33 Replies Latest reply on Apr 11, 2012 10:38 AM by Ya_Ya

    The DoJ thinks it has a case against the Agency model

    roustabout

      The wall street journal and Cnet are both reporting that the Agency pricing model is being actively pursued by the DoJ against Apple and the publishers who converted to the model in concert with one another. 

       

      http://online.wsj.com/article/SB10001424052970203961204577267831767489216.html

       

      http://news.cnet.com/8301-1023_3-57392980-93/apple-book-publishers-face-e-book-antitrust-lawsuit/

       

      The DoJ is in receipt of depositions asserting that Agency model makes for a more competitive market, despite the fact that ebook prices went up, not down, after it's introduction - and that one of the principals in the conversation laid that out as one of the goals. 

       

      Price rises  tend to be the result of a more cooperative - perhaps even collusive - market rather than a a competive one. 

       

      Particularly entertaining is Apple's response about delivering a captive audience via the iPad being helpful, despite the statement by Jobs to his biographer.

       

      When the WSJ is explaining what happened as it does in this article, it makes it understandable that at least some of publishers are looking to settle - the Journal has a dog, Harper Collins, in the fight, and still this is how the article outlines Apple's role.

       

      From the WSJ article: 

       

      As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an "agency model," under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price.

       

      "We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway,'" Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

       

      The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,' " Mr. Jobs said.

       

      The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.

       

      - end of WSJ quote.-

          • Re: The DoJ thinks it has a case against the Agency model
            Htom_Serveaux

            Not necessarily a good thing. Remember, Amazon will be the one (and likely only) winner here. Mr. Bezos can and will use Amazon's tremendous piles of cash to sell e-books at a loss for as long as it takes to shut down every other source. Then, with one seller basically controlling the whole industry, it won't be pretty.

             

            Proprietary formats, control of what is and isn't sold, control of what prices authors can get for their works. The Agency model sounds evil, and may well be, but I'm not sure the alternative is all rainbows and unicorns.

              • Re: The DoJ thinks it has a case against the Agency model
                bobstro

                Htom_Serveaux wrote:

                Not necessarily a good thing. Remember, Amazon will be the one (and likely only) winner here. Mr. Bezos can and will use Amazon's tremendous piles of cash to sell e-books at a loss for as long as it takes to shut down every other source. Then, with one seller basically controlling the whole industry, it won't be pretty.


                Won't that only be the case if the publisher makes an arrangement with Amazon? Sure, Amazon could sell at a loss, but don't the publishers have to agree to terms to start with? They can still guarantee their profits, though maybe not at the ridiculous pricing we have today.

                 

                It seems to be that we'd be better off if B&N and other publishers earned customer loyalty by putting out a better set of products rather than being protected against competition by the government:

                 

                1. Produce a better quality reader. Arguably, B&N's are already somewhat better, but there's LOTS of room for improvement. Make me want to use B&N because using their reader is the best experience. This means things like a functional shelving system, multi-device synchronization and backup. Make the NOOK bulletproof to use and hard to lose data on. Quit thinking of it as just a shovel to cram media down my throat.

                 

                2. Produce better quality ebooks. As it stands today, there's not a hell of a lot of difference between an ebook from one source over another. Yet the epub standards are evolving. Use the enhanced capabilities of newer standards and make darned sure your reader supports it. This goes hand-in-hand with #1, above. Make reading B&N material best on a B&N reader.

                 

                3. Produce enhanced "other stuff". B&N's got me hooked with their enhanced magazines (e.g. Wired), imperfect though they are. I like the subscription delivery system.

                 

                4. Move to watermarking and away from DRM that makes it difficult to use my devices as I see fit. Make it clear to consumers that purchased content is identifiable with them, but don't artificially impose limitations on how consumers view content they have paid for.

                 

                Finally, as a consumer, angst over these issues makes me very leery of buying a device from anybody BUT Amazon. I think B&N would be well served by opening up the Android Market and letting consumers choose what to run on their devices, including the Kindle app. Knowing that I can read anybody's ebooks on my device makes me more comfortable dropping the bucks on it. Yes, they will lose some of my purchases to Amazon, but they will keep the rest. The alternative is that I buy a Kindle, and B&N sees none of my purchases.

