Tag Archives: publishers

Court ruling against Apple over e-book pricing upheld

Apple’s mistake was hooking up with the book-publishing cartel

Source: http://fortune.com/2015/06/30/apple-court-books/

An appeal court’s decision finding Apple guilty of collusion with publishers reinforces just how cozy a cartel the industry was.

Apple may be trying to keep the spotlight on its latest foray into the streaming-music business, but it is also still trying to clean up the mess caused by its ham-handed entry into an earlier market: book publishing. A federal court on Tuesday rejected the company’s appeal of an earlier ruling that found it guilty of orchestrating a conspiracy with the major book publishers, in what the court said was a successful attempt to artificially inflate the price of e-books.

As Fortune‘s Jeff Roberts reports, the court found Apple AAPL -0.16% engaged in collusion with what amounted to an oligopoly—namely, Harper Collins, Penguin, Simon & Schuster, Hachette and Macmillan—and that its actions were a clear breach of antitrust law. Apple argued that the deal it cut with the publishers was necessary to blunt Amazon’s dominance in the e-book market, but the appeals court didn’t buy that argument. Judge Debra Ann Livingston wrote:

“Competition is not served by permitting a market entrant to eliminate price competition as a condition of entry, and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers.”

One reason the court failed to buy this argument is that the major publishers clearly had zero interest in actually competing on price—in fact, they wanted to do exactly the opposite. Their interest in doing a deal with Apple stemmed from a desire to maintain the existing favorable price structure for books, which allowed them to milk the market for high-priced hardcover versions of new novels before eventually releasing cheaper versions. Amazon’s AMZN 0.07% low-priced e-books were a threat.

Rest of the article: http://fortune.com/2015/06/30/apple-court-books/

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One lawyer’s comments on the judgment:

The Passive Voice

Source: http://www.thepassivevoice.com/07/2015/apples-mistake-was-hooking-up-with-the-book-publishing-cartel/

After strong-arming Amazon into accepting the new “agency pricing” model—in which the publishers got to set the price for their books, rather than allowing the retailer to do so—the book industry got exactly what it wanted. According to research by the Justice Department, the price of newly released books rose by an average of 24% and bestsellers climbed by 40%.

It says a lot about the book-publishing business that doing this actually caused book sales to drop fairly dramatically across the board: research done by another expert using data from Random House showed that publishers who switched to the agency model sold close to 15% fewer books than they would have otherwise. So the industry was effectively willing to trade a short-term decline in sales for the increase in power that they got over pricing as a result of the deal with Apple.

Full blog entry at: http://www.thepassivevoice.com/07/2015/apples-mistake-was-hooking-up-with-the-book-publishing-cartel/

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Book Contracts: Get The Best Terms

A session to consider if attending the Killer Nashville Writing Conference.

Book Contracts: Get The Best Terms.

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I’m a writer and I don’t get no respect

Sometimes I feel lower than a defeated politician....

Sometimes I feel lower than a defeated politician….

Next to the defeated politician, the writer is the most vocal and inventive griper on earth. He sees hardship and unfairness wherever he looks. His agent doesn’t love him (enough). The blank sheet of paper is an enemy. The publisher is a cheapskate. The critic is a philistine. The public doesn’t understand. His wife doesn’t understand him. The bartender doesn’t understand him. –PETER MAYLE

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Redo: Glimpses

[Editor’s note: The original “Glimpses” was syllable too long. So, here is the haiku again. This time trimmed by a syllable.]

At the water’s edge,
Echoes whisper my longing.
My heart holds your face.

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E-book publishing and price fixing

Source: http://www.nytimes.com/2012/04/18/business/economy/competition-needs-protection.html?_r=1&smid=fb-share&pagewanted=all

April 17, 2012

Competition Needs Protection

New York Times

By EDUARDO PORTER

To believe publishers and authors, the government just handed Amazon a monopoly over the book market: The price-fixing suit against Apple and the nation’s top publishers filed by the Justice Department last week will free Amazon to offer ruinous discounts in the booming new market of electronic books, drive brick-and-mortar bookstores out of existence and kill off publishers’ lucrative business of ink on paper.

