The odd dynamics of the ebook anti-trust deal

Visitors try out various ebook readers at a book fair in Frankfurt. Image by Getty

Visitors try out various ebook readers at a book fair in Frankfurt. Image by Getty

So the US Department of Justice has struck, pushing three of the major book publishers into a settlement that will allow Amazon to resume discounting of electronic books, with three others left outside the settlement.

I’ve argued before against the anti-trust actions in the US and Europe to limit “agency pricing” by  publishers and hand power back to Amazon, so I won’t rehearse that here. Instead, I’ll consider briefly what the effect of the settlement is likely to be.

In short, although it is clearly good news for Amazon and bad news for the big publishers, the outcome may not be as clear-cut as the headlines suggest.

I say this for four reasons.

  1. Neither Penguin (owned by Pearson, which also owns the Financial Times) nor Macmillan have settled with the DoJ. They deny collusion to fix prices and intend to contest the claim in court.
  2. Random House has been left outside the argument because, having adopted agency pricing  later than the other publishers, there is no evidence that it colluded. It can thus carry on with its agency deals if it wants.
  3. The DoJ has agreed a clause with the three settling publishers that limits Amazon from predatory pricing. It is complex but the effect is that any new agency pricing deals must allow Amazon to discount from list prices, but it cannot price discount by more than the total annual commissions offered by a publisher. That appears to mean that Amazon can discount a publisher’s individual bestsellers to $9.99 or less if it wishes but it has to charge enough for the books the publisher sells through it not to lose money overall.
  4. There is a “cooling-off” period of two years before publishers can resume agency pricing on the former terms.

Add all of this up, and one gets an unpredictable dynamic. If Penguin and Macmillan win against the DoJ, then we could see three major publishers being able to stop Amazon from heavy price discounting, and three only having limited control.

The two-year clock starts ticking now for the publishers that settle, while Penguin and Macmillan may not be in court for some time. Meanwhile, they can stick to the current agency deals with Amazon.

It is thus conceivable – I don’t think likely – that publishers could ride out the settlement and eventually return to the status quo ante. But it would require a lot of determination on the publishers’ part in a fast-moving market.

If Penguin and Macmillan lose, then Amazon would be in a very strong position. They would have to drop their agency deals and agree to at least a two-year moratorium, while the others remained restricted. By the time the smoke cleared, Amazon would be firmly in charge.

Or we will be left with something in the middle – a tussle, with Amazon able to discount again for at least half of the bestsellers under scrutiny, while the publishers attempt to resist discounting with one arm tied behind their back.

[A declaration of interest: I have written books published by both Penguin and Random House. These are published in ebook form by Apple and Amazon, among others].