Wednesday Links: DOJ Sues Apple, Macmillan, and Possibly Others
“The broad language around what constitutes a cybersecurity threat leaves the door wide open for abuse. For example, the bill defines “cyber threat intelligence” and “cybersecurity purpose” to include “theft or misappropriation of private or government information, intellectual property, or personally identifiable information.”
People familiar with the situation confirmed to me that at least two big-six houses refused to sign new annual contracts, though I have not yet been able to confirm all six. Amazon is still fulfilling customer orders, these sources said, but is not promoting big-six houses’ books on the site or in marketing materials in ways it once did.
Book publishers traditionally paid bricks-and-mortar bookstores co-op fees on print books in order to ensure promotion of those books in stores. The concept is murkier when applied to e-books being sold via websites. Publishers have accepted co-op on e-books as the price of doing business with Amazon, but now the company appears to be requesting much higher co-op fees.”
“Amazon is picking up its literary largess during an especially charged season in the company’s relationships with the rest of the book world. For the first time, the “Big Six” publishers — HarperCollins, Random House, Hachette, Simon & Schuster, Penguin and Macmillan — have refused to sign Amazon’s latest annual contract. The main sticking point is exorbitant increases in “co-op promotional fees” for e-books that the publishers see as an illegal gouge by another name. One person familiar with the details of the proposed 2012 contracts that Amazon has submitted to major New York publishers described them as “stupifyingly draconian.” In some cases, he said, Amazon has raised promotional fees by 30 times their 2011 cost. In saying no, the big publishers are following in the footsteps of the Independent Publishing Group, a major indie distributor representing dozens of small presses that refused Amazon’s increases earlier this winter and soon saw the “Buy” buttons on more than 4,000 of their titles promptly delinked.”
Onto the next big news. Department of Justice is holding a press conference today at noon to announce news regarding the investigation into price fixing by five of the Big 6 publishers and Apple. Word is that at least three are interested in settling: HarperCollins, Simon & Schuster, and Hachette with Penguin still in talks. It is unknown how many of the publishers the suit will implicate.
The lawsuit purportedly concerns two issues. First, price collusion and second, a most favored nation clause. The MFN clause allows retailers, like Apple and Amazon, to ensure that no one has a lower price for a product that is for sale on their site. The price collusion issue undoubtedly comes from Apple’s setting the floor and ceiling of the price variables.
Mark Coker, the owner of Smashwords, also put out the pricing guidelines, as required by Apple. Even if you don’t have an iThing or plan to own one, Apple pricing scheme is being adopted by five of the Big 6 and will likely inform the prices at other retailers (this is one thing Amazon is fighting for – the right not to be outpriced by Apple).
Full right to price without Apple restrictions exists for:
- Books that do not have a print equivalent.
- Hardcover list prices that exceed $40 in print
- Mass market or trade paperbacks list prices that exceed $22
For Mass Markets or Trade Paperbacks
- For any book with a print equivalent list priced at $22 or less, the cap is $9.99
- This is for the first year only
- After the first year, price can be anything UNLESS APPLE DEEMS IT UNREALISTIC
- Anything under $22.00 is capped at $9.99
- $22.01-$24.00, the maximum ebook price is $10.99;
- $24.01-$25.00 is $11.99;
- $25.01-$27.50 is $12.99;
- $27.51-$30.00 is $14.99;
- $30.01-$35.00 is $16.99;
- $35.01-$40.00 is $19.99.
It is Apple that has decreed that books fall within certain guidelines and the publishers have followed them. Thus, it isn’t actually the publishers who are setting the prices independently. That may actually be the downfall of the publishers but probably not Apple.
John Sargeant has come out with a pre emptive statement (again addressed to artists, authors and illustrators) that there was no collusion involved:
But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.
When Macmillan changed to the agency model we did so knowing we would make less money on our e book business. We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there.
It is also hard to settle a lawsuit when you know you have done no wrong. The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.
The situation for Apple and other publishers isn’t helped by Apple’s anti competitive move to require that 30% of all sales that occur through an iOS approved app would flow to Apple. This would render a loss for every book sold through the Amazon, nook, or other book apps. My guess is the DOJ’s success will depend on how the market is measured. Is the market measured by the totality of devices that can implicate ereaders? Apple holds the reigns there. How about the entire book market? That would be the big 6. The actually ebook market today? Amazon.
