn’t shown up yet in the share price. But if you read and understood Michael Lewis’ second work on the housing market, you’d have to think, those Jan. 2013 90 Puts on Amazon look real interesting.