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April 22, 2013

Penguin changes ebook pricing in response to EU probe

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Under legal pressure in Europe and in an attempt to clean up after the Random House merger, Penguin has offered to change its pricing strategy and abandon the agency model. This move preempts a European Commission inquiry into anti-trust and anti-competition allegations, which if it had found Penguin at fault, would have resulted in fines and sanctions.

Similar to the DOJ suit in the United States, the European Commission had threatened to investigate whether Penguin had participated in an anti-competitive concerted effort with other publishers to raise ebook prices or prevent them from falling further.

Penguin’s offer to abandon the agency model comes after the European Regulator approved their merger with Random House. After a period of inquiry and comment solicited by the Commission, their new commitment may be made binding. This is the similar to what happened with Simon & Schuster, Harper Collins, Hachette and Holtzbrinck in 2012, although at that time, Penguin resisted making a similar commitment. Penguin’s change of heart means that the inquiry is over.

According to the Commission’s statement,

“In the proposed commitments, Penguin offers to terminate existing agency agreements and refrain from adopting price MFN clauses for five years. In case Penguin would enter into new agency agreements, retailers would be free to set the retail price of e-books during a two-year period, provided the aggregate value of price discounts granted by retailers does not exceed the total annual amount of the commissions that the retailer receives from the publisher.”

Stephanie Bodoni in Bloomberg writes that, by making the commitment, Penguin avoids fines or any finding that they did breach competition rules. In a statement, Penguin said,

“Penguin’s position that it has done nothing wrong remains unchanged and the company continues to believe that the agency pricing model operates in the best interests of consumers and authors,” the company said in the statement. “While we disagree with some elements of the commission’s analysis, we are settling as a procedural matter to clear the decks in anticipation of our proposed merger with Random House.””

Clearly, Penguin sees no benefit from staying in this fight—it’s also trying to get out of the whole mess in the United States after being bought by Random House, but their settlement offer was rejected by the Judge. Last we heard, Penguin was attempting to have the case heard by a jury.

No matter the outcome in the US, it would seem the agency model as we know it is dead in both the US and Europe. Whatever form the Penguin-Random House behemoth takes, it won’t be using agency pricing, although one imagines they’ll be using their large market share to some other significant effect.

 

Ariel Bogle is a publicist at Melville House.

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