DailyTech - Barnes & Noble Unhappy with U.S. Gov.’s E-Books Settlement

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Gadgets Barnes & Noble Unhappy with U.S. Gov.’s E-Books Settlement
Tiffany Kaiser - June 9, 2012 10:07 AM

17 comment(s) - last by KonradK.. on Jun 13 at 4:36 PM

(Source: contraalliance.com)

The settlement allows Amazon to keep discounting books

Barnes & Noble Inc. disagreed with the U.S. government’s e-books settlement this week, noting that it could lead to higher e-book and hardback prices and less of a choice for millions of book buyers and sellers.

The brick-and-mortar bookstore chain filed a complaint with the U.S. Justice Department Thursday in an effort to battle the government’s e-books settlement.

Barnes & Noble said the settlement would lead to “higher overall average e-book and hardback prices and less choice, both in how to obtain books and in what books are available.” Before the agency pricing model, Barnes & Noble was “losing substantial money in an effort to compete with Amazon’s pricing and was unable to gain significant market share.”

Barnes & Noble is constantly struggling to compete with the likes of Amazon simply because it cannot compete pricewise. However, the book retailer recently announced a partnership with Microsoft for "Newco" e-book subsidiary, which enhance e-book offerings via Microsoft's Windows 8 and Barnes & Noble's Nook tablet. Barnes & Noble will own about 82.4 percent of Newco while Microsoft will own 17.6 percent.

The U.S. Justice Department went head-to-head with Apple and five major book publishers over an agency pricing model that was accused of being anti-competitive. The agency pricing model allows publishers to set the price of e-books and Apple then gets to take a 30 percent cut. The deal between Apple and the book publishers also stopped the publishers from allowing other retailers to discount their e-books. This cut into other retailers like Amazon, which use a wholesale model where retailers pay for the books and charge whatever they want for them.

Amazon typically charged $9.99 for its books.

The five book publishers involved in the probe were HarperCollins Publishers Inc., Simon & Schuster Inc., Hachette Book Group, Macmillan and Penguin Group.

The proposed settlement by the U.S. government is to allow Amazon to keep discounting books while publishers terminate the part of their deal with Apple that says publishers cannot allow other retailers to discount their e-books.

Three of the above-listed publishers, including HarperCollins Publishers Inc., Simon & Schuster Inc., and Hachette Book Group, have agreed to settle. Macmillan and Penguin Group, on the other hand, have vowed to fight the settlement. Apple is also siding with Macmillan and Penguin Group.

Source: Yahoo News

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Freedom of business

By KonradK on 6/9/12, Rating: 0

RE: Freedom of business

By maugrimtr on 6/11/2012 8:52:48 AM , Rating: 3

That's fine when any individual company makes the agreement. No one here will disagree. However, the case above has multiple publishers (making up a majority of publishers by volume in English speaking countries) colluding in a shared agreement.

Such collusion to create price fixing is illegal.

I have an idea, why don't we tell all the oil companies to go ahead and fix prices? If everyone adds 20% to the price of gas at the same time, surely this freedom will have no consequences worth legislating against?

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RE: Freedom of business

By nafhan on 6/11/2012 11:49:17 AM , Rating: 2

My understanding is that you're right, and this kind of practice IS legal - until the government decides it's not. That decision is usually made when the consumer is being harmed either directly or indirectly by the company in question.

Free market is not anarchy, ideally, it should be a careful balancing act between government control and large companies obtaining control with the aim of providing maximum benefit for the consumer. If the government does their job, the market stays on that balance and maintains a situation that favors the consumer.

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RE: Freedom of business

By KonradK on 6/11/2012 1:43:13 PM , Rating: 2

"That government is best which governs least"

This is question of belief, whether people are responsible adults, or children that require parents.
The first possiblity will not have a chance to be proved, or disproved, if a government will be babysisting market, not allowing firms to make "bad decission".
I do not believe with a need of so-called "competitive practices" in business. A competition means making an offers that are appealing to others. Others are not only end consumers, but also business partners. Sometimes this means trade-off between the two things.
No one is forced to buy anything from Apple. No one is forced to sell anything through Apple. If Apple demands fixed prices from publishers, let the publishers decide. What they really like - presence of their books in Apple store and fixed prices, or more of freedom of distribution and absence in Apple's store.
Take note, that Apple's condition is LESS restrictive than agreement on exclusive distribution. And (as I understand) the latter is not considered as objectionable.

