The Shatzkin Files


Letter to the DoJ about the collusion lawsuit and settlement


23 May 2012

John Read, Esq.
Chief, Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street, NW, Suite 4000
Washington, DC 20530

Dear Mr. Read,

I am submitting by way of this letter two concerns that I hope will be taken into account concerning the DoJ’s complaint against Apple and five publishers, as well as the settlement agreements negotiated and now being considered by the Court.

One concern is the danger of introducing an enormous imbalance to the publishing business, which will ultimately hurt all authors and readers, through the Government’s apparent rejection of the idea of uniform pricing of the sale of individual ebooks across all Internet retail sites.

The other pertains specifically to the settlement agreement, in particular the need for detailed consideration of how one of its central operative provisions will be enforced and executed, which I believe is not reflected in the documents filed so far.

I have read Judge Cote’s decision dated May 15, 2012, which was a powerful impetus to me to write this letter. I was deeply impressed with the evident care she took in reviewing the parties’ submissions. But I also feel that the decision was at least partly based on profoundly incorrect premises that I can only conclude arose out of a failure of the parties to convey important realities that are characteristic of the book publishing industry.

I do not pretend to have information on the alleged facts of collusion or any expertise on the law regarding collusion or antitrust. My expertise is in the book business, and particularly in how digital change affects it. I offer the thoughts set out below as a publishing consultant (and also as an author) with 50 years of experience in all aspects of the book business. My first real summer job was in a major bookstore in 1962. My father was in the industry before me. I have spent the last 20 years largely immersed in the industry’s transition to digital media, speaking at and organizing numerous conferences throughout that time on this subject. The primary focus of my work is to help the different players in the publishing industry figure out where today’s developments will lead us tomorrow. I hope the DoJ and the Court will value these thoughts as coming from somebody who has given them in-depth consideration for many years.

My first concern is that there is a failure of recognition of the necessity for price-setting of individual titles across the ebook supply chain. Indeed, only by eliminating price as a basis of competition can we ultimately have balanced competition in the real world of publishing as digital change has remade it.

And, in fact, that reality has been demonstrated by the shifts in market share that have taken place since agency pricing was introduced. There is a far more diverse ebook ecosystem now, offering far more purchasing choices for consumers, than there was before agency. And there has been innovation, specifically Barnes & Noble’s introduction of Nook devices that have delivered previously unavailable features, that also would have been less likely without agency pricing.

Before ebooks, retail booksellers needed publishers to provide them with product to sell, and publishers needed booksellers to give publishers orderly access to the buying public. That was true when Amazon began as a print book retailer in 1995. At the time it began, the only way to be a successful book retailer online was to supply titles across all publishers. When the idea of purchasing books online was new and the number of people to whom it was available was far smaller than it is today, only a source with the full range of choice could attract a substantial customer base.

In the years before ebooks became commercially important, Amazon established a dominant position in the online retailing of books, and in doing so it also created a huge database of book-purchasing customers. This helped Amazon considerably to become the most influential force in jump-starting the ebook revolution, starting with the introduction of the Kindle in November, 2007. It was well documented to the Court how Amazon used loss-leader discounting of ebooks as an important tool to build that marketplace. The Court is also clearly aware that Amazon is able to support this discounting because of resources stemming from its considerable size and diversity that none of its competitors can match.

But the imbalance I want to call to the court’s attention is not about the fact that Amazon sells many things besides books and most of its competitors in the book marketplace do not.

As more and more sales have shifted online and the physical store business has become correspondingly less important, publishers have come to understand that they must develop and maintain direct customer contact with readers. In the print and bookstore era before Facebook and Twitter, this was not necessary, nor was it really possible. Suddenly, it is essential.

Indeed, it is precisely that direct customer contact, developed over 17 years as a retailer, that Amazon uses as a primary tool in its individual title marketing. Indeed, as you know, Amazon is now itself a publisher, using direct customer contacts to sell its own titles to consumers. In fact, Amazon’s customer database from its retail business (which goes beyond merely its book purchasers, since it sells almost everything) and the communication network it enables are extremely powerful. Using it as their core marketing tool, Amazon is succeeding at signing authors away from major houses even though it can’t deliver sales to physical stores, which have largely said they won’t stock books coming from their online competitor.

And therein lies the imbalance. The publisher of the future must be able to sell direct. With Amazon as their single biggest wholesale customer, that puts publishers in a Catch-22. If they sell direct at full price, Amazon will undercut them and make them look foolish to their customers. But if publishers discount, they invite a double-whammy. Amazon can still out-discount them, but Amazon (and other retailers) might also insist that the wholesale prices at which Amazon purchases from publishers, which are based on discounts-from-retail, be based on the price the publisher is actually selling for.

So, without a publisher-set price that is honored by everybody, including the publisher, Amazon will effectively be the only general publisher that can sell direct. This will materially disadvantage all publishers in competing with Amazon for authors, and the handicap will become increasingly severe as the sales continue to shift, as they will, away from physical stores and to online purchasing.

In a nutshell, without uniform retail pricing, Amazon can effectively disintermediate the publishers, but the publishers can’t effectively disintermediate Amazon.

My second concern relates to the terms of the proposed settlement with three publishers which the Court is being asked to approve. In apparent partial recognition of the dangers of discounting by retailers, particularly the deep-pocketed Amazon, the settlement limits a store’s discounting to the total amount of margin it earns from a publisher within a year. As I understand it, that means that if a store were to sell $10-million of a publisher’s books in a year, the store could not discount more than the $3 million margin (assuming a 30% agency “commission”) it would have earned across all the sales it made.

This isn’t bad as a principle, and perhaps some variation of it could even address the concern I express about enabling publishers to sell direct. However, translating the principle into action is complicated. It will require reliable data collection, forecasting, and some means of enforcement. I see none of those elements spelled out in the settlement agreement.

At a minimum, it would seem that ebook retailers would have to report actual sales prices of all relevant transactions to the publishers, or have them summarized in a clearly defined and agreed-upon way. This is not data that any retailer, to my knowledge, now shares with its trading partners although, of course, the publishers monitor prices for compliance with publisher-set agency prices.

But even with the data being provided, when one comes to the last period of the year it will require forecasting and close monitoring to keep track of where things stand in every instance where a retailer is anywhere close to its contractual limit with any publisher.

And, then, what is the penalty if a retailer exceeds its discounting allowance? And who gets compensated? The publisher? Other competing retailers? The other publishers whose sales were compromised by the excessive discounts given to a competitor’s ebooks?

In the extremely contentious environment that exists in our business at the moment, I submit that these matters need to be clearly defined in advance if there is any hope for this solution to lead to anything except more litigation.

I very much hope the Department of Justice and the Court will ensure that these points are taken into account before any further binding action is taken, which could have long-term and high disruptive impact on the publishing industry.

Thank you for your consideration.

Sincerely,

 

Mike Shatzkin
Founder & CEO

  Back to blog

  • http://profiles.google.com/cjewel Carolyn Jewel

     Wow. I’m just stunned by this. Are you really suggesting it’s OK to screw the retail consumer because publishers can’t figure out how to compete?

