Macmillan CEO vows no surrender to the Department of Justice
From Paid Content:
Macmillan CEO John Sargent sent a letter to authors and agents on Wednesday afternoon, saying that the publisher does not plan to follow Penguin’s lead and settle with the Department of Justice in the ebooks lawsuit. But, Sargent said, Macmillan voluntarily entered new retailer contracts that conform with many of the requirements in the DOJ’s settlement.
Macmillan is the smallest of the big-six publishers, and the only one that is wholly privately owned. Sargent says there are two reasons Macmillan is not settling: “First, it is hard to settle when you have done nothing wrong. Much as the lawyers explain to me that settling is completely standard business procedure, it still seems fundamentally flawed to me somehow.” More importantly, he writes:
Since the very beginning, the government’s demands have never wavered in all our discussions. They still insist on the two year discounting regime that forms the heart of the agreement signed by the three settling publishers. It was our belief that Amazon would use that entire discount for the two years. That would mean that retailers who felt they needed to match prices with Amazon would have no revenue from ebooks from five of the big publishers (and possibly the sixth) for two years. Not no profit, no revenue. For two years. We felt that few retailers could survive this or would choose to survive this.
Nevertheless, Macmillan has entered new contracts with most ebook retailers “except one whose term was not up yet” (he does not specify which one). Sargent explains the new terms: “All the new contracts are compliant with the government’s requests in their complaint. They contain no most-favored nations clauses and no price limits.”
. . . .
Despite these measures, the lawsuit continues. “The legal bills look like the unit sales numbers for 50 Shades of Grey,” Sargent writes.
Link to the rest at Paid Content
Apparently Mr. Sargent wasn’t listening to his lawyers when they explained basic antitrust law. As the trial judge has commented in her rulings, the DOJ complaint isn’t out on the fringes of price-fixing litigation.
The Price-Fix Six stepped in exactly the same cow pie that generations of business managers and owners have when they get together and plan to control prices in order to maintain profit margins and enjoy a quiet life free from nasty price competition. The lack of sophistication and subtlety in their conspiracy was breathtaking.
The only unique aspect of the whole affair was that the illegal meetings were held in an expensive French restaurant. PG doesn’t remember another price-fixing plot that has included this particular feature.
In Passive Guy’s consistently humble opinion, the terms required by to DOJ for settlement are pretty tame for the nature and magnitude of the price-fixing conspiracy. If Macmillan goes to trial, he wouldn’t be surprised if the court didn’t impose more severe penalties.
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It is impressive that the feds gave them such a sweetheart deal and even put limits on retailers to get them to settle and MacMillian still won’t settle.
Does he really think he can get a better deal?
I dunno, but I suspect he is just killing time until his golden parachute vests…
“If Macmillan goes to trial, he wouldn’t be surprised if the court didn’t impose more severe penalties.”
P.G.
Va Bene.
I always used to love a defendant who would argue the justice or principle of the thing. Forget the facts, blather all you want about the principle and the injustice, that will leave me all the time I need to focus on the circumstances.
The fancy restaurant, where the no revenue conspirators did the foul deed…..in secret.
What a lot of Rowlocks, I’m sure the DOJ lawyers are rubbing their hands with glee.
brendan
Many of the younger DOJ lawyers are in their positions to gain experience before they move into the antitrust department of a private law firm.
Doing trial preparation and actually being a part of a team that takes an antitrust case to trial is a great résumé booster.
And he still wants to continue…?
And despite those legal bills, and the fact that all of the other publishers have lost or settled, he intends to fight on. Shrewd.
Added to which… if you’re one of 5 publishers accused jointly of the exact same violation based on the exact same evidence, and the other four all settle out of court… Well, I’m no bookie, but I’d say that certainly doesn’t look at all promising for the odds, in terms of proving in court that YOU are the one house here which did “nothing wrong.” Unless MacMillan has a stunning plot-reversal concealed about its person, going to court is coming across as a willfully bad business decision.
Evidently he thinks he’s the only smart one of the five CEO’s.