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RE: Freedom of business

By nafhan on 6/11/2012 2:07:54 PM , Rating: 2

"That government is best which governs least" is both an oversimplification and completely incorrect. The government that governs least would be no government at all (anarchy), and that doesn't work all that great IMO.

I was saying there needs to be balance. If you'd like to oversimplify, that is (essentially) governing the least they can without letting things go out of control, and, yes, that does mean stepping in to make sure that the free market remains free and not under the control of price fixing cabals.

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RE: Freedom of business

By KonradK on 6/11/2012 4:26:22 PM , Rating: 2

"least" does not mean "not at all". Stating that "least" means "not at all" is just simplification.
I wish myself and others a government that only protect me and others from hurting (from inside and outside). I do not wish myself a government that does not allow me to be uncooperative, make agreements that are iconvenient for my competitors, or even explicitly, or implicitly excluding them from competition. After all, if they actually have something to offer they may beat me offering better agreement to my (would-be) partners.
It is the balance I want.

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RE: Freedom of business

By nafhan on 6/11/2012 9:52:50 PM , Rating: 2

Sounds great. Sounds simple... until you start explicitly defining things like "protect from hurting". What do you mean by "protect" and "hurt" for instance? You, I, and the guy down the street may not agree on definitions. Simple concepts like that are not always simple to execute.

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RE: Freedom of business

By KonradK on 6/13/2012 4:36:13 PM , Rating: 2

Protecting from hurting includes among other things: proteting lives from killing, protecting persons from rape, battery, abduction, protecting their property from stelaing.
I agree that each possible case of hurting must be defined by laws.
It is easier to enumerate things that are not hurting, so should not be matter of intervention of government. In context of this article: agreements that oblige side(s) to no cooperation with third parties, or that limits range of that cooperation.
Not making business with someone is not hurting him.

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dumping is also illegal

By ptmmac on 6/10/12, Rating: 0

By ptmmac on 6/10/2012 9:49:28 AM , Rating: 0

What Amazon was doing was selling books below cost to purchase customer loyalty. This was bad for the publishers because it was dropping the perceived value of the product that they were selling. If you look at Amazon's business model, it basically uses the lack of sales taxes and local infrastructure to offer customers the option of purchasing lower cost goods. Amazon does not make money on the goods they sell. Any time they begin to make money they use that money to purchase more control of the market.

Sales to get rid of old stock is in no way the same thing. There is no such thing as old inventory in e-books. If Amazon can replace the publishers by reaching deals directly with authors that reduces the cost of selling books then they are using competition to win market share. I believe they are doing that now. The good that came out of the agency model is it launched iBooks. There is at least a small amount of competition. The problem is this is only for ease of use, not price. lower prices are good for consumers as long as they aren't used to destroy competition.

RE: dumping is also illegal

By foolsgambit11 on 6/10/2012 7:26:06 PM , Rating: 4

Then why didn't the DOJ (or somebody) sue for dumping? I think Amazon was discounting to barely above cost - a price point which they could survive with, but other retailers with brick and mortar locations or lower volumes couldn't hit.

The idea that Barnes & Noble would complain about being put out of business by a more efficient model is ironic, to say the least, considering how many local bookstores they've put out of business over the years because they couldn't compete with the big box stores. Now they're getting a dose of their own medicine and want to cry foul? Boo friggin' hoo.

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RE: dumping is also illegal

By Dorkyman on 6/11/2012 7:48:14 PM , Rating: 2

Precisely the premise of the movie "You've Got Mail."

Big-box store puts tiny store out of business because, well, golly, it's bigger and gets better discounts based on volume. Oh, and it's operational costs are relatively less.

Now, the question is what would Tom Hanks do when faced with Amazon? Coming soon, the sequel: "You've been Tweeted!"

