Publishing/Writing: Insights, News, Intrigue

09/10/2012

DOJ’s E-Book Price-Fixing Case = Publishing Intrigue to the Max


 

Blind Justice

Intrigue, indeed — But, is the whole case based upon misconceived intentions, misunderstanding and misplaced justice?

And, just WHO is to blame for letting this price-fixing debacle spawn into a full-blown clusterfuck?

This insight is provided by Jonathan Berr in InvestorPlace.com :

Publishers Have Themselves to Blame for Amazon’s Triumph

The recent ebook price-fixing settlement clearly proves it

Amazon (NASDAQ:AMZN) CEO Jeff Bezos has won the e-book price wars and will leave his competitors in the dust. The publishers that are complaining now have no one but themselves to blame.

Last week, U.S. District Judge Denise Cote approved a settlement between three U.S. publishers — Hachette Book Group, Simon & Schuster and HarperCollins —and the Department of Justice over allegations that they were in cahoots with Apple (NASDAQ:AAPL) to fix the prices of e-books. Apple and two other publishers, Penguin Group USA and Macmillan, have refused to settle. Their case will go to trial next summer. Officials in the publishing industry, who urged Cote to throw the case against them out of court, were appalled by the ruling.

“To say the least, we are colossally disappointed that the judge failed to understand how consumers will be negatively impacted by a decision that does not take into account the realities of the book business in 2012,” said Oren Teicher, CEO of the American Booksellers Association, in a statement posted on the group’s website.

Indeed, the publishing industry argues that it — not Amazon — is the aggrieved party given the Seattle-based company’s dominant position in the e-book market by selling electronic books below cost. Though their fears were understandable, their solution to it was illegal. It’s not even a close call.

Both Apple and the publishers didn’t want to compete with Amazon’s $9.99 price point for e-books. In 2010, they agreed to switch to a new “agency” model whereby publishers would sell titles directly to the public as opposed to the “wholesale” model, in which electronic books were sold to retailers. Agreements between Apple and the publishers were in place ahead of the 2010 launch of the iPad.

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04/24/2012

Digging Further Into the Intrigue RE the DOJ Investigation of the Big Six Publishers


Looking Into DOJ Intrigue

Have you ever asked yourself the question “If the DOJ had evidence against the big publishing houses, why didn’t they indict them criminally instead of just civilly?”

Hmmmm.  

Well, according to a former prosecutor for the DOJ, they could have prosecuted them criminally (seems he had prosecuted successfully on less evidence).

Could it be that some white-collar crimes are treated differently than others due to who is involved? A kind of class privilege pass, so to speak.

Of course this is true ! Especially to those living in the ‘real’ world.

Some intriguing details of this case are offered by former DOJ prosecutor, Carl Steinhouse in Naple News dot com:

The Humorous Side of the Law: No indicting an Apple?

The Department of Justice recently announced that it has sued civilly Apple, Barnes & Noble and a whole bunch of book publishers for conspiring to fix the price of e-books (digital books) to the consumer reader.

The target of this alleged conspiracy was Amazon, which had the temerity to discount e-books down to $9.99 and lower, and often at a loss to itself. This, of course, put competitive pressures not only on Amazon’s competitors having to match Amazon’s low prices, but upon the competitors’ suppliers, the book publishers, to lower their prices as well. This price cutting of Amazon had to go, they decided.

Before the alleged conspiracy, on the sale of an e-book, Amazon would pay the publisher the wholesale price for that title, with Amazon free to charge its customers whatever it wanted. Publishers were unhappy because their other customers, mostly bookstores, were screaming bloody murder about the unfair competition from Amazon. This put a publisher in a quandary. It could, on its own, refuse to sell to Amazon. But just one publisher refusing to deal with Amazon would not make much of an impression on Amazon and that publisher would stand to lose a lot of business from the world’s largest e-book reseller. But if a group of publishers did the same thingnow that would be a different kettle of fish, depriving Amazon of its stock in trade, at least in e-books.

Enter Appleand Steve Jobs. Apple, with its new entry into the digital landscape, the iPad, became part of the equation because it now offered e-books on its devices in competition with Amazon’s Kindle. As we all know, Jobs, may he rest in peace, was no blushing violet and not one to ever sit on his hands and let someone take a bite of his Apple. Apple was not in business to lose money on any of its products, and e-books, in its iBooks store, Jobs determined, were not to be the exception.

According to the Justice Department, Jobs got the publishers and some of Amazon’s competitors to meet in the private dining rooms at upscale New York restaurants and by emails to discuss how to stop Amazon from steeply discounting their e-books on Kindle. The government says the defendants hatched a plan to band together to force Amazon to change from buying under the traditional wholesale pricing to a so-called “agency pricing” where the publishers set the price and pay Amazon and all e-book sellers a 30 percent commission. If all of the major publishers did this, Amazon would be required to raise its price from the $9.99 and lower, that it had been charging.

