DOJ

Authors Guild Met With DoJ to Seek Investigation Into Amazon’s Practices

2 October 2014

From the Wall Street Journal (content may be behind a paywall):

The Authors Guild, the country’s largest advocacy group for writers, met with Justice Department officials in early August, people familiar with the matter said. The Guild, which has more than 8,500 members, raised concerns that Amazon is violating antitrust law as it puts pressure on Hachette Book Group in a dispute over revenue from e-books.

The meeting took place after the Authors Guild emailed Bill Baer, head of the antitrust division of the Justice Department, requesting that the department open an investigation into Amazon, one of the people said.

Meanwhile, Authors United, a separate group that counts more than 1,000 members, including some of the country’s most prominent writers, said it is readying a letter it intends to send to the Justice Department—also requesting an investigation into Amazon’s business practices.

The government has intervened in the e-book industry before.

In 2012, the government filed a civil antitrust lawsuit against five publishers and Apple Inc., accusing them of conspiring to raise digital-book prices. The five settled, paving the way for Amazon and other retailers to resume discounting e-books. Apple went to trial, was found liable in a civil case, and is appealing.

Sending a request to the Justice Department, however, may be a more sensitive matter to some members of Authors United. Mr. Preston, in an interview, said that a dozen or so writers have already contacted him requesting that their names not appear on a letter requesting DOJ intervention.

Read more over at the WSJ.

It’s worth noting that the WSJ pointed out that the DOJ has intervened in the ebook industry before, specifically the collusion case against Apple and the Fivetones. While the WSJ did manage to get the number of publishers correct, they failed to identify Hachette as one of the named defendants. That is surely an unfortunate oversight.

~ Dan

In E-Book War, the Independent Publishers Strike Back

4 July 2012

The Atlantic Monthly allows contributing writer and small-time publishing exec Peter Osnos to post a piece of self-congratulatory fiction masquerading as business news:
[I'll skip his first paragraph recapping the state of play in the DoJ lawsuit. It was the only non-fiction part of the piece. Also, I've highlighted a few key phrases]

Now, nine of the country’s leading independent publishers have taken a bold step, and deserve public recognition for their action. On June 25, they submitted a cogent, twenty-page comment to the court…  At first glance, this may seem like a complex legal dispute far outside the general concerns of most bookbuyers. But stay with me and hopefully you will appreciate why the publishers deserve credit, and why this contentious issue matters to readers.

At the core of the case is the role of Amazon, which has dominated the e-book market since its release of the Kindle in 2007 set off the enormous surge in digital reading. … The dispute is essentially over how e-book prices should be determined: by the retailer under the longstanding practice known as “wholesale” pricing, or by the publisher in the “agency” model, in which the bookseller takes a commission on each sale. The Department of Justice contends that the publishers colluded to satisfy Apple’s preference for agency pricing when the iPad was unveiled in 2010. Unexpectedly, the agency concept came to be seen as a way to expand opportunities for bookselling and to limit Amazon’s ability to undercut the prices of its competitors.

In their comment, the independent publishers asserted that, “in aggregate, according to market data published by Nielsen BookScan the independents accounted for approximately 49 percent of total trade book sales nationwide in 2011.” A significant portion of those sales were through Amazon, which is why their decision to challenge the settlement and incur the possible wrath of this retailing giant is courageous.

Using language that in legal terms is very strong, the publishers objected to the proposed settlement as lacking “adequate factual basis” and “contrary to the public interest.” The outcome of this case will have a profound impact on how books are sold in the digital era, but at least these nine publishers have made it clear where they stand: in favor of robust competition. And that is why they deserve our thanks.

You can read the entire article at The Atlantic.

Folks who are tired of all the back and forth over this lawsuit may want to skip this because I’m going to spill quite a few electrons rebutting this non-sense.

Here in the USA it’s Independence Day. This is my patriotic contribution to cleaning up our public discourse of that form of argumentation described in Harry Frankfurt’s seminal work, On Bullshit. The purpose of Mr. Osnos is clear. He wants to shape your thinking about the DoJ lawsuit by appealing to one of our primal myths.

We are treated to a classic formulation of the fearless little guy taking a brave stand against a powerful and mysterious force that threatens the well-being of the audience. We have the “bold step”, “incur the … wrath of this … giant”,  and “courageous”. Look at what our heroes “deserve”:  “recognition”, credit”,  and “our thanks”. This tightly constructed narrative is built out of a rather amazing amalgam of flotsam and jetsam Osnos has collected the shipwreck that is traditional publishing’s justification for collusive behavior.

