April 24, 2012

Agency Pricing: Did Amazon see it coming?


Here’s a juicy tidbit from the Department of Justice suit against Apple and five of the country’s largest book publishers: despite weeks of negotiations over agency pricing between Apple and publishers in New York in late 2009, Amazon doesn’t seem have to seen the agency model coming — at all.

How do we know this? Because Amazon said so.

As many will remember, Macmillan was the first to move Amazon’s terms to agency, and Amazon responded with a boycott of its titles starting on January 29, 2010 — hours after Macmillan’s CEO informed Amazon of the change. But just days later, Amazon reversed course and said it would capitulate and return to selling Macmillan’s titles. It announced this in an angry January 31 letter to its customers in which it claimed that:

We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

By the time this statement was issued, however, the five publishers named in the DOJ suit — Penguin, Macmillan, Hachette, HaperCollins, and Simon & Schuster — had already decided to move their terms of sale to agency and signed agreements with Apple that committed them to doing so. According to the DOJ suit, the five publishers had, over three days beginning on January 24, “entered into a functionally identical agency contract with Apple that would go into effect simultaneously in April 2010.” Macmillan seems simply to have been the first publisher to break the news to Amazon — a fact that suggests there was less colluding in the term changes than the DOJ suggests. Why be the first, after all, if you don’t have to be? (For his part, Macmillan’s John Sargent has rejected any collusion on the matter, calling the change in terms “the loneliest decision I have ever made.”)

The other defendant publishers rallied behind Macmillan, since they needed the same deal Macmillan was asking for and would soon have to tell Amazon as much, a fact the Justice department uses as evidence of criminality, suggesting that the other publishers should have viewed the situation “as an opportunity to to gain market share from a weakened competitor.”

But it may also be the case that the other publishers rallied together because they read Amazon’s letter — “We don’t believe that all of the major publishers will take the same route as Macmillan” — as a threat: we now know others are going to do this, and it won’t be allowed. The notion that indie publishers would see the situation as an “opportunity” is an interesting idea, in light of the current situation with IPG and the fact that indie publishers are simply not allowed to have agency terms with Amazon.

So perhaps Amazon did see it coming and tried to intimidate other publishers not to make the same move. This is a reading supported by another choice bit in all of this: that by the time Amazon made its January 31 statement about other publishers, it had good reason to know better, especially if it surfed the web a bit. As the DOJ suit points out, Steve Jobs made the still-secret deals public when he told Wall Street Journal reporter Walt Mossberg at the iPad launch that he had come to terms with publishers to be sure that prices “will be the same” on Amazon, Nook, and Apple.


Kelly Burdick is the executive editor of Melville House.