Welcome to the official blog of Maumee Valley Romance Writers of America! We're a local writers' group in the Toledo, Ohio area. Most of us write romance, but we also have members who write other genres too. New members are always welcome to visit or join the group. See the meetings page for details. We post every Monday and Friday about all things book-related. Whether you're a writer, reader, or both, we hope you'll stop by often and get to know our dozen contributors.

Sunday, April 15, 2012

The DoJ Settlement. What in hell does it all mean?

A few days ago, twitter went all explodey when the Department of Justice announced it's suit and subsequent settlement with the big 6 publishers involved. In a nutshell, the suit by the DoJ claims that publishers colluded with Apple to create a selling model that effectively and artificially raised the prices of ebooks and disabled retailers from setting their own prices. A separate, class-action suit brought by the DA's of 16 states, is suing for theses subsequent overcharges so that consumers can get refunded the excessive costs incurred since the agency model went into effect. So, what in hell does it all mean? Good question, and the answers are still murky and evolving, but here is what I've learned to this point from various sources.

  1. Only 3 of the six publishers are actually settling to this point. Penguin and Macmillan are proceeding to court to fight the DoJ's findings about colluding. Random House, which entered the agency model agreement after the first five, is not actually involved in the suit and is thus not covered by any such findings or settlements.
  2. The settlement states that the publishers (once things are finalized by a judge) will have 7 days to null any contracts pertaining to the agency model with any retailers. They will refrain from using such a model for a period of two years. They cannot enter into any subsequent agreements with anyone that uses the agency model as its basis. There are some fairly restrictive clauses in place to keep track of them and what they do.
  3. The other three publishers can continue to conduct business as they see fit or at least until such time that the suit goes through the courts and a decision is reached.
  4. Retailers also have a limitation put in place that only allows them to discount up to the point that they exceed the commission earned from any given publisher within a year. This basically means that a retailer such as Amazon can only discount a publisher's books up to the point of whatever money they made selling the given publisher's books for the given year. Amazon can no longer loss lead on any publisher's books. They can discount away all of their profits but no more than that.
  5. The three that settled, also settled with the class action suit, giving up 50 million dollars total. Over two years worth of books sold, I imagine this amounts to pennies on the dollar for consumers (but I've seen no numbers on this).
So, what does it all mean? Well, it's going to be rather confusing because the settlement only includes some and not all of the publishers. At some point, likely in 2-3 months, Amazon and other retailers will once again be able to discount some of their titles. For the given publishers, their new release ebooks will once again be at the $9.99 price or less. How this will play out with those publishers no involved currently in the settlement remains to be seen. They could fight against it or be forced to cave into the demand given that other publisher's books will be cheaper. Amusingly, publishers will make more money from this arrangement, as wholesale offers a greater profit margin than the agency model. Then again, the agency model never was about gaining profit, but forcing Amazon out of its competitive advantage and leveling the retail selling landscape to some degree. With the agency model going away, Amazon will once again have (to some degree at least) the ability to eat profits in order to cut into their competition, mainly Barnes and Noble.

In the end, who will win out? If things truly do swing back toward the wholesale model in general, Amazon will be the biggest winner. Readers will see some savings, but it won't be the cross the board discounts they remember from the pre-agency days. Barnes and Noble stands to lose the most. They are Amazon's biggest competition in the ebook market, and any advantage they can gain in order to drive them out and garner their market share will be jumped on. Publishers will lose out, even if they do gain more profit from the wholesale model. Pricing/value perception is a big deal to the publishing industry and Amazon's model works against this. In the big picture, lower value means lower prices and lower long-term revenue. This also means authors get less money. Amazon gaining market share also puts them in a more powerful position to dictate terms in the ebook market. This is an ongoing battle with publishers, and Amazon is ruthless and financially capable of milking this for all it's worth. Their goal is not so much to make money from and produce books, but to bring in a loyal customer base who will buy things (not just books). This puts them at odds with the publishing industry and always will, in my opinion.

So, in the end, a lot of this is a "wait and see" affair. Things will be changing from their current form, but the battle over pricing will continue into the near and distant future between Amazon and publishers. It's a battle over control of the ebook market and who gets to dictate terms. Publishers have a long way to go in this battle, as their short-sightedness and lack of innovation in this battle have put them on the losing side for years now. They will need to change how they do things. Self-publishing will continue to erode their author base and Amazon will continue to advance that venue as strongly as they can as a viable venue for writers. Hopefully, publishers will begin to see that they need to compete for authors as much as they do for readers. Amazon is co-opting the product base of the publishing industry. Until they can start offering authors terms of similar value, writers will continue to migrate toward doing it themselves, regardless of how much it increases their chances or not (this is a whole other post). If things fail on the publishing end or as I see it, Barnes and Noble gets knocked into oblivion by Amazon's pricing power and financial resources, maybe we'll see the DoJ turning toward Amazon in the future, because if things don't change in some significant way, the majority of writers and books sold are going to come via Amazon, and putting the book market all under one roof is never a good thing.


Em-Musing said...

Great info Jim. But I know what's going to happen...to me. By the time I get published, everything is going to change again, as it always does.

Shay Lacy said...

Jim: Thanks for trying to make clear what the suit is all about.

Jenna Rutland said...

Interesting times to be a writer and a reader! Thanks for the breakdown, Jim!