                • Re: The DoJ thinks it has a case against the Agency model
                  TnTexas

                  Htom _Serveaux: Proprietary formats, control of what is and isn't sold, control of what prices authors can get for their works. The Agency model sounds evil, and may well be, but I'm not sure the alternative is all rainbows and unicorns.

                   

                  Totally agree.

                   

                  As for the original articles, I don't think the DOJ has stated that they definitely have a case, just that they're looking into it. There's an important difference there to keep in mind. 

                   

                  From the WSJ article: Government lawyers have questioned how competition could have increased when prices went up.

                   

                  Really? How about because it helped keep others in the arena. That increases competition; doesn't it? After all that's what the word means. (banging head against keyboard)

                    • Re: The DoJ thinks it has a case against the Agency model

                      TnTexas wrote:

                      As for the original articles, I don't think the DOJ has stated that they definitely have a case, just that they're looking into it. There's an important difference there to keep in mind. 


                      It seems to me that by far the most important piece of this reporting is where it says that the parties have been discussing a settlement for months. The public announcement today may simply be a way for the DOJ to apply more pressure on one or more recalcitrant party. Government agencies have very big sticks to swing (i.e. fat wallets) in such situations. They can twist arms really hard in order to get the settlement terms they want. Defendants can be very reluctant to go to court, where anything can happen, especially when the prosecutor has a bottomless budget.

                      • Re: The DoJ thinks it has a case against the Agency model
                        patgolfneb

                        TnTexas, don't ever assume doj defines competiton in any way but lower sale prices. Author and consumer access and choice in a developing market are long term benefits, difficult to quantify. As such they are unlikely to aid in promotion or politicians being elected, and they appoint the bosses.

                          • Re: The DoJ thinks it has a case against the Agency model
                            Let me see if I understand this.....our brilliant government employees are going to take on Apple.....hummmm.....somehow it doesn't seem like a fair fight!!! :-)
                              • Re: The DoJ thinks it has a case against the Agency model
                                roustabout

                                TNT writes:  "From the WSJ article: Government lawyers have questioned how competition could have increased when prices went up.

                                 

                                Really? How about because it helped keep others in the arena. That increases competition; doesn't it? After all that's what the word means. (banging head against keyboard

                                 

                                Multiple vendors still in the field isn't, by itself, the definition of competition.  It depends entirely on what the internal discussions are or aren't between those vendors - it could be evidence of lots of things, including collusion. 

                                 

                                There are lots of folks who will sell you diamonds.  All of them are charging obscene amounts of money, given that there are excellent synthetic processes for making diamonds and large hoards of diamonds known and unmarketed  in South Africa, Russia and parts of the Middle East.  (A friend did a tour involving being stationed in Saudi Arabia a few years back;  the folks on the ground were under orders, honored in the breach, not to pick up the small diamonds that were visible mixed into the surface litter where they were housed.) 

                                 

                                GE, for instance, could easily crank out flawless 4 carat diamonds should they choose to do so, but an arrangement with DeBeers winds up meaning that they've chosen not to - and their synthetic process is heavily locked down with patents. 

                                 

                                From what I've heard, if the Russians felt so inclined, they could easily trash the world diamond market as well. 

                                 

                                An industry that's more important is the pharmaceutical industry;  most of the drugs under patent can easily be made by anyone, and lately the big players have taken to paying the generic manufacturers to delay introducing their products, even after the patent runs out. 

                                 

                                When that doesn't work, the drug makers have turned to the Feds to help them by deciding that soon-to-be-generic drugs suddenly aren't safe.  In the 90s, the non-sedating allergy meds (like Claritin)  emerged as a huge, patented market.  One of the earliest was Seldane;  as it emerged from patent protection, the manufacturers "discovered" that it was risky - conveniently enough, they had a replacement, patented drug in the pipeline, and the generic manufacturer was ordered to stop. 

                                 

                                Much of the work that goes into these drugs is paid for by our dollars -- we understand how a lot of drugs work (and thus, chemists know which sorts of compounds to screen for good effects) because the NIH and NSF have been paying for the fundamental research that the industry really isn't that interested in paying for. 

