I don't know quite how to tell you this, DG, but everything you know is wrong.
Jim's got a point.
Sandru, what that link says is that Hagens Berman has filed a lawsuit alleging price-fixing by publishers. That doesn't make it an established fact. Hagens Berman doesn't appear to know jack about publishing. Maybe they're gambling that they'll find something sufficiently odd-looking during discovery to justify their fishing expedition, or just hoping that someone will pay them to go away.
From their site:
Hagens Berman has filed a nationwide class-action lawsuit claiming that Apple Inc. and five of the nation’s top publishers, including HarperCollins Publishers, Hachette Book Group, Macmillan Publishers, Penguin Group Inc. and Simon & Schuster Inc. illegally fix prices of electronic books, also known as e-books.
Malarkey. Those organizations pursue a wide variety of pricing strategies, and there's been no perceptible coordination in their various interactions with Amazon. What they're fighting over is the right to set their own prices on their own books. It's an extremely important point. The lion's share of a trade publisher's income is made on early sales of bestselling hardcovers. That profit pays for everything they do, including publishing all those other books by non-bestselling authors.
I noticed a while back, in one of your
murkier contributions to this discussion, that you compared conventional publishing to the music industry. That's a big error. I'll just point out three of their many differences:
1. The music industry coped with change and market pressures by limiting their lists to a relatively small number of established bestselling acts, plus an occasional new breakthrough act that appealed to the same audience. Book publishers have tended to publish any book that has enough appeal to some identifiable audience for it to be published without losing too much money. This tendency is one of the main reasons that trade book publishing is perennially a low-profit industry.
2. Just about everything a music publisher does for a record or an artist -- recording, post-production, packaging, advertising, promotion, touring, distribution, warehousing, accounting, you name it -- gets charged against the artists' royalties. In book publishing, everything the publisher does for the book or the author comes out of the publisher's share. That long list of goods and services is a big part of what initial hardcover bestseller income pays for.
How did the music industry come to such a pass? That's a complicated story. but a lot of it had to do with the next difference in the list.
3. The music industry let their product get used as a loss leader by general retailers. Trade publishing is doing their best to fight that.
You're probably confused by now, so here's an analogy: at the start of Christmas season, Wal-Mart announces that it will be selling a select list of hardcover bestsellers for ten bucks each. Say there's a non-B&N bookstore just down the road from a Wal-Mart. The bookstore carries a hundred times as many titles. They're in business all year. They provide all kinds of services for their customers. However, it's the profit they make during the Christmas season that keeps the bookstore afloat, and a big chunk of that profit comes from hardcover bestsellers bought as gifts.
Wal-Mart doesn't give a damn about books or readers. What they're doing isn't "pro-consumer pricing." They're trying to get the person who was planning to buy a few $27.95 hardcovers as Christmas presents to instead come to their store for those ten-buck bargains, because they know that a decent percentage of those shoppers will wind up making a bunch of other purchases as well. For Wal-Mart, it's just another holiday-season marketing device -- but it guts the local bookstore.
Trade publishing and bookselling is an immensely complicated set of interdependent businesses and arrangements that have grown up around the flow of a lot of information and rather less money. If you break some part of it, you don't get a changed version of an equally complex system. It collapses like an ecology, with much the same results: less life supported overall, far less diversity, degradation of habitat, loss of species, et cetera.
Why should you care? Because the highly specialized and diversified species it supports are authors and categories and books.
Back to Hagens Berman:
Filed in the U.S. District Court for the Northern District of California, the lawsuit alleges that the publishers and Apple colluded --
Collusion. Right. We're talking about the company that didn't get around to telling publishers until just a few weeks before it opened that it was going to be starting an ebookstore. Remember how ill-prepared some ebook editions were for a little while there? It was a mad scramble. Everyone's still catching up on basic issues.
-- to increase prices for popular e-book titles to boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing.
Wrong.
First, stop thinking of Amazon as a bookseller. That's just the line they started with, because it was easy and they didn't have to pay for any of their merchandise in advance.
Amazon wants to set a single low price for all books, including hot new hardcovers, because that would create a big incentive to buy a Kindle and thus get locked into that platform.
That is: publishers would do all the work and incur all the expense of developing authors and publishing their books, and then Amazon would sell them at prices way below market rate in order to promote the Kindle, because they want an effective monopoly on the ebook market.
If you want to talk about restraint of trade, ask Jim Macdonald what Amazon did to POD publishers a while back. It was obviously illegal, as the court ruled in the case of the only POD publisher that held out long enough to reach that point. The others had already folded, because Amazon shut out their books until they agreed to have their books manufactured by the inferior POD operation Amazon had recently acquired. POD publishers didn't have other sales outlets. They had to give in.
That's the short version. You should get the whole story.
The POD publishers weren't the only ones Amazon shut out. They pulled that stunt with all of Hachette's top books and authors in order to force Hachette to knuckle under, and I believe they did it with another publisher as well.