Let’s dismantle this edifice piece by piece, remembering that the key to a properly constructed exemplar of this art form is the complete lack of regard for the truth value of any particular component. That lack of regard for truth means that it is pointless to wonder whether the author is aware of the truth or falseness of any particular claim he includes. Nor can we discern when omissions of pertinent facts are deliberate. A practitioner of this dark art doesn’t dabble in such niceties. All that matters is that each element contributes to the construction of his myth.

The foundation of this article is this falsehood: “At the core of the case is the role of Amazon”. The entire publishing industry is irrevocably committed to hiding behind the notion that Amazon is the bogeyman. Amazon is relevant to the DoJ lawsuit only in that Amazon was the target of the alleged colluders’ actions. Far from being the central actor, Amazon isn’t even the alleged victim. Read the lawsuit. The DoJ is alleging that bookbuyers were the victims. The Price-Fix Six aimed to take out Amazon by forcing you and me to pay more for ebooks. That’s the core of this case.

Resting atop the false claim about Amazon’s centrality, is this statement:

The dispute is essentially over how e-book prices should be determined: by the retailer under the longstanding practice known as “wholesale” pricing, or by the publisher in the “agency” model, in which the bookseller takes a commission on each sale.

Sadly, no. This is roughly equivalent to claiming that a lawsuit arising from one person stabbing another person with a butcher knife is about the proper use of butcher knives. That lawsuit would essentially be about the stabbing, not about the butcher knife.  And if there was a legal order barring the stabber from approaching the victim with butcher knife in hand, that wouldn’t amount to outlawing butcher knives. This lawsuit is about a group of wholesale producers with substantial  market power in conspiring with a new entrant into the retail marketplace to raise the retail prices of ebooks and end the ability of retailers to compete on the basis of price. Agency pricing was just the tool that was used to accomplish these ends.

What Osnos leaves out of his discussion of the settlement is the quite salient fact that agency pricing is not prohibited by the settlement. Mentioning that fact would be a bit problematic for the argument that “Unexpectedly, the agency concept came to be seen as a way to expand opportunities for bookselling and to limit Amazon’s ability to undercut the prices of its competitors.” It wasn’t the agency concept that limited Amazon’s ability to undercut prices. It was the illegal collusion.

And what about that “Unexpectedly” floating untethered from any syntactical anchor at the beginning of that sentence? Who didn’t expect the outcome of the collusion? The colluders certainly expected it. Steve Jobs is on video describing exactly what was about to happen to Walter Mossberg at the iPad launch. Immediately after the five publishers signed an agreement to force Amazon to raise the prices of bestselling ebooks, but before they had implemented the plan, there’s Steve Jobs laying out how they would accomplish it. Anyone who didn’t expect what was about to happen just wasn’t paying attention.

In the real world, Osnos works for a company that is, at most, an interested bystander in this case. In the myth that Osnos is spinning, his employer and the other eight publishers who banded together are transformed into protagonists, acting forcefully against the Amazonian menace. Here is his one original contribution to the publishing industry myth, the notion that this hardy band of smaller publishers have become central actors in this drama by adopting, in full, the Big Six argument that the true threat to competition in the ebook business is not the price-fixing actions of Apple and all of the Big Six except Random House, but Amazon’s use of bestsellers as loss leaders. The act at the core of this bit of myth-making is simply after-the-fact “yeah, what he said”.

So, what are we, the audience, supposed to do in response to this myth? We are supposed to applaud these publishers for the courageous act of filing of a public comment about the proposed settlement between the DoJ and the three publishers who had enough sense to know when to fold rather than going all in on a losing hand. Seriously? For filing a public comment? That’s what passes for action in the world of publishing.

And why are we to believe these publishers are so brave for doing pointless paperwork that will assuredly be ignored by the court because the filers ignored the central issues of the case? Because they might incur the possible wrath of Amazon. If Mr. Osnos wanted to sell me on the idea that Amazon is a ruthless business that will do anything for a buck, I would be willing to listen. But he’s selling the notion that Amazon is a petulant bully that will extract revenge on these publishers because they said unflattering things about Amazon. And his evidence is? Nothing. Crickets.

To briefly recap: I call B.S. on Mr. Osnos.

-Guest post by William Ockham, who is solely responsible for the content of this post. The opinions stated herein do not necessarily reflect the views of the proprietor of this blog or the other guest bloggers.

The Authors Guild Doesn’t Serve Writers

2 July 2012

Friend of the blog David Gaughran eviscerates the Authors Guild and its letter to the DoJ about the ebook price-fixing lawsuit:

It’s official: the Authors Guild has lost the plot. In their (seemingly endless) quest to smear Amazon, they don’t care who they wheel out as an injured party. Spoiler alert: it’s PublishAmerica. Yep, you read that right.

