April 9, 2012

Coalition grows in support of publishers vs. Amazon: ABA tells DOJ don’t end agency

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America’s indie booksellers — as represented by their trade group, the American Booksellers Association (ABA) — have informed the Department of Justice (DOJ) that they support the method chosen by the Big Five publishers and Apple to fight Amazon via the agency pricing model.

As per earlier MobyLives reports, such as this one, the DOJ had announced an investigation leading to a possible lawsuit against Apple and Simon & Schuster, Macmillan, Penguin, HarperCollins and Hachette for colluding to raise prices. Publishers have countered that they didn’t collude, and what they were all actually doing wasn’t raising prices but preventing Amazon from lowering them unreasonably — i.e., beyond the actual costs.

Now, days after the Authors’ Guild announced that it, too, supported the publishers and Apple (see the earlier MobyLives report), ABA head Oren Teicher has released a statement revealing that he led a contingent of ABA executives to Washington, D.C. to meet with DOJ officials “to convey just how important the agency model is for the health of the book industry and a truly competitive marketplace …” Teicher says that he and ABA president Becky Anderson, vice president Steve Bercu and association general counsel Deanne Ottaviano “made very clear to DOJ that we believe the agency model has corrected a distortion in the market fostered by major online retailers, which sought to eliminate competition both on the publishing level and at the distribution level.”

Teicher’s statement is an eloquent one, and worth quoting at length:

As we understand it, the investigation is not questioning the legality of the agency model, but, rather, whether it was arrived at in an illegal manner. The critical point we made to DOJ was that any attempts on the government’s part to remedy any alleged wrongdoing must not end the agency model, which has created a more competitive marketplace.

Since the introduction of the agency model, the market has become not less competitive, but, rather, far more competitive. There is much more competition in the retail sector, as Apple, Barnes & Noble, Google, Kobo, and indie booksellers have all entered the market, offering consumers many more choices. There is also far more competition among publishers, which are now regularly offering special promotional offers, with lower-priced titles. In our channel, we have seen that the average prices to booksellers and to consumers have dropped since the introduction of the agency model.

Before the introduction of the agency model, a single online retailer was selling e-books significantly below cost, dominating this nascent market, and rapidly growing readership in their proprietary format. It may be that their intent was to capture this market not only for book purchases, but, perhaps more importantly, to sell these consumers products from the full range of other online product offerings — everything from lawn furniture to flat-screen TVs. As many analysts have noted, the losses that online retailers have been willing to accept on book sales by selling below cost can be seen from another perspective as nothing more than shrewd ongoing customer acquisition costs.

In our meeting with DOJ, we argued strongly that if the agency model goes away, there is every reason to conclude that major online retailers will again use considerable resources to dominate — and ultimately monopolize — the market, and that, in a relatively short amount of time, consumers will have a radical reduction in choice when it comes to purchasing books in both digital and print formats. The market will be far less competitive on all levels, and this stark reality will adversely affect the health of the entire publishing ecosystem. In the end, we believe, it will mean a far less diverse range of titles being published and a much diminished range of publishers.

Meanwhile, a Financial Times report by Andrew Edgecliffe-Johnson says the DOJ could announce a settlement with three of the five publishers under investigation early this week:  HarperCollins, Simon & Schuster, and Hachette. “Macmillan and Penguin, a division of Pearson, which also owns the Financial Times, are expected to resist a settlement, both to preserve the agency model and to contest collusion allegations.” Apple is also resisting, says the report.

As for the implications of only some of the publishers capitulating, the FT reports “people familiar with their discussions said a settlement involving only half of the top publishers could result in Amazon discounting titles of publishers who settle, putting pressure on publishers outside the settlement to lower their prices to compete, at a cost to their profit margins.”

“If the agency model blows up it will be like the Wild West,” one industry member said.

“The pricing structure is going to be so complicated. We don’t know how it’s going to work with retailers,” another said …

Publishers outside the settlement would have to examine “whether the strategic advantages of maintaining a plurality of [ebook retailers] outweigh the cost of matching Amazon’s loss-leading pricing,” a third industry member said.

Unfortunately, despite the opposition of our leading publishers, authors, and now, most of the brick and mortar booksellers in America, it is indeed looking like the agency model is about to blow up, to the advantage of the industry’s true monopoly, Amazon.

Will the coalition — in itself an exciting development — hold together to support Macmillan and Penguin, and Apple, in their resistance? And will the Justice Department open its eyes to the fact that this, too, is something other than collusion? Stay tuned.

 

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him at @mobylives

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