Yet there is a different reading to this story. Publishing companies — like bookstores — fear they are on the losing end of a technological whirlwind of digital distribution that will make much of what they do obsolete. They would like to stop it. But though publishers may be happy to subvert competition to protect their business, this can entail a heavy cost for the rest of society.

The media industry’s efforts to limit competition date at least as far back as the 1920s and 1930s, when the emergence of radio threatened newspapers’ stranglehold of local markets.

At a meeting at the Biltmore Hotel in New York in December 1933, newspaper executives offered what was essentially a plan to divvy up the audience between radio entertainment and newspaper news. The newspapers would stop their campaign against radio and reinstate radio listings if the major radio networks would limit their news offerings to a couple of short bulletins a day from the newspapers’ wire services.

The Biltmore Agreement, as their pact was known, soon fell apart, as independent stations not part of the deal started buying information from new radio news services and offering real news. Despite that cartel’s failure, the anticompetitive impulse survives to this day.

The Internet is walloping media perhaps like no other technology before. And the media establishment again looks upon competition as a hindrance to its survival.

Flailing under the loss of readers and advertisers to online competition, newspaper executives approached regulators three years ago floating the idea of an antitrust waiver. They wanted to coordinate on a strategy to charge readers for their online news and take steps against the aggregator Web sites that were republishing much of their content. Though they gained the sympathy of crucial members of Congress, the government rightly shot down the idea.

The top record labels, meanwhile, are facing a class action antitrust suit that accuses them of colluding to keep the price of online music artificially high to protect their lucrative CD business.

The suit filed last week against Apple and five of the nation’s six main publishers has a similar plot. Amazon had been buying e-books wholesale and selling many best sellers at a heavily discounted $9.99, taking the loss to encourage sales of its Kindle e-reader. Fearful that this discounting could destroy the $25-a-book hardcover business, publishers took advantage of Apple’s entry into the market to change the terms. According to the lawsuit, they colluded with the computer colossus to establish an “agency model” under which publishers would set e-book prices in a range of $12.99 to $14.99, and give the distributor — be it Apple or Amazon — a 30 percent cut.

It’s natural to feel some sympathy for old media firms as technology juggernauts bear down on them. To many of us, book publishers and newspapers are more than just businesses. They are the keepers of the culture, the guarantors of our democracy. And they are small compared with Amazon, which controls 60 percent of the growing e-book market, as well as a big share of the market for books on paper. Absent any collusion, Apple’s entry into the e-book market would be the kind of competitive challenge we should welcome in the digital world.

But the charges aren’t trivial. The kind of collusion alleged by the Justice Department is called price-fixing. It has been illegal for a very long time, even if one is fighting a very large rival. According to the Consumer Federation of America, it would cost readers about $200 million this year alone. More important perhaps, this behavior could arrest the development of innovative platforms to sell digital goods on the Web.

Competition in the digital domain doesn’t look like carmakers’ slugging it out for market share. In digital markets, dominant firms are almost inevitable. There is no other social media firm with anywhere near Facebook’s 850 million members. Almost two-thirds of all Internet searches in the United States happen on Google.

The concentration is driven by the economics of the Web. The cost to Amazon of selling one more e-book is pretty near zero. This increasing return to scale makes big digital companies much more profitable than small ones. It is compounded by what economists call “network effects”: If many programmers design apps for iPads, they will become more popular, which will encourage more programmers to write apps for them.

Competition is nonetheless crucial to keeping innovation alive. Think of Google’s successful move into the smartphone business with Android, or its less successful stab at social media with Google Plus. A lot of innovation is also built on top of the dominant platforms. That is perhaps where competition most needs protection.