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RE: dumping is also illegal

By nafhan on 6/11/2012 11:17:46 AM , Rating: 3

What Amazon was doing wasn't illegal. Further, Apple absolutely has/had the means and the money to sell books at the prices needed to compete with Amazon (although B&N probably does not).

What Apple wanted (and what they got), was a way to avoid having to compete on price. Amazon's "monopoly" came about because Amazon got in early with a good product. There was nothing at all preventing Apple competing with Amazon on price, but they chose to, instead, "compete" by colluding* with publishers - raising prices for everyone else. Also, I really don't care about publisher's feelings on the perceived value of a file they're selling - and neither do most other consumers.

*By collude I mean "an agreement among firms to divide the market, set prices, or limit production".

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Apple strikes again

By Dorkyman on 6/9/2012 12:43:43 PM , Rating: 5

Okay, let me see if I have this straight:

In the past, book publishers would sell books wholesale to anyone, and the retailers could the resell them for any price they wanted. So Amazon cleaned up because their costs were so much less than the box stores.

So the publishers got together with Apple secretly and worked out a deal where they would not sell at a discount at all (good for them) and Apple would take a 30% cut (Surprise! Good for Apple, too!).

The publishers said this was good for consumers because otherwise mean ol' Amazon would be the dominant player, and we can't have that.

And somehow the Justice Department gets this one right, and tells Apple to go fornicate itself. Am I missing anything?

RE: Apple strikes again

By MindParadox on 6/9/12, Rating: 0

RE: Apple strikes again

By Microsapper on 6/10/2012 2:04:31 PM , Rating: 2

Good explanation of what was being done behind Justice's back for consumer's good. It's one way to eliminate competition and for Apple to claim any different is to deny their own motives in the first place. That being Anti-competitive from the get go. In a obnoxiously bold attempt to knock the main player out of the game.

As far as B&N is concerned, if they'd have been smart enough to build the business infrastructure that's made Amazon great in the first place (like Google in Search), they'd deserve getting greater ultimate returns on their investments too. As it is, B&N relied too heavily on bottom line economics of immediate returns, on minimal investments. Rather than heavily investing in their future like Amazon did right from the start!

Thus just by being first as brick n mortar book stores didn't pay off for them against a company that, like Newegg in Electronics, who turned their brick n mortar store model upside down by gambling on the future of the Internet Based Store Model!!!

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RE: Apple strikes again

By AnnoyedGrunt on 6/9/12, Rating: 0

By AnnoyedGrunt on 6/9/2012 2:04:58 PM , Rating: 0

I think most people are missing something, and that is how the Agency model works.

Here is my understanding:
In the typical sales model, a publisher sells the book to a store at a wholesale price (a price that the store negotiates with the publisher). The store then sells the book to the customer at whatever price the store wants. It is up to the store to decide how much profit margin they want.

In the agency model however, the publisher sets the price, and the store decides their percentage cut of the sale. The store is no longer setting the price at all. In Apples case, they simply made a deal that forces the puplisher to sell through Apple's storefront at the same price or lower than they sell through anyone else. It by no means prevents Amazon from discounting books that they buy through the wholesale model, but it does mean that if a puplisher has an agency deal with another storefront, and they offer a lower price through that other storefront, then they must also match that price through Apple's storefront. When you are selling through an agency model, where the storefront isn't setting the price, you need this kind of deal to prevent a publisher from forcing you out of the market by giving preferential prices to someone else.

As far as price fixing goes, it really is a moot point if you assume that most people want to read a specific book. If you want to read Harry Potter, that publisher already has a monopoly as no one else can print a Harry Potter book.

I think the biggest issue is the agency model gives an illusion of competition when really none exists because you are always buying directly from the publisher at whatever price they decide to set.

-D'oh!

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HB book prices

By DrApop on 6/9/2012 8:57:15 PM , Rating: 3

Yet I can walk into a BN and buy a 6 month to 1 year old hard back (HB) book on their clearance isle for $6.95 that usually costs $15-$20+ dollars a short while ago? But Amazon can't sell an electronic book/ebook for a price they want to sell it at?

BN and BAM can offer an annual card that gives users a 15-20% break on hardback and paperback books but Amazon has to sell ebooks at the publishers retail price.

Yeah, I can see how that is really fair....NOT!

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer