Macmillan & Penguin v. Amazon and DoJ

by Carola Dunn

I thought you might be interested in the views of a small independent bookstore owner on the current lawsuit between the Department of Justice--backing Amazon--and the two publishers who have refused to settle. In the interests of full disclosure, I should say that Macmillan is my publisher--which does not mean I have the slightest idea whether they're in the right or wrong, but I do see a danger of Amazon approaching monopoly.

This is from Seattle Mystery Bookshop's blog:

DoJ settlement, Amazon: What it Means

What does the settlement of three major publishers with the Department of Justice lawsuit mean? Really - it is too soon to know. We think we know what it will mean in the near-term, but if we could predict the future we'd be gazillionaires from all the Lottery numbers we'd have chosen and wouldn't be trying to scrape out livings selling books.

In the short term, we will undoubtedly see the price of e-books tumble. Will it be a slight decrease or a free fall? In the short term, probably somewhere in between. Amazon released a statement yesterday that they were looking forward to lowering prices. Will that mean back down to $9.99 from $14.99? We shall see. Will it mean even lower? We shall see. You can track that yourself. Pick a new book on Amazon and check the price for a Kindle edition. Then look up the same book on another site and see if there is a difference. Now repeat every couple of days. (We don't set the prices of the e-books sold through our site. Google does that. Will they drop prices to match Amazon? We'll see.)

In a comment reported widely yesterday, "Reaction from Amazon was also swift. Drew Herdener, a spokesperson for the e-tailer, called the DoJ’s decisions “a big win for Kindle owners,” adding, “We look forward to being allowed to lower prices on more Kindle books.”

A report on Mediabistro notes that in the first quarter of 2012, Amazon's sales of e-books rose 29% while Apple's rose just 1%. Overnight, Apple's stock had dropped 13% when we checked Friday, while B&N's dropped 6.4% Thurdsay (down 17% for the month that is not half over). We admit to not being able to tell much from these tea leaves - Amazon's stock is also down slightly.

What will it mean to publishers? In the short term, it depends on the publisher. Those who settled will be forced to pay millions back to customers in some fashion. So they'll take a financial hit in the short term, at a time when they're already reeling from the falling sales of printed books. On NPR Thursday, one analyst - James McQuivey of Forrester Research - predicted that some won't make it.

The Author's Guild website carried the full statement from someone who didn't buckle. Macmillan's CEO John Sargent is one of the guys who did not settle with the DoJ. "But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents." Bear in mind that Macmillan is the company that Amazon attacked a few years ago by removing all of their publications from sale.

Penguin Group chairman (the other publisher who refused to settle) John Mackinson wrote this: “The second, and equally powerful, reason for our decision to place this matter in the hands of a court is that we believed then, as we do now, that the agency model is the one that offers consumers the prospect of an open and competitive market for e-books. We understood that the shift to agency would be very costly to Penguin and its shareholders in the short-term, but we reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well."

At the same time, there is a class action suit against the publishers and an on-going European investigation concerning the agency model as well. So the financial liabilities faced by the named publishers and Apple are impossible to know at this time. It would be fair to say they will be 'large'.

What will it mean to booksellers? In the short term... depends on how far the prices for e-books fall. If they fall fast and steeply, it will inevitably mean lost sales of printed books.
While everyone seems to think that this DoJ case is about competition surrounding the sale of e-books, and how collusion was engaged to raise the price of e-books, what isn't addressed is that higher prices for e-books are needed to save printed books. A $25 or $27.99 hardcover can compete with a $14.99 e-book better than it can with a $9.99 price. Drastically lowered e-book prices gut the sales of hardcovers, even trade paperbacks. If e-books continue to outsell hardcovers and massacre the sales of softcovers, printed books are seriously threatened. No one talks about that.

What you, as reader[, writer,] and consumer and resident of Earth can do for yourself is to watch for stories that report on the sales of printed books. Most likely, you'll find them around the ends of financial quarters, as well as annual reports of the past year's sales that come out at the beginning of a new year. A search on the internet should turn them up - business pages of the major news outlets, or Publisher's Weekly. Quarters go Jan - Mar, April - June, etc. Look for reports in early July that cover the present quarter. That will tell us if something is happening immediately. And that may foretell where publishing is going.