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04/04/2012

Looks Like the Agency Model May Survive DOJ as a Valid Business Model


The Right Decision on Agency Model ?

Signs emanating from news sources point to the agency model (backed by the big six publishing houses) being judged a valid business model by The Department of Justice.

With one alteration — Apple must drop its MFN (most favored nation) designation. MFN status meant Apple could not be undersold by other retailers.

What does this mean?

To me it means that all the best content, known authors, bestsellers, etc. will probably be available only through sites employing the agency model. Why? Simply because authors/creators can make more money with the 70%/30% revenue split — and at a price set by the author/publisher not a third-party retailer.

This also means that all the best new content, authors, bestsellers, etc. will probably leave Amazon with its cheapo book model, unless they make some changes.

That some of its titles in iBooks are uncompetitive probably won’t worry Apple much. It cares a hell of a lot more about upholding agency terms and MFN with magazine and newspaper publishers, where the market structure is totally different. 

What tomorrow may look like:

    For quality content go to Apple iBooks and other agency model sites.

    For lesser, second-rate, cheapo content go to Amazon.

More details here by  at Digital Book World:

Breaking Down the Apple-DoJ-Agency Five Saga and Its Ramifications

What could the actions of the Department of Justice mean for e-books? Here’s a breakdown with some scenarios as I understand the situation. 

Apple’s Agency Model

Publishers selling through Apple can only do so through an agency agreement (a uniform 70%/30% revenue split across all categories and digital products). That is true for all assets – games, music, video, movies, etc. – sold through Apple.

Based on the recent news reporting, the DoJ might accept agency as a valid business model. In an interview with the Wall Street Journal, Sharis Pozen, the top antitrust official at the Department of Justice states “we don’t pick the business model”, and is focusing its efforts on a settlement under which Apple drops the “most favored nation” clause form contracts according to a report by Reuters.

This means Apple’s business model for iTunes – including iBooks – may remain largely untouched. Apple does not have to worry about price-matching, does not need buyers or merchandisers to come up with the right price, and does not need to change its technical or e-commerce infrastructure. 

Most Favored Nation

To be competitive under its retail model, Apple originally insisted on a Most Favored Nation (MFN) clause to make sure its goods (and its processes for pricing these, where the publisher set the retail price) were competitive (i.e. Apple would not be undercut on the same goods in the marketplace).

Being forced by the DoJ to drop the Most Favored Nation (MFN) clause means that Apple could no longer insist that the retail price agreed between Apple and publisher is the lowest in the market at all times. 

Agency and the Big Six (Penguin, Macmillan, Hachette, Simon & Schuster, Random House and HarperCollins)

The big-six publishers (except Random House, which followed the “agency five” to this business model one year later) had agency agreements in place with Apple when iBooks launched and more importantly were able to force these agency agreements (RH included) on Amazon, too. Due to their market position and the popularity of their books (and authors), the big-six publishers prevailed in negotiations with Amazon (remember the outcry by authors and customers when Macmillan books disappeared from Amazon? Amazon caved inside of 3 days.)

It is likely that nothing will change for the big six if Apple is forced to drop MFN. It will be agency terms as normal with all retailers be they Apple, Amazon, BN, Google, Kobo or others. This is probably a very happy outcome for the big six.

However, at the same time, the big six are less constrained when doing short-terms promotions and will only be able to do these promotions selectively, i.e. only in certain channels and on certain titles. Regardless, I think the big six would be very happy with this outcome. 

Agency and the Second Tier

Many publishers in the “2nd tier” (all those outside big six – this in no way refers to quality of the output, it is just a reflection of size and market-share) have agency agreements with Apple, but wholesale agreements with Amazon, because Amazon had the upper hand in negotiations along the lines of “you are not willing to sell on wholesale terms? O.K. we will not sell your books” and swoosh these publishers would have lost the potential of selling to 60% to 70% of the now very large e-book market (as much as 50% of the total market for many titles).

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03/11/2012

Is the Justice Department’s Antitrust Division Allowing the Buying of Publishing Monopolies ?


Buying Publishing Monopolies?

It’s publishing intrigue time again 🙂 This time in the form of the wholesale model versus the agency model in digital publishing — OR, in other words,  Amazon versus Apple. 

Both models are monopolistic. The wholesale model allows the e-book retailer to fix a below cost (to them) flat price of $9.99 (very suspicious for future price gouging). The agency model allows the publishers to price-fix a higher, colluded price range. So, pick your poison or your monopoly. 

