Archive for the ‘agency model’ tag
Class-action lawsuit filed against Apple and five publishers over agency pricing model no comments
Seattle-based Hagens Berman Sobol Shapiro LLP (this is the same law firm that yesterday said it is investigating reports that authors are missing some of their ebook royalties) has filed a nationwide class-action lawsuit against Apple and five of the largest US publishers — HarperCollins, Hachette, Macmillan, Penguin and Simon & Schuster — alleging that they colluded to illegally fix prices of ebooks.
This stems from the agency model that Apple negotiated with these publishers before the launch of the iPad. Amazon was then forced to abandon its practice of selling ebooks at discount prices and start selling ebooks at prices set by the publishers. Price competition was stifled for all ebooks published by the five publishers as other ebooksellers were also forced to adopt the agency model.
Publishers were afraid that Amazon’s discount pricing and the accelerating popularity of the Kindle ereader would permanently set consumer expectations for lower prices, even on other ereaders.
“Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple,” said Steve Berman, attorney representing consumers and founding partner of Hagen Berman. “We intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader.
“Apple simply did not want to enter the e-book marketplace amid the fierce competition it knew it would face from Amazon and its discounted pricing,” Berman added. “So instead of finding a way to out-compete Amazon, they decided to choke off competition through this anti-consumer scheme.”
The complaint notes that Apple CEO Steve Jobs foreshadowed the simultaneous switch to agency pricing and the demise of discount pricing in an interview with The Wall Street Journal in early 2010. In the interview, he was asked why consumers would buy books through Apple at $14.99 while Amazon was selling the same book for $9.99. “The prices will be the same,” he stated.
While free market forces would dictate that e-books would be cheaper than the hard-copy counterparts, considering lower production and distribution costs, the complaint shows that as a result of the agency model and alleged collusion, many e-books are more expensive than their hard-copy counterparts.
“As a result of the pricing conspiracy, prices of e-books have exploded, jumping as much as 50 percent,” Berman said. “When an e-book version of a best-seller costs close to – or even more than – its hard-copy counterpart, it doesn’t take a forensic economist to see that this is evidence of market manipulation.”
Berman pointed out that The Kite Runner, for example, costs $12.99 as an e-book and only $8.82 as a paperback.
“What is most loathsome about the behavior of Apple and the publishers is that it is stifling the power of innovation, the very thing Apple purports to champion,” Berman added. “A few big-business heavyweights are taking a powerful advancement of technology that would benefit consumers and suffocating it to protect profit margins and market share.”
According to the lawsuit, Apple and publishers were concerned that Amazon’s $9.99 uniform pricing for bestsellers would create market pressures for other e-booksellers – including Apple – to do the same, cutting into profitability.
The lawsuit goes on to claim that because no publisher could unilaterally raise prices without losing sales, they coordinated their activities, with the help of Apple, in an effort to slow the growth of Amazon’s e-book market and to increase their profit margin on each e-book sold.
The lawsuit claims Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act, and the Unfair Competition Act.
Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher.
The lawsuit seeks damages for the purchase of e-books, an injunction against pricing e-books with the agency model and forfeiture of the illegal profits received by the defendants as a result of their anticompetitive conduct, which could total tens of millions of dollars.
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Random House to adopt agency model no comments
Random House has announced that beginning tomorrow it will adopt the agency model. This means that rather than letting resellers such as Amazon set prices, Random House will set the prices that its ebooks will be sold for and then pay a commission to the seller. Random House was the largest publisher to not, until now, adopt the agency model.
The agency model guarantees a higher margin for retailers than did our previous sales terms. We are making this change both as an investment in the successful digital transition of our existing partners and in order to give us the opportunity to forge new retail relationships.
If there are any ebooks you were planning to buy from Random House or its imprints it would probably be a good idea to buy them tonight as the prices are likely to go up. The links below are to ebooks at the Kindle Store from Random House and some of its imprints:
Update 2/1/2011: I wonder if Random House’s timing has anything to do with the upcoming iPad 2 unveiling? Random House’s ebooks are currently not available in iBooks because it did not accept the agency model. Presumably this will pave the way for Random House to enter the iBooks store. Random House’s entry into iBooks might be part of the iPad 2 announcement tomorrow.
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Amazon adopts agency model in UK with three publishers no comments
The Bookseller reports that Amazon UK has switched to the agency model with three publishers — Hachette, Harper Collins and Penguin. Canongate, Macmillan and Simon & Schuster have also signed on to the agency model but have not yet started using it to set the prices of their ebooks.
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Agency Model Coming to UK no comments
Since the UK Kindle Store
All of that could be coming to an end very soon if the publishers get their way, and they most likely will. The Bookseller reports that Hachette UK, which is the biggest UK publisher, will impose the agency model there from this Monday, September 20.
Under the agency model the publisher sets the price rather than the reseller. It remains to be seen how Amazon will react to this. My guess is that there will not be a prolonged dispute with Hachette as there was a couple of years ago in the UK, and more recently with Macmillan here in the US.
Update 9/20/2010: The agency pricing model is not being greeted with open arms in the UK. The Bookseller reports today that Waterstone’s, WH Smith, Tesco and The Book Depository have all removed Hachette ebooks from their virtual shelves. Amazon continues to sell Hachette ebooks, but appears to be still setting the prices themselves.
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Amazon’s UK eBook Pricing Lower than Competition no comments
The Register is reporting that Amazon’s ebook pricing is lower than that of other sellers in the UK. A sample of 36 books that the Register compared was around 30 percent less than the same ebooks at Waterstones, and almost 25 percent cheaper than WH Smith. The ebooks at Waterstones were actually more expensive than the paper copies.
In the US Amazon offered lower prices on ebooks until the agency model, which lets publishers set the prices of their ebooks, took effect. For titles coming from publishers who have not adopted the agency model (Random House, of course, being the largest of these) prices are still usually lower at the Kindle Store.
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Connecticut AG Having a Look at Amazon and Apple eBook Pricing no comments
Richard Blumenthal, attorney general of Connecticut, has sent letters to both Amazon and Apple expressing concern that their agreements with publishers may block competitors from offering ebooks at a lower price.
Apple and Amazon have both negotiated agreements with the largest publishers that include “most favored nation” (MSN) provisions that are designed to ensure that the two resellers receive best prices over competitors.
After the introduction of the so-called “agency model” of ebook pricing many titles are offered at the same price regardless of where one shops. Blumenthal is concerned that consumers are adversely affected as other resellers are effectively blocked from offering lower prices than Apple or Amazon.
“These agreements among publishers, Amazon and Apple appear to have already resulted in uniform prices for many of the most popular e-books — potentially depriving consumers of competitive prices,” Blumenthal said. “The e-book market is set to explode — with analysts predicting that e-book readers will be among the holiday season’s biggest electronic gifts — warranting prompt review of the potential anti-consumer impacts.
“Amazon and Apple combined will likely command the greatest share of the retail e-book market, allowing their most-favored-nation clauses to effectively set the floor prices for the most popular e-books. Such agreements — especially when offered to two of the largest e-book retail competitors in the United States — threaten to encourage coordinated pricing and discourage discounting.”
Blumenthal notes that under US antitrust laws MFNs are not illegal per se, but neither are they per se legal.
Blumenthal has invited the two companies to visit his offices and discuss the matter. You can read the letters at the links above.
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