Unsurprisingly, the Authors Guild’s letter barely mentions the voluminous (actual) evidence that the Department of Justice have compiled in relation to the price-fixing allegations, but instead focuses on a company not named as a defendant in this case: Amazon.

How Amazon Captured 90% of the Market

From the AG’s letter:

It was precisely this practice – selling frontlist e-books at below cost to discourage and destroy competition – that helped Amazon capture a commanding 90% of the U.S. e-book market.

Completely untrue. When Amazon released the first Kindle in November 2007, there was no real e-book market to speak of. According to the American Association of Publishers, e-books were only responsible for 0.6% of trade book sales at the time. The market was tiny and Amazon’s only competition was a half-hearted offering from Sony, which was plagued with supply problems and limited title selection.

Amazon essentially created the e-book market in America. By the time Apple and Barnes & Noble had woken up to the fact that there was real money to be made in e-books, the market had grown by 600% (to 3.2% of all trade books sold) – with most of those new customers buying Kindles.

In short, Amazon got to (an estimated) 90% of the market because they were the only ones really playing the game, and the market was so small that a focused offering could make serious inroads.

The Authors Guild & PublishAmerica

The rest of the letter is just as bad, and I’m not going to waste time going through it all. …

Instead, I want to focus on one particular section – the Authors Guild’s summary of the tactics Amazon used to establish CreateSpace (formerly known as BookSurge, who Amazon purchased in 2005).

Quoting from the original letter:

More importantly and profitably to Amazon, by forcing iUniverse and other author centered on-demand service providers to use BookSurge, Amazon severely constrained effective competition for its own author centered on-demand service provider, which became known as CreateSpace in 2009. Amazon’s vertical integration of on-demand printing eliminated the ability of iUniverse, PublishAmerica, XLibris and others to offer authors better royalties when selling through Amazon. CreateSpace appears to have thrived ever since.[Emphasis mine]

The first time I read that, I was in shock. The Authors Guild are so desperate to tar Amazon that they are willing to roll out PublishAmerica as a victim. And the more I think about it, the more mad I get. Really? PublishAmerica? Are you serious?

For those unaware of the checkered history of PublishAmerica, a quick summary:

1. They are one of only two organizations to earn the dubious honor of having their own sub-forum on Absolute Write’s Bewares & Background Checks (the other being Robert Fletcher’s infamous web of companies).

2. Preditors and Editors have a lengthy entry warning writers away.

3. The Better Business Bureau rates PublishAmerica as an “F”.

4. The leading industry watchdog – Writer Beware – regularly cover PublishAmerica’s various attempts to squeeze money out of their writers (e.g. here, here, here, here, here, and here – and that’s just the tip of the iceberg).

5. PublishAmerica are now the subject of a class-action suit, the allegations being very familiar to anyone who has followed the company (full complaint can be read here).

In short, PublishAmerica is probably the last place I would recommend to a writer.

However, the Authors Guild feels that PublishAmerica’s rights have been trampled upon. If Amazon hadn’t been such a bully, PublishAmerica could have gained more customers. Will Amazon stop at nothing in their evil quest to take over the world?

The Authors Guild should be ashamed of themselves.

There is much more in David’s post on his blog: The Authors Guild Doesn’t Serve Writers. In particular, I clipped David’s excellent summary of the events leading up to this latest nonsense from the Authors Guild and his exposé of the cozy relationship between the Guild and iUniverse, both of which are essential background for fully appreciating the game the Guild is playing.

I want to call attention to David’s point about how Amazon achieved its position in the ebook industry because the publishing industry and its sycophants continually try to elide that bit of knowledge from the history. And, of course, David has done yeoman’s work in rounding up the links necessary to get a feel for the nature of PublishAmerica, the victim in the Guild’s alternate reality.

-Guest post by William Ockham

Auletta’s New Yorker piece is good orientation for thinking about the DoJ case

30 June 2012

From Mike Shatzkn:

Writing about the lawsuit the DoJ has instituted against Apple and five leading publishers is very hard.

I just know the industry. And I know the arguments for “collusion” or “conspiracy” are mostly built on illogic or misunderstanding of what is called “evidence”.

The June 25, 2012 issue of The New Yorker has an article by Ken Auletta called “Paper Trail” which is a sympathetic synthesis that untangles and clarifies a complex web of law and behavior.