Which is better for the industry as a whole ? For the consumer ? For the financial sustainability of good writers and attracting future talent ? Etc., Etc., Etc. 

There are points on both sides of this issue, but one thing should remain clear while the Justice Department is trying to sort it all out:

Open and aggressive competition always promotes ingenuity, improved products, promotes quality industry growth AND  is the only safe and fair way to set prices. Something we have forgotten in a greedy rush to set or protect an unfair advantage or status quo.

 Washington Post columnist   gives an in-depth explanation of the publishing wholesale and agency models along with an insight into the industry politics and nuances involved in this flushing out of the new publishing landscape: 

Pick your monopoly: Apple or Amazon

As a general rule, we don’t prefer monopolies. We know that, over the long run, monopolists tend to raise prices, reduce choice and stifle innovation.

But are monopolies so bad that we might want to tolerate a little price-fixing by customers or suppliers in order to break them?

Could a little anti-competitive behavior actually be pro-competitive?

That is what five leading book publishers are arguing in explaining why they simultaneously accepted an offer from Apple, just before the release of the iPad, to change the way e-books are priced and distributed. Their actions moved the industry from a “wholesale” model, in which they sold e-books to retailers and let them set the retail price, to an “agency model,” in which the publishers set the retail price and pay the retailers a fixed commission on every sale. In the process, they managed to break up Amazon’s e-book monopoly and raise the price of online books by 30 to 40 percent.

Now you might ask at this point why breaking up a monopoly would raise prices rather than lower them.

The answer has to do with how Amazon went about building its e-book monopoly in the first place — namely, by setting a price that was lower than what Amazon was paying publishers for the book. What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.

So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?

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01/07/2012

Barnes and Noble’s Financial Fiasco – Inside the Telltale Numbers


B&N shedding Nook E-Reader and Publishing Arm?

More intrigue in the publishing industry 🙂

Barnes and Noble had great strength. And they had great insight in being one of the first, if not the first, in recognizing the importance and  impending impact of the e-book … BUT, they did not follow through and let others such as Amazon and Apple capture market share and establish first brands! 

Here, then, are the revealing financial numbers inside B&N as reported by JEFFREY A. TRACHTENBERG And MARTIN PEERS in The Wall Street Journal :

Barnes & Noble Seeks Next Chapter

Barnes & Noble Inc. is the latest old-school company to discover how costly it can be to try to reinvent itself for a digital future.

The nation’s largest bookstore chain warned Thursday it would lose twice as much money this fiscal year as it previously expected, and said it is weighing splitting off its growing Nook digital-book business from its aging bookstores.

Over the past 15 years, rapid technological change has transformed the company from a dominant retailing force that left smaller booksellers quaking in fear to a struggling giant grasping for a plan to ensure its long-term relevance to the publishing industry.

Barnes & Noble realized early on that e-books could appeal to consumers, but allowed Amazon.com Inc. to get an early leg up. Now it is locked in a battle with Amazon and another deep-pocketed rival, Apple Inc., to sell both electronic books and the high-tech devices consumers use to read them.

Digital technology continues to roil all manner of once-dominant companies. Former giants such as Blockbuster Inc., Circuit City and Barnes & Noble’s main book-chain rival, Borders Group Inc., have struggled mightily—and in some cases, disappeared altogether—in the face of digital competitors including Netflix Inc. and Amazon. Wednesday’s news that Eastman Kodak Co. was contemplating seeking Chapter 11 bankruptcy protection underscored the severity of the technology threat.

Barnes & Noble’s stock fell 17% on Thursday. The company now may be at its most critical juncture since Leonard Riggio, its chairman and largest shareholder, opened his first store in New York’s Greenwich Village in 1965.

As recently as the 1990s, Barnes & Noble was known as a carnivorous competitor with the power to wipe out independent bookstores with its steeply discounted books and sprawling stores where customers could sip coffee and read in plush chairs. In New York City, the emergence of a Barnes & Noble on the Upper West Side was partly responsible for the mid-1990s closing of the beloved neighborhood bookseller Shakespeare & Company—the kind of narrative arc that cropped up in the movie “You’ve Got Mail.”

Ironically, Barnes & Noble had been one of the first to recognize the potential of digital books. In 1998, it invested in NuvoMedia Inc., maker of the Rocket eBook reader, and the bookseller actively supported digital-book sales. But in 2003, it exited the still-nascent business, saying there wasn’t any profit in it.

It wasn’t until 2009 that Barnes & Noble re-entered the business, introducing its Nook e-reader. By then, Amazon had been selling its Kindle device for about two years, and was offering best sellers for $9.99, a fraction of what hardcover best sellers are priced at.

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