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Email reveals Steve Jobs’ involvement in agency pricing negotiations

Seventeen more U.S. states, including New York, have joined the class action lawsuit against Apple, Macmillan, and Penguin, accused of allegedly colluding to raise the price of ebooks. Unlike the U.S. Department of Justice’s investigation, the 31 states involved are seeking monetary compensation for consumers, who, according to the amended complaint, “paid over $100 million in overcharges.”

New information, previously redacted from the DoJ lawsuit, has also been revealed about Steve Jobs’ role in the negotiations with the five big publishers involved (Hachette, HarperCollins, and Simon & Schuster have already settled).

According to Paid Content, Jobs wrote to an unnamed publishing executive:

1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.

2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70 per cent of $9.99. They have shareholders too.

3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started, there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.

Maybe I’m missing something, but I don’t see any other alternatives. Do you?

The complaint also suggests that Apple and the five publishers “worked together to force” Random House to adopt the agency model (which it did a year later). According to the complaint, Penguin CEO David Shanks sent an email to former Barnes & Noble CEO Steve Riggio asking the retailer to “stop any promotion or advertising of Random House titles” and to “make Random House hurt like Amazon is doing to people who are looking out for the overall welfare of the publishing industry.”
Although, as Paid Content writer Laura Hazard Owen astutely points out, this doesn’t prove the five publishers acted together.

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Update: Hachette, Simon & Schuster, HarperCollins to modify agency agreements in U.S.

Publishers Lunch reports that the three publishers opting to settle the antitrust lawsuit launched today by the U.S. Department of Justice have agreed to drop the agency model for a period of two years. However, the report is quick to point out that the agency model is not dead, as other firms named in the lawsuit are choosing to fight the charges in court.

Michael Cader of Publishers Lunch offers analysis (subscription required):

While those three publishers will relinquish their agency models, agency itself will persist, since Macmillan has pledged to continue that pricing model, and one can infer that Penguin will continue with it as well. Which should allow those who adopted it later, such as Sourcebooks, to also continue to employ agency if they wish.

HarperCollins’ New York office has already released a statement on the matter, noting that the firm “did not violate any anti-trust laws” and that its “business terms and policies have been, and continue to be, designed to give readers the greatest choice of formats, features, value, platforms and partners – for both print and digital.”

The press release also describes the decision to settle as a “business decision” intended to “end a potentially protracted legal battle.”

[Updated at 1:08 p.m.] Publishers Lunch has updated its analysis of the settlement, pointing out that it “does not seem to require [Hachette, Simon & Schuster, and HarperCollins] to abandon the agency selling relationship itself.” The expanded report also notes that the Department of Justice “appears to have set up a system that will allow limited discounting of ebooks, so as to inhibit predatory loss-leader pricing of ebooks from the settling publishers.”

From Publishers Lunch:

They [i.e., the settling publishers] actually can “enter into Agency Agreements with E-book Retailers under which the aggregate dollar value of the price discounts or any other form of promotions to encourage consumers to purchase one or more of the Settling Defendant’s E-books (as opposed to advertising or promotions engaged in by the E-book Retailer not specifically tied or directed to the Settling Defendant’s E-books) is restricted.” But that restriction “shall not interfere with the e-book retailer’s ability to reduce the final price paid by consumers…by an aggregate amount equal to the total commissions the settling defendant pays to the e-book Retailer, over a period of at least one year, in connection with the sale of the Settling Defendant’s E-books to consumers.”

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The “agency” model for ebooks goes on trial

News broke earlier today that the U.S. Department of Justice is pressing ahead with a lawsuit against Apple and the five original “agency” publishers for allegedly colluding to raise the price of ebooks. According to early reports, some of the publishers are choosing to settle the case, while others will fight the charges in court.

A little background: the antitrust lawsuit centres on early 2010, when Apple was preparing to enter the fast-growing ebook market with the launch of the iPad. Book publishers welcomed the news, viewing the entry of a deep-pocketed competitor like Apple as an opportunity to stand up to Amazon’s virtual monopoly of the ebook market.

One strategy for combating that perceived monopoly was to adopt the so-called agency pricing model, in which retailers act as commissioned sales agents who receive a cut of the publisher-determined retail price. (Under the previous “wholesale” terms, retailers were free to discount from the publisher’s list price.)

