Thursday, July 11, 2013

Apple's E-Book Loss -- Why It Matters to ALL Media (Not Just Books)

As you already likely know -- in the much-watched e-book anti-trust court case that pitted Amazon's wholesale $9.99 pricing model against Apple's "agency" model -- a federal district court judge just ruled against Apple, finding that Apple engaged in illegal "price-fixing" in its dealings with publishers.

But, make no mistake.  This isn't just about e-books.  The court's decision has potentially profound implications on all forms of media, including premium online video distribution and pricing (motion pictures and television).  So, listen up all you digital media executives -- you should be watching this all very closely ... very closely.

Here are three significant themes resulting from the court's validation of Amazon's "wholesale" pricing model, pursuant to which the retailer -- not the publisher -- sets e-book pricing:

(1) "Pure play" online media distributors should be troubled.  Amazon -- and Apple for that matter -- are unique animals.  Most importantly, both Amazon and Apple have their own particular strategic reasons to sell e-books and other forms of media content.  For Amazon, yes, it is to sell hardware (Kindles), but even more importantly e-books and other content are the bait to attract consumers into its e-commerce world of huge sales volume at extremely low margins.  For Apple, e-books and other forms of content are the bait to sell more hardware (iPads, iPhones).  The point is that both Amazon and Apple can afford to sell e-books, movies, television, music, and games at low, low prices (potentially even at a loss), because their primary motivation is to sell "other things."

Pure-play online content distributors (think Netflix, think Hulu and myriad others), on the other hand, have no such luxury.  They have no "other things" to sell.  They MUST make money by distributing the content/media itself.  So, they may believe that their very existence is threatened by Amazon and others as they continue to drive down pricing to meet their broader strategic goals.

And, content creators and owners should care about this ... a lot.  As I wrote in TechCrunch, content creators/owners want more distributors for their content, not less.

(2) Publishers, writers and all content creators will see this decision as a potential further degrading of the value of their content in the minds of consumers.  In an ironic twist of fate (about which I wrote about earlier), Apple essentially was fighting for a higher price point for e-books in a battle to break Amazon's first-mover grip in the e-book market.  Whereas Apple was the one that implemented a $9.99 price point in the music world (for albums) 10 years ago -- evoking the ire of music execs and artists everywhere -- Apple was now seen by many publishers as being a godsend in the e-book market in its fight against Amazon's $9.99 price point that many publishers feel degrades the value of that content in the minds of consumers.  The court's decision will only add fuel to this fire -- and to the age old question, "how much is content worth?"  Let's not forget, content creators must be incentivized to make money.  Inspiration does not come from inspiration alone.  A writer needs to pay the bills!

(3) There is no reason why the rationale behind the court's decision about wholesale pricing shouldn't apply equally to other forms of media.   But, let's face it, motion pictures, television and music are increasingly streamed via subscription models -- and there also is more pricing precedent in those realms).

So, watch closely ... very.  And, don't forget, this was only one battle in the ultimate war on this e-book pricing issue.  This was a decision by a single federal court judge.  Apple's teams of lawyers are no doubt frantically drafting their appeal as we speak.

Didn't some writer somewhere write the inspired line "it ain't over 'til it's over?"

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