    You’ve also missed the point that with a finding of per se anti-trust violations by these publishers, Amazon’s practices are irrelevant to the DOJ’s case and, therefore, to any defense to the complaint.

    Collusion to set prices as alleged in the complaint is illegal. Period. There’s no legal world in which that per se violation is OK.

    • http://twitter.com/emmittc emmittc

       hold on the per se…..There has been no legal determination on whether there was a horizontal agreement yet  -(Cote found enough of  factual basis to not dismiss case but it has to be litigated and certainly can be appealed if necessary)….there are legal arguments to be made and, while uphill battle for sure, there is plausible  legal basis for publishers and people/culture to win (as opposed to phony consumers that amazon hides behind)…..stay tuned….don’t be stunned……look at the bigger picture and the history of publishing and bookselling…..

      • marcellovena

        Right Emmittc, the point of the Mike’s letter is not to say there as no collusion. He even doesn’t dare to enter in that topic.
        Any consequence of this DoJ complaint (including penalties in case the collusion is proved) should also take into account the effects on the publishing industry overall. A remedy should never be worse than the (alleged) damage it aims to cure…Marcello 

      • /blog Mike Shatzkin

        I really like that last sentence of yours, Marcello!

        Mike

    • /blog Mike Shatzkin

      Carolyn, have you bought a Macintosh computer at a discount lately?

      You should take your indignation at people using their Intellectual Property protection to raise prices on consumers to the pharmaceutical industry. It would do society a lot more good.

      Mike

  • Andyrossagency

    Mike, A brilliant letter. Thanks for writing this. I hope everyone (at least everyone at DOJ) read it.

    • /blog Mike Shatzkin

      Thanks, Andy. Much appreciated.

      Mike

  • Steve Wieck

    Mike

    I love the spirit of your letter. A world where any one player controls too much of the book business is not healthy for our culture. I do think there are some factors that will limit your letter’s effectiveness.
    1. “There is a far more diverse ebook ecosystem now, offering far more purchasing choices for consumers, than there was before agency.”
    As the saying goes, correlation does not equal causation. Even if iBooks had launched w/o agency model pricing, the market would have become more diverse. In fact, had Apple sucked it up and been willing to take on Amazon in the margin game, rather than seek shelter in agency model, the market would likely be even more diverse today.
    As you have noted, because Amazon would only bend a knee to the big 6 and let them do agency pricing on Amazon, every other publisher had to choose between Amazon and Apple because they could not sell to Amazon under wholesale pricing and also honor Apple’s price equivalency part of the agency model. So iBooks ended up with a less diverse inventory which surely has not helped it compete for market share against Amazon.
    2. The issues you raise about publishers selling direct and having to compete with their own product discounted at Amazon – I have two comments. I was a small press publisher and this problem vexed us in the printed book world. It’s the same problem now in an eBook world, albeit an even thornier problem. Like the end result or not, Amazon has executed beautifully on building the best internet book business on the planet and if you want to tap into their customer network, they get to exact a toll for doing so in one form or another. They choose to take their toll largely in a way that further grows their network (loss-leading on your titles whehter you like it or not) rather than take it in a way that makes Amazon much profit. Everyone knows it, yet nearly everyone continues to dance with the devil even while the devil gets stronger. Second, these issues seem to go toward whether Amazon is a monopoly. Clearly they are not yet. So I imagine the DOJ will largely dismiss this part of your letter. If Amazon becomes a monopoly then there would be a separate DOJ action at some point about that.

    I think the strongest part of the letter is calling for more specifics on how any settlement would be enforced. If you can help give that part some teeth, then Amazon can’t walk out of this unhindered. I applaud you on that.

    Steve

    • /blog Mike Shatzkin

      Steve, thanks for the note. Observations on yours…

      The biggest bite out of Amazon’s share has been taken by B&N, not by Apple. It is my contention they wouldn’t have if agency hadn’t come in.

      And there are publishers selling to both Amazon and Apple on incompatible terms; more of those than the number staying out of Apple. Although you’re right that Amazon’s strategy tends to discourage publishers from going to Apple, and I’m sure that’s a component of their decision to use that strategy.

      And I don’t know the legal definition of “monopoly” but when Amazon will arrive there depends on how one defines the universe. If it is about total book sales, the day is far off. If it is about sales of books through online channels, whether print or digital, then the day is very close. How about when they’re more than half of many big publishers’ revenues? That day is probably only two or three years away.

      Mike

  • William Ockham

    I hope you realize that your letter will almost certainly be ignored. The core of the problem is this statement:

     Indeed, only by eliminating price as a basis of competition can we have any ultimately have balanced competition in the real world of publishing as digital change has remade it.

    Telling an antitrust lawyer that eliminating price competition is the only way to have real competition is a lot like telling the drug czar that the only solution to the drug problem is legalize all drugs. You need to understand that it has only been in the last 5 years that retail price maintenance agreement between a single manufacturer and its retailers has been definitively known to be legal. The DoJ will never accept the notion that the way to ensure competition is to allow a single RPMA for an entire industry. It really doesn’t matter whether you are right or not, it just won’t fly. By the way, I used the drug policy analogy because I tend to think that legalization is the right solution, but I wouldn’t make that argument to a cop while standing in front of a meth lab. By identifying yourself with publishing industry, you have metaphorically put yourself in front of the meth lab in this analogy.

    If anything, your argument strengthens the DoJ case by providing the clear motive for the publishers’ alleged collusion. If the publishers need an enforced price to survive, that would give them reason to engage in the reckless manner that has been alleged. 

    I think you have a fundamental misunderstanding of the point of antitrust laws. They are designed to protect consumers, not producers. The DoJ has absolutely no interest in whether or not Amazon can disintermediate the publishers or vice versa. The DoJ has no mechanism for preventing the complete collapse of the publishing system. It really might be the end of civilization as we know it, but the Antitrust Division isn’t going to lift a finger to stop it.

    My final question for you is this: If Apple and the publisher did what the DoJ alleges, was that wrong?

    • /blog Mike Shatzkin

      A lawyer close to me made precisely the point you made before I sent the letter. I sent it anyway. I’ll let the lawyers make the legal arguments.
      My letter will look very good in a very few years when the DoJ is dealing with Amazon’s stranglehold on the book business and anybody with a brain is pointing to this action as a key catalytic moment that helped make it happen.

      The fact is that retailer price-setting will lead to a one-player consumer book business. I don’t really give a damn what paradigms lawyers want to hide behind to ignore that. My job is to keep pointing it out.

      Was it wrong? Perhaps legally; I don’t know either the facts or the law. But the publishers, as stewards of their businesses and of the industry, would have been derelict in their responsibilities if they’d done anything else. Apple is just another Amazon and, as near as I can tell, much of what the DoJ objects to (like the MFNs in the contract) were matters about which the publishers had no choice. Apple held the high cards.

