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Doug_Pardee
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DOJ antitrust head okay with agency model

The Wall Street Journal reports today that Sharis Pozen, head of the US Department of Justice's antitrust operation, doesn't seem to have a problem with the Agency Model per se: "We don't pick business models—that's not our job." DoJ's concern is strictly about the process that introduced the agency model: whether there was collusion or not.

 

Pozen is a "lame-duck" — she's stepping down from her position next month. Whether her eventual replacement will feel any differently remains to be seen... including who her eventual replacement will be.

 

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gb18
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Re: DOJ antitrust head okay with agency model

"But Ms. Pozen says the practice clearly violated antitrust law."   By THOMAS CATAN

WASHINGTON—The Justice Department's top antitrust official says she won't stand by quietly if companies make agreements with rivals on price, signaling a stern stance as the department conducts a high-profile probe into electronic-book publishing.

The Justice Department's top antitrust official won't stand by quietly if companies make agreements with rivals on price, signaling a stern stance as the department conducts a high-profile probe into electronic-book publishing. Thomas Catan reports on digits. Photo: Getty Images.

Without mentioning Apple Inc. or the five publishers that are the target of the investigation, Sharis Pozen says she won't hesitate to act against "collusive behavior at the highest levels of companies."

"Competitors can't join together and make agreements on price," she says in an interview. "We're going to stop that."

Ms. Pozen's pointed comments come as she prepares to step down as acting antitrust chief next month. The White House has nominated William Baer for the post, but it isn't clear if he will be confirmed by Congress before the presidential election in November.

The Justice Department is on an antitrust winning streak. It successfully blocked AT&TInc.'s proposed $39 billion acquisition of T-Mobile USA late last year and prevailed against H&R Block Inc. in a proposed merger of tax preparers in the department's first successful antitrust trial in eight years. Also, Nasdaq OMX Group Inc. abandoned its bid to buy rival stock exchange NYSE Euronext after the Justice Department threatened to block it.

A Matter of Trust

Some recent Justice Department antitrust matters:

E-books: Talks under way on possible case against Apple and publishers over pricing

AT&T: Dropped purchase of T-Mobile last year under government challenge

H&R Block: Government won trial last year, blocking merger with TaxAct

Poaching: Government in 2010 reached settlement barring companies from agreeing not to poach workers

American Express: Trial set for this year on whether company prevents retailers from offering discounts to customers using less-expensive rival cards

Now Apple and the five publishers are in the cross hairs. The Justice Department has warned that it intends to sue them for allegedly colluding over e-book prices. Several of the parties are seeking to reach a settlement to avert a trial.

The case centers on a change in how publishers charged for e-books as Apple prepared to introduce the iPad tablet computer in early 2010. Previously, publishers sold e-books in the same way as physical ones: charging booksellers roughly half the cover price and allowing the booksellers to decide the retail price.

Apple offered publishers the chance to change from that "wholesale" sales model to "agency pricing," in which the publishers would set the retail price and Apple would take a 30% cut. Apple also insisted that the publishers not sell to other electronic bookstores more cheaply. The publishers then imposed the same terms on industry leaderAmazon.com Inc. The result was that many of the discounted titles that readers had grown used to disappeared almost overnight.

Bloomberg News

AT&T's Randall Stephenson, left, and Deutsche Telekom's René Obermann testified on competition last year.

Publishers argue that the agency model promotes competition by allowing more booksellers to thrive. They say Amazon had sold e-books below cost and that agency pricing saved book publishers from the fate suffered by record companies.

But the Justice Department believes it has a strong case that Apple and the five publishers colluded to raise the price of e-books, people familiar with the matter say.

Apple and the publishers deny that.

The Justice Department isn't taking aim at agency pricing itself. The department objects to, people familiar with the case say, coordination among companies that simultaneously decided to change their pricing policies.

"We don't pick business models—that's not our job," Ms. Pozen says, without mentioning the case explicitly. "But when you see collusive behavior at the highest levels of companies, you know something's wrong. And you've got to do something about it."

A 48-year-old Missouri native, Ms. Pozen was one of the first political appointees to take office in the Antitrust Division after President Barack Obama was elected in 2008. She was chief of staff under Christine Varney and became acting head of the division when Ms. Varney stepped down as its head last August.

One of Ms. Pozen's first decisions as acting chief was to file suit against AT&T's proposed purchase of T-Mobile USA from Deutsche Telekom AG. AT&T lobbied heavily but ultimately abandoned the acquisition.

To isolate herself from any political pressure over the deal, Ms. Pozen says, she took herself out of the running to be the permanent antitrust chief. "There were a lot of politics swarming around" the deal in Washington, she recalls.