                                • Re: The DoJ thinks it has a case against the Agency model
                                  bklvr896

                                  jimmy1 wrote:
                                  Let me see if I understand this.....our brilliant government employees are going to take on Apple.....hummmm.....somehow it doesn't seem like a fair fight!!! :-)

                                  Well, I think government employees have just been insulted here. :smileymad:

                        • Re: The DoJ thinks it has a case against the Agency model
                          patgolfneb

                          My normal bias is that business seeks to find ways to manipulate the market, often with questionable ethics. I do find it odd that Amazons tactic of selling below cost in pursuit of a near monopoly is not worthy of government interest, but agency pricing is? The propriety DRM process is part of this also. Why not link these issues? Amazon signs a consent decree and stops routinely selling books below cost and publishers end agency pricing. Watermarking or universal DRM is agreed to. Amazon, Apple, Google, BN can then compete in a proper market. Addressing agency pricing alone ignores the real issue. Differentiation in e books is dependent on authors. MP3 and music or blue ray and movies, are good comparisons. Film and music firms success depends on delivering the right artists. Find the right authors success follows. Proprietary formats, predatory pricing, agency pricing are all attempts to protect firms from the risk of failing to deliver competitive products and all should be addressed.

                          • Re: The DoJ thinks it has a case against the Agency model

                            Another report, this one from the NY Times. Link courtesy of Farcry's post in the Community Room.

                             

                            Interesting that there's no hint in any of the published reports that the settlement talks might include any provisions to mitigate predatory pricing on Amazon's part.

                             

                            • Re: The DoJ thinks it has a case against the Agency model

                              Bottom line it's a good thing because it will answer the question of whether or not laws have been broken, which is the only thing that at least the DoJ is and should be concerned about.

                                • Re: The DoJ thinks it has a case against the Agency model

                                  All I can say is that it's about time this happened.  Finally my tax dollars are being used on something that I agree with.  You should be able to sell something for whatever price you like, lower or higher than your competitors.

                                   

                                  There's no agency price model for selling DTBs, and that market hasn't shifted to totally Amazon.com.  Why don't you think the same thing would happen with eBooks?

                                   

                                   

                                   

                                   

                                    • Re: The DoJ thinks it has a case against the Agency model
                                      keriflur

                                      doncr wrote:

                                      All I can say is that it's about time this happened.  Finally my tax dollars are being used on something that I agree with.  You should be able to sell something for whatever price you like, lower or higher than your competitors.

                                       

                                      There's no agency price model for selling DTBs, and that market hasn't shifted to totally Amazon.com.  Why don't you think the same thing would happen with eBooks?

                                       


                                      Amazon isn't selling DTBs at a loss.
                                      **This is not to say that I don't agree with free market competition.  I do. I also believe that if the agency model is lifted, Amazon will do its best to drive out all competition by selling bestsellers at a loss, just like it used to do.  While free markets tend to work out the best for consumers, I'm not sure that will be what happens in this situation.
                                    • Re: The DoJ thinks it has a case against the Agency model
                                      Omnigeek

                                      Unfortunately, their public pronouncements like this settle nothing as their judgments have been so flawed in the past.  This is the same DoJ that basically swung a Senate seat in Alaska with prosecutorial misconduct so flawed they got lambasted by the federal judge, the same DoJ that saw no reason to prosecute the Black Panthers for intimidation at the voting booths despite having video coverage of them, the same DoJ that had no problems with Operation Fast and Furious until it broke out in the public and then decided to try to prosecute the gundealers that worked with them.

                                       

                                      Bottom line for me is that our economic system is designed to say sellers have the freedom to sell for what they want but suppliers have the freedom to cut off sellers they feel are undermining the overall value of the product.  The only possible exceptions are for "necessities of life" -- and much as I love reading, books (virtual or physical) don't fall into that category.  I argue that the DoJ has exceeded its jurisdiction under the Constitution many times in the past and this is no exception.

                                    • Re: The DoJ thinks it has a case against the Agency model
                                      patgolfneb
                                      Doncr, gb, freedom is always tempered by fairness. If your acts unfairly damage another your freedom is subject to limits. If Amazon sells below cost in order to push other competitors out of the market this is not fair competition, the short term benefit to consumers does not justify damage to other firms. Of course it can cut the other way as well. The agency pricing models benefits to publishers and some retailers may not justify the harm to consumers and loss of freedom to other retailers. So the real issue is are the competing interests properly balanced. I often see posts about rights or freedom which fail to acknowledge the responsibilities and limitations as if the only issue is the lowest price or maximum freedom of choice for the consumer. There should be a bias towards those goals but there are real dangers if the pendulum swings to far in either direction.
                                      • Re: The DoJ thinks it has a case against the Agency model
                                        daenas

                                        I just don't get it.  If the US is the land of Freemarket and Capitolism where the citizens of this country basically vote w/ our wallets then what's the big deal?