The question at the heart of the current lawsuit is whether publishers acted in concert to adopt the agency model en masse, or whether they were simply reacting in parallel to a situation they viewed as untenable.

According to The Wall Street Journal, the lawsuit alleges that publishers began meeting privately no later than September 2008 for a period of at least one year. These meetings are said to have taken place in “private dining rooms of upscale Manhattan restaurants,” including in “‘The Chefs Wine Cellar,’ a private room at Picholene [sic].”

The U.S. publishers named in the lawsuit are Macmillan, Simon & Schuster, Hachette Book Group, Penguin, and HarperCollins. Of the Big Six U.S. publishers, the only firm not implicated is Random House, which held off for a year before adopting the agency model.

Three of the publishers have agreed to settle the case, the WSJ reports: Hachette Book Group, Simon & Schuster, and HarperCollins.

John Sargent, CEO of Macmillan, explains why his firm has opted not to pursue a settlement, which would have avoided the expense (and unwanted public attention) of a drawn-out court case.

Sargent begins by noting that the charges against Macmillan are civil, not criminal, and that “Macmillan did not act illegally. Macmillan did not collude.” He goes on to note that “[i]t is … hard to settle a lawsuit when you know you have done no wrong.”

From Sargent’s response:

We have been in discussions with the Department of Justice for months. It is always better if possible to settle these matters before a case is brought. The costs of continuing – in time, distraction, and expense – are truly daunting.

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

A statement from Penguin is expected later today.

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Book links round-up: Sarah Palin is not one of the Common people, Random House U.K. signs to agency model, and more

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Random House titles now available at U.S. iBookstore, not in Canada

At Wednesday’s launch of the iPad 2 in San Francisco, Apple CEO Steve Jobs confirmed that 17,000 titles from Random House U.S. will now be available in Apple’s iBookstore. Titles began appearing on the iBooks app prior to the press conference.

The partnership comes as no surprise after Random House announced that it was adopting Apple’s agency pricing model Monday — the last of the major U.S. publishing companies to do so. The pricing shift gives publishers 70 per cent of each sale, with a 30 per cent commission to retailers.

Random House Canada has no immediate plans to follow the U.S.’s lead. Senior vice president, director of marketing and corporate communications Tracey Turriff writes, “Random House of Canada’s digital terms of sale remain unchanged at this time. New commercial models in the fast changing eBook environment are constantly under review. We continue to evaluate our options and talk to all etailers as it is our mission to ensure that our authors’ books are available on all platforms to all potential customers. Our strategy is constantly evolving in the best interests both of our authors and consumers.”

Jobs said that since the iPad was launched in April 2010, customers have downloaded more than 100 million e-books from the iBookstore, with over 2,500 publishers represented.

The lighter, sleeker, faster iPad 2 will be available in Canada on March 25.

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Google Editions to launch before year’s end

Representatives from Google met with publishers at the Frankfurt Book Fair this week and revealed that the long-awaited Google Editions will debut (in the U.S., at least) this year, despite rumours to the contrary. According to The Bookseller:

Abraham Murray, product manager on Google’s Books team, said at launch in the U.S. there would be over 400,000 paid-for titles available from “publisher partners,” along with two million public domain titles, but that more titles would be made available once the service opened internationally [in 2011]. He said the company was working with more than 35,000 publisher partners, in more than 100 countries, and added that he hoped to launch in “much of Europe in first half of the following year.”

However, there are already signs that Google Editions might not be the saviour publishers were hoping for. Though Google plans to use the publisher-preferred agency pricing model, the Google rep admitted this was not a model Google had sought out and hinted that it might be subject to change:

“We will meet the needs of the market, and we are accepting the agency model in the U.S., but we haven’t gone after it, and as that plays out we will follow,” he said.


Daily book biz round-up: Freedom blunder grows; Twilight hands; and more

Today’s book news:

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Daily book biz round-up: FlashForward canned; Little Orphan Annie retired; and more


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Daily book biz round-up, April 7

Here’s the day’s links:

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Daily book biz round-up, April 1

No foolin’ here, just the straight dope:

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