Ms. Pozen has long specialized in the tech industry. Early in her career, she and Ms. Varney represented Netscape Communications Inc. in its antitrust suit against MicrosoftCorp.

Yet some people in Silicon Valley criticize the Justice Department for failing to appreciate the collaborative and freewheeling way business is done in the tech sector.

"For the U.S. government to impose its discipline on the market through antitrust policy would not only be misguided, it could very well make one of America's leading industries one of the world's laggards," James Miller, a former official under President Ronald Reagan who is advising Google Inc. on antitrust matters, said at a conference recently.

Ms. Pozen says the line is usually clear between what is legal and what isn't. "To actually have collaboration in legitimate ventures, all those great things that lead to innovation—there's no doubt that you can do that," she says. But "there are lines that are crossed and that's where we get involved."

She points to a settlement that the Justice Department reached in 2010 with Apple and several other high-tech companies that barred them from agreeing not to poach each other's employees. At the time, many companies in Silicon Valley said allegations about the practice were overblown and that the arrangement merely was an example of the sector's style of "co-opetition," in which companies can be friends as well as rivals.

But Ms. Pozen says the practice clearly violated antitrust law. "The idea that they sat around and made this agreement and said, 'We won't poach each other's employees,' it's per se illegal," she says. "And we challenged it, and we landed it, and they shouldn't do that again."

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Doug_Pardee
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Re: DOJ antitrust head okay with agency model

[ Edited ]

gb18 wrote:

 

"But Ms. Pozen says the practice clearly violated antitrust law."


It should be noted that the above quote has nothing to do with e-books. It involved a practice where some Silicon Valley tech companies got together and agreed not to hire each others' active employees.

 

It's important to understand that there are a number of factors involved in the e-book pricing situation, and only a couple of them are likely to come under scrutiny.

  1. The Agency Model itself. While Ms. Pozen will have left the DoJ before the investigation gets seriously going, she's indicated that she doesn't have a problem with it (hence the original posting in this thread. Regardless of the outcome of the DoJ investigation, we'll probably still have the Agency Model.
  2. Price increases. Taking action designed to raise prices is not, in itself, anti-competitive.
  3. Most Favored Nation agreements. I expect these will come under scrutiny, but they've generally been permitted in the past.
  4. How Apple and the five publishers came to their agreements. This is the big question the DoJ is looking into. Was there collusion between the publishers, possibly indirectly via Apple, or did each publisher individually come to an agreement with Apple? Note: publishers necessarily have to negotiate an agreement with Apple; what's forbidden is for the publishers to agree with each other. It's usually pretty hard to prove collusion, and there have only been a handful of collusion convictions in recent years. But this is what the DoJ is going after.
  5. Apple dictating prices to publishers. I'm shocked that this hasn't been mentioned as part of the investigation. Apple has a pricing sheet for Smashwords author/publishers, telling them what prices they can charge for their e-books. Given the Most Favored Nation clauses, that means that Apple, not the publisher, is determining how much the e-book sells for at Amazon and B&N. There are indications but no proof (that I've seen) that Apple is enforcing the same pricing structure on the other Agency Model publishers. If that's true — and proving that should be trivial because it'd be part of the contracts — Apple could be in big jeopardy.

My main point, though, is that the Agency Model is probably here to stay, regardless of the DoJ investigation. About the most that's likely to happen is that the DoJ fines the publishers ... and the publishers raise the prices of their e-books to recover the costs of the fines.

 

DoJ might fine Apple, and they'll pay the fine with some money they found under the sofa cushions.

 

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gb18
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Re: DOJ antitrust head okay with agency model

The piece I posted is (I'm pretty sure) the same one you were referring to.

 

http://online.wsj.com/article/SB10001424052702304177104577303821789427382.html?KEYWORDS=THOMAS+CATAN

 

 I am not an attorney, but I certainly interpret it differently.  You're right, though, that she is leaving office.  So her opinion(s) are all moot points.

 

However, the agency model's ridiculous pricing scheme has a short life.  Even Harry Potter is casting spells......

 

http://www.huffingtonpost.com/2012/03/27/pottermore_n_1383696.html

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keriflur
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Re: DOJ antitrust head okay with agency model


Doug_Pardee wrote:
Apple dictating prices to publishers. I'm shocked that this hasn't been mentioned as part of the investigation. Apple has a pricing sheet for Smashwords author/publishers, telling them what prices they can charge for their e-books. Given the Most Favored Nation clauses, that means that Apple, not the publisher, is determining how much the e-book sells for at Amazon and B&N. There are indications but no proof (that I've seen) that Apple is enforcing the same pricing structure on the other Agency Model publishers. If that's true — and proving that should be trivial because it'd be part of the contracts — Apple could be in big jeopardy.


