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Coming Soon: Money in Our Kindle Accounts from the Intellectual Giants Who Brought You eBook Price-Fixing!

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We’ve been looking forward to this for a while now, and it came today in the form of the email message below from Amazon.


Dear Kindle Customer,

We have good news. You are entitled to a credit for some of your past e-book purchases as a result of legal settlements between several major e-book publishers and the Attorneys General of most U.S. states and territories, including yours. You do not need to do anything to receive this credit. We will contact you when the credit is applied to your Amazon.com account if the Court approves the settlements in February 2013.

Hachette, Harper Collins, and Simon & Schuster have settled an antitrust lawsuit about e-book prices. Under the proposed settlements, the publishers will provide funds for a credit that will be applied directly to your Amazon.com account. If the Court approves the settlements, the account credit will appear automatically and can be used to purchase Kindle books or print books. While we will not know the amount of your credit until the Court approves the settlements, the Attorneys General estimate that it will range from $0.30 to $1.32 for every eligible Kindle book that you purchased between April 2010 and May 2012. Alternatively, you may request a check in the amount of your credit by following the instructions included in the formal notice of the settlements, set forth below. You can learn more about the settlements here:
www.amazon.com/help/ agencyebooksettlements

In addition to the account credit, the settlements impose limitations on the publishers’ ability to set e-book prices. We think these settlements are a big win for customers and look forward to lowering prices on more Kindle books in the future.

Thank you for being a Kindle customer.

The Amazon Kindle Team



(c) 2012 Amazon.com, Inc. or its affiliates. All rights reserved.
Amazon.com, 410 Terry Avenue N., Seattle, WA 98109-5210.

Reference: 26267380

Please note that this message was sent to the following e-mail address: windwalkerbooks@gmail.com


Benefits from an Attorney General E-books Settlement Fund

Para una notificación en Español, llamar o visitar nuestro website.

Records indicate that you are eligible for a payment from Settlements reached by the State Attorneys General with E-book publishers Hachette, HarperCollins, and Simon & Schuster. The Settlements resolve an antitrust lawsuit about the price of electronic books (“E-books”). Amazon.com has not been sued in this case. It is providing this notice as a service to its customers.

What the Settlements Provide

The Settlements create a $69 million fund for payments to consumers who purchased qualifying E-books from April 1, 2010 through May 21, 2012. If the Court approves the Settlements, eligible consumers like you will receive automatic credits to your E-reader accounts. The credit can be used on any purchases of E-books or print books. The amount of your payment has been determined based on the qualifying E-book purchases identified by Amazon.com in your E-reader account.

How to Receive your Benefit

Because you are pre-qualified, you do not need to do anything to receive your credit. It will be applied to your account by Amazon.com automatically, and you will receive another email letting you know when it’s available. (If you bought E-books from more than one retailer, you may receive notices with different instructions about whether you will receive a credit or need to file a Claim Form for that retailer. You will have a separate claim for each retailer and you should follow the specific instructions from each one.)

You also have the option to receive a check instead of your credit. You can request a check by calling 1-866-621-4153, or going to the Settlement website listed below, and clicking on the Check Request Option link. Be sure to reference the Settlement ID number found at the bottom of this email. The Settlement website is: www.EBookAGSettlements.com

Your Other Rights

You can choose to exclude yourself from the Settlements and keep your right to sue on your own. If you exclude yourself, you can’t receive any benefits from the Settlements. If you don’t exclude yourself, you can submit objections about the Settlements.

Your written Exclusion Form or objections must be postmarked by December 12, 2012. Please visit the Settlement website for detailed information on how to submit a valid Exclusion Form or objection.

A separate lawsuit against two other publishers and Apple, Inc. continues and is set for a trial in 2013. Your rights in the separate suit are not affected by any action you take in regards to these Settlements.

The Court will hold a hearing on February 8, 2013, at 10:00 a.m. to consider whether to approve the Settlements. You or your own lawyer may ask to appear and speak at the hearing.

For more detailed information:
Call 1-866-621-4153 or visit www.EBookAGSettlements.com

And here’s all the information from www.amazon.com/help/agencyebooksettlements:

Customer FAQ for Attorneys General E-book Settlements

What are the settlements?
Publishers Hachette, Harper Collins, and Simon & Schuster have settled an antitrust lawsuit about e-book prices that was brought by a coalition of state Attorneys General. Amazon is not a party to this lawsuit. Under the proposed settlements, the publishers will provide funds for a credit that will be applied directly to Amazon.com accounts of eligible customers. If the Court approves the settlements, the account credit will appear automatically and can be used to purchase Kindle books or print books. Alternatively, eligible customers may request a check in the amount of the credit by following the instructions included in the formal notice of the settlements. For additional information, please visit www.EbookAGSettlements.com.