      Mike

      • Razoroftruth

        Wow, so you are ok with big corporations deliberately breaking the law to ensure their own survival at the expense of you, me, and everyone else who bought a bestseller since Jan 2010. That is pretty stunning. If they did what is alleged, they are guilty of what is essentially theft. You may not know the law, but the leaders of those companies knew that collusion to raise prices is wrong and illegal. If they had any doubt, they could have asked their legal team and gotten a very clear answer. This not some sort of edge case.

        By the way, the idea that Apple was pushing them around is ludicrous. Apple desperately needed the publishers’ content and the publishers did not need Apple’s zero market share of the ebook market.

      • Thaddeus602

        You have to understand where Mike gets his bread buttered from…..He makes his money from consulting for publishers….hmmm I wonder why he doesn’t care about consumers getting screwed :)

      • /blog Mike Shatzkin

        In fact, Mike gets less than 10% of his money from those publishers.

        And hey, if you can’t deal with the substance of the message, shoot the messenger!

        The challenge for people reading this who want to disagree with me is to demonstrate with some logic why I’m wrong when I say that no set price means Amazon is the only publisher that can sell direct. Or they can say that they’re just fine with a competitive situation which is clearly unbalanced. But disparaging where Mike is coming from doesn’t deal with the argument.

        Oh, and by the way, Mike also has a long history of telling big publishers they’re doing it wrong. You should check out my “End of General Trade Publishing Houses” speech from the 2007 BookExpo, five years ago. It’s on the web site.

        Mike

      • Christian K

        To the substance then!!

        To include Amazon, who has not broken any law, in any remedy
        to the publishers’ criminal acts would be illogical and illegal.    

        Let’s say that again:  The publishers, who are guilty of price
        fixing, effectively stole money from customers. 
        Amazon, on the other hand, didn’t steal from book buyers, and created incentives
        to have reasonable prices.

        Or another way:   Amazon, unlike the publishers, has not broken
        any laws.  

        Maybe something like a picture will help?

        Publishers and Apple <= Did illegal stuff

        Amazon <= completely in the clear on this issue.

        Publishers Standing
        on the side-lines, laughing, looking completely innocent.

        From a consumer standpoint Amazon is The Hero of the
        story.  And that’s who the AG is
        protecting, the consumers.  You know, “us”.  If the whole publishing industry (does not
        include Authors or Readers) goes up in flames, but book are reasonably priced
        the court will have done its job in this matter.

        ((If the publishers were willing the break the law and steal
        from customers, would they also be willing to break the law, collude and fix
        the terms of publishing contracts?  Hmmm?  Maybe the DOJ should look into that
        next.  Smoke => Fire ))

        You letter is simply a lengthy justification for the
        publishers’ illegal acts (excepting the personal story, which was rather
        interesting).   The points you make to
        justify these actions are nonsensical or purely false.

        The idea that the 2nd largest company in the
        world does not have the financial wherewithal to compete with Amazon on price
        is, frankly, laughable.   While Apple does not currently have enough
        cash on hand to buy Amazon out right, it wouldn’t be much of a stretch.

        Agency pricing hasn’t furthered innovation.  The staunchest supporters of agency pricing
        (Apple, publishers) have the worst marketshare and the least interesting
        products (“product” here would be the iBook store, not the iPad).   The
        real innovation and growth has come from Amazon and their KDP. 

        Finally, it isn’t Amazon’s fault the publishers are incompetent.   The publishers don’t understand
        technology.  EBooks are not a publishing
        product; they are a technology platform. 
        The “rules” are now different.  In
        order to compete the publishers had to break the law, and even then they are
        still being trounced by Amazon.  Amazon
        is a technology company.   They
        understand how computing platforms work and how to profit from them.  

      • Chistian K

        Wow,  formatting fail.  Sorry about that!

      • /blog Mike Shatzkin

        Well, your version of the substance.

        No suggestion that I’m mistaken that if agency isn’t allowed that Amazon will be able to disintermediate the publishers but the publishers won’t be able to disintermediate them!

        I wasn’t worried about Apple being bankrupted by competing with Amazon on price. How about Barnes & Noble?

        And I haven’t had anybody spell out where my thinking’s gone wrong about the books that won’t get financed when the current publishing model is destroyed by “competitive” (hah! those loss-leader prices had nothing to do with competition and all to do with market-cornering) pricing.

        Publishers aren’t incompetent. They’re in a different business than Amazon’s in. Their business is to do the most they can with an author’s intellectual property. Amazon’s business is to grow market share for their retailing operation. At the moment, authors are on the opportunity side of Amazon’s intentions.

        It won’t stay that way forever.

        I believe your view, and DoJ’s, is very short-sighted. What will you and they say three or four years from now when Amazon passes 50% of many
        publishers’ businesses, have blocked publishers from direct-selling, and
        are inexorably cornering authors and denying competitors access to their
        titles?

        As for Amazon’s tech chops and “innovation” applied to disintermediation,
        there’s no argument. They do both very well.

        Mike

      • Rowena Cherry

        Consumers weren’t screwed. They weren’t tricked. They could see what the asking price was for the e-books, and they were free to refrain from completing the purchase.

      • /blog Mike Shatzkin

        AND they were free to buy many other books that had lower prices.

        Mike

      • /blog Mike Shatzkin

        Publishers needed Apple’s diversification of the ebook market. The combination of Apple and the wind in the sales of Nook resulting from agency took Amazon’s ebook share down from approaching 90% to the mid 50s.
        You tell me another industry that has one customer doing 30% or more of their business and rising that isn’t looking for a solution to what anybody would perceive as a problem.

        The idea that publishers didn’t ask their legal teams about what they were doing every step of the way in the establishment of agency is a pretty wild presumption, particularly since we’re talking about five big publishers!
        It’s funny. You find the idea that Apple pushed the publishers around hard to believe but you’re defending legal action to support Amazon, which has a very long history of pushing publishers around.

        Mike

      • William Ockham

        My point was exactly that is ludicrous to think that they disn’t ask their legal teams (unless they knew the answer) and it is absolutely clear that any competent lawyer would have advised against it. Since you keep saying you don’t know the facts, let’s review them.

        On January 22, 2010, John Sargent (MacMillan CEO) decided to go with the agency model. That is his public statement and we should accept that. On January 27, Steve Jobs told Walter Mossberg that the publishers were going to pull their books from Amazon unless Amazon went along with raising the price of bestsellers to $14.99. This statement was captured on video: http://m.wsj.net/video/20100128/012810atdmossy/012810atdmossy_320k.mp4
        Every element of the conspiracy is neatly summed up in Jobs statement. And a few hours later, MacMillan’s books were no longer available through Amazon. And after the other conspiring publishers threatened the same thing, Amazon (the supposed bully in your view) caved to the pressure. And then everyone of the conspiring publishers raised the prices of their bestsellers. That was the point at which they crossed the line from hardball business tactics to breaking the law. Despite the bluster from Apple and the hold out publishers, there really is no dispute about the facts and no known interpretation of the law under which that conduct is legal. The CEOs of the companies that you defend are crooks. It really is that simple. If you can’t see that, you are willfully blind.

