Judge Cote approves DoJ Agency Model settlement
In a strikingly expeditious decision, Judge Cote has approved the proposed settlement between the Department of Justice and three publishers (Hachette, HarperCollins, and Simon & Schuster) over the Agency Model:
That’s it…for those three publishers, the Agency Model will end.
Judge Cote could have waited until Apple, Penguin, and Macmillan to have their day in court (probably next year), but significantly, did not do that.
I think that before the end of September, we’ll see prices for e-books from the settling publishers on the New York Times Bestseller Hardback list drop.
It wouldn’t surprise me to see Amazon do some big sale on some books from these publishers, to celebrate. 
We may see a price war between Barnes & Noble and Amazon on frontlist books from these publishers this holiday season…now that it will be possible again.
I’ll reiterate something I said recently…I think that Macmillan and Penguin are in danger of losing significant marketshare during what could be a year of discounting on their competitors’ titles. Could Macmillan and Penguin lower their prices to compete? Sure, but under the Agency Model, the publisher takes the hit.
With the Agency Model, the publisher gets 70% of the consumer price. If they lower the consumer price, they make less money.
With the Wholesale Model (where the retailer sets the price), the publisher gets 50% of the list price of the book…regardless of what the consumer pays for it.
Let’s say the Agency Model publisher had the book priced at $12.99. The publisher gets about $9.09.
If the Agency Model publisher lowers the price to $9.99, they get about $7. They lose more than $2 per sale by lowering the price.
With the Wholesale Model, let’s the publisher set the digital list price at $18, and Amazon pays them $9 for it. If Amazon sells the book to the consumer for $12.99, the publisher gets $9 for it. If Amazon sells the book to the consumer for $9.99, the publisher gets that same $9 for it. If Amazon sells the book for $1, the publisher gets that same $9 for it.
Amazon takes the loss, not the publisher.
It’s more complicated than that, because of how prices can affect other prices, but that’s how the direct sale money generally works.
It would not surprise me to see Penguin and Macmillan flip and decide to settle in the next couple of months…and maybe before the holiday season.
It has been costing publishers a ton of money to fight this battle.
Apple will probably stick it out…they are confident in their legal prowess.
The judge quoted an Emily Dickinson poem about the value of books, and I’m going to close this post by quoting part of what Judge Cote said in approving the settlement:
“…there can be no denying the importance of books and authors in the quest for human knowledge and creative expression, and in supporting a free and prosperous society.”
This post by Bufo Calvin originally appeared in the I Love My Kindle blog.
September 7, 2012 at 5:56 pm |
thanks for a continually great blog full of good info
September 7, 2012 at 7:37 pm |
Now THIS is an interesting development.
I don’t know much about court systems, so does this mean that the agreement reached now goes into effect? There was a lag time of a couple months before anything happens, wasn’t there? How will we know when the agency model has been dropped? Will the ‘This price was set by the publisher’ just go away, or will there be some sort of announcement? And what do you think Random House is likely to do?
Thanks for keeping us updated on this issue!
September 7, 2012 at 8:24 pm |
Thanks for writing, Bailey!
While I’m not a lawyer, I do not think it will be months. Here’s part of it:
===
1.
They must terminate their Agency Agreements with Applewithin seven days after entry of the proposed FinalJudgment. See Proposed Final Judgment § IV.A.2.
They must terminate those contracts with e-book retailersthat contain either a) a restriction on the e-bookretailer’s ability to set the retail price of any e-book,or b) a “Price MFN,” as defined in the proposed FinalJudgment,
5
as soon as each contract permits starting thirty days after entry of the proposed Final Judgment. See id.at § IV.B.
===
It will depend somewhat on the cycle of their agreements with Apple, I think, but my guess is that this happens quite soon…I think two months would be a long time for this.
I don’t know if Amazon will make an announcement…they may want to play it cool, and just say something about “new low prices”. They still deal with the Big Six for a lot of reasons, and still do partnerships with, for example, Penguin. The “This price was set by the publisher” will go away for the settling publishers.
Random House is a very interesting question. They haven’t been named…yet, and their situation is a lot different for gathering evidence. They joined much later…about a year later. Therefore, they weren’t agreeing to the Agency Model at the same time as the other companies, so the collusion part might be much more difficult. RH has been known to fight in court, but I also think of them as the smartest of the Big Six…even though they may try and assert more rights than they have, in my opinion. They’ve seen what it’s like to not be Agency Model when the rest of the Big Six are, so they have some data on it that nobody else has. They are big and strong enough to be the only one doing what they choose to do, but I would hope they would end the Agency Model also.
September 7, 2012 at 8:09 pm |
I’m waiting to see the horrified reaction of all the DoJ settlement detractors, and look forward to some day getting my Kindle Store credit (probably no more than $10). And of course to some discounting where none has been for awhile.
I wonder why Apple won’t offer the same terms they are pitching to EU (allowing discounting for 2 years) to make the lawsuit go away. Maybe they will, or maybe they too deeply committed to their legal strategy.
September 7, 2012 at 8:27 pm |
Thanks for writing, Tom!
This agreement would only have to do with that discounting, I think. The action by the state AGs (Attorneys General) and the class action suits are the ones that would result in you getting that store credit or cash, I believe. It wouldn’t surprise me if those checks could be years away.
I think the EU has a stronger history of having ended a fixed price book agreement (that did happen in the UK), and it might be more obvious that you can’t fight and win there…
September 8, 2012 at 11:50 am |
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