The point at which most people became aware of this conflict was when Amazon shut out every book by every Macmillan subsidiary, including Bedford, Freeman and Worth (W. H. Freeman, Bedford/St. Martin's, Worth), Farrar Straus Giroux (Faber & Faber), Henry Holt (Holt Paperbacks, Metropolitan, Times Books, Owl), Palgrave Macmillan, Picador, Roaring Brook (Neal Porter, First Second), St. Martin's Press, Tom Doherty Associates (Tor, Forge, Orb), the Nature Publishing Group, and I'm sure I'm missing a few. It was the same issue: Amazon demanded the right to set ruinously low prices on those publishers' books.
According to the suit, publishers believed that Amazon’s wildly popular Kindle e-reader device --
Sandru, I know you're still working on developing an ear for prose, but have you noticed that this reads like it was written by Amazon's PR department? Does that strike you as odd?
-- and the company’s discounted pricing for e-books would increase the adoption of e-books, and feared Amazon’s discounted pricing structure would permanently set consumer expectations for lower prices, even for other e-reader devices.
No. The publishers feared that Amazon would force them to sell their books for less than it cost to produce them, eventually driving them out of business.
(The cost of producing a bestseller is not the same thing as the cost of producing a copy of a bestseller. It includes all the costs of a system that publishes and sells books that aren't bestsellers, because the writers need a while to find their way, find their audience; and the readers need a while to get a sense of a writer, and sort out whether they like his or her books. Packaging and marketing needs a constant stream of books because it's the back-and-forth of that conversation between publisher and readers that enables a descriptive language to grow up that both sides understand. ### A recurring scene in publishing happens when some big diversified corporation acquires a publishing house. Their financial analysts go over the records and come back deeply puzzled. Most of the books lose money or just break even. The lion's share of the income comes from a relatively small number of bestsellers. The publishing house amiably agrees with that description. Then the beancounters ask the question they always ask: "Have you considered just publishing the bestsellers?" We find that funny because it's like asking whether you can't just grow apples, instead of wasting so much space and nutrients growing trunks, branches, leaves, and root systems. ### Actually, it is possible to just publish the bestsellers. The way you do it is by republishing someone else's bestsellers, and pretending that all those books cost the publisher was what it took to print, bind, and sell copies of them.)
You want to know the main reason I don't believe there was collusion? Because the big publishers acting together could have stopped Amazon cold, and they didn't. Amazon was going after them one at a time, as in the episode with Hachette. None of the publishers wanted to be the one to bell the cat. They knew they'd take significant sales losses during such a fight. Macmillan was the publisher that finally dug in its heels, told Amazon no, and took the fight public.
Not long after that, at a publishing conference in NYC, John Sargent (Macmillan's CEO) got a spontaneous standing ovation from the attendees. That's not collusion; that's a bunch of publishers that had all been in the same difficult position, applauding the head of the firm that took the hit.
The firm believes that Apple was involved in the scheme.
Hagens Berman credits Apple with far too much interest in and knowledge of book publishing.
I have to point out that at the time of this imaginary scheme, Apple wasn't obsessing about the Kindle., and it sure wasn't focused on the book publishing industry. It was in the middle of some of the biggest and most successful hardware rollouts in the history of computing.
The only thing more ridiculous than the idea that Steve Jobs was lying awake at night because he was worried by the Kindle is the idea that Jobs and the rest of Apple would put everything they've built into jeopardy by engaging in illegal collusion with a bunch of NYC publishers, and vice-versa. You can't keep a secret that that many people are in on. Besides, these aren't people that have a lot of history with each other. You don't engage in potentially criminal conspiracies with people you don't know.
The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like music and movies.
See above, in re Amazon's PR department. Apple is
so not worried about the Kindle doing that.
The complaint claims that the five publishing houses forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices.
Publishers have always set prices on their books. Amazon was trying to force them into a new and very disadvantageous model whereby Amazon runs no risks and incurs no development costs, yet somehow gets to set prices. Apple didn't have to collude. It just had to exist, so that Amazon was no longer the only game in town.
This would prevent retailers such as Amazon from offering lower prices on e-books.
This would prevent Amazon from scarfing up a short-term advantage while gutting the North American trade publishing industry.
Apple had already established such a model on its App store, taking 30 percent revenue on sales while the publishers receive 70 percent.
If Amazon defied the publishers and tried to sell e-books below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint details.
As opposed to the previous situation in which a publisher that didn't knuckle under to Amazon would find its books were no longer available for sale there. The long and the short of it is that Amazon now has competition, and has to negotiate just like any other business. The fact that Amazon hates having to negotiate is outside the scope of the U.S. legal system.
I've read the rest of the case. It's about as deep and strong as your average Kleenex.
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Sandru, you were going on a while back about being a lion rather than a sheep. Okay, fine, you're a lion. Now what are you going to do -- roar at your distributors? Gnaw on the keyboard while logged into BookScan? Attitude is not enough. Knowledge -- real knowledge, not Hagens Berman truthiness -- is pretty much a requirement.