        You keep saying that no one has disputed your logic that no set price means that no publisher but Amazon can sell direct. Let me respond that. I don’t agree with the notion that the publishers need to sell direct to compete. There really is no basis for assuming that is true. Even if you are right that they do, it is simply irrelevant. The publishers have no more right to continue in business than buggy whip makers. If they cannot compete in the marketplace, they will go out business. That is unfortunate for their employees (and personally I would support providing worker dislocation and retraining funds for them), but it does no one any good to prop up incompetently managed companies.

        I have already pointed out to you that there are comparable industries that have dealt with the problem you describe. Let give more detail. In the software business, goods are delivered primarily over the web now, but a few years ago they were delivered on physical media with much the same as books. Microsoft, as an example that is roughly equivalent to a Big Six publisher, has at least as many SKUs as a publisher has titles. They sell direct to consumers and businesses of all sizes. They have retail prices that almost no one pays. They support an enormous variety of value-added resellers, retail stores, hardware manufacturers, web retailers, independent consultants, etc. who sell their stuff. Many of those resellers compete with Microsoft in the software market. It is confusing often enough, but they have managed to stay in business. In fact, publishing ebooks is not the special snowflake industry you think it is. Almost every industry deals with channel conflict. The key to your argument is the expectation that publishers will sell direct to consumers at the same discounted price as they give wholesalers. Where on earth is that true? Also, name an industry where the government allows a cartel to set retail prices, because that is your suggested solution to the problems of publishing. If that really is the only solution, the industry is doomed. Instead of spending your brain cycles on defending this bunch of crooks, you should trying to think of a viable solution to the industry’s problems. I happen to agree with that the industry is worth saving, I am just not willing to countenance illegal and immoral means to that end.

      • /blog Mike Shatzkin

        Look, I’m not interested in turning over my blog — even deep in the comment section — to reiterating the DoJ’s brief and its selective presentation of “the facts”. The case will apparently be litigated; we’ll see. And as far as I know, the three that settled explicitly said “we did not collude” but they don’t want to spend the money to fight the case anymore.

        As for your “rebuttal” of my contention; it is laughable. Your answer is “publishers don’t need to sell direct”. But my POINT is that Amazon *is now a publisher*, and will increasingly be a publisher, and they’ll be the only one that CAN sell direct. And the only publisher to respond on this comment string — one that has all sorts of advantages over a general trade house because it is a niche business that sells professional books — says I’m exactly right. He’s competing. He knows.

        And I’m also not going to write my blogpost here about “the book business isn’t the software business”. But, believe me, it isn’t. It isn’t the music business either. The difference, in a word, is “granularity”. Maybe someday I’ll write that post. Because, in fact, the book business *is* that special snowflake you don’t understand that it is. Granularity. Unique granularity. Requiring a decentralized body of decision-makers to make investment decisions, project by project, that shift the risk from author to publisher and enable the rich diversity that we’ve totally gotten used to.

        So far, there’s been a lot of fulmination from the self-righteous coterie
        that thinks all publishers are idiots and retrogrades (you’re pretty
        insultingly explicit about that) and that anybody who thinks that
        copyrighted content often prepared at great expense should be priced
        appropriately to that reality in the marketplace is some kind of a thief.
        But nobody can prove me wrong about the fact that Amazon will soon be the
        only general trade publisher with a direct pipeline to the public and that
        it will use that fact to disintermediate its competition for authors.
        Because I’m not wrong.

        And nobody can disprove the fact that trying to manage the “discounting” in
        the manner the DoJ says would be “acceptable” would be an almost-assured
        nightmare of frustration and litigation, because that’s not wrong either.

        And none of the price zealots has tackled my contention that very specific
        books — high-cost and high-value non-fiction that requires big investment
        (risk) to fund, like the Steve Jobs bio by Isaacson but many others besides
        – will essentially be eliminated if ebooks become dominant and priced
        under ten dollars. And nobody who knows squat about the economics of
        publishing will tell me I’m wrong about that.

        I may just start replying “not relevant”. I’ve learned that the readers of
        my blog are smart and I think they can see through the long-winded
        irrelevance masquerading as a lesson in “facts”. I don’t want to waste
        people’s time repeating my points and spelling out specifically HOW the
        purported “answers” don’t respond to the arguments.

        Think about Bob Dylan. He said “don’t criticize what you don’t understand.”
        You really don’t understand nearly as much as you think you do.

        Mike

      • William Ockham

        Even if you are right about everything, what you propose is against the law.

      • /blog Mike Shatzkin

        Well, thanks for the ruling from the Ockham Supreme Court. I guess we can just stop the discussion now. Just tell the parties they can save a lot of money on lawyers and just ask you!

        This is not a blog about the law. It is a blog about *commercial reality in the publishing business*. And, so far, I’m feeling pretty confident that we’re succeeding at providing a superior understanding of that to what the DoJ has obtained so far.

        Mike

      • Dan Lubart

        You should extend the chain of your logic a bit.  Just because you were getting ebooks cheaper a few years ago doesn’t make that a sustainable model.  You talk about the ‘expense of you, me and everyone’.  What is the cost to the consumer if Amazon next starts squeezing the profits from the authors who will have no other publishing options (what else do we expect if prices keep coming down) and many quality authors stop writing because they can no longer earn a living at their current craft.  And the future authors-to-be who never are.   Your $9.99 bestseller may look very expensive in the future when you consider all the ‘costs’.

      • /blog Mike Shatzkin

        Totally correct. And that’s even before you discuss the *key virtue* of the publisher-system, which is that the risk is transferred from the author to the publisher. Without that system, we will not get many books we really value. The obvious recent example is the Steve Jobs bio by Isaacson. Without a system that compensates publishers, as well as authors, he wouldn’t get an advance that would allow him to spend two or three years and engage the staff he needed to help to create that book.

        A focus on exactly what consumers pay for a subset of the total book output is both short-sighted and tunnel-visioned. Whatever the law says.

        Mike

      • Rowena Cherry

        The point cannot be made often enough that an “Advance” is a loan from the publisher to the author. It is not payment, although it is taxed as income in the year it is received. It has to be paid back out of royalties (deducted at source out of revenues from legal sales).

        When Amazon discounts, and permits account sharing by book clubs, and Lends, that can affect royalties.

      • /blog Mike Shatzkin

        The advance is *not* a loan. It is not refundable. It is an *advance payment *, which is quite different from a loan. Yes, you don’t collect the royalties you have already been paid for, but that’s quite different than “paying it back”.

        But you’re right that anything that reduces sales or reduces payments for sales can affect royalties.

        Mike

      • Rowena Cherry

         I’ve known authors who have been asked to repay their Advances.

      • /blog Mike Shatzkin

        I am aware of authors being asked to repay advances when they didn’t turn in an acceptable manuscript or otherwise violated their contract. It is disingenuous to suggest that repayment of advances in any other circumstances is anything but an isolated case. Most contracts are pretty damn clear on that. I suspect that any case other than for contract violation did not involve an agent or any competent professional reviewing the contract before it was signed.

