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April 17 2012

The anchor on ebook prices is gone. Now we'll see where they float

The publishing space remains abuzz in the aftermath of the Department of Justice (DOJ) lawsuit filing last week against Apple and publishers Hachette, HarperCollins, Macmillan, Simon & Schuster and Penguin. Much remains to be seen on how the suit will play out with Apple, Macmillan and Penguin (as the others have settled), and how the Big Six will now respond in relation to Amazon.

For a wider view and some insight into what needs to happen next for publishers to survive the tumult, I reached out to Don Linn, president at Firebrand Associates. Our interview follows.

What is the big-picture view of the DOJ lawsuit?

Don_Linn_Headshot.jpgDon Linn: The combination of the lawsuit, circumstantial evidence that's been revealed, and settlements by several of the parties, is a very big event. The point I think has been missed in much of the discussion is the perception that the agency model — and the alleged collusion that had led to it — affected consumers negatively via higher prices. The price umbrella agency effectively created benefitted only the alleged co-conspirators. That's something that never makes anti-trust enforcers happy.

The circumstantial evidence certainly suggests the DOJ had grounds for pursuing an action. "Double deleting" emails is pretty damning, among other things. The fact that three parties have settled, while legally having no effect on the others, clearly weakens the case of the remaining defendants, at least in public, that something happened. We will look back on this as an important date; the date that ebook prices once again were allowed to float. And things seldom float upward.

I'm not an attorney, but I believe that Macmillan, Penguin and Apple have a very difficult legal battle ahead. One I doubt they can win.

Does this strengthen Amazon's position in the marketplace?

Don Linn: Amazon's already dominant position has been further strengthened as their ability to set low prices locked into the Kindle ecosystem should only grow their share of the market. Whether this is a good thing for publishers over time remains to be seen, but most readers will cheer short-term price declines and Amazon's superior customer experience.

Cory Doctorow and others have argued that the DOJ has missed the point with this suit, saying that the DRM lock-in is the bigger anti-competitive threat. Over time this may prove to be true. However, when consumers benefit, regulators can claim a victory.

What do publishers need to do now?

Don Linn: Clearly, the most important thing for those who have settled is to get into — and stay in — compliance with the agreement. Additional legal battles are in no one's interest, which is why I was surprised that two publishers chose to fight.

Separately, the Big Six and others have to determine whether low prices are their enemy and by extension whether Amazon's low pricing is sustainable for them. The choices are pretty stark: either withhold content from Amazon until acceptable terms can be agreed upon, or further adapt business models to adjust to lower pricing. I would expect to see major pushback from the Big Six on Amazon, and some may take IPG's approach of trying to hold out.

Whether that strategy can be successful is questionable, but it may be the only viable approach if they don't believe lower prices can work. If the publishers yield to Amazon, consumers should hope they could — as Mike Cane has argued — extract something in return ... perhaps Amazon's willingness to adopt EPUB as a way to loosen the lock-in.

What do you think readers will get out of this?

Don Linn: As I mentioned before, consumers get the immediate benefit of lower prices, though there are those who argue that Amazon, once it controls the market, will ultimately raise prices for their locked-in consumers. The DOJ may have inadvertently created a less competitive marketplace with this action, though I feel sure they will be back if Amazon or any other party misbehaves to the detriment of consumers.

This interview was edited for clarity.

The future of publishing has a busy schedule.
Stay up to date with Tools of Change for Publishing events, publications, research and resources. Visit us at oreilly.com/toc.

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April 13 2012

Publishing News: DoJ lawsuit is great news for Amazon

Here are a few stories from the publishing space that caught my eye this week.

Amazon does a little Snoopy dance

DoJSeal.pngThe biggest story this week was the U.S. Department of Justice (DoJ) filing a lawsuit against Apple and publishers Hachette, HarperCollins, Macmillan, Simon & Schuster and Penguin, accusing them of colluding over ebook prices. If you unplugged or dropped off-grid for the past several days, solid roundups and analyses can be found with Tim Carmody at Wired and Laura Hazard Owen at PaidContent, and you can read the complaint itself here (PDF).

Right off the bat, three publishers — Hachette, HarperCollins and Simon & Schuster — settled, and Macmillan and Penguin stood their ground. Amazon responded to the situation almost immediately as well:

"This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books."

Book publishing analyst Michael Norris told the New York Times: "Amazon must be unbelievably happy today. Had they been puppeteering this whole play, it could not have worked out better for them."