Who is eligible for this credit?
If you received an email about the settlements from Amazon, you are eligible for this credit and it will be applied automatically to your account. To be eligible, you must have a U.S. billing address and must have purchased a Kindle book published by Hachette, Harper Collins, Simon & Schuster, Penguin or Macmillan between 4/1/10 and 5/21/12. Customers who returned these books or were refunded their money do not qualify. Residents of Minnesota are also excluded from the settlements. For additional information, please visit www.EbookAGSettlements.com.

I think I’m entitled to a credit but I didn’t get an email. How do I check?
We sent emails to eligible customers based on the criteria provided to us by the Attorneys General. All eligible customers will have the credit automatically applied to their accounts. If you have questions about the criteria, please visit www.EbookAGSettlements.com. If you think you made a qualifying purchase but did not receive an email from Amazon, please contact Amazon Customer Service using the Contact Us button on the right side of this page. If you’d like to opt for a check, you may also provide an Order ID from any of your Kindle purchases to the settlement website, www.EbookAGSettlements.com. You will be notified by the settlements administrator appointed by the Court if you are eligible for the check.

I am a resident of Minnesota – why don’t I qualify?
We’re sorry, but we understand that the Attorney General of Minnesota chose not to participate in the settlements.

When will I receive this credit?
The proposed settlements are still subject to court approval. A hearing on the settlements will be held on February 8, 2013. When the Attorneys General notify us that the settlements are final, we will automatically apply the credit to the accounts of eligible customers and send another email notifying them that the credit is available.

How will I know if the settlements are approved?
If the Court approves the settlements, we will provide an automatic credit to the Amazon accounts of eligible customers. We will then send an email letting them know the credit is available. Eligible customers do not need to do anything to receive the credit.

Did Amazon disclose any of my personal information?
No, Amazon did not and will not disclose any of your personal information. Eligible customers do not need to do anything or give any information to anyone to receive the credit.

What if I bought a qualifying e-book from another retailer?
For questions about other retailers, please visit www.EbookAGSettlements.com.

What is the Settlement ID Number for?
The Settlement ID Number is generated by Amazon and included within the legal notice from the Attorneys General, which we included in the email we sent to eligible customers. The settlement website will require customers to submit that number, along with other information, in order to opt out of the settlements or request a check in lieu of an account credit. Eligible customers do not need to do anything with the Settlement ID Number in order to receive the credit.

I lost my Settlement ID. Can you help me find it?
All eligible customers will automatically get the Amazon credit. You only need the Settlement ID to take a different action on the settlement website, www.EbookAGSettlements.com. If you lost your Settlement ID, please contact Amazon Customer Service using the Contact Us button on the right side of this page.

Where can I find my Settlement ID on my email?
Eligible customers can find the Settlement ID at the very bottom of the email that you received from Amazon. Look for the sentence “Settlement ID Number:”

How much will my credit be?
While we will not know the amount of the credit until the Court approves the settlements, the Attorneys General estimate that it will range from $0.30 to $1.32 for every eligible Kindle book that was purchased between April 2010 and May 2012. For more information, please visit


Will this credit expire?
The credits will be valid for one year from the time they become available. Amazon will apply the credits automatically to any Amazon Kindle book or print book purchase.

What if I bought an eligible book but returned it?
We’re sorry, but returns are not eligible for this credit.

Who is funding this credit?
The publishers Hachette, Harper Collins, and Simon & Schuster will fund these credits.

Can I use this credit for non-book purchases?
No, but you can apply this credit toward any Kindle book or print book.

How do I exclude myself from receiving this credit?
For more information, please visit the settlement website: www.EbookAGSettlements.com.

How do I get a check instead of a credit?
For more information, please visit the settlement website: www.EbookAGSettlements.com.

Where can I read more about the settlements?
For more information, please visit the settlement website: www.EbookAGSettlements.com.

Kindle Nation Daily’s Letter to the Department of Justice in the DOJ eBook Price-Fixing Lawsuit Against Apple and Five Publishers

(Editor’s Note: As we have mentioned beforethe U.S. Department of Justice (DOJ) has filed a major antitrust lawsuit against Apple and the five original “agency model” publishers charging them with a massive price-fixing conspiracy in violation of federal law. The DOJ Antitrust Division and the court wants to hear from members of the public during a 60-day comment period on the lawsuit which expires June 25, and what follows is my letter to the court. Please see this post for instructions on how to submit your comments. –Stephen Windwalker.)

June 18, 2012

Via Priority Mail

John Read, Chief
Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street, NW, Suite 4000 Washington, DC 20530


Dear Mr. Read,

I am writing to you both as an individual citizen, reader, author, and former independent bookstore owner, and also as the founder of  the Kindle Nation Daily website, one of the largest active communities of ebook readers and enthusiasts. Along with tens of thousands of other avid readers and thousands of other authors who are associated with the Kindle Nation Daily community, I am keenly interested in the Department of Justice’s (DOJ) civil antitrust action (United States v. Apple, Inc. et. al., Civil Action No. 12-CIV-2826) against Apple, Inc., and five of the largest U.S. book publishers (defendants). My purpose in writing this letter is to share and underline several points that I believe should be central points of emphasis for the DOJ and the courts as this case proceeds and legal remedies are considered.