European and American regulators are looking into Google’s behavior not to check how it treats Microsoft’s Bing, but to determine whether it abuses its dominant search engine to increase secondary businesses — like, say, its shopping guide — while pushing innovative rivals down the rankings. The Justice Department is interested in how Apple sets terms for media companies because it wants to make sure they have a shot to innovate on the iPad and Apple’s other platforms.

Just as important as ensuring that platforms cannot abuse their dominance is to ensure that the companies that make the products that flow on these platforms — book publishers, say — do not use anticompetitive tactics to benefit one platform at the expense of others. This is the kind of competition that the Justice Department’s civil suit against Apple and the book publishers is meant to protect.

Admittedly, the Justice Department’s case may be bad news for the established book industry. Amazon and other online competitors have squeezed Borders out of business. It is only a matter of time before cheap e-books put an end to hardcover tomes selling for $25. And with Amazon pushing into publishing itself, some publishers could become victims as well.

But what really matters to society is what the case means for the production and consumption of books. That might not be so dreadful.

For sure, if brick-and-mortar bookstores disappear, browsing will die with them. But writers and publishers will have plenty of other ways — think Amazon, Facebook or Google — of letting readers know about their books. E-books, moreover, can be profitable. Mark Cooper of the Consumer Federation of America estimated that producing, distributing and selling an e-book costs about 25 percent of the cost of a physical tome; a $10 e-book still gives publishers about $4 to cover overhead and profit. And in an e-book world, publishers’ costs are sure to fall.

While Amazon remains dominant, its share of the e-book market has fallen to about 60 percent from 90 percent. Barnes and Noble, which has about a quarter of the market, would suffer if Amazon discounts sharply. But it could shed costs by getting rid of bookstores. And publishers can recover pricing power. Apple and two of the five publishers decided to fight the charges in court. But three settled. Though they must allow Amazon to resume discounting, they must do so for only two years.

And even if every existing publisher were driven out of business, reading would probably survive. Without the middlemen, publishers might even pay higher royalties to creators.

Music offers perhaps the best parallel of what could happen to the written word online. Record labels that originally welcomed Apple’s iTunes soon realized it was a killer in disguise, allowing consumers to unbundle $13 CDs and buy only their preferred singles for 99 cents.

But it wasn’t generally terrible for musicians. ITunes offered a shot to garage bands that could never have signed with a label. And fans didn’t fare too badly. Last year, consumers bought 1.3 billion singles — saving about $5 billion by not having to buy entire albums. This is hardly chump change. Would we be willing to give this up to save endangered record labels? While we ponder this, why not consider reviving Blockbuster, Circuit City and Tower Records?

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E-book battles: writers pawns and prize

[Editor’s note: while not directly related to the e-book lawsuit, it is related as it pertains to Amazon, probably the biggest seller of books and e-books. As before, to find out more about the e-book lawsuit, click on e-book in the “Filed under” section at the bottom of this blog post. Thanks for stopping by.]

Source: http://www.nytimes.com/2012/04/16/business/media/amazons-e-book-pricing-a-constant-thorn-for-publishers.html?src=recg

April 15, 2012

Daring to Cut Off Amazon

New York Times

By DAVID STREITFELD

TULSA, Okla. — Plenty of people are upset at Amazon these days, but it took a small publishing company whose best-known volume is a toilet-training tome to give the mighty Internet store the boot.

The Educational Development Corporation, saying it was fed up with Amazon’s scorched-earth tactics, announced at the end of February that it would remove all its titles from the retailer’s virtual shelves. That eliminated at a stroke $1.5 million in annual sales, a move that could be a significant hit to the 46-year-old EDC’s bottom line.

“Amazon is squeezing everyone out of business,” said Randall White, EDC’s chief executive. “I don’t like that. They’re a predator. We’re better off without them.”

It is an unequal contest. EDC has 77 employees, no-frill offices on an industrial strip here and a stock-market valuation of $18 million — hardly a threat to Amazon, a Wall Street darling worth $86 billion. But Mr. White’s bold move to take his 1,800 children’s books away from the greatest retailing success of the Internet era is more evidence of the extraordinary tumult within the book world over one simple question: who gets to decide how much a book costs?