                                         

                                        So Amazon sells below cost?  Other stores would have to figure out a way to keep pace with Amazon so they could stay in business.

                                         

                                        If car lot A and B bought their cars from the same wholesale lot, and lot A underpriced their cars from lot B, then A will sell more cars.  So to stay in business, lot B will have to come up w/ a plan to add a service (say free oil changes for the next 10 years) while selling the car at a higher price.  Then A will counter that w/ something else.

                                         

                                        This is what built businesses here in the US.  Shop at Wal-mart lately?  They have put countless stores, either mom/pop or chain stores, out of business.  Why?  Because they were able to sell at a low price in quantity.  Selling 100 items at $5.00 a pop, at cost of $6.00 ($1.00 loss for each item), will earn more in sales (notice I didn't say profit) than selling 20 of the same items at $10.00 each.

                                         

                                         

                                        • Re: The DoJ thinks it has a case against the Agency model
                                          patgolfneb
                                          Hopefully the only government employees insulted are ones in the upper echelons, that would not bother me at all.
                                          • Re: The DoJ thinks it has a case against the Agency model
                                            patgolfneb
                                            Roustabout, I agree that advertising, liability, systemic issues are part of the costs differences. Pharmaceutical executives have acknowledged in congressional testimony that they do sell at lower wholesale prices in foreign markets because they could not make the sales otherwise. PBS and 60 minutes have reported on this issue in past years as well.
                                            • Re: The DoJ thinks it has a case against the Agency model

                                              The DOJ is looking into it because of Hagens, Berman, Sobol, Shapiro, LLP, who filed a class action in 2011. Although the DOJ and EU adds significance, I think the class action is where things will happen. I'd also be interested in hearing how authors feel about it. Why they don't cut out the middle man is beyond me.

                                              • Re: The DoJ thinks it has a case against the Agency model
                                                Maybe some of you can afford to pay $14 for an ebook. Most of us cannot. I bought my NC before the prices soared to unreasonable levels (after the agency model went into effect). I cannot afford to pay such high prices. I don't care how much I want to read a book-I will not pay an inflated price for it. I'd rather wait and try to find a used DTB version, even though DTBs are harder for me to read due to being visually impaired. Ebooks should be reasonably priced-lower than paperbacks and definately priced no higher than $7.
                                                • Re: The DoJ thinks it has a case against the Agency model

                                                  I mainly have a problem that it seems horribly difficult for e-sellers to offer titles on sale even for a limited time.

                                                   

                                                  I understand that the publishers want to protect their profits, and Amazon may indeed bleed sales - but after their publicized (and how many unpublicized) erasures of purchased materials off Kindles - short of winning pr being given one, I can't see purchasing a Kindle. I'll buy content occasionally from them, but knowing some authors & hearing how Amazon keeps such a relatively high percent of sales, I would MUCH prefer to buy elsewhere - including the original publisher's site.

                                                   

                                                  After the "agency pricing" went into effect, I have gotten very frustrated that B&N, as well as other eBook middlemen sites, couldn't seem to be able to offer any books at a discount even periodically.

                                                   

                                                  I read a lot of mainstream SciFi & Fantasy - it'd be nice to be able to puchase my eBook version of a paperback Star Wars novel at the same price I'd be able to get if I walked into the B&N an hour away, or at bn.com & used my membership discount &/or a one-time coupon!

                                                  Now it seems that unless I want independent-author titles, or for my romance Harlequin stuff, I can't buy a title in eBook format for under $5.

                                                   

                                                  Buying a 'paperback' in electronic form for 10-50% more than the dead-paper version just burns my buttons - and has reduced my purchasing from the major publishers a great deal, particularly since my local Borders closed & I no longer pass a B&N (or easily divert to) on my daily commute. And it's upped (again) my purchasing from the romance publishers that then place their stuff @ Amazon & BN 1-4months later.

                                                  • Re: The DoJ thinks it has a case against the Agency model

                                                    Having read the petition online, there is mention of the one publishing house that did NOT go along with the conspiracy.

                                                     

                                                    After much deliberation, I'm thinking Random House.  Any ideas?