Wednesday, July 25, 2012

Kindle News: DOJ describes Apple's response to eBook-pricing lawsuit as "self-serving"

US Department of Justice announces plans to move forward with the proposed settlement with some e-book publishers

ArsTechnica's Jacqui Cheng reports that, in a
64-page response (PDF) to the comments received on the settlement, the DOJ repeated its reasons for suing Apple and the Big5 publishers, characterizing Apple's proposed solutions as "contrary to the public interest."

The DOJ said again that it had conducted a "lengthy investigation" into the e-book price increases of 2010 that
' uncovered significant evidence that the seismic shift in e-book prices was not the result of market forces, but rather came about through the collusive efforts of Apple and five of the six largest publishers in the country '
Cheng writes that the DOJ's view was that "the only critical commenters were those with an interest in seeing people pay more for e-books."

  It's explained again that the lawsuit is not against any agency model despite Senator Charles Schumer's hysterical statement recently that if Apple had to adopt Amazon's traditional wholesale model (it's not being asked to do that], it could "wipe out the publishing industry as we know it."

  I kept the Betanews article on Schumer's statements for later-blogging because I was so beguiled by his set of arguments.
1. "The suit will restore Amazon to the dominant position atop the e-books market it occupied for years before competition arrived in the form of Apple...If that happens, consumers will be forced to accept whatever prices Amazon sets."

2. Betanews' Ed Oswald reports that "He further argues that allowing Amazon to sell books at rock-bottom prices makes it much more difficult for publishers -- especially smaller ones -- to survive in the ebook market."

Of course, the dissenters to the lawsuit and settlement will repeat that Amazon would continue to charge these "rock-bottom" sales prices (of the type you see in print bookstores for the bestsellers today) that the Big 5 had described as "devaluing" their print books only until Amazon monopolized the market and THEN they could charge whatever they really want, with no competition available.  They're already arguing that Amazon had 90% of the market and would have us believe Amazon would otherwise get 100% of it.

Amazon, the monopoly that would raise price levels above publisher-criticized "rock-bottom" prices
  The Big5 publishers' logic in all this is Beware: Amazon would SOME day raise the e-book prices, once all competitors are gone, to the price levels the Big 5 HAVE been charging for the last 2 years -- 30-100%+ OVER the prices in the past for new e-books.

  Imagine Amazon possibly doing later what the Big 5 are doing now.  In fact, Amazon's business strategy has never been to out-charge other stores.  And that's at the heart of why they're feared by the publishers who were so hostile to e-books at all in 2010 and who still won't, for the most part, allow them to be lent from public libraries.

  The beta-news comments-area focusing on e-book pricing is not friendly to Schumer's arguments.

  To be fair, the publishers are right to worry they'd not get the best deal from Amazon were if it were to become an actual monopoly, and the DOJ response explains what would be done IF that were to happen someday.

Jacqui Cheng, the senior Apple Editor at ArsTechnica links to her earlier article on Schumer's statement, a 100% regurgitation of the Apple position, which is inaccurate and misleading if you've followed the details reported by all sides over the last two years.*

  Also note her title for this DOJ-response story, which merely implies the DOJ feels Amazon was also in the 'wrong' which is not at all what the DOJ response says.  But she gives a balanced report otherwise although she stops to argue with the DOJ's assertion that B&N was more of a competing force than Apple, which claimed credit for saving us from Amazon via its iBooks.  Apple -- which kept Random House books out of its iBook Store because Random House would not agree to the Agency Model.

