Dispatches from the Digital Revolution

Judge approves DoJ settlement. Who scores?

Well, we have part of our answer in the ebook price fixing lawsuit. Despite public opposition to the settlement, the ABA/B&N amicus brief, and a filing in the form of a graphic novel, last week Judge Denise Cote approved the settlement between the Justice Department and publishers Hachette, HarperCollins, and Simon & Schuster.

It’s worth noting that the judge’s approval is still subject to appeal. And the parties in the lawsuit who did not settle—namely Apple, Penguin, and Macmillan—will face a trial next summer, and the ruling in that case could conceivably uphold the agency model’s legitimacy. But with the settlement approved, we may not have to wait until then to see how the tide will turn in the ebook pricing climate. The question is, what happens now? Will Amazon move quickly to capitalize on the ruling and its seeming approval of the company’s anticompetitive ebook pricing? Or are we being too quick to assume Amazon wants to return to its $9.99 price point?

Judge Cote’s speedy approval may have been a surprise, considering just how many voices rose in argument against the settlement and in support of the agency model. In her ruling, Judge Cote said that the DoJ had claimed that the establishment of the agency model between five publishers and Apple constituted a “straightforward, horizontal price-fixing conspiracy.” And so she rejected arguments against the settlement, saying that they were “insufficient” to deny her approval of the deal between the publishers and the government. (Apparently, well-meaning conspiracy intended to preserve a competitive marketplace is still conspiracy in the eyes of the law.) And Judge Cote offered this frankly creepy nugget of wisdom to publishers: “The birth of a new industry is always unsettling.” (Um, who said anything about a new industry? I thought this one was still clinging stubbornly to life, but apparently the judge is of a different opinion.)

According to the terms of the settlement, here’s what happens henceforth:

  • Hachette, HarperCollins, and Simon & Schuster must terminate their agency model contracts with Apple’s iBookstore this week. In the next thirty days, they must also end their agency agreements with other ebook retailers. This means that, since the publishers will most likely wish to continue selling ebooks through these vendors, they have to remake their existing agreements with any agency model e-tailer, which will be, in technical terms, a giant pain in the butt.
  • These publishers will also have to appoint or hire an antitrust compliance officer in charge of ensuring the company stays on the right side of the law. Also, the publishers will have to give the DoJ a log of any communications regarding ebook strategy, which is also a giant pain in the butt.
  • Somewhat more upsettingly, the settling publishers are now subject to DoJ “pop-ins,” meaning a representative of the Justice Department can drop by anytime to interview employees or agents of the company. Furthermore, they are forbidden to “retaliate” against retailers.

Unfortunately, it’s not exactly clear just what the DoJ will consider to be retaliation. As Publishers Weekly‘s Andrew Albanese pointed out, the DoJ could say that setting higher prices on ebook bestsellers to make up for lackluster sales elsewhere could be considered a retaliatory act.

In an interview (quoted in the New York Times), Idea Logical Company founder Mike Shatzkin articulated many people’s fears about a return to an Amazon monopoly on ebooks:

I think that everybody competing with Amazon in the e-book market had better fasten their seat belts. I would expect Amazon to be leading the charge to cut prices on the most high-profile e-books as soon as the decision allows them to do so. As soon as that starts to happen, all the books that are competing with them will have to reconsider their prices.

And yet, now might not be the time to speculate on Amazon’s ebook strategy. Yes, of course, Amazon did applaud the settlement in April, calling it “a big win for Kindle owners” (of course, never mentioning that the real winner in this instance was Amazon itself). And although many, including the good folks at The Atlantic, are predicting an ebook price war following the settlement approval, maybe it’s too early to say. Amazon hasn’t said anything this week about the settlement, instead focusing on its new line of Kindles at a press conference in Santa Monica.

Why would the company that stands to gain the most from the ruling suddenly have zipped its lip on the settlement? Although many of us fear that Amazon now has even less standing between it and total ebook domination, maybe Amazon’s not saying anything now because the company doesn’t want to go back to $9.99 ebooks—after all, that price point under the wholesale model was a win for publishers and consumers but a loss to the e-tailer itself. Interestingly, at last week’s press conference, Bezos said, “We want to make money when people use our devices, not when they buy our devices,” comparing his company to Apple. Yet Amazon’s modus operandi used to be to make money on the sale of the device and lose money on the sale of the content; Bezos’s comment seems to be a reversal of that pattern.

Of course, it’s most likely that Amazon won’t wait to go back to the low price that so pleased Kindle owners in the past. But with Apple promising to turn the agency model lawsuit into a trial on Amazon’s anticompetitive practice, we in the book industry still have some hope in this case. The agency model may have lost this battle, but the ebook pricing war is far from over.


This entry was posted on September 11, 2012 by in News and tagged , , , .

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