        Talking about this as though it were a routine event, or even one that qualifies as “occasional” rather than “really really unusual” is misleading.
        Mike

      • Rowena Cherry

         Free Dictionary:
        7. To pay (money or interest) before due.
        8. To supply or lend, especially on credit.Dictionary dot com 23. Commerce . a. a giving beforehand; a furnishing of something before an equivalent is received: An advance on his next month’s salary permitted him to pay his debt on time. b. the money or goods thus furnished: He received $100 as an advance against future delivery.Merriam: a provision of something (as money or goods) before a return is received; also : the money or goods supplied

        Oxford:a loan: an advance from the bank3an amount of money paid before it is due or for work only partly completed: the author was paid a £250,000 advance”Paying back” if one doesn’t sell through is a red herring. Royalties are negotiated and are due on sales, but are not paid to the author unless and until the advance is paid off.

      • Rowena Cherry

         Apologies for the formatting.

         Free Dictionary:

        7. To pay (money or interest) before due.

        8.
        To supply or lend, especially on credit.

        Dictionary dot com

        23.
        Commerce .
        a. a giving beforehand; a furnishing of something before an
        equivalent is received: An advance on his next month’s salary permitted
        him to pay his debt on time.

        b. the money or goods thus furnished: He
        received $100 as an advance against future delivery.Merriam: a provision
        of something (as money or goods) before a return is received; also :
        the money or goods supplied

        Oxford:

        a loan: an advance from the bank

        3. an amount of money paid
        before it is due or for work only partly completed: the author was paid
        a £250,000 advance

        “Paying back” if one doesn’t sell through is a red
        herring. Royalties are negotiated and are due on sales, but are not paid
        to the author unless and until the advance is paid off.

      • /blog Mike Shatzkin

        I don’t really care how many games you play with the dictionary.

        The publisher agrees to pay the author the money the author might or might not earn as an “advance against royalties” (it is clearly labeled for what it is.) It is almost never “paid back” in any manner except the stated manner, by not paying the royalties that the advance has already paid.
        Suggesting otherwise is disingenuous and misleading and does not describe the real world of traditional publishing, whatever the dictionary says.
        Mike

      • Rebecca

        I am a consumer (I read a ton of books, I’m also a book blogger, but I buy tons of books new, all of them print), and setting the question of legality aside, I believe what the publishers did, whether it was on their own or together, was in my best interests. I’m one of those readers that only wants to read print and I care very, very much about the survival of physical bookstores – I love bookstores, it’s deeply important to me that they survive, I wouldn’t even read anymore if physical books were unavailable, I just hate ebooks. So from my perspective, this lawsuit helps ebook readers and throws print readers and lovers of bookstores under the bus – we are consumers yet are interests have been completely disregarded. I don’t care about publishers of physical books and physical bookstores making profits because I want them to be rich, because truly, I don’t care if they are rich or not rich – I care about them making enough profits to survive because I would truly mourn a world without them and would lose my main source of entertainment.

    • marcellovena

      DoJ is addressing a collusion complaint not an antitrust one.

      An antitrust lawyer should also know, since he is a lawyer first and then also antitrust “specialist”, that Agency contracts are legal.

      Agency contract have not been invented for the first time in the  ebook industry, they have been in place since ages (they are part of the common law). 
      We need to understand what agency means from a legal standpoint. An agent is somebody who acts in name and on behalf of a Principal (i.e. the publisher). The Agent doesn’t sell anything from a legal stand point (remember you can’t sell what you don’t own). 
      Yes the Agent’s role is “just” to:
      - find customers for the principal’s goods (i.e. ebooks)
      - collect money on behalf of Principal
      - give such money back to the Principal.

      By doing all these services the Agent is entitled to a commission.  And in Agency contracts is very customary that the Principal sets the prices of the goods it intends to sell with the help of the Agent. It’s not the Agent who sets the price. Simple common law, since past millennium in place.

      Why Random House with a similar agency contract doesn’t have any issue with DoJ?  Because it signed a year later and there aren’t strong evidence for a plainstiff.

      The DoJ’s  case is about collusion of the Big 5 (and not 6)  and Apple on establishing new rules of the game. But the rules of the games (the ones signed also by Random House) are so far legal. 
      Unless an antitrust lawyer is able to prove otherwise.

      Thank you Mike for sending the letter. Well done.

      Marcello

      • /blog Mike Shatzkin

        The problem, of course, is that the agency model to work effectively really *does* have to apply to most of the biggest books, or the effect of preventing one deep-pocketed market leader to drive the “competition” won’t be achieved. So the “collusion” was perhaps “necessary” and the DoJ’s response, whatever its intent, by weakening agency dramatically for three big players may succeed in killing it.

        Mike

    • Rowena Cherry

      Should the DOJ be undermining copyright law and contract law? Copyright laws permit the copyright owner to set prices and also permit the copyright owners to **not** exploit their copyright. “Not exploiting” could mean refraining from selling electronic versions.

      This case may be about collusion, but it could have a lot of unintended consequences for authors.

      • /blog Mike Shatzkin

        I agree that limiting the publishers’ ability to set prices for copyrighted material appears to run afoul of the spirit of copyright, trademark, and patent law, which recognizes an investment in intellectual property must be protected for a time, and is often (think of the pharma business) specifically used to protect prices!

        Mike

  • Tim O’Reilly

    Mike, I completely agree with your analysis. I’d actually go one further, and argue that Amazon’s actions are keeping prices *higher* for consumers in many cases. Because Amazon discounts so heavily from list price (using the huge quantity discounts that they demand from publishers because of their near-monopoly position), the publishers keep their prices higher than they would in a world where the publisher was attempting to sell directly to consumers, and needed to find the market price. 

    Right now, if a publisher looks to price books at the market clearing price (the optimum point on the demand curve), Amazon will undercut that price in order to get share, making the publisher look like they are overcharging whatever price they set.

    In short, we have a market where only one player gets to set the consumer price.

    I’m not sure that agency pricing was the right answer, though.  The bottom line is that publisher discounts to Amazon are so great that Amazon can afford to give a great deal of that price to consumers in the form of additional discount, selling at a price that is still above what the publisher receives from Amazon.  I suspect the right answer might well be to say:  “Since Amazon has more than enough discount to pass along most of it to the customer, we’re going to lower list prices for all customers, and  lower Amazon (and other online retailers’) discounts along with it.

    If publishers cut Amazon’s discount from 55% to 30%, and lowered list prices by 25%, consumers would see that reduction on all titles, not just those bestsellers that Amazon chooses to discount as a weapon to gain market share.

    • /blog Mike Shatzkin

      Tim, you and I are (as I hope is pretty common) in largely in agreement.
      I wrote many times and long ago that publishers made a big mistake allowing the 50% discount to prevail in ebooks. Of course, when they established it ten years ago, places like Palm Digital were using all that margin and still losing money because the market was so small.

