Authors Guild response to DoJ ebook investigation – they don't like it and prefer the status quo


It’s best just to quote the letter:

Letter from Scott Gurow:  Grim News

Dear member,

Yesterday’s reports that the Justice Department may be near filing an antitrust lawsuit against five large trade book publishers and Apple is grim news for everyone who cherishes a rich literary culture.

The Justice Department has been investigating whether those publishers colluded in adopting a new model, pioneered by Apple for its sale of iTunes and apps, for selling e-books. Under that model, Apple simply acts as the publisher’s sales agent, with no authority to discount prices.

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing. We do know that collusion wasn’t necessary: given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

Just before Amazon introduced the Kindle, it convinced major publishers to break old practices and release books in digital form at the same time they released them as hardcovers. Then Amazon dropped its bombshell: as it announced the launch of the Kindle, publishers learned that Amazon would be selling countless frontlist e-books at a loss. This was a game-changer, and not in a good way. Amazon’s predatory pricing would shield it from e-book competitors that lacked Amazon’s deep pockets.

Critically, it also undermined the hardcover market that brick-and-mortar stores depend on. It was as if Netflix announced that it would stream new movies the same weekend they opened in theaters. Publishers, though reportedly furious, largely acquiesced. Amazon, after all, already controlled some 75% of the online physical book market.

Amazon quickly captured the e-book market as well, bringing customers into its proprietary device-and-format walled garden (Sony, the prior e-book device leader, uses the open ePub format). Two years after it introduced the Kindle, Amazon continued to take losses on a deep list of e-book titles, undercutting hardcover sales of the most popular frontlist titles at its brick and mortar competitors.  Those losses paid huge dividends.  By the end of 2009, Amazon held an estimated 90% of the rapidly growing e-book market. Traditional bookstores were shutting down or scaling back. Borders was on its knees. Barnes & Noble had gamely just begun selling its Nook, but it lacked the capital to absorb e-book losses for long.

Enter Steve Jobs. Two years ago January, one month after B&N shipped its first Nook, Jobs introduced Apple’s iPad, with its proven iTunes-and-apps agency model for digital content. Five of the largest publishers jumped on with Apple’s model, even though it meant those publishers would make less money on every e-book they sold.

Publishers had no real choice (except the largest, Random House, which could bide its time – it took the leap with the launch of the iPad 2): it was seize the agency model or watch Amazon’s discounting destroy their physical distribution chain. Bookstores were well along the path to becoming as rare as record stores.  That’s why we publicly backed Macmillan when Amazon tried to use its online print book dominance to enforce its preferred e-book sales terms, even though Apple’s agency model also meant lower royalties for authors.

Our concern about bookstores isn’t rooted in sentiment: bookstores are critical to modern bookselling.  Marketing studies consistently show that readers are far more adventurous in their choice of books when in a bookstore than when shopping online.  In bookstores, readers are open to trying new genres and new authors: it’s by far the best way for new works to be discovered.  Publishing shouldn’t have to choose between bricks and clicks.  A robust book marketplace demands both bookstore showrooms to properly display new titles and online distribution for the convenience of customers.  Apple thrives on this very model: a strong retail presence to display its high-touch products coupled with vigorous online distribution.  While bookstores close, Apple has been busy opening more than 300 stores.

For those of us who have been fortunate enough to become familiar to large numbers of readers, the disappearance of bookstores is deeply troubling, but it will have little effect on our sales or incomes.  Like rock bands from the pre-Napster era, established authors can still draw a crowd, if not to a stadium, at least to a virtual shopping cart. For new authors, however, a difficult profession is poised to become much more difficult. The high royalties of direct publishing, for most, are more than offset by drastically smaller markets. And publishers won’t risk capital where there’s no reasonable prospect for reward. They will necessarily focus their capital on what works in an online environment: familiar works by familiar authors.

Two years after the agency model came to bookselling, Amazon is losing its chokehold on the e-book market: its share has fallen from about 90% to roughly 60%. Customers are benefiting from the surprisingly innovative e-readers Barnes & Noble’s investments have delivered, including a tablet device that beat Amazon to the market by fully twelve months.  Brick-and-mortar bookstores are starting to compete through their partnership with Google, so loyal customers can buy e-books from them at the same price as they would from Amazon. Direct-selling authors have also benefited, as Amazon more than doubled its royalty rates in the face of competition.

