There was this blog from the Bookseller, which I am going to copy in total, as they say it so much better than I could. I am a mac user and I often order books through Amazon, but, as an independent publisher, it makes me upset to see how they try and control the market. Most interesting is that they are fighting over ebooks, when they soon will be last year’s black. There are so many better options, especially for the kids that write for Bombadil and the many kids that value our brand.
Trial and marginalisation
The Apple e-book price fixing case is a curious side-show for an industry that is already looking beyond the first generation e-book marketplace. The picture emerging from the Manhattan courtroom though is not one of publishers actively colluding, but one of senior executives rail-roaded into accepting deals that they themselves now admit were probably not in their own best interests. If there was chatter between them (and there was), it seems to have come from a collective sense of nervousness, rather an effort to negotiate together.
In fact the true story here is of an industry, hundreds of years old, being bashed about by huge untouchable tech giants Apple and Amazon whose response to most things was ‘no’, the reactions differentiated only by the fact that executives from one side were more polite than those from the other.
There are examples of how this played out peppered throughout the trial and within the evidence and depositions already collected. HarperCollins chief executive Brian Murray told the court how he would not have agreed to Apple’s terms except that it was part of a wider need on the part of News Corp to engage with Apple. [Presumably around this time News Corp was actively thinking about its now defunct Daily, its iPad-based newspaper that for a brief period looked like one possible future for the print-based newspaper.] His testimony is backed by an email exchange cited by the government’s Department of Justice in which Murray tells HarperCollins’ former chief digital officer Charlie Redmayne that Rupert Murdoch wants to “screw” Amazon. Despite the pressure from Murdoch, Redmayne’s response back is to negotiate harder with Apple: “If we get movement we can still screw them but from a position of greater strength and suffer less.”
The executives were faced with Amazon on one side and an unsustainable e-book market, and Apple with its ‘jesus tablet’ on the other. It is no wonder they jumped. However, contrary to the prevailing analysis, the ‘big six’ publishers tried to negotiate different deals with Apple, with some wanting different terms over front-list and back-list titles. But, as far as we can tell, the negotiations generally floundered. Last week Penguin US chief executive David Shanks told the court directly that Apple’s agency contract was not the arrangement he wanted: “I did not get the deal I wanted, but we wanted access to Apple’s customer base.” A first iteration of the Apple deal was dismissed by Shanks in an email as “Yuck”.
An email from Macmillan USA chief executive John Sargent to Apple executive Eddie Cue suggests how the negotiations played out: “Remarkable how you guys just say no to everything and still appear somehow to be reasonable!”. Exclamation indeed.
The government’s case is that Apple acted as the ring-leader, corralling the publishers to sign deals at the same time and obliging them to change their relationship with Amazon by including a Most Favoured Nation that meant publisher prices on the iBookstore had to match prices elsewhere (including on the Kindle). As numerous pieces have now pointed out the publishers involved were unhappy with MFN (as many have been since), but Apple refused to remove it.
This placed publishers in a double bind. Agreeing to the Apple deal and leaving Amazon on wholesale would have put the publishers in the precarious position of allowing Amazon to dictate their e-book prices. There is also a difference between Apple negotiating hard, and the tech firm demanding changes to other retailer contracts. According to Simon & Schuster Inc chief executive Carolyn Reidy Apple did not require the publisher to move Amazon and other accounts to the agency model, there was an “option of not doing that” but that in not doing so they would “make even less money”.
According to Time, this wrinkle, which Judge Cote has now picked up on, may get Apple off the hook. “Apple didn’t force the publishers to demand that Amazon move to a new business model with higher prices for consumers, its lawyers have argued. Rather, the publishers did so out of self-interest, because they had a business incentive to pressure Amazon themselves. It’s a nuanced distinction in an already complex legal case, but one that could determine the outcome of the trial.”
The overall impression after one week of the three-week long trial is of an industry and its senior executives desperately trying to solve a growing problem (the $9.99 e-book), with Apple offering the best, and only, solution. At one point Reidy even emails herself asking the question “how to get Amazon to change its pricing”. The Apple agency contract meant S&S would “definitely earn less”, but higher e-book prices would give the publisher “room to move”, she concludes.
Apple negotiated brilliantly. It batted away requests for modification, and nudged publishers to sign before the unveiling of the iPad and iBookstore in January 2010. It used Amazon’s strength against it, getting publishers to sign deals with clauses in they would rather have removed, precisely because of the fear that Amazon would otherwise create an unsustainable e-book market.
In his testimony Russell Grandinetti, Amazon’s vice president of Kindle, denies that this was the scenario Amazon was working towards. He calls $9.99 a break-even price, and argues that this price “did not require any kind of reduction in list price from where they were when we started the Kindle business in order to succeed”. He says that Amazon did not use Kindle prices to subsidise the Kindle tech, or vice versa. Yet he also admits that Amazon’s lawyers drafted a letter to the Federal Trade Commission, because it was concerned that publishers were “acting illegally”, and says that like all suppliers it “asked for better terms every year”.
The larger question away from the Manhattan courtroom that won’t be addressed by Judge Cote is whether the deals entered into during this period altered history. And if they did, do we have a better book business as a result. Two questions loom large: would Apple have launched the iPad without the iBookstore as part of its basic kit? And if Apple had, how marginalised would we have felt as an industry? Those who think the big publishers got this wrong, should ask themselves how they could have got it right.