On PaidContent, Laura Hazard Owen has written a handy little guide to the implications of the DoJ-imposed settlement terms for readers. She discusses the effects that readers can expect to see as the settlement takes effect, sometime after the comment period ends in June.

Readers will see the most effects on books published by Simon & Schuster, Hachette, and HarperCollins, the three publishers who meekly chose to settle with the DoJ, though those effects won’t start until June, when the 60-day comment period on the settlement is up.

When it takes effect, publishers will have one week to terminate contract agreements with the iBookstore, and must terminate contracts with other e-tailers such as Amazon “as soon as each contract permits” (or on 30 days’ notice). After the termination, the publishers can make new contracts, subject to restrictions imposed by the DoJ.

The main thrust of the restrictions are that the publishers cannot keep retailers from discounting their books, as long as they turn a profit on that publishers’ books taken as a whole, and they can’t sign any contract that states no other retailer can set a lower price without them being able to match it automatically (“Most Favored Nation” or MFN).

After two years, the settled publishers can again remove retailers’ ability to discount, though MFN clauses are disallowed for five years.

Readers are likely to see lower prices on at least the most popular titles published by HarperCollins, Hachette, and Simon & Schuster—the $9.99 price point may be in again. And Amazon will be able to run sales or even offer titles for free, as long as it hews to the requirement to be profitable overall. It might also try out some new e-book-related business models, such as bundling or even offering an e-book free with the purchase of a printed book (the way it has already been doing for some DVDs). And those publishers’ titles might also be added to the Kindle Owners’ Lending Library, with Amazon paying the full wholesale price for each book it lends.

As for Apple, it could either simply drop the publishers no longer allowed to offer agency pricing, or it might negotiate its first ever non-agency contracts—and that might open the door to contracts with publishers who have never been able to offer agency pricing, which could mean a wider selection of e-books for iBooks buyers.

Other e-tailers, such as Barnes & Noble and Kobo, will benefit from the settlement as well, of course—becoming able to offer discounts again, though perhaps not as deeply as Amazon can. For that matter, Fictionwise could resurrect its departed discount club (if its owner Barnes & Noble lets it). They could also choose to focus on discounting different books than Amazon, to appeal to a different audience.

Owen also notes the suggestion that publishers could foster competition to Amazon by dropping requirements for DRM, and suggests it could be a possible outcome—though implementation would take a while, as it would undoubtedly require a lot of negotiations with literary agents who themselves insisted on DRM for their authors.

Of course, agency pricing itself has not been declared illegal—just the publishers’ implementation of it. Random House, who waited to implement it, can keep right on using it—as can Macmillan and Penguin, who are fighting the suit, until or unless they settle or a judge forces them to give it up.

Though nothing says any of them have to keep using agency pricing if it proves to offer a competitive advantage for the other publishers. Or, for that matter, they could choose to discount their own titles (though they would still be limiting themselves and their authors to shares of the 30% agency cut instead of the 50% wholesale cut). And this will also help to show whether publishers’ contention that readers will pay top dollar for their favorite authors’ books is necessarily true—if the agency-priced titles remain on the bestseller list despite their cheaper competition, then it is.

The thing that I wonder about is how the publishing landscape will look at the time those three publishers are allowed to reimpose agency pricing. Will they even want to impose it by then? Will the other publishers have joined them? A lot can change in two years.

At any rate, from an e-reader’s perspective it will be nice to see some cheap major bestseller e-books again. And it will be interesting to see how the lawsuit goes.


  1. You wrote: “And Amazon will be able to run sales or even offer titles for free, as long as it hews to the requirement to be profitable overall” with an emphasis on “overall.” Alas, “overall” is quite misleading because it implies that Amazon simply has to be profitable as a company or that its ebook divsion has to be profitable as a division, neither of which is true.

    Amazon has to be profitable separately for the ebooks it sells that are published by S&S, even if it loses money in the ebook division or on all Random House ebooks in the aggregate.

