July 9, 2014

Did Judge Denise Cote accidentally screw Amazon?


Did Judge Denise Cote accidentally whack this guy in the side of the head? Sure looks like it.

Did Judge Denise Cote accidentally whack this guy in the side of the head? Sure looks like it.

Well, hell, no sooner do I chide big publishing for not speaking out about what’s really behind the war between Hachette and Amazon, and for issuing a series of “no comments” just like Amazon notoriously does, than suddenly everyone’s talking!

Of course, my point remains as valid as ever — they’re just hurling “baloney!” at each other, as another of today’s MobyLives reports details more closely. Neither party is making honest, substantive statements about what they each stand for, and what’s really at the heart of their dispute. It’s all so much positioning to win a publicity war.

Which means that, at this late date in the now entrenched warfare between these two giants (although do please note: one of these magillahs — oh, guess — is something like 70 times bigger than the other) even at this late date we don’t really know: What, precisely, is the Amazon – Hachette dispute really about?

The general speculation — and it is speculation — is that Hachette wants to return to agency pricing, and that Amazon is adamantly opposed to that, because agency pricing would prevent the kind of discounting that Amazon has used to gain overwhelming domination of the marketplace. Agency pricing, see, is the pricing model whereby publishers can set the price of their own books, which would thus allow them to stop the drastic loss-leader price reductions employed by Amazon, which publishers feel are not only in violation of fundamental antitrust laws, but are also driving prices below production costs, not to mention devaluing books in general.

However agency — and this is big — is also the pricing model that led the Department of Justice to successfully sue Apple and five of the six biggest publishers in the country (including Hachette) for collusion when they all started using it.

Most people in the book industry — as well as most people with opposable thumbs — consider Judge Denise Cote‘s bizarre decision against Apple and the publishers in that case as a kind of government sanctification of Amazon’s monopoly over the book business. But could it be that, in the end, her judgement is actually giving Apple a huge competitive pricing advantage over Amazon?

Could it be some form of turnabout equals fair play, mega-corps version, is what’s driving Amazon to such transparently venal extremes?

In a report for Goodereader Mercy Pilkington proposes exactly that, by noting that Judge Cote’s decision actually prohibited Apple from using the agency pricing model with publishers for two years, meaning that in the interim it could indeed go ahead and do the kind of discounting that agency prevents — and that Amazon would be blocked from doing under the agency model deal now supposedly being demanded by Hachette.

According to Pilkington,

Hachette wants Amazon to have to submit to the no-discount policy of agency model pricing, knowing full well that Apple is legally bound to not enter into that agreement and can therefore discount ebooks all it wants to. Amazon will be held to whatever price Hachette decides to charge, while Apple can set its own prices, including selling titles at a loss.

Of course, there are complications. Cote’s decision, in addition to forcing the publishers to settle and accept devastating fines in the tens of millions of dollars, also set up a staggered contract negotiation schedule with publishers for both Amazon AND Apple. Cote’s idea was that having each publisher’s contract with Amazon come up for renewal at the same time — as it had since Amazon’s inception — had led to the collusion she convicted the five publishers of having committed. Thus, she set up a staggered schedule of contract negotiation between the five publishers and Amazon — and between the five publishers and Apple.

But according to Pilkington that means that publishers who fall late in that staggered schedule stand to be damaged. Thus,

Macmillan and Simon & Schuster have filed court documents contending that the entire situation will work to harm their businesses. Since Apple is filing appeals and has therefore not resolved the issue on when agency model can be reinstated, and since Macmillan and S&S are presumably now at the back of the line of publishers, they cannot institute agency pricing with Apple (and therefore, by common sense, any other retailers) until sometime in late 2017.

In the current stand-off, though, this reading of the situation would put Hachette, at least, in a significantly more superior position than previously thought. And Amazon’s desperate hail Mary pass to Hachette authors yesterday only seems to make that all the more true.


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.