True, price fixing meetings are usually held in hotel meeting rooms (or ballrooms for the really big conspiracies).
Here’s a hidden camera look at the ADM Lysine price-fixing meeting:
http://www.youtube.com/watch?v=wDH0Rv8R0SQ
I hadn’t seen that video, William. Love it.
This CEO wont even see the DOJ fireing squad coming as he has a blindfold on already.
I don’t usually suggest that people should be fired, but Holtzbrinck needs to get rid of John Sargent. I read the letter and any CEO who lets a letter like that go out under his name is beyond incompetent. He puts the DoJ lawsuit at the center of the letter and then completely undermines both of his stated reasons for not settling. He claims “it is hard to settle when you have done nothing wrong”, but later explains away the EU settlement with “will not materially affect the market there for us”. If this was really about a matter of principle, they wouldn’t have settled with the EU.
According to Sargent’s letter, the “more important reason” for not settling is Macmillan’s belief that Amazon would sell ebooks from the big publishers at cost for two years to drive other retailers out of business.
Think about that for a minute. Either he’s right or he’s wrong. Evidence cited in Sargent’s own letter suggests he’s completely wrong, but if you are sitting in the Holtzbrinck Publishing Group executive suite in Stuttgart, you have to game it out either way.
First, assume he’s right about Amazon’s intent. Macmillan is the smallest of the big publishers in the U.S. While they are fighting this suit, every other publisher (including Random House now) is going to be covered by the terms of the settlement. That means Amazon is going to be setting prices for all the other big ebooks and your products are going to be absurdly overpriced. You remember what happened when Sargent picked this fight with Amazon the first time. They removed the buy buttons. What if they decide to stop selling your print books, too?
If Sargent is correct in his analysis of Amazon’s intentions, the smart thing to do is settle. But what if he’s wrong? Then, you are fighting this battle to what end? If you win the lawsuit, it will be about the same time the settlement restrictions end. Guess who benefits the most from your win? Random House Penguin. Losing means you will be under onerous terms just as the other publishers are getting out from under them.
There is no scenario in which a rational decision-maker at Macmillan continues this suit. This is now about Sargent’s ego. He will end up running Macmillan into the ground if he isn’t stopped. That can’t be good for Holtzbrinck.
William,
I couldnt agree more. I suspect someone is looking for a back door to shove him out of at the moment.
The only question, and its a big one, is who do they put in his seat? It would have to be someone willing to take a big risk as they will be inheriting a mess that few would clasify as fixable. Either way, I suspect the position will be short term with an option, and very well compensated.
Or will they suddenly merge with someone? That Flatiron building is some nice real estate you know.
I would expect that any merger partner would require that the DOJ suit be settled prior to the completion of the merger.
See Penguin’s settlement as part of its merger with Random House.
I don’t get, but maybe I’m missing something. Doesn’t he say they already changed their contracts to meet the demands of the DOJ? So why is it necessary to continue the lawsuit, and pay millions more in attorneys fees? Just plain idiotic.
His claim that their current contracts are compliant with the government’s requests in the lawsuit are just nonsense. The lawsuit was brought because they colluded with their competitors to fix prices. Unless he has a time travel machine, he can’t undo that with new contracts.
The new contracts are still fixed priced contracts (at the higher conspiracy level): all the did was raise price 10% and let retailers discount that 10% or keep it as a bribe.
One more time, Mr Sargent: the lawsuit is about a conspiracy to *raise* prices. So raising prices some more is *not* DOJ-compliant.
None of this surprises me in the slightest. I watched a lot of Bewitched reruns as a kid, and I always thought Darrin was an incompetent boob. In fact—
What’s that you say? That was Dick Sargent? Oh. I always have trouble telling these Sargents apart.
Never mind, then.
But I will say this: Macmillan seems to have thrown away every other defence and pinned its hopes on ‘wait for a cute blonde witch to come along and wiggle her magic nose’. That trick never works.
Good for him. I was afraid this would all drift away without turning into a circus. And now we even have a ringmaster. Let the show begin…
Ringmaster or clown?
a clown, definitely a clown.