A. For two years, Settling Defendants shall not restrict, limit, or impede an E-book Retailer’s ability to set, alter, or reduce the Retail Price of any E-book or to offer price discounts or any other form of promotions to encourage consumers to Purchase one or more E-books, such two-year period to run separately for each E-book Retailer, at the option of the Settling Defendant, from either:
1. the termination of an agreement between the Settling Defendant and the E-book Retailer that restricts, limits, or impedes the E-book Retailer’s ability to set, alter, or reduce the Retail Price of any E-book or to offer price discounts or any other form of promotions to encourage consumers to Purchase one or more E-books; or
2. the date on which the Settling Defendant notifies the E-book Retailer in writing that the Settling Defendant will not enforce any term(s) in its agreement with the E-book Retailer that restrict, limit, or impede the E-book Retailer from setting, altering, or reducing the Retail Price of one or more E-books, or from offering price discounts or any other form of promotions to encourage consumers to Purchase one or more E-books.
Each Settling Defendant shall notify the Department of Justice of the option it selects for each E-book Retailer within seven days of making its selection.
B. For two years after the filing of the Complaint, Settling Defendants shall not enter into any agreement with any E-book Retailer that restricts, limits, or impedes the E-book Retailer from setting, altering, or reducing the Retail Price of one or more E-books, or from offering price discounts or any other form of promotions to encourage consumers to Purchase one or more E-books.
C. Settling Defendants shall not enter into any agreement with an E-book Retailer relating to the Sale of E-books that contains a Price MFN.
D. Settling Defendants shall not retaliate against, or urge any other E-book Publisher or E-book Retailer to retaliate against, an E-book Retailer for engaging in any activity that the Settling Defendants are prohibited by Sections V.A, V.B, and VI.B.2 of this Final Judgment from restricting, limiting, or impeding in any agreement with an E-book Retailer. After the expiration of prohibitions in Sections V.A and V.B of this Final Judgment, this Section V.D shall not prohibit any Settling Defendant from unilaterally entering into or enforcing any agreement with an E-book Retailer that restricts, limits, or impedes the E-book Retailer from setting, altering, or reducing the Retail Price of any of the Settling Defendant’s E-books or from offering price discounts or any other form of promotions to encourage consumers to Purchase any of the Settling Defendant’s E-books.
E. Settling Defendants shall not enter into or enforce any agreement, arrangement, understanding, plan, program, combination, or conspiracy with any E-book Publisher (including another Publisher Defendant) to raise, stabilize, fix, set, or coordinate the Retail Price or Wholesale Price of any E-book or fix, set, or coordinate any term or condition relating to the Sale of E-books.
This Section V.E shall not prohibit a Settling Defendant from entering into and enforcing agreements relating to the distribution of another E-book Publisher’s E-books (not including the E-books of another Publisher Defendant) or to the co-publication with another E-book Publisher of specifically identified E-book titles or a particular author’s E-books, or from participating in output-enhancing industry standard-setting activities relating to E-book security or technology.
When does this begin?
Within seven days after entry of this Final Judgment, each Settling Defendant shall terminate any agreement with Apple relating to the Sale of E-books that was executed prior to the filing of the Complaint.
Settling Defendants shall notify the Department of Justice in writing at least sixty days in advance of the formation or material modification of any joint venture or other business arrangement relating to the Sale, development, or promotion of E-books in the United States in which a Settling Defendant and at least one other E-book Publisher (including another Publisher Defendant) are participants or partial or complete owners. Such notice shall describe the joint venture or other business arrangement, identify all E-book Publishers that are parties to it, and attach the most recent version or draft of the agreement, contract, or other document(s) formalizing the joint venture or other business arrangement. Within thirty days after a Settling Defendant provides notification of the joint venture or business arrangement, the Department of Justice may make a written request for additional information. If the Department of Justice makes such a request, the Settling Defendant shall not proceed with the planned formation or material modification of the joint venture or business arrangement until thirty days after substantially complying with such additional request(s) for information. The failure of the Department of Justice to request additional information or to bring an action under the antitrust laws to challenge the formation or material modification of the joint venture shall neither give rise to any inference of lawfulness nor limit in any way the right of the United States to investigate the formation, material modification, or any other aspects or activities of the joint venture or business arrangement and to bring actions to prevent or restrain violations of the antitrust laws.
Each Settling Defendant shall furnish to the Department of Justice (1) within seven days after entry of this Final Judgment, one complete copy of each agreement, executed, renewed, or extended on or after January 1, 2012, between the Settling Defendant and any E-book Retailer relating to the Sale of E-books, and, (2) thereafter, on a quarterly basis, each such agreement executed, renewed, or extended since the Settling Defendant’s previous submission of agreements to the Department of Justice.