Publishing/Writing: Insights, News, Intrigue

08/20/2011

Coming: Legal Deposition RE E-Book Pricing, Economics of Digital Publishing and Inner Core Operations


Deposing Core Elements of the Agency Model

Class action lawsuits are growing against five major publishers plus Apple RE the infamous “agency model” (where the publisher sets the book/e-book price versus the traditional wholesale/retail model where the price is set by the sellers/retailers (?) … at least I think I have that right) 

Per publishing consultant, Mike Shatzkin, who writes the great IdeaLog Blog,  the “agency” model is based on the idea that the publisher is selling to the consumer and, therefore, setting the price, and any “agent”, which would usually be a retailer but wouldn’t have to be, that creates that sale would get a “commission” from the publisher for doing so.

Or, put another way by the ABA (The American Booksellers Assoc): Under the agency model, a publisher sets a retail price for a specific book, which establishes a level playing field for all resellers.

 I have posted on the agency model several times back when it was first named … and damned if I don’t seem more confused about it now!

At any rate, the lawsuits … mostly claiming that e-book prices are being artificially inflated … and their associated costs are spiraling upward!

These details in Publishers Weekly by Andrew Albanese:

More Lawsuits Over Agency Model

A class action lawsuit over e-book pricing filed against five major publishers and Apple has begun to sprawl, with four new “copycat” lawsuits filed last week. Two suits, filed in Manhattan, add Random House as a defendant, while a third suit, also in Manhattan, adds Amazon and Barnes & Noble. Another suit was filed in Oakland, Calif. The claims and assertions of fact in each suit are nearly identical to the original suit, filed August 9 by the firm Hagens Berman: that the simultaneous introduction of the agency model by the major publishers reflects an illegal conspiracy to “artificially inflate” e-book prices.

The filing of copycat suits is very common in consumer class actions. “It is more the rule than the exception,” one class action attorney told PW. If a case is perceived to be a good one, there will be multiple filings by different firms in different courts, and the firms will then compete to see who will become lead counsel. In the coming months, the cases—and there could be more coming—will be organized, and the defendants will seek to have them moved to one court.

According to the filings, the price-fixing conspiracy occurred as Apple negotiated terms with publishers in anticipation of the 2010 iPad release. On January 27, 2010, when asked by reporters how Apple’s e-bookstore would compete with Amazon’s $9.99 price, Apple’s Steve Jobs responded that the prices “would be the same.” That public pronouncement, one suit alleges, “was a signal to Publisher Defendants that each of them had agreed to join the conspiracy.” The following day, January 28, Macmillan CEO John Sargent told Amazon of its switch to the agency model. “This would have been irrational if Macmillan had not expected its primary competitors to follow suit,” the lawsuit notes. “Acting alone, no individual publisher would be able to sustain the supra-competitive prices.” The agency model, the suit notes, effectively ended “retailer discretion” for e-book pricing.

Read and learn more
 

 
 

 

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02/10/2010

Publishers, Amazon Inch Toward Truce In Post-iPad World


More insider opinion Re e-book pricing and battles between Amazon and publishers. Who is going to make more money under the new materializing business model? Who is offering olive branches to get on the new book media distribution bandwagen?

Dan Gallagher of the Wall Street Journal reported thusly:

Since Amazon.com Inc. (AMZN) debuted its first Kindle e-book reader late in 2007, the reaction within the book industry has been some mix of welcome and scorn.

Welcome because of the potential to tap an entirely new market–before a wave of digital piracy similar to the one that decimated the music business. Scorn because of fears that the online retail giant, which already has a commanding share of the market for physical books, might use its leverage to seize control of the new market and push down prices even further.

Publishers have been fighting back, and seemed to score an important victory over the last week, with Amazon reportedly agreeing to a model that would let them set higher prices for e-books sold for the Kindle.

Analysts say a truce is likely but won’t do much harm to Amazon even if the company loses the $9.99 price tag for e-books that has helped make the Kindle a major hit.

The company discloses little data for its Kindle business, but it is widely estimated that Seattle-based Amazon loses money on most e-books that it sells for that price. Higher prices would mean a better margin for the business even if sales take a small hit in terms of volume, experts say.

But concerns persist about whether publishers will give any ground at all on e-book prices. In theory, the companies should still make good profits on e-books at lower prices, because they are saving on the costs of printing, binding and distribution that make up an estimated 10% to 12% of a hardcover book’s total price.

“Publishers seems to be fighting a rear-guard action against Amazon,” Stephen Windwalker, a small book publisher and author of the Kindle Nation Daily blog, said on a conference call hosted by the brokerage Collins Stewart on Monday.

“I’m not seeing a lot to be excited for,” he added.

Turning Off The ‘Buy Button’

Ironically, the company that has thrown the biggest wrench into Amazon’s plans for the e-book market is the very company that Amazon was trying to emulate–Apple Inc. (AAPL).

Apple, with the launch of the iPod and its iTunes online music store, turned the music industry on its ear.