The Justice Department last week sued five major publishers and Apple on price-fixing charges, simultaneously settling with three of the houses. The publishers say they were not illegally colluding but simply taking advantage of a new device platform — Apple’s iPad — to sell their e-books in a different way, where they controlled the prices.

The publishers wanted to stop Amazon from using what one of them called “the wretched $9.99 price point,” according to court papers. Selling e-books so cheaply, they feared, would solidify Amazon’s robust grip on the business while simultaneously building a low-price mind-set among consumers that could prove ruinous to other bookstores and the publishers themselves.

EDC does not produce e-books, but saw exactly this happening with its physical inventory. Amazon was buying EDC’s books from a distributor and discounting them to the bone, just as it does with everything it sells. This might have been a boon for readers, but it was creating trouble with other retailers who carry the company’s titles, as well as with EDC’s network of independent sales agents, who market its books from their homes.

“They were becoming showrooms for Amazon,” Mr. White said. “We were shooting ourselves in the foot.”

Amazon is generally reluctant to explain its business practices and declined to comment for this article. But its executives say it is shaking up an antiquated business model by eliminating middlemen and passing the savings on to consumers. Publishers that try to cling to the past, they have said, will die.

The retailer’s growing list of critics, however, argue that Amazon has $48 billion in revenue but hardly any profit, proof that its approach is opportunistic and unsustainable. When traditional publishers, booksellers and wholesalers are destroyed, these opponents say, Amazon will be left with a monopoly that will be detrimental to the larger health of the culture.

In recent months, the dispute over Amazon’s strategy of selling books below cost has boiled over from several directions.

During the holiday season, Amazon encouraged customers to use physical stores as showrooms before ordering more cheaply online, a move that infuriated bookstores in particular. Publishers and distributors say that Amazon, never exactly shy in negotiating terms, has been more assertive in its quest for ever-better deals.

In February, Amazon demanded better margins from the Independent Publishers Group, a Chicago distributor of dozens of small imprints. IPG balked, so Amazon removed nearly 5,000 of the company’s e-books from its site.

“Amazon wants the price of books to be very, very low — lower than the publishing community can support,” said Curt Matthews, IPG’s chief executive. “Making a book is still a craft industry. Books need to be edited, to be publicized. Someone needs to say this is good and this is not. If there is not enough money to support that whole chain, the system will break down.”

Publishers have often been ambivalent about Amazon. On the one hand, it offers an extraordinarily efficient method of distributing their wares. Readers anywhere can easily order the most obscure volume and have it delivered the next day. With e-books, access is even easier, but publishers’ vulnerability is compounded; Amazon controls not just the method of distribution but the actual device the text is consumed on.

“Last year was the best in our 37 years, mainly due to the way Amazon was pushing the books,” said Bryce Milligan of Wings Press in San Antonio, an IPG client. “Then Amazon cut us off because they couldn’t get a better deal. Now our e-books sales are down 50 percent.”

If publishers and wholesalers feel threatened, writers are caught in the middle — both pawns and prize.

Ted McClelland, a writer in Chicago, had two IPG e-books dropped by Amazon. He just got a royalty statement on one of them, “Horseplayers: Life at the Track.” Half of his modest income on the book came from Kindle sales on Amazon.

“I don’t know whether Amazon is being greedy or IPG is being cheap, but I’m caught in the middle,” Mr. McClelland said. “What matters to me is getting my books back on Kindle.”

Here in Tulsa, EDC operates out of offices on the eastern outskirts in a less-than-glamorous district of warehouses and auto supply shops. Like IPG, it is primarily a distributor, selling picture books developed in England by Usborne Books to toy stores and bookshops in the United States. Its publishing line, Kane Miller, produces the popular “Everyone Poops” book and its sequels.

EDC’s so-called consultants — a direct sales force of about 7,000 women — sell to friends and acquaintances as well as their local schools. For a while the party plan was successful. Sales more than doubled from 2000 to 2004.

