Today was a big, big day for eBook fans! The Department of Justice agreed with everyone who has been screaming for three years that the “agency model” was unfair, anti-competitive and anti-consumer. They settled with several publishers, though Apple and Macmillan are still fighting the DoJ in court.
So, what did the settlement today do? And how will it impact the future of ebooks? Read on for my thoughts!
The Settlement:
I am going to defer to Wired here, as they quickly had an excellent breakdown of what the settlement states:
- Terminate its current contracts with Apple within seven days of the court’s acceptance of the settlement;
- Terminate any other contracts with e-book retailers that restrict the retailer’s ability to set final prices for books or contain a “most favored nation” provision prohibiting price competition, as soon as possible;
- Renegotiate contracts with Apple and other retailers, with a two-year prohibition on any contract that prevents retailers from discounting retail prices (see below);
- Notify the Department of Justice before entering into any joint ventures between it and another publisher related to e-books;
- Designate an antitrust compliance officer and provide the DOJ with a copy of its agreements with any e-book retailers quarterly for five years.
Basically, the agency model isn’t dead or illegal. What the Department of Justice attacked was the “most favored nation” clause, as well as the price fixing. There is nothing inherently wrong with setting a split between publisher and retailer instead of a wholesale price. The problem is when the publisher/distributor dictates that the retailer cannot cut into their own profit margin to be a loss leader. In English, this means we will probably see discounting again soon, though it will probably be limited right now to the publishers renegotiating post-settlement, and not all agency-related titles. We are going to need a chart, and possibly an advanced degree, to untangle what will and will not be discountable for the foreseeable future!
For the news junkies, you can read the full press release from the Department of Justice here.
Where does Apple go from here?:
All joking about the non-sales of iBooks aside, I really don’t know what this means in the short term. The publishers who settled will all need to renegotiate with Apple. But Apple is currently fighting the entire lawsuit, so I am honestly unsure if Apple can or will renegotiate while that is an ongoing concern.
Practically, this means three major book catalogs may disappear from iBooks. If Apple feels so strongly that their terms (including the “most favored nation” clause) are legal, they won’t accept contracts with anything less. And if they do, does that weaken their argument that they didn’t do anything wrong? If there are any legal experts reading this, please let us know your take in the comments!
Lies, Hypocrisy, and a Dying Industry:
The proponents of the agency model in its original form claim that it was not only legal but necessary. If they didn’t take action, Amazon was going to put them all out of business! Instead, they cut Amazon’s market share and saved the day! Except this is a specious argument that uses Amazon as the straw man so that no one notices there is nothing supporting this theory.
Yes, in 2009 Amazon had a much bigger slice of the eBook pie than they do today. But to claim that is entirely from price-fixing eBooks is absurd. It ignores the release of the NOOK and NOOK Color, Kobo’s fight for market share and eventual acquisition by Rakuten, and the fact that the overall market for eBooks has grown tremendously. Amazon had a first mover advantage, but the agency model appeared literally months after the release of the original NOOK. Saying the agency model is the sole reason for B&N’s success is to deny the success of the NOOK as a product all by itself and to imply that without even pricing no one would have even considered it. That is ridiculous, as we have seen B&N offer strong competition against Amazon on the hardware side, and there’s no reason they would not have been able to compete with eBook prices. Especially when you consider that B&N would have loved to get all those membership card-toting shoppers to use the NOOK, but the agency model robbed them of that opportunity.
Also, there’s a satisfying feeling to see the hypocrisy of these big publishers catch up to them. They complained and whined that Amazon was too successful and that it would eventually become a monopoly. So they attacked the basic concept of competition, stacked the deck against Amazon, and then were shocked that this didn’t go over well with the Department of Justice…the very same people who would have gotten involved if Amazon really WAS a monopoly! There is nothing inherently illegal about being successful, nor is it illegal to be a loss leader. It is, however, illegal to sit around in restaurants and make phone calls discussing how to actively prevent another company from doing business. Something Simon and Schuster, Hachette, and HarperCollins have learned painfully from this DoJ settlement.
I hate to say it, but this just exposes that publishing is rotting from the head. Editors will always be needed, but the publisher is becoming less centralized and important. I think the most important lesson that comes from this is that old publishing doesn’t know how to respond to new ideas. They didn’t innovate, they bullied, right up until they were caught. The history of commerce is full of companies that failed to respond to new ideas and changes in the world, and publishing is fast headed down that direction. Adapt or perish … choose wisely!
Are cheaper eBooks coming?:
Eventually, but I doubt it will be an immediate turnaround. However, keep your eyes peeled. I would not be surprised if Kobo, B&N, and Amazon all throw big sales as these contracts are renegotiated. More importantly, I am excited to see what B&N and Kobo do with more pricing flexibility. B&N has their membership system, and they have the old Fictionwise membership as a model as well. Plus Kobo loves coupons and contests. Between them, we could easily see some serious price competition, but in ways that won’t immediately hurt their margins or bottom lines.
I would also not be surprised if we see bundles, whether they are “buy the book, get the eBook” type deals, or simply more “free eBook with hardware purchase” deals. These are areas where B&N can be price-competitive with Amazon and really leverage their physical stores. None of these things were possible, at least not easily, under the agency system as it existed. If B&N wanted to give away a title, they had to get the publisher to agree to give everyone a shot at a free title, because otherwise, it would have tripped the “favored nation” clause that protected Apple. No matter how you examine this, this is a win for consumers and for retailers.
The Future:
I have no idea what will happen as the various pieces of the DoJ settlement expire. But I do think that in two years, the eBook market will have matured immensely, and even if Amazon is still the dominant player it will be a different bookselling landscape. I don’t see anyone gaining the illegal upper hand that they gained in the original agency model, as that was the product of a specific player (Apple) entering the market at a vulnerable time.
More importantly, this a huge victory for the consumer. Most of us are not legal experts, but we aren’t dumb shoppers. It is easy to see when someone is stacking the deck against you, and the agency model was decried from day one as being anti-consumer. It feels good to see the government agree, and successfully defend shoppers from an unfair situation. Hopefully, as shopping, commerce, creation, and publication change with the digital age, we will continue to see the Department of Justice step up and do the right thing!