The store sold single tracks for 99 cents and kept most full albums under the $10 mark. The music industry had already seen its profits socked by digital piracy, so it begrudgingly accepted a model that allowed for some revenue–even if it was less than what the industry was accustomed to.

Amazon tried the same simplified pricing scheme for e-books, pushing publishers to keep the prices below $10.

But last month, Apple introduced the iPad tablet device and with it, announced a new service called iBookstore. No prices were announced for the store, but the company said it would let publishers set their own rather than force them to accept a set price.

Six major publishers announced support of the iPad and have been pushing Amazon to allow them to set higher prices. Things came to a head last week when Amazon removed the titles of one publisher–Macmillan–from its site in protest of its new e-book prices, even as the company admitted that it had “capitulated” to Macmillan’s demands to set higher prices.

Macmillan’s books are back for sale on Amazon this week, and neither company will say what sort of deal they reached.

“It’s fair to say that no one in the book industry wants to see a major channel of distribution shut down, and that’s what happened when Amazon turned off the buy button on Macmillan’s books,” said Al Greco, a professor of business at Fordham University who studies the book market.

An Olive Branch?

In an op-ed column in The Wall Street Journal on Monday, the head of a major publishing house noted the changes rippling through the book business and offered what some considered to be an olive branch in the battle over pricing e-books.

John Makinson, chairman and chief executive of the Penguin Group, wrote that publishers need to understand that “it’s fruitless to stand between the reader and his choice.” But he also noted that the physical cost of a book is roughly on par with the average margin of the consumer book-publishing industry, “and what’s needed to keep investing in new writing and new ideas.” (John’s editorial note: The last part of the last sentence makes absolutely NO sense to this author)

“So there’s some room for discussion but not that much,” he wrote.

Greco called Makinson’s piece “an attempt to calm the waters.” He noted that five of the six major publishers have entered into what is called an “agency agreement” with Apple to allow the company to sell e-books for its iPad, but it gives publishers control over pricing.

Such a model “will become the norm for all sales of e-books in the future,” Greco said.

“Ironically, while Amazon seems to not like that agency approach, they lost money on every transaction under their current model,” he said. “From a financial point of view, Amazon will make more money this way.”

He noted the risk, however, that consumers have now become used to a $9.99 price tag for e-books, which may make some resistant to the idea of paying higher prices.

“Will consumers walk away? I don’t think so,” Greco said.

Windwalker, the Kindle Nation Daily blogger, agrees that Amazon will likely do well financially even under higher prices. But he added that consumers will likely resist the higher prices–providing an incentive to publishers who break from the pack to keep prices low.

He also noted that publishers may be ignoring Amazon’s key strengths–at their own peril.

“There are two things that Amazon knows more about more than anyone else in the world: Price elasticity and their own customers,” he said. “If higher prices begin to suppress sales and profits, then I think it’s fair to assume they [publishers] will not march in lockstep.”

02/01/2010

Are Book Publishers the New Record Labels?

Filed under: Amazon,ebook pricing,iPad,Macmillan — gator1965 @ 7:44 pm

More on the intrigue of the eBook pricing drama…Starring iPad, Macmillan Publishers and Amazon:

By Nick Mokey of Digital Trends
Macmillan’s battle to raise e-book prices echoes earlier battles fought by the recording industry, and will end with the same rampant piracy if companies don’t get reasonable.

Ten dollars for a virtual copy of a book – one that you can’t handle, sell, lend, or even read without a $259 device – never seemed that reasonable to begin with. But with e-books gaining steam, most recently with a prominent inclusion on Apple’s new iPad, it looks like publishing house MacMillan will push that price even higher. After a round of back-and-forth face slapping, Amazon has been forced to abandon its $9.99 e-book price cap to accommodate Macmillan titles that will sell for $12.99 and $14.99.

Let’s recap: An old-school company that used to make a killing by controlling the dissemination of an artist’s work and keeping a fat share of profits is now bent out of shape that the same job can be done digitally for much cheaper. They still demand the product is wrapped in an unwieldy tangle of DRM, and sold for prices nearly on par with physical copies. But they own the rights to most of the work we want to enjoy, so companies that want to distribute it online have nothing to do but pay the piper.

This sounds familiar. Like, oh, the battle record companies have waged with digital distribution of music for over 10 years now.

As the $1.29 price tag on DRM-free iTunes tracks demonstrates, getting dragged into irrelevance kicking and screaming wasn’t totally fruitless for those goons. They’re still milking CD-like prices out of a distribution system that practically eliminates the need for them to exist at all. It’s like Aquafina ganged up with the public waterworks to charge you $2 for every cup out of the tap.

Of course, that’s overlooking one significant fact: A good portion of the civilized world gives this rigged system of overcharging the middle finger and downloads everything for free, illegally.

In the face of unjust pricing, piracy thrives. It did with music, and it will with e-books, too, if book publishers learn nothing from their musical counterparts and insist on pricing their virtual wares into the realm of absurdity.