In recent years, though, the consultants have found it rough going. They would pass around a picture book like “The Noisy Body Book” or “Guess How Much I Miss You,” talking it up, and then the customer would order it online. Sales fell about 20 percent. Frustrated consultants began quitting.

What happened in February to Christy Reed, a sales consultant in Pleasanton, Tex., was becoming all too routine. Her school district decided to order 16 copies of a science encyclopedia and a science dictionary but then completed the deal on Amazon.

“I worked so hard to sell those books,” Mrs. Reed said. “I had to talk to so many different people. Then I lost the sale to a couple of clicks on the computer.”

She acknowledged that the district saved a few dollars but added: “I’m here, in the neighborhood. I went to school here. My kids went to school here. Yes, they got the books for less. But my earnings go back into our community. Amazon’s do not.”

After Mr. White, EDC’s chief, heard about that episode, his exasperation with Amazon peaked. Several times in the past, he had grappled with the retailer. He tried to get it to lower its discount on his books three years ago, but a tentative deal did not stick, he said. He was outraged that the company did not collect sales tax, which had the effect of making its books even cheaper.

Two months ago, he asked his biggest wholesaler, Baker & Taylor, to stop selling all EDC books to Amazon. When Baker & Taylor refused, Mr. White canceled its account. Baker & Taylor declined repeated requests to comment about EDC.

Of EDC’s $26 million in annual revenue, Baker & Taylor was responsible for about 6 percent, most of which was because of Amazon. Mr. White, a trim 70, said that when he made the decision to bail out, his blood pressure soared. But he’s also reveling in the excitement, just a little. He commissioned a drawing of EDC in the role of David taking on the giant Amazon. “I’m Type A,” he said. “I don’t mind a fight.”

Somewhat to Mr. White’s surprise, EDC is doing better without Amazon, at least for the moment. (Some of its books are still available on Amazon from third-party sellers.) Sales in March rose, in part because of new accounts like a toy store in Round Rock, Tex., that placed an initial order for 61 books. And colleagues in the business have been congratulating the publisher, or at least expressing their admiration for Mr. White’s guts.

“I tell them, ‘You never had the chance to make 7,000 women happy in one day,’ ” he said.

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E-book publishing lawsuit article / opinion

Source: http://www.nytimes.com/2012/04/16/business/media/amazon-low-prices-disguise-a-high-cost.html?_r=1

April 15, 2012

Book Publishing’s Real Nemesis

By DAVID CARR

The Justice Department finally took aim at the monopolistic monolith that threatened to dominate the book industry. So imagine the shock when the bullet aimed at threats to competition went whizzing by Amazon — which not long ago had a 90 percent stranglehold on e-books — and instead, struck five of the six biggest publishers and Apple, a minor player in the realm of books.

That’s the modern equivalent of taking on Standard Oil but breaking up Ed’s Gas ’N’ Groceries on Route 19 instead.

Last week, the Justice Department sued in United States District Court in New York, charging that Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster had colluded to fix e-book prices. (Hachette, Simon & Schuster and HarperCollins have already agreed to settle.)

The suit has its roots in 2007, when Amazon released the Kindle and began selling some of the most sought-after books for $9.99 in order to bolster sales of its device. Not surprisingly, booksellers and publishers hated this price with the force of 10,000 suns because it made physical books sold for $25 or more seen outrageously overpriced.

Under the wholesale arrangement with Amazon, the publishers received half of the list price, which yielded better money, but gave them no control over the pricing of their product. With the introduction of the iPad, publishers got a crack at remaking their deal because Apple allowed them to set the price and then took a cut of 30 percent.

That so-called agency model developed with Apple allowed publishers, not just Amazon, to set the price and in a move that caught the interest of the Justice Department, they all came up with pretty much the same price. (Why the crumbling book business is worthy of so much attention from Justice while Wall Street skates is a broader question we’ll leave for another day.)