More Key sections from the DOJ's response to public comments on lawsuit
These are for anyone who wants to see quickly, but in more detail, the types of statements made in the DOJ response:
' The United States conducted a lengthy investigation into this steep price increase and uncovered significant evidence that the seismic shift in e-book prices was not the result of market forces, but rather came about through the collusive efforts of Apple and five of the six largest publishers in the country.
  That conduct, which is detailed in the United States’ Complaint against those entities, is per se illegal under the federal antitrust laws.
Critical comments generally were submitted by those who have an interest in seeing consumers pay more for e-books, and hobbling retailers that might want to sell e-books at lower prices...
Many critics of the settlements view the consequences of the conspiracy—higher prices—as serving their own self-interests, and they prefer that unfettered competition be replaced by industry collusion that places the welfare of certain firms over that of the public.  That position is wholly at odds with the purposes of the federal antitrust laws—which were enacted to protect competition, not competitors...
...But the reality is that, despite its conspiratorial efforts, Apple’s entry into the e-book market was not immediately successful.  It was, in fact, Barnes & Noble’s entry—prior to Apple—that took significant share away from Amazon; and many of the touted innovations were in development long before Apple decided to enter the market via conspiracy.
The United States, however, does not object to the agency method of distribution in the e-book industry, only to the collusive use of agency to eliminate competition and thrust higher prices onto consumers.  Publishers that did not collude are not required to surrender agency agreements [ab: important note there] and even the settling publishers here can resume agency, if they act unilaterally, after only two years ...
There is no mistaking the fear that many of the commenters have of the prospect of competing with Amazon on price.  No doubt Amazon is a vigorous e-book competitor...Of course, low prices, fierce rivalries, and innovation are among the core ambitions of free markets.  Contrary to the apparent views of many commenters, “the goal of antitrust law is to use rivalry to keep prices low for consumers’ benefit.  Employing antitrust law to drive prices up would turn the Sherman Act on its head..."
In addition, the e-book industry has attracted participation from the likes of Apple, Microsoft, Google, and Sony. The future is unclear and the path for many industry members may be fraught with uncertainty and risk.  But certainly there is no shortage of competitive assets and capabilities being brought to bear in the e-books industry.  A purpose of the proposed Final Judgment is to prevent entrenched industry members from arresting via collusion the potentially huge benefits of intense competition in an evolving market. [AB: All emphases mine.]
Finally, even if there were evidence to substantiate claims of “monopolization” or “predatory pricing,” they would not be sufficient to justify self-help in the form of ollusion...
Thus, whatever defendants’ and commenters’ perceived grievances against Amazon or any other firm are, they are no excuse for the conduct remedied by the proposed Final Judgment.
B&N also claims that “average” retail and wholesale prices for e-books have declined under the current, collusively-established regime, although it admits that the price of “some e-books” increased following Publisher Defendants’ collective shift to agency and the Apple Agency Agreement price points.  See B&N at 13-15.  The United States obtained evidence that demonstrated that the conspiracy led to price increases not only in Publisher Defendants’ most popular e-books, but also for “the balance of Publisher Defendants’ e-book catalogues, their so-called ‘backlists.’”
[AB note: And they're not fooled as Schumer is by the conflicting excuses given.  Cheng's chosen headline out of *all this* was that the DOJ said "Two Wrongs Don't Make a Right" - indicating that the DOJ felt Amazon was in the wrong as a monopolist -- in fact the DOJ says this is just speculation and unsubstantiated and if ever it became true they would deal with any actual monopoly... ]
Third, like other retailers with an interest in high consumer prices and protected distributor margins, Apple makes the argument that the ability to compete on price “will enable Amazon to charge monopoly prices into perpetuity.” ...
That argument assumes, without support, that Amazon could or would exercise such market power, even in the face of significant share erosion, which was already significant prior to Apple’s entry.  Further, the entire conspiracy alleged here was, for Publisher Defendants, about increasing the retail price of e-books.

As the Complaint alleges repeatedly, the shared goal of Publisher Defendants was to “act collectively to force up Amazon’s retail prices.” ... Publisher Defendants would have welcomed monopoly-like pricing with open arms; what they feared was the exact opposite—that the Amazon-led $9.99 price would stick, to the benefit of consumers and the perceived detriment of Publisher Defendants...'

* History and Timeline, from news articles, with sourcing
  . TIMELINE:  Ebook Pricing Wars - what DOJ would have seen.
  . History and Timeline of the Pricing Wars in News Articles, with Sourcing

Below are ways to Share this post if you'd like others to see it.
-- The Send to Kindle button works well only on Firefox currently.

Send to Kindle

(Older posts have older Kindle model info. For latest models, see CURRENT KINDLES page. )
If interested, you can also follow my add'l blog-related news at Facebook and Twitter
Questions & feedback are welcome in the Comment areas (tho' spam is deleted). Thanks!


  1. Traditional arguments v monopolies in an e-booked world are IMO all wet. Amazon becomes more of a distributor than a retailer, and barriers to entry to the ebook distribution business are extremely low.

    As an economist, I am often reminded that there still is the notion of “natural monopolies” — in which the existence of a monopoly is deemed to be far more beneficial than having multiple competitors (think electric utilities, or the internet). I wonder if an ebook distribution system, or for that matter an ebook public lending library aren’t new examples of natural monopolies?

    Often the anti-monopolist argument is couched in terms of “fairness” to consumers, when in fact the benefit is to the proposed monopolist’s competitors. Often after some judicial “relief” what customers are faced with are in fact higher prices, increased complexity (lots of choices isn’t always a benefit), and inferior technology ecosystems (making lots of little pieces from different providers work reliably and well together is hard — often a single provider is better).