Pulp piracy is already taking root before our eyes. In 2009, Dan Brown’s The Lost Symbol became one of the first major novels to sell more digital copies than hardcovers, priced at $9.99 in Amazon’s Kindle store. Within days, it also became one of the most popular pirated books, with over 100,000 illegal copies getting passed around online. You can download the 2.86MB PDF file from any number of pirate sources in a matter of minutes.

Who can blame the pirates? I can buy a physical copy of Dan Brown’s book for $12, or a digital copy for $10. With the physical copy, I need no expensive e-reader to use it, I can lend it around to a dozen friends when I’m done with it, or I can turn around and sell it for about $7, in which case the privilege of reading it cost me about $5. Not bad, and it amounts to half the expense of the digital copy, which is impossible to lend or resell, and which I most likely will not read again.

As the pirate surge around The Lost Symbol proved, the reading public, much like the music-listening public, is not afraid to go underground to dodge the barbed wire and tollbooths publishers have strewn out above.

Macmillan reminds me a lot of street artists who charge money to take pictures of them. They’re really in no position to make outlandish demands of you as a pedestrian. You should really pay them something – because it’s fair. But if the amazing robotic moonwalker’s little cardboard sign demands $50 for a picture, you’re just going to take a picture, turn on heel, and walk away with it for free. Because you can, and because that price is outrageous.

Go back to your calculators and punch up some numbers that make sense, Macmillan. Before we snap our pictures and slink away from your clown act without dropping you a dime.

01/30/2010

Amazon Removes All Macmillan E-Books

Filed under: Amazon,Apple,ebook pricing,iPad,Macmillan,publishing — gator1965 @ 7:12 pm

More drama and intrigue in the publishing world!

The pricing wars have begun since the iPad was unveiled by Apple last Wednesday. Macmillan scheduled a meeting with Amazon to discuss eBook pricing and Amazon’s response was to remove all their books! A bad move, in my opinion, since Amazon sells it’s Kindle based on it’s large selection of eBooks and Macmillan is one of the largest publishers in the U.S. You just know other publishers will be wanting to negotiate with Amazon!

Anyway, Jeffrey A. Trachtenberg and Geoffrey A. Fowler of the Wall Street Journal had this to say:

Amazon.com Inc. has removed all e-book titles published by Macmillan from Amazon and its Kindle e-reader site in a battle over pricing, according to a statement issued by Macmillan late Saturday.

The move follows this week’s launch of Apple Inc.’s new iPad device, which is expected to shake up the publishing industry by competing directly with Amazon’s Kindle reader and by enabling publishers to set their own retail prices on their books.

Macmillan CEO John Sargent said he visited Amazon on Thursday in Seattle to discuss “new terms of sales for e-books” and that by the time he returned to New York, he’d been informed that Macmillan’s e-books would only be for sale on Amazon.com “through third parties,” according to the statement, which appeared as an advertisement on publishing industry Web site PublishersMarketplace.com.

An Amazon spokesman didn’t respond immediately to a request for comment regarding Mr. Sargent’s statement.

People familiar with Amazon’s action said the move by the online retailer signals its unhappiness with the prospect that e-book prices may be rising in coming months. Amazon has made discounted e-book prices a cornerstone of its digital strategy.

Macmillan, a unit of Germany’s Verlagsgruppe Georg von Holtzbrinck GmbH, and one of the largest publishers in the U.S., boasts such top sellers as “Sarah’s Key” by Tatiana de Rosnay and “Wolf Hall” by Hilary Mantel.

Neither was available for purchase on Amazon’s Kindle e-reader on Saturday. Instead, customers saw this message: “Tell the publisher! I’d like to read this book on Kindle.”

How long Amazon will continue not to sell Macmillan titles – and whether the move will spread to other publishers who also want Amazon to charge more for e-books – remains unclear. The move could be only temporary. Amazon has marketed its Kindle e-reader by trumpeting its wide selection of books.

Macmillan was one of five major publishers which announced they would begin selling their e-books on Apple’s new iBooks store, a key feature of the iPad. Publishers have agreed to a new pricing model with Apple, under which they will set their own e-book prices, with Apple taking 30% of the revenue. They are expected to price many e-book titles at $12.99 and $14.99, with fewer carrying the $9.99 price that Amazon currently charges on most best-sellers.

It is expected that publishers will now seek to do business with Amazon and other e-book retailers on the same terms as with Apple. By setting their own prices, publishers would be able to eliminate discounting on Amazon and elsewhere that they believe threatens the long-term business model of publishing.

Macmillan e-books were still available for sale on Saturday at the e-bookstore at Barnes & Noble.com, a unit of Barnes & Noble Inc. Kobo, Inc., a Toronto-based e-book retailer, also said that it is continuing to sell Macmillan’s e-book titles. Added Bob LiVolsi, the founder and CEO of independent e-book retailer BooksOnBoard.com, based in Austin: “As a matter of policy we won’t do anything to shut down a publisher because of pricing.”

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