Let’s hope the reports are wrong, or that the Justice Department reconsiders. The irony bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition.

This would be tragic for all of us who value books, and the culture they support.


Scott Turow

13 Comments on Authors Guild response to DoJ ebook investigation – they don't like it and prefer the status quo

  1. Again, it’s ironic that a group with the word “guild” in its name would be touting competition. Although how price fixing counts as competition I don’t know. But hey, nobody expected the Authors’ “Guild” or the Agency 6 to be happy about this.

  2. A couple of notes on this letter. First ePub is not by itself anymore open or closed than the Kindle/Mobi-based format. It’s the DRM (digital right management software) that closes the walls of the garden, not the format. You can’t pub an ePub book with B&N Nook DRM on a Sony Reader and vice versa. As an example, you can buy an ebook directly from O’Reilly Books and then put it on a Kindle or an ePub-based ereader because O’Reilly sells ebooks in multiple formats and none of them have DRM.

    Second, (aside from the irony of the guild name) there is real irony in touting Apple as the pioneer, the white knight out to save competition in the marketplace. Both Apple and Amazon have been successful because both of them focus on their customer’s experience. If either one has ever done anything to foster competition, I’d like to know what it is.

  3. …and so the Author’s Guild finally kills what little credibility they had left with this nonsensical justification of Apple’s collusion with the publishing industry to screw both authors and readers.

  4. Scott Turow is absolutely correct that the agency model probably made the Nook and Kobo possible when they were in their infancy two years ago. And in doing so, it has certainly led to lower prices on tablets and ereaders.

    But what both he, and his critics, need to keep in mind is that you simply can’t uncook an egg.

    When Amazon was selling bestsellers at $9.99, profit margins on the Kindle hardware were absurdly high- something like 100%. Now that Kindles are actually selling at a loss, losing money to sell an ebook at $9.99 is no longer a valid strategy (although making money to sell a $2.99 self-published book is). And I doubt that consumer’s will tolerate a sudden price hike on the hardware.

    The agency model may stay or it may go away – but it won’t reset the e-book universe if it does.

  5. Great article and an excellent description of precisely why major publishers jumped at the chance to set agency pricing through Apple. There was no illegal, anti-trust collusion going on, just a commonality of interest that is also in the best interest of the public.

    A couple of questions for the poster who seems to think that a publisher setting the price is “price fixing.”

    1. What do you think that price next to the barcode on printed books is? Yes, technically, a printed book can be sold for less than that. But the profit margins of most modest-sized bricks-and-mortar stores is so small, few can do that. That’s why it rarely bothered publishers. On the other hand, Amazon’s ample resources would enable them to sell ebooks, which cost almost nothing to distribute, until their competition was effectively destroyed.

    2. How would you feel if you boss called your insistence on being paid a wage or salary you agree upon in advance price fixing? Would you agree to let him set what you’re paid for a day’s labor at the end of the day?

    The second was Amazon’s ultimate goal. They intended to turn that 90% marketshare with competition to a well-over 90% marketshare with no effective competition. Read their original rules about pricing and look at some of the moves they attempted to make in the UK and you’ll see their hostility to an author or publisher selling their own book online.

    Amazon wanted to be ebooks only real seller.Then they’d be able to dictate what authors/publishers get for their book and what customers would pay to buy one. And we can rest assured that the former would be set as low as possible and the latter as high as possible. You’re being very foolish if you think that Amazon wouldn’t use their monopoly dominance to drive down the price paid to authors and not use it to drive up the price you and I pay. Both schemes have exactly the same result–they make them more money.

    And don’t forget that ill-treated and ill-paid authors won’t be able to create the sorts of books you like to read. That’s the key reason I’m pushing for a lively and competitive book market.

    One final comment. I suspect this legal action is a result of Amazon whispering in the ears of our current administration, perhaps even lining a few pockets (Chicago style), or maybe reaching people whose stock portfolios would benefit from an Amazon dominance of the market (more the Beltway style). Even this lawsuit could be carefully timed to make certain people lots of money.

