Barnes & Noble Says E-Book Deal Bad for Company, Consumers

Discussion
Jun 08, 2012

A proposed settlement of the government’s lawsuit against several book publishers for alleged price fixing would result in "higher overall average e-book and hardback prices and less choice, both in how to obtain books and in what books are available," according to a letter written by Barnes & Noble to the Justice Department.

In an April lawsuit, the government alleged that five publishers and Apple conspired to adopt a new pricing structure for e-books. Apple and the publishers agreed on an "agency" model where it would receive a 30 percent cut of each sale.

In traditional book retailing, retailers set the prices on books after purchasing them from publishers.

All parties named in the suit dispute the collusion charges. Publishers argue that they now receive less money per title than under the traditional model. The agency model, they argue, now allows retailers to sell e-books at a profit versus the traditional model where discounts come out of merchants’ pockets.

In its letter to the Justice Department, Barnes & Noble claims the agency model has helped to level the playing field. The company, which has a 27 percent share of the e-book market, claims that before agency pricing, Amazon.com held a 90 percent share of the market. Since then, it has seen Amazon’s number drop to around 60 percent.

Before going the agency pricing route, Barnes & Noble claimed it was "losing substantial money in an effort to compete with Amazon’s pricing and was unable to gain significant market share." It also asserted that "other potential e-book distributors declined to enter the industry."

In essence, as a blog by Rick Newman on the U.S. News & World report site points out, Barnes & Noble is arguing in its letter that the real issue in the e-book market is not that prices are being maintained at a high level through collusion, but that Amazon’s pricing is predatory and, left unchecked, will result in the demise of many e-book sellers. In that scenario, consumers will be at the greatest risk since Amazon will no longer have any competitors and therefore will be able to set any price it wants on titles.

The Justice Department, according to a Wall Street Journal article, maintains the proposed settlement "will begin to undo the harm caused by the companies’ anticompetitive conduct, and will restore price competition so that consumers can pay lower prices for their e-books."

Hachette Book Group, HarperCollins Publishers and Simon & Schuster have all agreed to settle with the Justice Department. Apple, Macmillan and Penguin Group have not reached a deal.

The settlement agreement includes the parties terminating their agreements with Apple and prevents them from entering into other agency agreements "that constrain retailers’ ability to offer discounts or other promotions to consumers to encourage the sale of the publishers’ e-books" for two years. The publishers also agreed to not share "competitively sensitive information with their competitors" for a period of five years.

Discussion Questions: Which do you think will ultimately be worse for consumers: the agency or the traditional book purchasing model? Do you see a third or middle way that might address the concerns raised in this case?

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9 Comments on "Barnes & Noble Says E-Book Deal Bad for Company, Consumers"


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Nikki Baird
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Nikki Baird
9 years 11 months ago
The agency model promotes alignment with the model that Apple (and Amazon, for that matter) use with independent authors and publishers. It seems to me that Apple has been trying to treat a publisher the same as, say, me, if I wanted to load an eBook into Apple’s iBook store and sell the title myself. With that perspective going in, I find all of these arguments confusing. As a consumer, the real deal to me is that it seems outrageous to pay exactly the same price for an eBook as I pay for a paperback or hardback novel. The product and distribution costs in the physical book are much higher. And my ability to “lend” my eBook to someone else is much more restricted. So why do they cost the same? Because the publishers are trying to maintain their grasp over a dying, old-school business model. Isn’t this exactly what happened with music? How much of a cut does Apple take for every song it sells? For every app? How does Amazon structure the payments… Read more »
Joan Treistman
Guest
9 years 11 months ago

Consumers will rule. E-books will find a way to reach readers. It may very well be that agencies and traditional book purchasing models will become part of literary history as new channels are created by innovative authors and publishers.

Max Goldberg
Guest
9 years 11 months ago

To Barnes & Noble, the sky is falling. To consumers, the cost of ebooks is about to come down. There is no reason for the cost of ebooks to be so high. Let the marketplace set the price, and let retailers compete for business based on price, service and access to readers.

Steve Montgomery
Guest
9 years 11 months ago

I read a lot — both ebooks and the more traditional hardbound books. I find that if I purchase a new release the price differential between the two alternatives is small whether it is because B&N, Sam’s and others discount the physical books 30%.

That does not mean the cost of the ebook is justifiable based on their cost. Once they move off the best seller/new release the price differential increases, but not to the degree the two methods of distribution should allow.

David Biernbaum
Guest
9 years 11 months ago

I agree with Barnes & Noble. If you don’t mind me placing my tongue inside my cheek for a moment, I strongly believe that the alleged price fixing is good for the industry.

Lee Kent
Guest
9 years 11 months ago

Nikki hit it on the mark! My sentiments exactly.

Doug Garnett
Guest
Doug Garnett
9 years 11 months ago

I’m not an expert on the subtleties of this distribution. But my bottom line is that for any new distribution, our joint goals in retail or e-tail must be to maintain a price model that continues to make it worthwhile to publish content. So far, the internet has shown exceptional ability to move things at a rate far below what makes it worthwhile.

What this means to me is that the government action has never made sense. There’s no heinous violation of free trade here. There’s no massive over-charging here. So my question is which political power drove this action?

The Justice Department should respect Apple’s goal to create business models where everyone succeeds and stay out of it.

gayle shanks
Guest
9 years 11 months ago

The agency model works. It was working well prior to the DoJ ruling. It is best for consumers to have choices where they buy and from whom. Unfortunately Amazon always wants the upper hand and refuses to compete on a level playing field.

Cathy Hotka
Guest
9 years 11 months ago

The problem with the “let the market determine it” model is that there’s a notable consolidation of the publishing market and distribution channels. Just as in the airline industry, fewer companies can mean higher prices. It’s not at all clear that prices are coming down….

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