      The solution you suggest would go a long way — perhaps even more effectively than agency — to address the problem. But it would still be possible for Amazon to use loss-leading to cripple the competition, so I’m not as sure as you seem to be that it would work effectively.

      Mike

      • Chris J Snook

        Mike, Marcellos final sentence was very poignant and the reality of your argument holds true in the long run because it will be the unintended consequences that bite the industry in the ass. The consumer wins temporarily with lower prices but loses when the gold they seek in the way of new content becomes to unprofitable to mine out of the ground, and once Amazon has the control of the market the prices will rise to their benefit. The bottom line to me is that with 6B in cash the Amazonians have built a pretty high fortress with or without agency pricing and have successful evolved their business model ahead of the shift from web to mobile first consumption using the same loss leading strategy in digital as they did in 95 with physical books. DRM free and well built author brands and vertical-focused publishers will innovate new markets and paths to consumers in the coming years but Amazon has the high ground for the foreseeable future. We appreciate your leadership and also the well documented opinions that at least keep the important discourse around this subject lively and thought provoking. Thanks. Chris

      • /blog Mike Shatzkin

        Absolutely, the price consumers will pay in the future for the savings that price-cutting gives them today is in the books that won’t be written. I have said that before in my posts about the importance of agency. I put the Steve Jobs bio by Isaacson at the top of the list of examples.

        Mike

  • William Ockham

    By the way, I think you have misinterpreted the section of the settlement that concerns you. First, it is part B of section VI. Permitted Conduct. That means it is something is allowed, not required. That means it is essentially a concession by the DoJ to the settling publishers. What it says is really simple. Publishers are allowed to enter into agency agreements that say that retailers can’t sell ebooks for a loss. That’s it. If the publishers don’t know how to enforce that for Amazon, I’d be happy to show them. I’m serious and not being sarcastic. Amazon publishes a web services API (application programming interface) that allows anyone with an internet connection to check the current price of anything that Amazon sells. They will even give you (as in free) computing resources for a year that you can use to implement the price checking.

    • /blog Mike Shatzkin

      I was once told by the head of The Book Depository that they changed prices there 4 million times a day.

      The idea that a publisher would know what Amazon’s aggregate discounting was across a list of many thousands of titles by checking the prices each day, or each hour, seems a bit of a stretch to me. Amazon’s certainly not reporting the *number of copies* they sell at each price or in each time period, are they?

      I find it laughable that this is characterized as a “concession to the settling publishers”. It’s another concession to Amazon!

      Mike

  • William Ockham

    Amazon isn’t involved in this settlement in any way. To say that there is a concession to Amazon is nonsense. I would ask you to read the section in question again. I’ll break this down:
     
    A publisher covered by the settlement agreement is allowed to enter into Agency Agreements with E-Book Retailers.
     
    [That's good from the publishing industry's point of view, right? Agency is what you folks think is essential.]
     
    Those agreements may limit the aggregate discount on one or more of the publishers e-books.
     
    [That's an important line. It says one or more.]
     
    Provided that, whatever the restriction is, it doesn’t interfere with the retailers ability to discount the publisher’s books up to the total amount of commisions paid by Amazon to the publisher in a year.
     
    [This part says that the retailer has to charge consumers at least as much as it paid the publisher over the course of a year. It leaves it up to the publishers and retailers to work out how.]  
     
    The publishers also can’t restrict how the retailer does the discounting or impede the retailer from engaging in any form of retail activity or promotion.
     
    Now, there are smart ways and stupid ways to implement that sort of agreement. Let’s start with the simplest one and the one that I assume the publishers have in mind. Every time Amazon sells a book from a particular publisher, the publisher knows what the suggested retail price of the book is. If Amazon reports to them the price the consumer paid, the problem is solved. The publisher keeps a running total of the amount that consumers have paid and the total retail value of the books sold. At any point in time, they know exactly how close Amazon is to the 70% of retail. On the publisher’s side, you could do this in a single spreadsheet. Amazon already does this today for thousands of self-publishers. This is the most trivial computing problem I’ve seen in a long time. Of course, if they’re smart, the publishers will create an effective data mining application from this data, rather than a just tracking it in a spreadsheet.

    On a side note, you can get pretty close to the number of copies sold by analyzing Amazon Sales Rank, but of course, the publishers don’t need that because they know how many of their books have been sold.

    I don’t know why you think that it is a stretch to monitor prices across thousands of titles. The default rate limit on the Amazon Product Advertising API is 1 call per second per account. That’s 86,400 calls per day. If you ask nicely, they will usually up that to 1,500,000 calls per day. The vast majority of titles don’t have enough sales or price changes to warrant constant checking. 86,400 calls a day should be more than enough to track the titles that really matter. Given the level of distrust between the parties, I would expect the publishers to implement some form of automated checking even if Amazon provides the information. 

    • /blog Mike Shatzkin

      If Amazon were to report the price at which they sold each ebook, that would be data they aren’t reporting now. Of course, in an agency agreement today, they wouldn’t have to. There is one price.

      But even if the monitoring were as simple as you suggest, the problem isn’t solved. The cap is an annual cap. So if we’re in the 10th month of the year, they could have given away 1.4x the margin and catch up by not giving away any, if they sell enough, in the last two months. Maybe. Are you seeing part of the problem now?

      And, if the retailer gives away too much margin, I take it that you’d figure the consequences would be negotiated in the contract and then enforcement would be managed by the courts.

      But who was harmed? The competing retailers who aren’t party to the contract!!!

      Great solution. Thanks very much, DoJ.

      Amazon may not be party to the lawsuit or the settlement, but they’re sure the biggest beneficiaries (alongside the people who’d rather save a dollar or four on an ebook today even if it means great works won’t be made available to them or anybody else tomorrow.)

      This is not as facile and simple as they, or you, think.

      Mike

      • http://twitter.com/emmittc emmittc

        thank you for continuing to fight the good fight, mike – and defending books and their vital role in society…..it is an important cultural issue – but it gets obscured by the noise and the ravenous and rabid focus on price at ALL costs…..and there is a cost to low prices – and the culture will pay….dearly….hundreds of years of publishing and bookselling is cavalierly disrespected and blithely ignored by misguided (if well intentioned) critics….

      • /blog Mike Shatzkin

        I wouldn’t credit them all with being “well-intentioned”.

        Grandstanding and expressing self-righteousness are not good intentions.
        Neither is not giving a damn about the overall implications of saving yourself a buck.

        Mike

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    Nice article…..This blog will helpful to all the visitors, thank you for the nice information 

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  • stonetools

    You have to be realistic about these things.
    I expect that the DOJ settlement will tweak the terms, hopefully in line with Mike’s suggestions, but that the settlement will go forward unchanged in its essentials. The good thing about it is that it’s only two years. At the end of the two years, I expect Amazon’s share to climb back to 75 % or above. At that point, no one ( save the digerati faithful ) will have any doubt that agency pricing was important in reining in Amazon’s market share. At that point , the settling publishers will go back to agency pricing as before , with the quiet acquiescence of the DOJ.