Let’s stipulate that there may have been some manner of price-fixing here, perhaps even arranged in “private rooms for dinner in upscale Manhattan restaurants,” as the complaint darkly charged. The Justice Department is entrusted with, among other things, protecting the interests of American consumers and, given a narrow focus on price, its move on the publishers make sense.

But pull back a few thousand feet and take a broader look at the interests of consumers From the very beginning and with increasingly regularity, Amazon has used its market power to bully and dictate. It leaned on the Independent Publishers Group in recent months for better terms and when those negotiations didn’t work out, Amazon simply removed the company’s almost 5,000 e-books from its virtual shelves. The Seattle Times just published a series with examples of how Amazon uses its scale not only to keep its prices low, but its competitors at bay.

As low-margin companies trapped in a declining business with fewer outlets, book publishers face an existential threat. “If we are fixing prices for our benefit, we don’t seem to be very good at it,” said one publishing executive mordantly. (He declined to be named criticizing the lawsuit because of his involvement in the settlement.)

The deal struck with Apple also allowed other players into the e-book business, including independent bookstores. Previously, Amazon’s $9.99 subprofit price was a virtually impenetrable barrier to entry for anyone who couldn’t afford to lose millions in order to gain market share. Remember that it was only after agency pricing went into effect that Barnes & Noble was able to gain an impressive 27 percent of the e-book market.

Now Amazon has the Justice Department as an ally to rebuild its monopoly and wipe out other players. If the decision to charge the publishers was good for competition, why had the stock price of Barnes & Noble dropped more than 10 percent since Wednesday? Borders is long gone, and the possible loss of Barnes & Noble would be bad for consumer choice, online or off.

There are some ironies here. Amazon views e-books as cheap software sold to animate device sales, in this case, the Kindle. And who does that remind you of? Ah yes, Apple, which shrank music to a 99-cent single business to propel the sale of iPods.

This time, Apple is on the side of the angels, mostly because the company doesn’t have the leverage of a dominant device. Peter Kafka at AllThingsD dug out a throwaway line in the middle of the complaint from the Justice Department that said, “Apple also contemplated illegally dividing the digital content world with Amazon, allowing each to ‘own the category’ of its choice — audio/video to Apple and e-books to Amazon.”

The counterargument to the publishers’ position runs like this: why should consumers be saddled with paying an extra few dollars just to keep competition alive? In the short term, the answer seems clear. But Richard Epstein, a professor at the New York University School of Law, pointed out, “it is not clear that lower prices are necessarily in the long-term interests of the public at large.”

He said that lower prices work both ways, spelling “low costs to consumers and low royalties to authors.” Anyone who has written a book, including me, can tell you that book publishing has always been a bit of a clubby business, with uniform practices in realms beyond pricing. Among many other standards: sell your book to any publisher you wish, but you will never get more than 15 percent of net royalties on the hardcover edition.

Robert F. Levine, a lawyer with an extensive practice in publishing, said there’s a practical reason for all that uniformity. The book business is both hermetic and dwindling.

“There is not a drop of new capital coming into this business,” he said. “The margins are low and there is almost no growth, so you end up with a rather small industry, with a handful of companies and a handful of players.” Scott Turow, a big-time author who is president of the Authors Guild, worries that the club is going to get a lot smaller. “It is breathtaking to stand back and look at this and believe that this is in the public interest,” he said. “The only rationale is e-book prices will go down, for how long? What happens when there is no one left to compete with them?”

I’d be lying if I said I didn’t get a little thrill when I found out on Amazon that I could get an e-book version of “Fifty Shades of Grey,” the No. 1 book on the New York Times best-seller list, for just $9.99. But after a week of watching the Justice Department and Amazon team up, I’ve learned that low prices come with a big cost. Maybe I’ll order it at my local bookstore instead.

carr@nytimes.com; Twitter: @carr2n

[Editor’s note: you can find additional entries on this subject, by clicking on e-book listed below.]

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