Wednesday, April 11, 2012

How Did Things Ever Get So Far?

The Justice Department on Wednesday accused five of the nation’s largest publishing houses and Apple of fixing prices on e-books, forcing consumers to pay tens of millions of dollars more for their favorite titles.

In a lawsuit filed in U.S. District Court in New York, the government painted a portrait of an industry desperately trying to turn a profit amid rapid changes in technology and aggressive competition from online retailers. In phone conversations, e-mails and dinners at exclusive New York restaurants, the companies’ top executives colluded to wrest control of the market from and raise prices on e-books, according to the complaint.

--Wash Post

Jobs helped orchestrate a complex price-fixing plan that cost consumers tens of millions of dollars over the last two years by boosting the price of many new releases and bestsellers by $3 to $5 each, federal investigators said. Apple even proudly described the maneuver — which gave the iPad maker a guaranteed 30% commission on each e-book sold through its online marketplace — as an "aikido move," referring to the Japanese martial art, according to the lawsuit.

"The customer pays a little more, but that's what you want anyway," Jobs told the publishers at one point, said Sharis Pozen, the acting head of the Justice Department's antitrust division.

--LA Times

The complaint cites email messages and specific phone calls — sometimes occurring one after another — between the publishers. It tallies “at least 56” phone calls among the publishers’ U.S. CEOs between December 2009 and January 2010. The complaint also quotes several statements by publishing executives and Jobs, without always noting the source for each quote.

The complaint alleges that the publishing executives met in “private dining rooms of upscale Manhattan restaurants,” without counsel, to “discuss confidential business and competitive matters.” According to the complaint, the meetings started no later than September 2008 and continued for at least a year.
One venue was a private dining room called “The Chef’s Wine Cellar” at a swank restaurant, Picholene, where guests currently can enjoy multicourse tasting menus for as much as $195 per diner.

Besides sitting down to expensive meals, the publishers allegedly “engaged in a series of meetings, telephone conversations and other communications in which they jointly acknowledged to each other the threat posed by Amazon’s pricing strategy and the need to work collectively to end that strategy,” according to the complaint.

One publisher “bemoaned the ‘wretched $9.99 price point,’” according to the complaint. The Justice Department also details how — after Amazon rolled out a proposal to “prominent authors and agents” in January 2010, whereby copyright holders could bypass publishers and sell directly to Amazon — a “decisionmaker” said “he was ‘p****d at Amazon for starting to compete directly against the publishers and expressed his desire ‘to screw Amazon.’”


For an explainer about the Big-6 publishers, go here.

To read the entire filing by the DOJ, go here.

And for the best prices on e-books, go here.


Updated to add: David Gaughran just posted a superb review of the entire anti-trust case that is a must read for those interested. It reviews the entire history of agency pricing, what is known about the alleged collusion between Apple and the publishers, and the implications for the case for indie authors and big publishers alike. Bravo, David!


J.R.Brabson said...

Thanks B! This has only convinced me even more to put my ebook on amazon... when ever I'm done with it o_O.

Amber J. said...

Thanks so much for this blog post. I was totally out of the loop. It's no wonder I've preferred Amazon for years.

Sky Luke Corbelli said...

I believe I just became a little more okay with KDP Select... at least Amazon isn't being sneaky, they're just saying, "All your ebooks are belong to us. Make your time!" and setting up the proverbial bomb.

B. Justin Shier said...

@JR: It sure is a tumultuous time for the industry. Amazon is already hinting that they intend to return to their practice of discounting ebooks below MSRP. Now the publishers will be forced to respond one-by-one rather than in lock step. We''ll see where it goes...

As for Apple, I frankly do not see why they'd want this to go to court. They have a very private corporate culture. Now they are going to have to deal with subpoenas? Not settling may be looked back on as Tim Cook's first big error in judgement.

@Amber: IMHO, Amazon offers unparalleled value and customer service. We suppliers will still need to remain nimble/wary, but for readers, Amazon is the way to go right now.


B. Justin Shier said...

@Sky: I'm not sold on Select, but it seems like a good way to launch a book. (This is done by giving Amazon 90 days of exclusivity in return for the promotional options and then go with wider distro afterwards.) Some writers have had great success with this tactic. I fear it is becoming less effective over time, however. The free market is becoming very crowded.