My single most important point is one that I am sure the DOJ and the court understands well, but which appears to be a matter of confusion for many others: the major parties in this case are the six defendants (Apple and the five publisher defendants) and the DOJ, which is empowered here to act on behalf of consumers. While it ought to be obvious that this is so, and that the alleged collusion has robbed tens of millions of dollars from American consumers and denied them the opportunity to read millions of other books that they deemed they could not afford, many who have commented on this case have tried to shift the focus, from this irreparable harm to consumers, to the consequences of judicial action for other interested entities who are not parties to the case, including Amazon, Barnes & Noble, and countless other booksellers, authors, literary agents, and other intermediaries and players in the book business. As recently as today the headline in the New Yorker’s coverage of the case demonstrates this confusion: “Paper Trail: Did publishers and Apple collude against Amazon?” Of course it would be naive not to recognize the importance of the case to these players, but to seat them at the table as parties is to miss the point of the irreparable harm to consumers.

In an effort to place the primary focus where it belongs, I would like to offer the following points and perspectives:

1. By colluding to raise new-release ebook prices by 30 to 100 percent, the defendants have caused irreparable harm to millions of readers of all ages, including public school and college students and other children, families, and people of limited means who bought ebook readers or downloaded free Kindle apps based on the affordability of ebooks before the defendants imposed the agency model. Prior to the launch of the Kindle it was widely believed that reading was on the decline in the U.S., as noted by the late Steve Jobs when he declared early in 2008 that the Kindle was a flawed concept “because nobody reads any more.” Among the reasons for the decline of long-form reading were rising prices for new hardcovers and paperbacks, the closing of many public library branches and bookstores, and the diminishing selection of physical books offered to the American public through existing distribution channels. The launch of the Kindle in 2007 and the fact that Amazon made Kindle apps free for anyone with a smartphone, a computer, or a Kindle meant that any reader could have a well-stocked bookstore at their fingertips just about anywhere in the U.S. and beyond. The Kindle platform succeeded because of its catalog, convenience, competitive pricing, and Amazon’s customer base and unflinching commitment to the platform, and its success has helped to fuel a resurgence in reading that is bridging the digital divide across class and age lines. The Kindle store pricing that some of the defendants and other Amazon critics demonize as “predatory” has had a wonderfully positive effect on this resurgence in reading, and has social, economic, and cultural value far beyond anything that would be achieved, for instance, by propping up the defendant publishers or another player like Barnes & Noble.

2. Illegal collusive behavior must not be separated from the consequences of that behavior, either in the punishment of the behavior or in the remedies proposed. Many of the more thoughtful critics of the DOJ action have taken pains to state that they have no knowledge or legal expertise about the collusive behavior alleged by the DOJ, but such behavior and its objectives are and must remain at the center of this case: the DOJ alleges with an impressive recitation of evidence that the defendants participated in an unprecedented conspiracy to force retailers to raise their new-release ebook prices by 30 to 100 percent. If that’s what happened, the defendants must be punished and retailers must be allowed to restore competitive pricing. For the publisher defendants to claim no wrongdoing after they kept their corporate counsel out of the rooms in which the collusion allegedly occurred is, if the defendants acted as alleged by DOJ, an insult to the court and to all interested parties. When companies collude or conspire to raise prices to the detriment of consumers, they know full well that they are on thin ice. In this case, because of the defendants’ collusion, consumers paid tens of millions more than they would otherwise have had to pay for ebooks. In countless other cases they had to refrain from buying ebooks they hungered to read. Because of what the defendants did, they should not only have to stop doing it, but they should remain under close regulatory scrutiny (as spelled out in the proposed settlement) for years, and they should be required to pay tens of millions, and ultimately perhaps hundreds of millions, in actual and punitive restitution to consumers.