  6. Uh, because a group of companies in the same industry who control a majority share of that industry getting together & “fixing” prices at some industry standard is called price fixing.

    But just don’t take my word for it, take the Department of Justice and the European Union who are looking into Agency Pricing.

    As to whether or not Amazon’s greasing the skids with the DOJ, well, some proof would be nice. Also, it’s not anything that the Big Publishers wouldn’t do if they’d thought of it first. Assuming that’s what’s going on.

    Anyway, I’ve seen some people speculating the end of Agency might not benefit Amazon all that much. Who knows what will actually happen. As Peter said above, it’s not going to go back to some status quo ante-Agency Pricing.

  7. Also, I’m getting sick of the insinuation that people who are opposed to Agency Pricing just hate authors & want to get books for free. I’ve been buying my own books since my early 20’s. So for about 25 years now, I’ve been buying books…a lot! My wife too. And since eBooks came out we’ve bought tons more books than we ever did in print form. We’re talking four digit dollar numbers for each of us.

    But just because we don’t want to pay artificially raised prices or because we want to buy books in a different format (eBook) than the Publishers would like us to buy them in, we’re starving those poor authors. Poppycock!

  8. Wow, I hope that the authors that belong to this guild are happy with their leadership. What a farce. If the agency pricing was about saving brick and mortar stores then why didn’t they implement agency pricing for paper books?

    Price fixing to drive up prices is to to preserve competition and save our literary culture. ROFL

    The perception management is kicking into high gear but nobody is buying it. Unfortunately for the people that are trying to spin this the majority of people that consume literature also have the capability of critical thinking.

  9. “Amazon wanted to be ebooks only real seller.Then they’d be able to dictate what authors/publishers get for their book and what customers would pay to buy one. And we can rest assured that the former would be set as low as possible and the latter as high as possible.”

    This, of course, is *entirely different* from publishers dictating what authors will get for their books and what customers will pay to buy one, because publishers will do everything in their power to pay authors as much as possible while slashing retail prices, as we’ve seen. And they’d never *dream* of colluding on a price-fixing agreement.

    In other news, with the coming of Spring be sure to look out your windows for the annual aerial porcine migration, as the pigs fly back to their summer homes.

  10. Felix Torres // March 10, 2012 at 7:13 am //

    If the price fix were oh-so-clearly legal, why did Random House not jump at it right away? (Note that *they* aren’t facing a DOJ antitrust suit yet.)
    Look, all the anti-Amazon talk by the Price-Fix apologists is just a smokescreen to the trustbusters. For *them* the issue is simple: 6 companies agreed to *simultaneously* Fix ebook prices at the *same levels* which resulted in measurable and demonstrated harm to *consumers*.
    That is *exactly* the kind of behavior US antitrust is all about.
    Whether it helped new competitors or not is *irrelevant*.
    Whether it harmed the market leader or not is *irrelevant*.
    Whether a hide-bound “Guild” likes it or not is *irrelevant*.
    They conspired, consumers got ripped-off, and the DOJ is not going along with the excuse that they “meant well”.
    Sic-em, boys! 😉

  11. MWP – I regret to say, with all due respect, that you appear to have no idea what competition means and what price fixing is and why it is so hugely destructive to the consumer. I’m not going to bang on about it again because if you haven’t got it by now you’ll never get it :-)

    In the next couple of years there will be a few major changes. The price fixing is simply not going to survive legal scrutiny in Europe or the USA. The restrictions being applied to readers to prevent them enjoying their purchases on different devices is also going to attract action imho. It is just a pity that the US and EU are taking so long about it. The reason is of course the lobbying power of the big publishing and big media conglomerates.

  12. “That’s why we publicly backed Macmillan when Amazon tried to use its online print book dominance to enforce its preferred e-book sales terms, even though Apple’s agency model also meant lower royalties for authors.”

    So the Authors Guild backed a play that would shaft the writers, because the publishers couldn’t figure out how to cope with digital. Nice. Really nice. What is it the guild represents again? I forget. And apparently so does the guild.

    And a lot of bookstores were going down the tubes long before the coming of the Kindle.

  13. If you remember, The Authors Guild is the group that tried to give everything in the orphan works meme to Google.

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