3. A lot has been made of the fact that Apple has required the publishers to let them price-match. Now we know that Apple drove the deal. They said to the publishers, “we’ll let you set the price. as long as you don’t make us look like monkeys in relation to the print book price. But, of course, you can’t require us to sell at a price disadvantage, so you have to allow us to match any lower price.” How could Apple, or anybody else, do it any other way unless they were fools? They couldn’t allow themselves to be locked into a price that made them look extortionate to the consumer. They were proposing the terms on which they’d provide their proprietary access to their devices. Isn’t this a reasonable demand?

If the law prohibits this, please change the law.

You can read the rest of Mike Shatzkin’s post at Auletta’s New Yorker piece is good orientation for thinking about the DoJ case . There is a lot more in the post, but I want to focus on the point about the agreement between Apple and the five publishers. I agree that writing about this case is hard, especially for folks, like me, who aren’t lawyers. I encourage everyone to read the whole post and not just the part I’ve excerpted above so that you have a better context for what I’m going to comment on. Unfortunately, the Auletta article that Mike Shatzkin is reacting to is behind a paywall and I haven’t read it.

The best way to untangle this case is to focus on the undisputed facts. Here’s my list:

  1. The agreements between Apple and the publishers stipulated that the publishers would set the retail price of ebooks.
  2. The agreements stipulated that the publishers would ensure that no other ebook retailer would be able to undercut the prices in the iBookstore.
  3. Apple insisted that the agreements would only go into effect if a group of publishers with control of a substantial portion of the ebook market (i.e. 4 of the Big 6) signed up.
  4. The agreements stipulated that the maximum price of an ebook would be substantially lower than the retail hardback book price of the same title and that ebooks would be made available at the same time as the hardback editions (i.e. no windowing).
  5. Apple is not a retailer of hardback books.
  6. After these agreements were executed, the 5 publishers who signed up with Apple forced Amazon and Barnes & Noble to raise the retail price of virtually all of those publishers’ bestselling ebooks by $2 or more per  copy.
  7. Since these agreements were signed, retail price competition among  ebooks from major publishers has almost completely disappeared. The publishers have set the prices for their ebooks at exactly the maximum prices allowed under their agreements with Apple.
  8. It is settled law that in a price-fixing case, the DoJ does NOT have to prove that a specific agreement to raise prices existed. Circumstantial evidence is enough to establish culpability. Certain patterns of behavior that are perfectly legal under normal circumstances become evidence of collusion when a group of competitors have just simultaneously raised retail prices.
  9. Price-fixing is a “per se” violation of antitrust laws. That means that price-fixing can’t be justified as a response to unfair competition.

You can verify that items 1-4 are true by comparing what the DoJ says about the agreements with what Apple says in its response. The two opposing accounts agree on those points. Item 5 is an often-overlooked aspect of the case. I will explain why it is important below. As far as I know, no one disputes items 6 or 7. Please post evidence to the contrary in the comments. You verify items 8 and 9 by reading the DoJ’s primer on price-fixing. That page has an obvious prosecutorial slant, but it covers those two points reasonably well. As with any fact about the law, there are many potential caveats  and settled law can become unsettled in a high-profile case.

It isn’t hard to see, just from looking at my short list of facts, why the DoJ brought the suit. What Apple and the five publishers did looks like price-fixing. That’s not to say that the case is a slam dunk or that there is no possibility that the defendants can win, but those defendants certainly should have anticipated this lawsuit.

Contra Mike Shatzkin, the arguments for collusion and conspiracy aren’t built on illogic or a misunderstanding of evidence. The arguments for collusion and conspiracy are built on the clear evidence in the public record. This entire case against the publishers really boils down to a very simple proposition. As a general rule, a group of wholesale producers with substantial market power can’t enter into agreements that fix retail prices for their goods at levels above those in the open market. The publishers have to prove they are somehow an exception to that general rule.

The case against Apple is slightly different. As the DoJ points out, Apple was able to negotiate total protection against having to compete on price in the ebook retail marketplace. That’s amazing for a new and unproven entrant in the market. But that’s not all. Apple persuaded the publishers to forgo windowing and to guarantee that ebook retail pricing would be substantially less than the equivalent list retail hardback book price. Apple ensured that it would have access to the most sought after books, as early as possible  with the assurance that no other retailer would be able to offer them for lower prices.

In mass market entertainment, the key to success is extract the highest possible retail price from the people who want it “now”. Think about why ticket prices for first run movies are so much higher than the prices for dollar movies. Or take a look at pricing for computer games. Why do people pay more for hardback bestsellers than for they do for the same book when it comes out in a mass market paperback? Spoiler alert: It’s not the binding. People are willing to pay a premium for the earliest possible access to the latest [insert any bankable mass market franchise here].

