Sunday, April 1, 2012

Kindle News: US Dept. of Justice and Apple/Big5 may settle soon. The issues.

Friday I saw a WSJ article about the strong rumors that the Department of Justice and the "Agency" grouping of Apple and Big 5 publishers back in Jan. 2010 are likely to settle soon, before the U.S. Dept of Justice goes ahead with the lawsuit they've mentioned strongly.

Reuters writes it could happen "in the next few weeks" and they have two sources "close to the negotiations" though no one's said which side of the issue the two sources are.  It doesn't seem likely to me (but who knows?) that Apple/Big5-associated would leak a rumor that they are working toward a settlement in which they'd need to give up some of their control over retailer prices.
' While negotiations are still fluid, the settlement is expected to eliminate Apple's so-called "most favored nation" status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Inc (AMZN.O) or Barnes & Noble Inc (BKS.N), the people said. '

Most news writers agree that both Amazon and customers would benefit from a move back to something like the "wholesale model" that had been in effect for decades before February 2010.  In fact, under the wholesale arrangement all these years, the publisher set the retail price and Amazon paid 50% of that, period.  50% of the publisher's suggested selling price.

  No matter what you read about how the publisher should have the right to set the price, the publisher had always set the suggested retail price upon which the 50% they received from retailers (Amazon, B&N, etc.) was based (an average $26 at the time), and then it was up to the retailer to sell those books at whatever price worked for them, since the publisher's share was already allocated.  Sometimes there were loss leaders in the most popular books (New York Times Bestsellers) and sometimes prices were higher for books that were sold in fewer quantities.

  There is a LOT more in that Reuters article, upon which most news articles were based this weekend.

NPR Panel - a good point made
A transcript of a panel discussing the DOJ vs Apple/Big5 dynamics

  David Young, the CEO of Hachette, gets only one sentence in that transcript:
' There was no future, as I saw it, at 9.99 other than ruin. '
  Dr. James McQuivey, VP and principal analyst at Forrester Research had this to say:
  [LYNN} NEARY: If publishers price the e-book right, says McQuivey, there's a good chance they'll attract more customers.

  MCQUIVEY: And the economics of getting 10 times as many people to pay 5.99 are actually favorable. But the publishers don't want that because then it would make you think, well, wait a minute, why is the paper copy 24.99?  I'm never going to buy one of those again.  And they're just not ready for that hard switchover yet, even though they know it's coming. '

  Since publishers have been very open about their concern that Amazon's lower pricing on e-books would devalue their printed books, that seems a good point.

  On an e-book with publisher's suggested retail price of $26, for which Amazon or B&N then used to pay 50% to the publisher, the publisher and author income (if enough of the revenue was passed down to the author) would be more than they're currently getting.  The issue has been control and keeping the value of hardcover and paperback books higher.  The issue hasn't been publisher or author revenue on e-books.

Related article
  TIMELINE:  Ebook Pricing Wars - what DOJ would have seen - March 12, 2012

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  1. I think it is the 'most favored' clause that is the problem, not agency pricing as such. Anybody that wants to publish a book in iBookstore is restricted from pricing it for less anywhere else, not just the Big6. True: they don't have to publish in iBookstore, but neither do they have any leverage with Apple to negotiate other terms. To the extent that publishers feel they need to be in iBookstore, it does limit their options. It is interesting that Pottermore didn't offer a 'link account' option for iBookstore, and perhaps it was because of the ongoing lawsuits that they didn't.

    1. Tom, it's definitely the price-fixing aspect, yes. But it was the most glaring problem with the current agency model, so it'll at least be modified.
      The publishers got more money under the old wholesale arrangement (more money that they could pass down to the authors) but they're more interested in control. The control they wanted would be missing if they can't fix the prices higher the way they've wanted though, so I wonder whether they'd want to go back to it.

      They used to set e-book -suggested- price at $26 and Amazon would pay the publisher 50%, or $13, and then sell the e-book for less. Now the publisher prices the ebooks at about ~$15 actual selling price and they get only ~$10.

      Yes, I saw the questions about Pottermore and Apple. Didn't follow it closely though.

  2. Interesting quibble: publishers seldom get 50% from retailers. Amazon pays only 45% and if a publisher is shipping though a distributor like Ingram Books the percentage drops into the 30% range.

    1. Gordon,
      I think I mentioned Amazon and B&N, who were often said to long have had traditional arrangements of a payment of about 50% of publisher-suggested price to the larger publishers (who have been the topic). It was further buttressed by something I quoted in

      This is from an interview with Amazon's Russ Grandinetti by the Los Angeles Times's Alex Pham.

      [LA TIMES] Aren't you losing money by paying publishers 50% of the cover price for a $25 hardcover and selling it for $9.99?

      [Grandinetti] Taking a loss on bestselling books is different than taking a loss on your overall book business. We may lose money on bestsellers, but across the breadth of our catalog, we run a profitable, sustainable book business.

      AS for selling through a a distributer like Ingram, when smaller publishers need to use middleman, then they'll need to share some of the income.

      I've no doubt Amazon pays smaller publishers only 45% (and I think you have experience and knowledge there from those you know in the industry). But in the case of Amazon and the Big5, the figures are about right, from all I've read, and I think Bufo had some experience there too as a bookstore manager at Border's.


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