    What hasn’t been made clear are the following: (1) How will Amazon be forced to disclose profit and loss on a publisher’s ebook line? Right now, no one is given sufficient data to draw a general conclusion about ebook profitability at Amazon, let alone profit and loss for a specific publisher. Let us not forget that Amazon is not a party to this litigation so it cannot be compelled to disclose these figures.

    (2) What constitutes a publisher’s line? S&S, for example, has dozens of imprints. Does each imprint count separately or are they all swallowed into the overall S&S line?

    (3) Although agency pricing is stopped for 2 years, no mention is made of what model needs to be followed. We all assume that the publishers need to revert to the previous wholesale model, but that is not clear in the disclosed terms. More importantly, even if the former wholesale model is required, there is no mention of the discount terms. Publishers could refuse to sell under any terms other than a 30% discount from retail and could refuse to increase (or even provide) co-op fees except for physical displays in b&m stores. Once the current contract is terminated, everyhing comes up for negotiation except for the two limits of retailers can discount subject to profitability across a publisher’s line and no most-favored clause.

    Most pundits see Amazon as being in the catbird’s seat. I think a more balanced perspective says that this may be a great opportunity for publishers to tamp down on Amazon should they show the strength to do so.

  2. Richard Adin is right. How can that overall profitability rule be applied without Amazon’s cooperation in revealing detailed ebook sales data–not just sale numbers but profits on individual titles? Amazon has been very secretive about such data in the past.

    Even more interesting is the fact that imposing this requirement on Amazon, not a party in the dispute, suggests that it has been lurking in the shadows, talking with DoJ lawyers and saying, in essence, “We want this” and “To get that, we’re willing to concede this.”

    Hey, I thought this was a DoJ lawsuit against Apple and six publishers. Why have these Amazon/DoJ conversations been going on, apparently off the record. That sounds like exactly what Apple and the six publishers have been accused of, illegal, covert collusion, but this time between our government and a corporation not a party in this dispute.

    Perhaps Apple’s lawyers should insist that these backstairs discussions between the DoJ and Amazon be brought out into the light and added to the public record. They might prove to be very revealing.

  3. I did state “as long as they turn a profit on that publishers’ books taken as a whole” earlier in the article, which is what “profitable overall” was meant to refer to.

    As for Amazon getting mentioned, I expect that’s because the whole reason the publishers imposed agency pricing in the first place was to keep Amazon from pricing that way, so naturally there would be some discussion over whether that form of pricing was legal since that’s what Amazon would want to go right back to if agency pricing were not available.

    Like so many of the terms in the settlement, they’re not restrictions applied to Amazon directly; they’re restrictions that publishers are allowed to put in their contracts and Amazon (or Apple, B&N, Kobo, etc.) can take or leave. Just like the most favored nation thing. The DoJ isn’t saying Amazon can’t put such a thing in its contracts (indeed, I imagine they’ll keep most-favored-nation in all their contracts with non-Big-Six publishers, just as they kept non-agency in their contracts with those publishers when the Agency Five imposed it, unless the DoJ smacks them down for it separately), it’s just saying publishers can’t sign any contracts Amazon offers with that in it.

  4. I think we should call these publisher specific profitability clauses “peacock” clauses.

    Here’s why:

    The dominant theme in bookselling over the last 40 years- in bookstores, online, and in the early days of e-books- has been the long tail. The idea that bestsellers should be sold at a loss, and the difference made up by selling the long tail of lesser known titles.

    Right now, ebookstores view self-published books, books from small publishers, and back list titles from large publishers as pretty much interchangeable. They’re all just part of that same long tail.

    But with these clauses, the long tail becomes divided- like a peacock. Simon and Schuster’s bestsellers can only be discounted using books from the Simon and Schuster feather, Hachette bestsellers can only be discounted using books from the Hachette feather, and so on. So the retailers must either abandon bestseller discounts- likely a market-share losing strategy- or devise methods to promote titles simply because of they belong to the right feather.

    Whatever those methods may be- publisher specific loyalty programs, unpaid coop, biased recommendations- self-published authors, and authors from small presses without peacock clauses are going to be the ones on the short end of the stick, because they aren’t part of any feather.

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