Apple finally responded yesterday. As reported by Peter Kafka at All Things Digital, Apple spokesman Tom Neumayr said:

"The DOJ's accusation of collusion against Apple is simply not true. The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon's monopolistic grip on the publishing industry. Since then customers have benefited from eBooks that are more interactive and engaging. Just as we've allowed developers to set prices on the App Store, publishers set prices on the iBookstore."

Much discussion and analysis has ensued in the aftermath — and I'm sure it will continue in the coming days and weeks.

Some are purporting that even if the collusion between the publishers proves to be true, Apple might walk away squeaky clean. A report at CNET noted why this may be the case:

"One reason lies in the Justice Department's 36-page complaint, which recounts how publishers met over breakfast in a London hotel and dinners at Manhattan's posh Picholine restaurant, which boasts a "Best of Award of Excellence" from Wine Spectator magazine. The key point is that Apple wasn't present."

Bryan Chaffin at the Mac Observer argued that yes, collusion most probably occurred but that it will be a mistake to undo it: "Doing so will clear the way for Amazon to dump books below price, taking ever more share (and power) in the book industry — that is the greater anticompetitive threat."

On the flipside, Mike Cane argued on his xBlog that the suit didn't go far enough and that the DoJ needs to sue Apple again. In a letter sent to all of the Department of Justice attorneys listed in the antitrust suit papers filed, he said:

"The advantage iPhone and iPad owners have in using the iBooks app is that they can browse and purchase eBooks from within that app. It's a seamless customer experience.

By contrast, all eBook apps from competing eBook stores — such as those from Amazon, Kobo, Barnes & Noble, and others — cannot offer an identical shopping experience. They are disallowed by Apple. Apple has demanded from each of its iBookstore competitors a 30% cut of any purchases made using Apple APIs for what is called 'in-app purchasing.'

To me, this is every bit as much restraint of trade as the collusive price-fixing that made the Department bring Apple and its co-conspirators before the court for remedy."

Individual U.S. states have thrown in as well: 16 State Attorneys have filed suit, alleging that agency pricing cost consumers $100 million.

Earlier this week before any suits were filed, at least two of the Big Six publishers refused to sign new contracts with Amazon. It will be interesting to see how this all plays out and whether or not publishers are spurred into action to do more to prevent Amazon from totally monopolizing the market, such as dropping DRM.

The future of publishing has a busy schedule.
Stay up to date with Tools of Change for Publishing events, publications, research and resources. Visit us at oreilly.com/toc.

This chapter brought to you by ...

Just about a year ago, Amazon introduced an ad-supported Kindle at a reduced cost in exchange for the consumer enduring ads on the home and screen saver pages. Now, Yahoo has filed patent applications that indicate a plan to bring those ads directly into ebook content. A report at the BBC explained:

"The filings suggest that users could be offered titles at a variety of prices depending on the ads' prominence. They add that the products shown could be determined by the type of book being read, or even the contents of a specific chapter, phrase or word ... It suggests users could be offered ads as hyperlinks based within the book's text, in-laid text or even 'dynamic content' such as video. Another idea suggests boxes at the bottom of a page could trail later chapters or quotes saying 'brought to you by Company A.'"

From a revenue perspective, ads in ebook content makes all kinds of sense. From a reader perspective, I just hope there's always a price point for those of us who prefer to do our reading sans corporate sponsorship.

B&N one-ups Amazon

A close friend recently told me a story highlighting an issue with his Kindle: While reading in the car on a road trip, he had to give up his Kindle and resort to the Kindle app on his iPad to keep reading when it got dark. Maybe he should have waited and bought a Nook.

B&N introduced the Nook Simple Touch with GlowLight this week — the first e-ink device to employ light. Alexandra Chang described the device in a post for Wired:

"The GlowLight resembles B&N's flagship Nook Simple Touch — same 6-inch touchscreen display, same size and includes the same internal parts. The Nook Simple Touch with GlowLight, however, is slightly lighter at just 6.95 ounces, compared to the Nook Simple Touch's 7.48 ounces ... The GlowLight technology consists of LED lights located at the top of the Nook's screen and an anti-glare screen protector. The light is evenly scattered across the screen and is adjustable via the menu."

The timing of the release is interesting, as rumors surfaced last week that Amazon was readying a front-lit display for its Kindle device.

Seal: US-DeptOfJustice-Seal, on Wikimedia Commons

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