3. The U.S. publishing industry is fond of saying that “the DOJ doesn’t understand the book business.” However, the defendant publishers and their associated intermediaries and gatekeepers arrived in the 21st century very poorly prepared for the future either in their fundamental economic cost structure or in their commitment to invest in innovation. The industry’s major players do not deserve any fate other than that which a collusion-free marketplace holds for them. On the other hand, over the past decade, increasing numbers of authors, booksellers, publishers and others have combined innovation, the use of new technologies, and some risk-taking to circumvent what many feel has become a rather calcified literary-industrial complex and instead established new and profitable models for making more direct connections between authors and readers. In spite of the fact that readers are paying less for ebooks than they have paid in the past for print books, most of the authors of distinction who are taking a direct route to publishing are earning greater royalties than they would ever have received from traditional publishers. They have shortened the publishing timetables from years (or in some cases decades) to months or weeks. While traditional publishing players lament the costs, for themselves, of disintermediation, tens of thousands of others are clear winners in a world where intermediaries are no longer sheltered from the need to prove their worth. The defendants and their apologists have attempted to lock in the wastefulness and flawed economic decision-making of the industry and its intermediaries by passing their costs on to consumers in the form of the 30 to 100% price increases imposed by the agency model, but claims that DOJ should protect the intermediaries in the publishing world have neither a legal basis nor any value for the culture or the country. It would be more accurate for publishers to say that the DOJ “doesn’t understand our book business the way that we understand our book business.” That would be fair in a certain sense, but the truth is the publisher defendants’ focus on their own understanding of how the publishing business used to work has kept them from evolving and understanding how the publishing business works now, and how it may work for at least a few years in the future.

4. The U.S. book publishing and bookselling business has been undergoing enormous change and disruption for decades, but the book trades are not a public utility. It is not the role of government or the courts to prop up the industry or any of its players. It would be especially inappropriate for the government or the courts to manage the aforementioned change and disruption so as to punish innovators, provide life support for second- and third-movers or protect industry players whose demise may be imminent due to their lack of innovation or financial discipline. The number of independent booksellers has been in steady decline for decades and will almost definitely continue to decline for the next several years, regardless of the DOJ action. Over the 20-plus years since I owned an independent bookstore and was a member of the American Booksellers Association in the 1980s, there have been many bogeymen blamed for the demise of independent brick-and-mortar bookselling, including of course Barnes & Noble itself. Like Borders before it, Barnes & Noble may well go out of business in the next few years because of poor management of real estate costs and its late, second-mover entry into the two major growth markets for bookselling in the past 15 years, online bookselling and ebooks.  But the idea that the DOJ should be in the business of propping up Barnes & Noble by reframing the remedies in this case is as odious as it would be if we were to substitute the name of WalMart in the equation, particularly after Barnes & Noble has played as great — and some would say as “predatory” — a role as any other company in hastening the demise of independent retail brick-and-mortar bookstores over the past few decades. Nor should DOJ prop up independent booksellers, as much as we may lament their demise. Sadly, the focus on the various bogeymen blamed for these developments, and booksellers’ ideological opposition to the Amazons and others, has too often taken those booksellers’ focus away from the kinds of innovation and entrepreneurial thinking that have saved some bookstores and might, if in greater evidence, have saved far more. Nor is it true that even a single independent bookstore would be saved were the DOJ or the court to reframe its proposed remedies so as to save Barnes & Noble or to soften the impact for the defendant publishers.

5. The widely promulgated notion that the agency model has created a lush garden of innovation in the ebook business is patently untrue. The initial Barnes & Noble Nook was widely seen as a second-mover product that was very nearly dead on arrival when it was launched several months before the advent of the agency model. It began to gain traction only when the agency model guaranteed Barnes & Noble a 30% gross margin and freed it of any need to compete with Kindle Store pricing. By Barnes & Noble’s own public admission, the Nook might well have failed in free-market competition if it had not been for the agency model conspiracy. The primary Nook “innovation” advanced to date is the relatively minor enhancement of a front-lit glowing screen, and other elements of the Nook infrastructure such as the Pub-it authorship platform are barely distinguishable from previously existing elements of the Kindle infrastructure. Much and perhaps most ebook reading on the iPad and iPhone occurs in the Kindle environment, and Apple’s claim that the iPad and its search-unfriendly, thinly populated iBookstore are successful innovations is a fantasy: the primary success of the iBookstore has been that it made the agency model price-fixing scheme possible in the minds of the defendant publishers.

6. Many of the arguments against the DOJ’s action and proposed remedies are based on intense fear and loathing of Amazon, none of which is surprising in an industry which is both change-averse and especially well-connected to the chattering classes in the national news media. It is absolutely appropriate for the DOJ and other government agencies to continue to scrutinize Amazon’s behavior as a corporate taxpayer, as a direct or indirect corporate employer, as a gatherer of customers’ private information, or as a competitor in the national and global business marketplace. DOJ may well be justified in taking future action on one or more of these issues, but there is no basis for penalizing Amazon now because it is big, because it is an aggressive innovator whose success is based on disrupting existing business models, because it has shown a creative capacity to reduce consumer prices while still paying full wholesale prices itself, or because smart disintermediation allows it to pay an author a higher royalty for a $5 ebook sale than a traditional publisher would pay an author for a $25 hardcover sale. If at some point in the future Amazon uses its growing marketplace clout to squeeze authors or publishers, for instance, DOJ should not hesitate to haul the company into court, but such behavior cannot be presupposed, and indeed it would require such a radical change in Amazon’s business model that it would be immediately obvious to all.