This is interesting.  I didn't know they had that for Smashwords.  That's pretty shady, IMO, whether it's just for Smashwords (one pub should not be treated differently from other pubs) or for everyone (this would be price fixing under my personal definition, regardless of legal findings).

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keriflur
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Re: DOJ antitrust head okay with agency model


gb18 wrote:
However, the agency model's ridiculous pricing scheme has a short life.  Even Harry Potter is casting spells......

 

http://www.huffingtonpost.com/2012/03/27/pottermore_n_1383696.html


I'm not sure I agree with the conclusions this article comes to (I don't think the major publishers are going to dump DRM just because Rowling did), but I did find the comments entertaining. :smileyhappy:

 

From the article:

 

Andi Sporkin, a spokeswoman for the Association of American Publishers, says DRM "has value," enabling things like library lending of e-books (without DRM, there's no way to "return" an e-book). Going the route of the music industry and going DRM-free hasn't really been discussed in the publishing industry yet, she says.

 

So... just use DRM for library books.  That's simple enough, right?  If her plan is to argue that all books should have DRM because the library needs it for returns, then she's not got much of an argument.

Doug_Pardee
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Re: DOJ antitrust head okay with agency model


keriflur wrote:

 

I'm not sure I agree with the conclusions this article comes to (I don't think the major publishers are going to dump DRM just because Rowling did), but I did find the comments entertaining. :smileyhappy:


It might be noted that Rowling has not "dumped" DRM. E-books delivered through Amazon and B&N carry the native DRM for those booksellers. E-books downloaded directly from Pottermore contain "social" DRM from Booxtream - the identification of the purchaser is scattered throughout the e-book so that if it ends up on a pirate site/stream, the pirate can be identified and sued.

 

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keriflur
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Re: DOJ antitrust head okay with agency model


Doug_Pardee wrote:

keriflur wrote:

 

I'm not sure I agree with the conclusions this article comes to (I don't think the major publishers are going to dump DRM just because Rowling did), but I did find the comments entertaining. :smileyhappy:


It might be noted that Rowling has not "dumped" DRM. E-books delivered through Amazon and B&N carry the native DRM for those booksellers. E-books downloaded directly from Pottermore contain "social" DRM from Booxtream - the identification of the purchaser is scattered throughout the e-book so that if it ends up on a pirate site/stream, the pirate can be identified and sued.

 


Not to be confused with "social" DRM from B&N, LOL.

Doug_Pardee
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Apple's e-book pricing demands on publishers


keriflur wrote:

 

I didn't know they had that for Smashwords.


The pricing requirements are called out here: https://www.smashwords.com/about/optinTOS/apple

 

In a nutshell:

  • If there is no printed version of the book, there is no price restriction.
  • If the book is available in hardcover but not paperback, price restrictions may apply depending on the price of the hardcover. If the hardcover costs more than $40, there is no pricing restriction. If it costs less than $22, the maximum e-book price is $9.99. In between $22 and $40, there are a set of maximum-price tiers that are approximately half of the hardcover price.
  • If the book is available in paperback and the paperback costs $22 or more, there is no price restriction. Otherwise, if it's been out for less than a year in paperback, the maximum price of the e-book is $9.99. For e-books of older paperbacks, the only restriction is that Apple not consider the price to be "unreasonable."

An article from TeleRead, based on an article from Publishers Lunch shortly after Agency Model went into effect, said, "Apple has insisted on its maximum pricing tiers but has not restricted publishers beyond that." I've seen other similarly-inconclusive comments that suggest that Apple has indeed imposed these same pricing requirements on the big publishers.

 

Note: under this structure, the maximum Agency price for an e-book of a $25.99 hardcover is $12.99. For a $27.99 hardcover, it's $14.99. Have you noticed that hardcover prices from the Big 6 publishers have slipped upward a couple of dollars over the past couple of years? I wonder why...

 

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gb18
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Re: Apple's e-book pricing demands on publishers

The piece below addresses a "new normal" for publishers:  

"Revenues are roughly flat, but profits are up—in large part due to e-books."

 

 

http://paidcontent.org/article/419-thanks-to-e-books-book-publishers-find-flat-is-the-new-up/

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keriflur
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Re: Apple's e-book pricing demands on publishers


Doug_Pardee wrote:

keriflur wrote:

 

I didn't know they had that for Smashwords.


The pricing requirements are called out here: https://www.smashwords.com/about/optinTOS/apple

 

In a nutshell:

  • If there is no printed version of the book, there is no price restriction.
  • If the book is available in hardcover but not paperback, price restrictions may apply depending on the price of the hardcover. If the hardcover costs more than $40, there is no pricing restriction. If it costs less than $22, the maximum e-book price is $9.99. In between $22 and $40, there are a set of maximum-price tiers that are approximately half of the hardcover price.
  • If the book is available in paperback and the paperback costs $22 or more, there is no price restriction. Otherwise, if it's been out for less than a year in paperback, the maximum price of the e-book is $9.99. For e-books of older paperbacks, the only restriction is that Apple not consider the price to be "unreasonable."

