Shatzkin Urges DoJ to Reconsider Discounting Rules in Letter

In the past weeks and until June 25, the Department of Justice will read and publish letters from anyone regarding its settlement with three large U.S. publishers for its e-book price-fixing lawsuit.

Earlier in May, Simon Lipskar of Writers House and the Association of Authors’ Representatives wrote a letter accusing the Justice Department of a “bizarre misunderstanding” of the book business.

Today, industry consultant (and DBW partner) Mike Shatzkin wrote his own letter to the DoJ in which he advocates for more detail around the new discounting rules and makes a case for how agency pricing fosters competition and innovation in the book industry.

From The Shatzkin Files:

One concern is the danger of introducing an enormous imbalance to the publishing business, which will ultimately hurt all authors and readers, through the Government’s apparent rejection of the idea of uniform pricing of the sale of individual ebooks across all Internet retail sites.

The other pertains specifically to the settlement agreement, in particular the need for detailed consideration of how one of its central operative provisions will be enforced and executed, which I believe is not reflected in the documents filed so far.

Indeed, it is precisely that direct customer contact, developed over 17 years as a retailer, that Amazon uses as a primary tool in its individual title marketing. Indeed, as you know, Amazon is now itself a publisher, using direct customer contacts to sell its own titles to consumers. In fact, Amazon’s customer database from its retail business (which goes beyond merely its book purchasers, since it sells almost everything) and the communication network it enables are extremely powerful. Using it as their core marketing tool, Amazon is succeeding at signing authors away from major houses even though it can’t deliver sales to physical stores, which have largely said they won’t stock books coming from their online competitor.

And therein lies the imbalance. The publisher of the future must be able to sell direct. With Amazon as their single biggest wholesale customer, that puts publishers in a Catch-22. If they sell direct at full price, Amazon will undercut them and make them look foolish to their customers. But if publishers discount, they invite a double-whammy. Amazon can still out-discount them, but Amazon (and other retailers) might also insist that the wholesale prices at which Amazon purchases from publishers, which are based on discounts-from-retail, be based on the price the publisher is actually selling for.

So, without a publisher-set price that is honored by everybody, including the publisher, Amazon will effectively be the only general publisher that can sell direct. This will materially disadvantage all publishers in competing with Amazon for authors, and the handicap will become increasingly severe as the sales continue to shift, as they will, away from physical stores and to online purchasing.

In a nutshell, without uniform retail pricing, Amazon can effectively disintermediate the publishers, but the publishers can’t effectively disintermediate Amazon.

My second concern relates to the terms of the proposed settlement with three publishers which the Court is being asked to approve. In apparent partial recognition of the dangers of discounting by retailers, particularly the deep-pocketed Amazon, the settlement limits a store’s discounting to the total amount of margin it earns from a publisher within a year.

This isn’t bad as a principle, and perhaps some variation of it could even address the concern I express about enabling publishers to sell direct. However, translating the principle into action is complicated. It will require reliable data collection, forecasting, and some means of enforcement. I see none of those elements spelled out in the settlement agreement.

Read the rest at The Shatzkin Files.

 

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