Apple’s demands were the opposite of reasonable. Under normal competitive conditions, those demands would be laughable from any new entrant to the market. Given that Apple had already taken a dominant position in the distribution of mass market digital music to the detriment of the music producers, you really have to ask why the five of the largest producers of ebooks would  agree to protect Apple from the normal workings of the marketplace. The answer to that question is that Apple enabled to the publishers to tie the retail price of ebooks to the retail price of hardback books.

Of course, under Apple’s scheme, the retail price for ebooks was going to be rigidly enforced, but the list retail price for a hardback book is meaningful only in that it determines the wholesale price of the book. The pricing scheme that Apple and the publishers worked out effectively guaranteed not only that no retailer could undercut Apple’s prices in ebooks, but also that the wholesale price of the hardback version of a book would be roughly equal to (for bestsellers) or  greater than (for all other new releases) the retail price of ebook.

Apple, not being a retailer of hardback books, didn’t really care about the actual retail prices of hardback books, but their publisher conspirators did. The deal allowed them to drastically narrow the difference in price between actual retail price of hardback books and the retail price of ebooks, especially for bestsellers. Publishing and distributing hardback versions of the most desirable books is THE reason that the Big Six are the Big Six. Only the Big Six can put that new bestseller everywhere all at once. The more people who switch to ebooks, the less necessary the Big Six become.

This matters a lot more than people realize. I’ll take the latest Grisham book as an example. Amazon’s price for the hardback is $16.47. Let’s assume that price is the same with or without the pricing scheme imposed by Apple and its partners. Yes, I know that Grisham is published by Random House and Random House wasn’t sued because they went to the scheme independently, but they did eventually start using “standard pricing”. Amazon would like to price the ebook at $9.99, but the publisher sets the price at $12.99.  That may not sound like much, but this difference is the difference between the survival of the Big Six or their demise.

The market for books is driven by people who buy lots of books. According to the most recent Pew poll, 78% of Americans over 16 years of age report having read a book in the last year. Of the people who have read at least one book, the median number of books read is 8, but the mean number of books read is 17. The same poll reveals the expected fact that the more books you read, the more likely you are to read ebooks and have bought a dedicated ereader. By raising the price of ebook bestsellers so that the price differential from hardbacks is only half as much means that the number of books you have to buy before you recoup the costs of an ereader is doubled. The hope of the publishers was that this was enough to make the move to ebooks uneconomical for enough people that the necessary critical mass of hardback buyers would be maintained.

The publishers who signed on to the Apple deal weren’t greedy. They were desperate. They could run these numbers with much better data than I can. But I can extrapolate from the public data well enough to know that they were facing a bleak reality. A wide spread between the ebook and hardback versions of a bestseller was a mortal threat. The moment when bestselling authors didn’t need to be in hardback to maximize their earnings was the moment the Big Six would be doomed. That’s what drove them to embark on a course that they had to have known would result in a lawsuit from the DoJ.

 

-William Ockham

DoJ Deal Will Lead to the ‘Systematic Elimination of Competition’

28 June 2012

From Publishers Weekly:

Readerlink has sent its own letter to the Department of Justice giving a wholesaler’s perspective on the proposed agreement with HarperCollins, Hachette and Simon & Schuster. According to Readerlink, the settlement, by encouraging a return to predatory pricing, “sets the stage for the systematic elimination of competition by Amazon.”

Readerlink… distributes print books to over 24,000 retailers, including most of the major mass merchandisers and warehouse clubs. Before the agency model was introduced, Amazon’s practice of selling e-books below cost both discouraged retailers from carry print books and from entering the e-book market themselves, Readerlink said. Due to the vast difference in price between print books and e-books, many of Readerlink’s retail partners reduced or ceased offering print books in their stores, a move that reduced consumers’ access to books, particularly among readers who can’t afford digital reading devices. ….

In taking issue with the government’s contention that the agency model led to an increase in all e-book prices, Readerlink maintained that the only prices that actually rose were those on bestsellers that had been “artificially” lowered by Amazon’s below-cost pricing.

The approval of the settlement, Readerlink argued, will “lead to the death of many print book sellers who provide the only way to buy books for an abundance of the American book-consuming public.” If the government protects Amazon’s ability to engage in predatory pricing it will “eliminate less financially strong or diversified competitors,and kill off the only other option for the reading public, the retail sale of print books in brick-and-mortar retail stores. And, then, there will be none; no more competition and on other options.” ….

 

Please link to the full story at Publishers Weekly 

If you’re not familiar with Readerlink, click here to learn more about who they are.

 

~contributed by guest blogger Kat Sheridan