Wednesday, March 2, 2011

"EU raids publishers in ebook price-fixing probe" - UPDATE

EU raids publishers in ebook price-fixing probe
That's the headline in a story from The Telegraph today, written by Rupert Neate.

The drama continues with the wording, "European investigators raided several major publishers on Wednesday as the worldwide probe into allegations of price-fixing of ebooks stepped up a gear."  The actual wording is more important than usual so I'll do more quoting than paraphrasing.   The bracketed comments are mine.
' The European Commission said its agents had "reason to believe" that several unnamed companies across Europe "may have violated EU antitrust rules that prohibit cartels and other restrictive business practices".

The raids comes after the Office of Fair Trading (OFT) last month launched a similar probe into the prices of ebooks, which can cost more than twice as much as their printed cousins. [Exactly.]

The OFT's investigation focuses on publishers' ability to set ebook prices using "agency" pricing.
. . .
The discrepancy has led to some electronic books costing far more than a hardback version of the same book.
. . .
Earlier this year, Amazon said sales of ebooks for its Kindle ereader had overtaken paperback sales in the US for the first time. A similar investigation is under way in the US.

An EU Competition Commission spokesman refused to name the publishing houses raided, but said investigators were "working closely with the OFT".

Penguin, the publisher owned by Pearson, and Harper Collins, which is owned by News Corporation, are both being investigated by the OFT, but were not raided by EU investigators.

Harry Potter publisher Bloomsbury, which has declared 2011 "the year of the ebook", refused to state whether or not it had been raided.

Publishers refused to comment on the legality of the agency pricing model. '

The Harry Potter books have never been made available on e-books, however, because the author doesn't want them available in that format.

But, this was really quick action, relatively speaking.  Some thought it would take a year before any actual investigation.

UPDATE - 02/03/11, 11:37 AM (Original posting 3/2/11 at 11:52 PM PST)
The Bookseller has a far more detailed story about it by Philip Jones and Barbara Casassus.
I saw a brief post by Paul Biba on this, dated yesterday, at from probably an earlier article and searched Bookseller for a story just now.

I'll add a few excerpts here, as it's very long, and you should read the full article at the Bookseller site:
' . In some cases laptops and smartphones of senior executives have been seized.
  . a spokeswoman added separately that it did not have "any proof". It said that it carried out "unannounced inspections" at publishing companies in several member states.
  . French publisher Hachette Livre confirmed that an inspection had been conducted beginning on Tuesday (1st March) and continuing Wednesday at its Paris headquarters. [See story for other companies.]
  . The AFP reported the following quote from Amelia Torres, spokeswoman for Competition Commissioner Joaquin Almunia: "The competition services Tuesday conducted inspections in publishing houses in several European Union countries due to suspicion of anti-competition practices in the pricing of e-books.  We are not naming the publishing houses nor the countries because we are just at the beginning of the inquiry.  We are not accusing anyone and we do not have any proof."
  . "The Commission officials were accompanied by their counterparts from the relevant national competition authorities.  Unannounced inspections are a preliminary step into suspected anti-competitive practices.  The fact that the Commission carries out such inspections does not mean that the companies are guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself.  The Commission respects the rights of defence, in particular the right of companies to be heard in antitrust proceedings.
    "There is no legal deadline to complete inquiries into anti-competitive conduct... '
  Much more at the Bookseller article.

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  1. About time... this is great news!

  2. This move smacks of bureaucratic showboating, of an attempt to puff up a weak case by acting "vigorously." From their behavior, you'd think that these publishers were running brothels or a chain of Prohibition-era speakeasies.

    The author of Telegraph article seems to have fallen for the ploy. Note how he closes the article: "Publishers refused to comment on the legality of the agency pricing model." It's hard to know what to make of that remark. Agency pricing isn't 'bait-and-switch.' It's a perfectly legal way of doing business that doesn't need defending to Telegraph reporters or anyone else. It's the possibility of collusion (cartels) that has the EU upset.

    The reporter goes on to claim that "An Amazon Kindle electronic copy of Stephen Fry's The Fry Chronicles costs £12.99, compared to £10 for a hardback and £6.74 for a paperback."

    But if you actually check Amazon UK, you'll find that the publisher-set price for The Fry Chronicles hardback is £20 for a hardback and that the lower price comes because Amazon is offering a far-from-typical discount of 49%. It's not the publisher who's making the hardback cheaper than the ebook, it's Amazon, which is probably using the bestseller as a loss leader to attract and keep customers away from competitors.

    There's also no secret as to why publishers turned to agency pricing. As their execs stated at the time, is was to keep Amazon from using its size and economic muscle to sell ebooks well below cost long enough to destroy competition and give them market dominance, after which they would set the market price.

    I suggest we conclude that these EU bureaucrats and the Telegraph's reporter are clueless. There's a lot of troubling things going on in digital publishing, particularly indications that Apple may want to drive Kindle apps off the iPad and iPhone. That's where the EU's attention should be directed. Compared to that, agency pricing is rather ho-hum issue and certainly not worth raids on publisher's offices.

  3. It seems to me that a robust (vigorous, if you like) investigation is entirely appropriate where competition authorities consider that there is a case to investigate.

    I'm not a lawyer, but like many UK people, I have not yet understood how the Net Book Agreement (under which publishers collectively agreed that if a retailer discounted their books they would refuse to supply) and which was ruled illegal in 1997 is essentially different from the current situation in which ebook retailers are told by certain publishers that they must not discount.

    That's not to say that the action is illegal, but certainly enough in my mind to argue that the case is far from "weak" and certainly merits investigation. Your EU bureaucrat is my official seeking to protect consumer rights under EU and UK competition law.

    But we agree on Apple's actions, which also merit vigorous investigation.

  4. P.S. The Telegraph writer is certainly clueless in citing the paperback price of the Fry Chronicles, which isn't released until May.

  5. @Michael, Stephen is correct. As a UK citizen I believe that the current action is the same as the Net Book Agreement that was deemed to be illegal. You're correct that Amazon are using their clout to offer a discount on the hardback, but the agency pricing structure means that Amazon or anyone else, are unable to offer any discount because the publisher will refuse to supply them. That is what I believe is immoral if not illegal (which I also believe it is).


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