An article from TeleRead, based on an article from Publishers Lunch shortly after Agency Model went into effect, said, "Apple has insisted on its maximum pricing tiers but has not restricted publishers beyond that." I've seen other similarly-inconclusive comments that suggest that Apple has indeed imposed these same pricing requirements on the big publishers.

 

Note: under this structure, the maximum Agency price for an e-book of a $25.99 hardcover is $12.99. For a $27.99 hardcover, it's $14.99. Have you noticed that hardcover prices from the Big 6 publishers have slipped upward a couple of dollars over the past couple of years? I wonder why...

 


Huh.  I expected it to go the other way - with minimum prices.  Is it still considered price fixing if it's not directly raising prices?  It does seem to encourage higher DTB prices, but that's not what Apple sells, so... tricky, tricky.

 

I'm not sure whether to bow down at Steve Job's grave, or give it the finger.  I guess I'd probably do both.

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keriflur
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Re: Apple's e-book pricing demands on publishers


gb18 wrote:

The piece below addresses a "new normal" for publishers:  

"Revenues are roughly flat, but profits are up—in large part due to e-books."

 

 

http://paidcontent.org/article/419-thanks-to-e-books-book-publishers-find-flat-is-the-new-up/


From the article:

 

In other words, e-books are generally more profitable than print books for publishers. In 2012, I hope to see that reflected in higher e-book royalties for authors.

 

I hope to see it too, but I'm not holding my breath.

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Re: Apple's e-book pricing demands on publishers

If nothing else, this seems to confirm the popular perception that ebook costs must be significantly lower than DTB costs. Ebook prices are lower, ebook profits are higher, therefore ebook costs must be much lower.

 

Yes, I've seen the analyses, here and elsewhere, that reach the conclusion that ebook costs are comparable to DTB costs. Apparently not.

 

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Re: Apple's e-book pricing demands on publishers


Sun_Cat wrote:

If nothing else, this seems to confirm the popular perception that ebook costs must be significantly lower than DTB costs. Ebook prices are lower, ebook profits are higher, therefore ebook costs must be much lower.

 

Yes, I've seen the analyses, here and elsewhere, that reach the conclusion that ebook costs are comparable to DTB costs. Apparently not.

 


Hmm.  I'm not so sure that e-book prices are always lower.  I recently purchased an e-book that was priced USD $0.20 higher than the paperback on the B&N Web site.  :smileysad:

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Re: Apple's e-book pricing demands on publishers

Okay, ebook prices are usually lower. :catlol:

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Re: Apple's e-book pricing demands on publishers

Now we know why they are so profitable.  :smileywink:

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Re: Apple's e-book pricing demands on publishers

[ Edited ]

From a Reuters news story dated March 30th: E-books Talks Advancing: Sources

 

"The Justice Department could reach a settlement in the next few weeks with Apple Inc and some of the major publishers suspected of colluding to push up electronic book prices, according to two people close to the negotiations.

 

While negotiations are still fluid, the settlement is expected to eliminate Apple's so-called "most favored nation" status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Amazon.com Inc or Barnes & Noble Inc, the people said.

 

The deal could also force a shift, at least temporarily, in pricing control from publishers to retailers, one of the people said."

 

 

As fascinating as the spectacle of a trial might be, it's definitely in the interests of all parties to reach a settlement and avoid the costs and unknown outcome of that possibility. However, as costly a settlement in the US may be, the cost of a settlement/trial in the EU will be far greater, IMHO.

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MacMcK1957
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Re: Apple's e-book pricing demands on publishers


Tim40744 wrote:
...

As fascinating as the spectacle of a trial might be, it's definitely in the interests of all parties to reach a settlement and avoid the costs and unknown outcome of that possibility. However, as costly a settlement in the US may be, the cost of a settlement/trial in the EU will be far greater, IMHO.


I'm curious, does anyone know what kind of market presence e-readers have in Europe?  Is Amazon a player?  Are there other e-ink devices in play, or is it just tablets?

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Re: Apple's e-book pricing demands on publishers

It's my understanding that Amazon has some eReaders in some European markets.  Not sure on which devices in which markets though.  I don't know what other eReaders may be sold in Europe, but I'm guessing someone has some on the market.

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Re: Apple's e-book pricing demands on publishers

According to Buchreport, Amazon and Apple have a strong presence in Germany and in the UK, Amazon and Kobo have a good headstart. Kobo recently established a presence in the Netherlands. I'm not sure about other EU members. (If you don't know German or use Google translate, don't bother with the link.)