pdating our stories from the heat of battle Wednesday, there are a few things about the settlement between HarperCollins, Hachette Book Group, Simon & Schuster and the Department of Justice that we can clarify.
First of all, don’t expect any immediate changes at any ebookstore, including Apple’s iBookstore. All of the requirements for contractual changes will come only after entry of final judgment, which is subject to a review period of 60 days. During that period, “any person who wishes to comment” is welcome to write to:
Chief Litigation III Section
U.S. Department of Justice 450 5th Street, NW, Suite 4000
Washington, DC 20530
“All comments received during this period will be considered by the United States Department of Justice, which remains free to withdraw its consent.”
In their filings, DOJ provided a “competitive impact statement” that is slightly clearer than the settlement itself.
While Apple’s current contracts with settling publishers will be voided, Apple “will be able to negotiate new contracts with any settling defendant.” They expect “the contractual relationships between Apple and the Settling Defendants to be reset subject to competitive constraints.”
The publishers who settled are also required to terminate contracts with any ebook retailer that contains a price MFN in it. New ebook contracts may not contain a MFN for five years (though other parts of the agreement last only two years).
To correct our earlier account, retailers are allowed to lose money in selling any particular ebook, so there could indeed be individual titles that are deep-discounted below the price minus commission, and even titles that are placed into various value-schemes like a subscription library or buy-one-get-one-free.
What the agreement says is that publishers can chose to “prevent e-book retailers from cumulatively selling [their] e-books at a loss over the period of the contract.” As stated before, in the aggregate, a retailer can be limited to giving away only the commissions it collects during a one-year period from a settling publisher that continues with agency.
Justice notes with displeasure that “because retailer discounting is prohibited by the agency agreements, retailers have been prevented from introducing innovative sales models or promotions with respect to Publisher Defendants’ e-books, such as offering e-books under an ‘all-you-can-read’ subscription model where consumers would pay a flat monthly fee.” At the same time, Justice believes the revised discounting restrictions “allows a settling defendant to prevent a retailer selling its entire catalogue at a sustained loss.”
It certainly introduces a new element of unpredictability into how retailers might choose to deploy their discount pool–around new bestsellers and particular high-profile titles, or during important sales periods, like holiday buying. It’s also not clear what happens if a retailer “accidentally” extends too much discount that cannot be balanced during the full year of accounting.
At the same time, the settlement may inadvertently give settling publishers more freedom over ebook pricing, too. Since Apple’s original contracts will be voided, the “price bands” that Apple dictated which correlated allowable maximum ebook prices for new hardcover releases will also go away. Apple would need to renegotiate such provisions on a publisher-by-publisher basis, and given their modest market share they might have less leverage in limiting publishers’ pricing options. So it is possible–ironically enough–that the settling publishers could elect to continue with agency but adjust upward some of their ebook prices, or at least price them less uniformly. Competitive pressure from other publishers could limit that impulse, but it might insulate them aggressive discounting.
As for Bookish, a spokesperson from HBG says “the settlement should not delay or restrict the launch of Bookish.” Another person confirmed their understanding that the stipulations in the settlement refer to new joint ventures only (or a substantial change in any existing ones).
On the civil suits brought by ebook purchasers against publishers and Apple, Justice says that “entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust damage action.”
If you want to consult the full “competitive impact statement” yourself, you can start on page 9 (“explanation of the proposed final judgment.”)