7. Although Barnes & Noble attorney David Boies indulges windy, sweeping prose on behalf of “the national economy and culture, the future of copyrighted expression and bookselling in general,” he does not provide any evidence or argument that cultural and business trends that are already well underway would be reversed if the DOJ action were not taken. The bottom line in Boies’ argument is the bottom line for Barnes & Noble, a failing company that is choking to death on its own expensive real estate leases and its lack of innovation during the decade when its former primary position in the U.S. retail book business was overtaken by a much more innovative upstart competitor. In service of that bottom line, Boies wants DOJ to frame its actions so as to prop up and protect Barnes & Noble so that, for as long as it is able to hang on, it can wring as much profit as possible from its second-mover status in the ebook marketplace. But the bottom line for consumers should take precedence over Boies’ desire to keep Barnes & Noble on life support. Consumers who purchase and read ebooks have lost tens of millions of dollars because the defendants conspired to raise the prices of bestselling ebook new releases. The defendants’ behavior described in the court documents has been reckless, avaricious, and destructive — perhaps even to “the national economy and culture, the future of copyrighted expression and bookselling in general” — and the DOJ should not rule out the possibility of criminal prosecutions if facts warrant as this action proceeds. Finally, it is somewhat surprising that we must take pains to correct some of the utterly inaccurate notions with which attorney Boies has burdened the record in this case. Among the country lawyer’s tricks with which Boies has attempted to dazzle us are his claims that the American public opposes the DOJ action because Manhattan Senator Charles Schumer opposes it, or that authors oppose the action because Boies has offered up a quotation from Scott Turow, president of the notoriously litigious Author’s Guild, which has been on record in the past as opposed to public library book borrowing.

8. The proposal by some that fairness could be achieved via a decision to allow publishers to mandate uniform retail prices would be catastrophic for readers. Such a mandatory price-setting scheme would reward the colluders and would do more to maintain the outmoded status quo in the publishing world than other step that has been proposed. Worst of all, of course, it would allow the defendants to continue to steal tens of millions of dollars each year from the pockets of consumers.

9. Instead of innovating to become leaner, faster, and more profitable in the new world of publishing, the defendants decided to try to stop time by breaking the law. Faced with the fears that motivated the agency model conspiracy, publishers might have taken a different, more innovative path. They could even have followed such a path collectively without fear of violating anti-trust laws. When Amazon launched its new, disruptive ebook business model, beginning ever so slowly in November of 2007, publishers might have reimagined and restructured the book business with new, innovative, more efficient, and profitable roles for themselves. They might have created their own online retail outlets to offer their titles in Kindle-compatible ebook form. They might have worked with brick-and-mortar booksellers to bundle ebook and digital formats at handy little kiosks in every bookstore. They might have turned ebooks into the 21st century reincarnation of Literary Guild and the Book-of-the-Month Club, those 20th century behemoths that managed to sell millions of hardcover books for 99 cents each without creating any significant scare over the erosion of “the value of the book.” They might have tried to strip away the excess weight of unsustainable corporate costs and their reckless addiction to gamble huge advances for bestsellers, to rework their economics at new, competitive price points. They might have said, “We’re no longer going to pay for intermediaries that add no value.” They might even have pursued one of the collective strategies that they considered and rejected back in 2009, called Project Z or Bookish, to create a joint venture that would establish a new ecommerce platform to sell ebooks wholesale to retailers, or retail to the ebook-buying public.

10. Although neither Amazon nor Barnes & Noble are full parties in this case, the DOJ and the court should impose one burden on both companies (and on defendant Apple Inc. and perhaps other ebook retailers) as part of the remedies associated with the actual and punitive restitution that defendants should be forced to pay to consumers. Specifically, the ebook retailers should be required to provide to all of their customers a detailed record of all ebooks that they ordered during the full period of the agency model from April 1, 2010 until the present date or beyond, in order for customers to qualify for the restitution payments due them.

I am grateful to the DOJ and to the court and all parties for your consideration of these matters, and I hope that all concerned will take these views into account in this case.


Stephen Windwalker

Founder and CEO, Kindle Nation Daily


How Kindle Owners and Readers Can Make Their Voices Heard in the DOJ “Agency Model” Antitrust Lawsuit Against eBook Price-Fixing by Apple and the Big Publishers

Most Kindle Nation Daily readers are aware that the U.S. Department of Justice (DOJ) has filed a major antitrust lawsuit against Apple and the five original “agency model” publishers charging them with a massive price-fixing conspiracy in violation of federal law. But you may not be aware that the DOJ Antitrust Division wants to hear from members of the public during a 60-day comment period on the lawsuit.

If you believe that you have been affected my agency-model price-fixing and would like to share your concerns with the Department of Justice and the parties in this lawsuit before the proposed Final Judgment takes effect, you should put your concerns in writing and submit them no later than June 22, 2012.

