The Wall Street Journal’s bombshell (well, for the publishing industry) of a story this morning that the Justice Department is negotiating with Apple and five of the six major book publishers over an anti-trust case involving e-books seems like a stunning case of wrong-headedness. The government appears to have convinced itself (or have been convinced by previous cases in the health-care industry) that any attempt to change pricing must reduce competition.

The case of switching e-books to agency pricing (where the publisher sets the price and gives the distributor a set fee instead of selling the ‘book’ for a set wholesale price) is interesting because the Justice Dept. doesn’t acknowledge that dumping books at a loss was central to Amazon’s e-book strategy. Here’s the WSJ acknowledging the practice:

Prior to agency pricing, Amazon often sold best-selling digital books for less than it paid for them, a marketing stance that some publishers worried would make the emerging digital-books marketplace less appealing for other potential retailers. The publishers’ argument that agency pricing increased competition hasn’t persuaded the Justice Department, a person familiar with the matter said. Government lawyers have questioned how competition could have increased when prices went up. Amazon declined to comment.

More important to the whole case is that the government seems to be ignoring the central issue: Amazon isn’t just a distributor, it’s a hoping to be the major publisher of e-books. When Amazon buys ebooks for $13 wholesale and sells them for $10 retail, and its gargantuan size means it can keep up the practice indefinitely, the strategy isn’t just jarring publishers into adopting lower price points. Because Amazon offers writers a better royalty for publishing directly, its pricing strategy is aimed at squeezing publishers out of the equation entirely.

That’s what makes Amazon’s decision to open it’s own publishing imprint so strange. I don’t think Amazon actually wants to be in the publishing business the way it was formerly constituted. Nonetheless, it has created its own old-style publisher, complete with industry veterans, as a way to continue to pressure the big six New York firms which make most of their money on frontlist hits.

Amazon really wants to be a publishing platform. But the competition has distracted it from working toward that goal. Which is funny because the agency pricing model is patterned exactly on Amazon’s own royalty for authors, a formula that was doing more to encourage writers to adopt the platform than the Amazon’s new imprint ever will.


U.S. Warns Apple, Publishers
Wall Street Journal; March 8, 2012

Category: Books, Legal

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6 Responses to “Publishers Get Sat On By Justice Dept.”

  1. ssc says:

    I may be totally wrong on this, but I think it’s totally illegal and un-American to let a few big players set the price of any goods. The whole Dot Bomb 1.0 was about selling stuff way below cost to get eyeballs, totally stupid, but if we allow the dominate retailers, such as Sear, Walmart to collectively set a retail goods floor price to prohibit online merchants to sell below cost, the whole web scene would have lost a lot of the vibrancy. I vaguely remember there was a “fair pricing” thing decades ago that I believe forbid any retailer from discounting (I think it was in the Appliance world) and that eventually got throw out by court.

  2. constantnormal says:

    … follow the money, nothing happens in D.C. that is not generously paid for …

  3. ssc says:

    One more thing, I am pretty sure Walmart was selling best seller hardbacks for $9.99 (below cost) without much fanfare, it was not until Apple and Ipad and Jobs decided there will be no price war and made sure everybody have to pay more.

  4. Arequipa01 says:

    Fed Govt economic policy orbits around a single goal- prevent price deflation in every instance of the economy.

    Amazon, through a play right out of the Rockefeller Family Scrapbook, is looking to displace/disintermediate…a monopoly taking out a cartel…

    All because it is NEVER enough. Never.

  5. shades of..

    “A class action lawsuit has been filed against the purse and jewelry manufacturer alleging price fixing. The lawsuit was filed in Sedgwick County District Court on behalf of thousands of Kansas women who bought Brighton products in the past three years. Brighton has a deal with boutique stores to sell products at a set price and to never put the products on sale. The lawsuit claims Brighton is violating antitrust and price fixing laws.”
    “…the Supreme Court of the United States issued a landmark decision for anyone involved in the distribution of products expressly overruling nearly a century-old precedent holding that it was per se unlawful for manufacturers and wholesalers to require retailers not to sell their products below a specified price (a practice referred to as “vertical resale price maintenance,” or “RPM”). In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the court held that manufacturers and wholesalers can engage in RPM practices so long as their minimum prices satisfy the “rule of reason.” While this was generally seen as good news for the creators of products, and potentially bad news for small retailers and especially consumers, the effects may prove unpredictable both in the marketplace and the courtroom.

    The Case and the Decision …”
    “A federal judge has rebuffed efforts by Coldwater Creek to overturn an $8 million judgment in favor of Brighton Collectibles. The judgment, entered on January 28, 2009, holds Coldwater Creek liable for willful infringement of a Brighton copyright and Brighton’s trade dress. The judgment includes more than $6.7 million in compensatory damages plus all of Brighton’s attorney’s fees, which exceed $1.2 million (see also Brighton Collectibles).

    The judgment was based on an earlier jury verdict. The jury found that Coldwater Creek had infringed Brighton’s Carolina Heart copyright. In addition, the jury found that Brighton owns a distinctive trade dress, and Coldwater Creek infringed that trade dress as well. The “trade dress” is the signature look of certain Brighton products. This look is commonly known as the “Brighton Look”. ..”

    I’m not sure which is more amazing, the Supine Court’s ‘take’ on “RPM”, or that some corpo-Nitwit thinks it’s a ‘good move’ to copy another Company’s ‘Trade Dress’ that ~screams “tin-plated Clank” (or, alternatively, “I pay Sterling Prices for ‘Clad’..)

    I keep forgetting..

  6. NoKidding says:

    “When Amazon buys ebooks for $13 wholesale and sells them for $10 retail, and its gargantuan size means it can keep up the practice indefinitely”

    I don’t think it can, unless it is selling $100 readers for $200.

    The real story is that paper books are becoming history, just the way music CDs and movie DVDs became history. The publishers apparently leaned nothing from the music industry. Only Barnes and Noble (a retailer, not a publisher) tried to adapt.

    Having lost the product battle, they are trying to win the political battle. The employees who worked the machines that make books will be allowed disappear quietly, but the lawyers and talent agents are fighting to keep their place in the revenue stream.