    • /blog Mike Shatzkin

      You are more optimistic than I am.

      A lot can happen in two years.

      And I can’t work up the same optimism that DoJ will reverse course based on the evidence we’ll see. I guess it would be more likely if we had a change of administrations, but even to save the book business I’m not sure I could be happy about that.

      Mike

      • stonetools

        The good thing is that the major players are reacting. BN and Kobo both got partners with deep pockets so that they will be better prepared for the coming price war with Amazon. Hachette Collins is trying to market through Facebook and Macmillan is experimenting with the  DRM free option on the Tor.com line. Both are attempts at create channels to consumers that don’t go through Amazon. None of these things amount to anything much yet , but I presume the publishers will keep trying . There are reasons to be cheerful even if the DoJ sticks with the current settlement 

      • /blog Mike Shatzkin

        What you say is true. Hachette and others are developing tools to do the marketing at scale. Direct selling will grow. DRM will gradually diminish.
        And there are efforts coming you may not know about. Bookish is an online print and ebook retailer financed by Hachette, Penguin, and Simon & Schuster which will begin operations soon. Anobii is a similar consortium-effort at an ebook retailer in the UK (Penguin, Random House, and HarperCollins over there.)

        Mike

  • Rowena Cherry

    In my opinion, if the DOJ’s intention is to punish the Publishers, they ought to return e-book rights to the authors so that the authors can make a free and informed decision whether to renegotiate contracts e-publish with their original publisher, or with Amazon, or with other retailers.

    Proposed settlement VII  104 d appears to grant Amazon the right to duplicate, publish, and distribute ebooks at will, at whatever price it wishes, on its own terms with no apparent protections for the authors if Amazon decides to use ebooks as a loss leader to promote Prime Memberships and Kindle sales.

    • /blog Mike Shatzkin

      I am not sure the DoJ could assume the right to renegotiate contracts between authors and publishers no matter how evil they thought the transgression. But I really don’t know.

      I am not sure how the limitation on applying margin to discount in the settlement terms affects the use of ebooks for Prime. I would assume the cap applies to that somehow, but it is certainly another serious complication that the parties will fight about if it isn’t spelled out very clearly.

      Mike

      • Rowena Cherry

         What I mean was that they could… not negotiate, but open the door for the authors to negotiate. It seems to me, the authors own the copyrights, yet, all this is going on without consulting the copyright owners.

      • /blog Mike Shatzkin

        Giving the authors the right to renegotiate a term that was not granted in the contract *is* renegotiating the contract!

        Mike

      • Rowena Cherry

        Okay, but isn’t the DOJ renegotiating contracts anyway, and isn’t it also eroding copyright? Copyright laws give the copyright owners the exclusive right to set the price for which they will sell their work and also the right to *not* use or exploit their copyright.

        Authors may have negotiated contracts with publishers on the assumption that paperbacks would sell for $7.99 and hardbacks would sell for $21.99, and authors’ royalties would be 4% of net. (Guessing numbers). There may have been a royalty rate on e-books, or not.

        The DOJ appears to be forcing a change in those contracts to permit ebooks to be sold by Amazon for $9.99 or less in competition with hardbacks.

        I did not see any acknowledgment that copyright owners have the right to *not* sell e-books (on Amazon or anywhere else) for the first 2 years of a paper release.

        I did not see any acknowledgment that copyright owners have the right to set the price of their work (even, “as long as it is less than $9.99 for electronic”)

        Moreover, Amazon allows account sharing for those who share a credit card. Bookclubs share a dedicated credit card. Entire book clubs can buy one copy of an ebook and all read it simultaneously.
        Is that not also an interference?

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  • Jimnduncan

    While I certainly can see the points made here, and I agree with the fact that stable pricing would provide a greater benefit to the book world in the long term, is the DoJ even interested in that? I honestly have no idea how they work or what kinds of things they take into consideration, but if I were to guess, I’d say that they think they have a collusion case that negatively impacted consumers, and that is ALL they care about. Is it even in their realm of thought to concern themselves with the effects? Will a judge? Maybe we’ll get lucky and the case will fail.

    As an aside, I think the consumers were screwed element of this whole thing is kind of bullshit. Is a good book worth $10? Um, yeah, it is. It doesn’t matter one bit whether the story comes on a screen or via paper, the words are all there to consume regardless of format. It doesn’t matter if it can be lent after the fact or donated or resold. That’s all ancillary in my opinion. As a consumer, you’re investing the money in a good story (or bio, or historical account, or great pictures, or whatever). One is paying money for the author and publisher (or just the author) to bring you content. For people to be up in arms over paying a dollar or two more for something that is often undervalued anyway, is kind of absurd.

    While I do understand the economics, it’s the principle here that bothers me. I don’t want a system that caters to the notion of, “if they’re cheaper I’ll buy more.” It devalues the product. Amazon, at least in this aspect, doesn’t value books. It likely goes for any artistic/craft endeavor. If the seller doesn’t respect or give a damn about the product, why in hell would the consumer? 

    • /blog Mike Shatzkin

      Jim, you seem to share my sentiments. I certainly share your concerns. I don’t hold out much hope that political lawyers will see the merit my arguments.

      I just hope they’ll have enough humility to admit they might have made an error when I reprint the letter three or four years from now when they are attempting to rectify the damage their work today is going to cause.

      Mike

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  • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

    “only by eliminating price as a basis of competition can we ultimately have balanced competition in the real world of publishing as digital change has remade it.”  

    You’re going to have a really hard time selling that.  Price in nearly every area of trade is the single core factor influencing competition.  It will sound like the publishers can’t compete and are trying to rig the game.  The DOJ will just say “let them die” free market economics.

    • /blog Mike Shatzkin

      They can take it or leave it.

      It’s true.

      And if they decide not to take it, they’ll look like jackasses in a few years when people tell them they should have known it; knowledgeable people did. Price “competition” won’t be “competition”; it will be a massacre.
      The defendants seem to be doing pretty well this week answering for themselves.

      Mike

  • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

    “I wrote many times and long ago that publishers made a big mistake allowing the 50% discount to prevail in ebooks.”

    An alternative viewpoint is that pricing is ridiculously high for ebooks.  Without paper, storage, printing, transport, a $4 ebook can make a good profit.  The pricing schemes developed for paper books have to be completely reconsidered.  The idea of middlemen needs to go.  If you don’t see that, those who do will leapfrog you.

    Besides, customers are more likely to buy when the price is low.  Why sell ebooks for $10 when you can triple your sales by halving the price?  More money AND more exposure for the book.

    Whatever anyone thinks, this model is going to win, so it’s adopt it or die.

    • /blog Mike Shatzkin

      With all due respect, the statement that “a $4 ebook can make a good profit” ignores so many facts and so much information that is present here and in other places that I won’t attempt to answer it.

      It’s a ridiculous statement. And the consequences of that kind of thinking will be in the books that won’t get written or published. As has been explained here repeatedly and at length.