Under the provisions of a notice published in the Federal Register on April 24, 2012, written comments should be submitted to:

John Read, Chief
Litigation III Section
Antitrust Division
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 to the proposed Final Judgment at any time prior to the Court’s entry of judgment. The comments and the responses of the United States will be filed with the Court and published in the Federal Register,” states the notice.

Why not just leave all this up to the government and the lawyers for it and the defendants?

Well, suffice it to say that individuals and groups associated with the defendants are sounding off through the comment process, and they are making very strong claims to the general effect that DOJ’s efforts to protect consumers against ebook price-fixing are misguided, because the DOJ should instead be protecting the interests and the distribution infrastructure of the same publishers who colluded with Apple to raise ebook prices by 30 to 100 percent back in 2010.

For all the public documents as well as our coverage of the lawsuit, please check out the Federal Register notice and our April 19, 2012 post, “The Gang That Couldn’t Shoot Straight: How Apple and 5 Big Publishers Almost Got Away with a Massive Price-Fixing Conspiracy to Try to Turn Back the Kindle Revolution, and What It Will Mean for Readers, Authors, and Publishers Going Forward.”

We’ll share our Kindle Nation Daily public comment on the case, as well as those of some industry players, in the near future.

The Gang That Couldn’t Shoot Straight: How Apple and 5 Big Publishers Almost Got Away with a Massive Price-Fixing Conspiracy to Try to Turn Back the Kindle Revolution, and What It Will Mean for Readers, Authors, and Publishers Going Forward

(The following will appear in slightly different form, perhaps with the addition of a glossary, as the Introduction to a new book by Steve Windwalker.)

With most of the books that I have published about the Kindle, I am well aware that readers want to charge up their Kindle, turn it on, download some books, and start reading. The purpose of my books is usually to make the experience richer by sharing information about how to get most out of the Kindle and how to find the best books at the best prices.

But the clash of forces that have been at war, mostly behind the scenes, in the Kindle revolution has had a dramatic effect on the availability of and the prices we pay for ebooks, and those changes have just begun. The machinations that led to the April 2012 U.S. Department of Justice anti-trust action against Apple and five of the six largest U.S. publishers will provide case study fodder both for law school and business school students for decades to come. The more you know about them, the more savvy an ebook consumer you will be. And while it is a fascinating story qua story, it is also no exaggeration to say that, if you have purchased any Kindle books at prices above $9.99 since April 1, 2010, you are likely to be a material party to the anti-trust action with a chance to benefit from a restitution fund that could grow to hundreds of millions of dollars.

So fasten your seatbelts, and here we go….

Apple. Hachette. HarperCollins. MacMillan. Penguin. Simon & Schuster.

One of the most innovative tech companies in the world, and five of the Big Six publishers.

That’s what we used to call them. Then, starting early in 2010, we all tried to come up with new names for them. Apple and the Apple Five. The Agency-Model Price-Fixing Co-Conspirators. The Greedy Dinosaur Publishers. But none of our phrase-making efforts had any special felicity.

But now the U.S. Department of Justice Anti-Trust Division, with its announcements of April 11, 2012, has made it easy on us.

Now there’s a new name for this wild bunch: The Defendants.

Many in the traditional publishing world believed that adoption of the ” agency model” was the biggest news of 2010 in the book business, and perhaps many of the same people will see the demise of the agency model as the biggest news of the next year or two.

Let’s take a look at how we got here, and where we are going. We’ll start back before April Fools Day, 2010 — the day that the agency model took effect — and continue right through to today and beyond by looking at some of the available tea leaves to see where prices, and the book business in general, are likely to go in the future.

The Defendants’ purpose in adopting the agency model was to end competitive pricing for ebooks, and to slow the growth of ebooks in general, and the growth of Amazon’s dominant market share in particular. They did this by foisting a new pricing model on all retailers — including Amazon’s Kindle Store — that had the effect of raising “new release” and many other ebook prices by 30% to 100% over the $9.99 price point that Amazon had established and maintained since the launch of the Kindle in November 2007.

That $9.99 price point involved Amazon taking a loss on some new-release bestsellers and selling others at breakeven, since most of the “copies” sold in the Kindle Store cost Amazon something in the $9 to $13 range, based on a wholesale pricing structure that involved a 50% discount on digital list pricing. Amazon’s strategic decision to lose money or only break even on such a significant part of its ebook sales was based on its belief that the overall “sweet spot” for ebook prices topped out at $9.99.

This limit on ebook prices would make them a compelling value proposition for consumers. Prices would be even lower in many cases for books from lesser known authors or books that had passed beyond new-release status. Beyond that consumer-driven approach to pricing, of course, the company was also pursuing two perfectly logical corporate goals: to achieve a dominant market share among ebook sales, and to grow the market share for the ebook format among all trade book formats.