  2. Edward, I'd say your analysis in the last paragraph matches what's happening as described in that DOJ response.
    But as far as e-books and monopolists, I don't want one as I don't think it'd be natural at all, but I don't begin to think Amazon can be one any more than they can take over the 7" tablet market this week :-) But they'll always be in there with something enough to threaten those that would want to be monopolists themselves. Thanks for the quick feedback.

  3. A further thought: the ebook phenomenon is obsoleting the traditional publisher's business model. All of trheir arguments to the DOJ are in defense of this model. I suppose there is a model under which a tradpub can continue to exist, but business as usual isn't going to cut it.

    Respondents clain that DOJ's remedies "cheapen" the value of "their" product. To which I would make two observations:
    1. It's not "their" product but the author's who is getting (IMO) ripped off by the tradpubs with paltry royalties for services (in an ebooked world) of dubious value.
    2. The "cheapening", on the contrary, is a more realistic revaluation of the true worth of the services a tradpub provides to an author in an all e-booked world (and admittedly we're not there yet, but it's happening faster than I thought possible: ebooks are already outselling print).

    1. Agreed, Edward, on all of it. I remember author percentages with at least one large publisher were reduced from 25% of net to 20% in 2010 as they went to Agency plan. Am hoping for the authors' sake that most books will still be available in print format as well but some lunch expenses at expensive restaurants would need to be cut to make it work in today's work. Like you, I'm amazed at how quickly e-book sales, relative to print ones, have grown and that's with a lot of resistance to buying higher-cost ones. People are reading more and while it's easier to BE read now, the number of people releasing books is huge and it's very hard for authors to get attention for their books (and harder for us to find the wheat). But at least writers can get them printed...

  4. I think the DoJ's response is a strong one. They, unlike the Schumers of the world, actually have the sales data and detailed history to back up their charges. There's so much fear mongering about the 90% market share Amazon once (briefly) enjoyed. But that came at the end of a two year period (following launch of Kindle 1 in Nov 1987, Kindle 2, and Kindle apps for iPhone and Windows) when Kindle was THE ONLY ebook platform that offered free 3G wireless delivery, which was the innovation that took ebooks to the fast track. No need to deal with USB cables, ADE on the computer, etc. As DoJ notes, B&N was already capturing market share with Nook months before Apple launched iBooks and the Agency model. And Google and Kobo were well into their entry at that point also. Amazon will never see 90% share again, short of some act of Congress that declares them a public utility. Assuming the settlement moves forward, it hardly matters whether the suit with the remaining parties succeeds or not. Everyone will get to see the 'experiment' run in the next two years. 3 Big Six with Agency, 3 without. I expect the latter will outperform the former.

    1. Tom,
      Yes! The DOJ even mentioned that when there might have been a 90% market share, Amazon had released the Kindles and were two years ahead of everyone else. They know their e-reader and e-books history. Exactly right, in my view too, that it was the 3G over-the-air delivery of e-books that got everyone's attention and huge interest even though Sony had a good device out there, which was not moving much.

      Yes, re Google and Kobo. Kobo is having a bad time of it with reviews in Japan. They had to remove hundreds of them this week.

      Am with you. Many of us are looking forward to more sane e-book pricing eventually. They'll see an explosion of sales because of SO many deciding they won't buy above $10-$12.95 when $12.95 to $23 became more the norm for new e-books. Average seemed $16. For an E-copy.

      I continue to be amazed at the strong language, as you say, in the documents from both the DOJ and the judge (the latter seeming even tougher).


NOTE: TO AVOID SPAM being posted instantly, this blog uses the "DELAY" feature.

Am often away much of the day, and postings won't show up right away. Posts done to use referrer-links may never show up.

Usually, am online enough to release comments within a day though, so the hard-to-read match-text tests for commenting won't be needed this way.

Feedback and questions are welcome. Thanks for participating.

Technical Problems?
If you're having problems leaving a Comment, Google's blogger-help asks that you clear the '' cookies on your browser's Tools or Options menu bar and that will fix the Comment-box problems (until they have a permanent fix).

IF that doesn't work either, then UNcheck the "keep me signed in" box -- Google-help says that should allow your comment to post (it's a workaround to a current bug).
Apologies for the problems.

TIP: There's a size limit. If longer than 3500 characters or so, in a text editor, make two posts out of it.

[Valid RSS]