      Mike

      • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

        I disagree with you and the things I’ve read arguing this.  These argue from an outdated model of the publishing business that will soon be gone.  Such conclusions are logical with the assumptions that are made.

        But the assumptions are wrong.  Nothing is going to be remotely the same because of the technological change.

        Some people see this.  Some don’t.  The ridiculous now has over and over proved to be obvious 10 years down the road in the digital age.

        - thinker of ridiculous thoughts

      • /blog Mike Shatzkin

        Just a bunch of outdated thinking here. Nothing to see. Just move along.
        Mike

      • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

        Mike, you need to find your happy place, again.

      • /blog Mike Shatzkin

        As soon as you stop commenting, I’m sure I’ll be there. I was there an hour ago.

        Mike

      • Rebecca

        If you want that model gone, you basically want to screw the ~50% of readers who want print. Nice job claiming to care about the consumer.

      • Rowena Cherry

        If you want to sell a $4.00 e-book and be sure that the e-book sells on Amazon for $4.00, you get 35% of that $4.00 which is $1.40

        $1.40 before tax is not at all bad.

        In that case, maybe you can disallow “lending”, but you still cannot do a thing about account sharing, so if a book club shares an account, you may still receive $1.40 and 10 people read the book. That’s $0.14 per copy. But, most authors would be glad to have a book club read their book.

        The other problem is, Amazon accepts returns on e-books for any reason within 2 weeks or more. So, your $4.00 book might be read, and you might get nothing.

      • /blog Mike Shatzkin

        I wouldn’t worry so much about dodges and not getting paid.

        What I was referring to there is the cost of creating the book and the elasticity of the market. If you have to pay Walter Isaacson seven figures to do a biography of Steve Jobs, which has a market which is a) not “mass”, in the sense of Hunger Games or Harry Potter and b) plenty affluent enough to pay $10 or $20 for the book, you might very well have a commercial disaster on your hands at $4 and a success at two, three, or four times that.’

        The statement that “$4 is enough” is just an uninformed and unsophisticated assumption that reflects a lack of understanding of the real economics of the business.

        Mike

    • Jimnduncan

      I might be off on this, but I’m going to guess that most books will not triple in sales at half the price. A few will, but most won’t, and the difference in profit on the good ones will not make up for the loss on the others. Maybe this would work more favorably with mass market genre fiction, but I’m guessing the same would hold true. I’d bet the ebook market will behave much like the paper market, where the few heavily profitable books cover for the losses on others. Self-publishing would be different, but that’s another ball game.

      • /blog Mike Shatzkin

        Of course, you’re right, Jim.

        But what’s *also* true is that the big publishers are playing with pricing and watching data very closely. They don’t have as many books to learn from as Amazon, but the big guys are doing 10 new titles a day and, with agency, able to change prices and see what happens. They do, and they do.

        I just get so annoyed at presumptuous statements made with no data but just with an anti-publisher *attitude* that I really don’t end up with any patience for answering them. What goes through my mind is, “what’s the point?” People who just invent facts to support their opinions aren’t engaging, they’re rationalizing.

        Mike

    • Rebecca

      I’d rather pay more for a higher priced print book I know at least went through some kind of filter at a publisher. I won’t pay anything for an ebook, because I don’t have any interest in reading ebooks. I often pay more to support physical bookstores because they are very important to me. The product and experience is more important to me than the price. I also suggest you Google book costs, you will find information (better than I can explain not being a true professional though as a blogger I know more about the industry than the general consumer) but printing and shipping only costs a few dollars – so a $20 hardcover would go down to like $14-15, not $4.

    • Rowena Cherry

      The point is, the DOJ isn’t giving anyone the option of “adopting” it. The DOJ is imposing it.

      • /blog Mike Shatzkin

        Yes, and meddling directly in the commercial arrangements of the book business, which are far too complex to be sensibly managed by government bureaucrats.

        Mike

  • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

    “The consumer wins temporarily with lower prices but loses when the gold they seek in the way of new content becomes to unprofitable to mine out of the ground, and once Amazon has the control of the market the prices will rise to their benefit.”

    Final point: It’s only because of DRM that Amazon is controlling things.  Get the industry to a common, DRM-free form of ebooks and the Kindle is not special anymore.

    In a way, the DRM problem, which nearly killed the music industry, is the weapon Amazon needed to kill the traditional publishing industry.

    Amazon has done the same thing but nobody realizes it: they have moved consumers to a format that does not require them.  They can be made irrelevant.  

    But I think there is too much invested in the old ways for this to be applied in  away that would achieve that.

    • /blog Mike Shatzkin

      Don’t know what planet you are on.

      Amazon chose a format that is uniquely their own. On purpose. To own the market. Saying one needs to “get the industry” to do ANYthing just isn’t the real world when the biggest player in the industry doesn’t want to do things with everybody else in the industry.

      Moving to DRM-free *might* weaken Amazon’s hold. Certainly, Pottermore used that tool to their advantage. But life is a lot more complicated than that.
      Mike

      • http://profile.yahoo.com/TF7NLCB4LEVPISJNPKQ65GC274 CES

        “Amazon chose a format that is uniquely their own. On purpose. To own the market. Saying one needs to “get the industry” to do ANYthing just isn’t the real world when the biggest player in the industry doesn’t want to do things with everybody else in the industry.”

        But they’re the biggest player because they gave the customer what they wanted.  Could then transform into something evil and monstrous?  Sure.  But they haven’t yet, and that’s why people go there.  With the Kindle and the format, they’ve locked everyone else out.

        But anyone, in theory, could offer the same titles in other formats, searchable on Google.  At lower prices.  And, eventually, someone will.  Amazon might pull a Microsoft then and cut prices to drive them out of business, sure.  And it would be ugly.

        But it didn’t have to be this way.  I still think a lot of this victory by Amazon was handed to them on a silver platter.

        - posting from Venus

      • /blog Mike Shatzkin

        You’re entitled to your opinion. It’s just an opinion. I think it has been thoroughly expressed.

        i didn’t say Amazon was evil. In fact, I said they’re where they are because they’re very good at what they do. That doesn’t mean their best interests going forward are the publishing business’s, or the country’s, or the authors’, best interests. And it will mean that books we think are important today won’t get financed so they won’t get written tomorrow.
        Mike

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  • Rowena Cherry

    I find it profoundly depressing that only about 150 people have bothered to write to the DOJ. It is the right of the copyright owner to set a price for their work, yet hundreds of thousands of copyright owners appear not to care that the DOJ is stripping them of that right, and giving that right to Amazon.

    • /blog Mike Shatzkin

      I agree and I actually find it a bit surprising that the number is as low as that.

      Mike

  • Rowena Cherry

    Read the “complaint”, folks. Pay attention to the remedies suggested on page 34 and 35.
    Since when was it legal to punish someone other than the alleged perpetrator of a crime ? The DOJ is seeking to punish authors and booksellers. none of whom are named in the complaint, and none of whom had anything to do with the alleged “collusion”.

    • /blog Mike Shatzkin

      This was precisely Barnes & Noble’s point in their letter!

      Mike

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