Not surprisingly, publishers were terrified that Amazon’s loss-leader pricing for the Kindle Store would make it so dominant a player that it would be able to dictate wholesale and retail pricing terms throughout the marketplace. By the time Barnes & Noble launched the Nook in November 2009, Kindle owned a market share of well over 80% for ebook sales, and Nookstore pricing was, for the most part, roughly identical to Kindle Store pricing. Amazon had a powerful weapon that no longer existed for Barnes & Noble: its cash supply and overall marketplace power would allow it to continue taking retail losses or miniscule profits on the big publishers’ ebooks for years to come — or for however long it took Amazon, publishers feared, to be “the last man standing” in the book business.

It was this confluence of terrors — and the $9.99 price point that was at the heart of it — that drove five of the Big Six publishers (all except Random House) to enter into an obviously collusive price-fixing scheme with Apple to try, early in 2010, to block Amazon’s path to dominance. The publishers worried aloud to one another that the $9.99 ebook price point would lead to the erosion of hardcover prices, to ever-greater ebook popularity, and ultimately, perhaps, to demands by Amazon that the publishers lower their wholesale prices.

It’s worth noting here that the publishers might have taken a different, more innovative path. They could even have followed such a path collectively without fear of violating anti-trust laws. Although the agency-model publishers place the blame on Amazon for the business model disruption that the ebook revolution ignited, the fact is that Amazon’s highly successful entry into the ebook marketplace came, itself, out of its own private set of terrors. We have speculated before that back in 2003 and 2004 when Jeff Bezos, Steven Kessel, and others began dreaming up the Kindle and its associated publishing and retail platform, they were driven by fears that the rise of ebooks — with some other parties in the drivers’ seats — could, within a decade, destroy the retail print book business that was then the core of their business. It was only a matter of time.

So, it was Amazon that created the new, disruptive ebook business model, beginning ever so slowly at first in November of 2007. And publishers decided to fight back: not by reimagining the book business with new, innovative, profitable roles for themselves, but by marching in lockstep behind the late Apple CEO Steve Jobs in a baldly illegal and ultimately futile strategy to wield collusive power to save the past and block the future. They could have created their own retail outlets to offer their titles in Kindle-compatible ebook form. They could have worked with brick-and-mortar booksellers to bundle ebook and digital formats at handy little kiosks in every bookstore. They could have turned ebooks into the 21st century reincarnation of Literary Guild and the Book-of-the-Month Club, those 20th century behemoths that managed to sell millions of hardcover books for 99 cents each without creating any significant scare over the erosion of “the value of the book.” They could have tried to strip away the excess weight of unsustainable corporate costs and their reckless addiction to gamble huge advances for bestsellers, to rework their economics at new, competitive price points. They could have said, “We’re no longer going to pay for intermediaries that add no value.” They might even have pursued one of the collective strategies that they considered and rejected back in 2009, called Project Z, to create a joint venture that would establish a new ecommerce platform to sell ebooks wholesale to retailers, or retail to the ebook-buying public.

There were plenty of other publishers who wanted no part of the agency model. Venerable publishers like Houghton Mifflin Harcourt, Scholastic, Norton, Workman, Bloomsbury, and Disney’s Hyperion charted their own course, as did new and innovative companies like Open Road Media. Even Random House resisted considerable pressure from the Defendants and followed its own path — they held themselves out of the agency model for a long time and eventually used the agency model to take a more creative approach to price-setting. And then, of course, there were the most innovative new publishers on the scene — AmazonEncore, AmazonCrossing, Thomas & Mercer, Montlake, 47North and all the new imprints that have been rolled out over the past two years by Amazon Publishing. All of these companies — and I do mean all of them — have joined with independent authors and hundreds of small presses as well as millions of readers to take market share away from the Defendants and turn the book business upside down. It will never be the same again.

But none of that for Apple and the Defendants. Instead of innovating to become leaner, faster, and more profitable in the new world of publishing, they decided to try to stop time by breaking the law. “Come on,” you say, they didn’t decide “to break the law,” did they? It couldn’t have been that simple, could it?

Well, it always seemed pretty simple to us. I’m sure I was not the only observer, back in the early days of 2010, who watched the actions of Apple and their five co-conspirators and wondered, “Don’t they have corporate counsel with the guts to speak up and tell them they won’t get away with this?” But it turns out, according to the court documents, that none of the Defendants’ CEOs brought their corporate counsel along to the secret conspirators’ meetings that they held regularly at ritzy Manhattan eateries beginning in September 2008.

Sure, companies “collude” every day on a million little details, and most of the time they aren’t breaking the law. But there’s a big on-off switch that counts for a lot when anyone, including the Department of Justice or a federal court, is trying to figure out whether an instance of collusion is illegal: when companies collude or conspire to raise prices to the detriment of consumers, they are on thin ice. In this case, because of the Defendants’ collusion, consumers paid millions more than they would otherwise have had to pay for ebooks. So there it is in the most simple terms, but the more one looks into it, and the more one discovers about the law and the case history, the more it is clear that these jokers companies should have had someone protecting them from themselves. Because of what they did, they’ll not only have to stop doing it, but they will be under close regulatory scrutiny (spelled out in the court papers) for years, and they may well be required to pay tens of millions, and ultimately perhaps hundreds of millions, in restitution to consumers like you and me.

Strangely, in hindsight, one has to wonder if they thought they were invisible, or above the law. Part of their problem was their abject cowardice. Anything but fearless, they didn’t dare challenge Amazon’s pricing alone by pulling their books from the Kindle Store unless Amazon stopped its deep discounting of ebook prices. Had one of them done so, it might well have led to a different kind of legal High Noon where Amazon might have been vulnerable to regulatory scrutiny for monopolistic behavior of its own. After all, the point where the rubber hits the road for monopolies or near-monopolies is not whether they exist, but whether they use their monopolistic power to control the marketplace to the detriment of other parties. But Amazon has not — yet — had to defend itself on this terrain precisely because Apple and its co-defendants broke the law first. And with multiple smoking guns, many of them bearing Steve Jobs’ fingerprints.

Smoking guns? Here are a few choice tidbits from the court documents:

In December 2009, Apple approached each Publisher Defendant with news that it intended to sell e-books through its new iBookstore in conjunction with its forthcoming iPad device. Publisher Defendants and Apple soon recognized that they could work together to counter the Amazon-led $9.99 price. 

In its initial discussions with Publisher Defendants, Apple assumed that it would enter as an e-book retailer under the wholesale model. At the suggestion of two Publisher Defendants, however, Apple began to consider selling e-books under the “agency model,” whereby the publishers would set the prices of e-books sold and Apple would take a 30% commission as the selling agent. In January 2010, Apple sent to each Publisher Defendant substantively identical term sheets that would form the basis of the nearly identical agency agreements that each Publisher Defendant would sign with Apple (“Apple Agency Agreements”). Apple informed the publishers that it had devised these term sheets after “talking to all the publishers.” 

The volume of Publisher Defendants’ communications among themselves intensified  during the ensuing negotiation of the Apple Agency Agreements.  Through frequent in-person  meetings, phone calls, and electronic communications, Publisher Defendants, facilitated by  Apple, assured each other of their mutual intent to reach agreement with Apple.  After each  round of negotiations with Apple over the terms of their agency agreements, Publisher  Defendants’ CEOs immediately contacted each other to discuss strategy and verify where each  stood with Apple.  They also used Apple to verify their position vis-à-vis other Publisher  Defendants.  Penguin, for example, sought Apple’s assurance that it was “1 of 4 before  signing”—an assurance that Apple provided.  Two days later, Penguin and two other Publisher  Defendants signed Apple Agency Agreements.

To the extent Publisher Defendants expressed doubts during the negotiations about  whether to sign the Apple Agency Agreements, Apple persuaded the Publisher Defendants to  stay with the others and sign up.  For example, Apple CEO Steve Jobs wrote to an executive of  one Publisher Defendant’s corporate parent that the publisher had only two choices apart from  signing the Apple Agency Agreement:  (i) accept the status quo (“Keep going with Amazon at  $9.99”); or (ii) continue with the losing windowing policy (“Hold back your books from  Amazon”).  According to Jobs, the Apple deal offered the Publisher Defendants a superior  alternative path to the higher retail e-book prices they sought:  “Throw in with Apple and see if  we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

The Apple Agency Agreements contained two primary features that assured Publisher  Defendants of their ability to wrest pricing control from retailers and raise e-book retail prices  above $9.99.  First, Apple insisted on including a Most Favored Nation clause (“MFN” or “Price  MFN”) that required each publisher to guarantee that no other retailer could set prices lower than what the Publisher Defendant set for Apple, even if the Publisher Defendant did not control that  other retailer’s ultimate consumer price.  The effect of this MFN was twofold:  it not only  protected Apple from having to compete on retail price, but also dictated that to protect  themselves from the MFN’s provisions, Publisher Defendants needed to remove from all other e-  book retailers the ability to control retail price, including the ability to fund discounts or  promotions out of the retailer’s own margins.  Thus, the agreement eliminated retail price  competition across all retailers selling Publisher Defendants’ e-books.

Second, the Apple Agency Agreements contained pricing tiers (ostensibly setting  maximum prices) for e-books—virtually identical across the Publisher Defendants’  agreements—based on the list price of each e-book’s hardcover edition.  Defendants understood  that by using the price tiers, they were actually fixing the de facto prices for e-books.  In fact,  once the Apple Agency Agreements took effect, Publisher Defendants almost uniformly set e-  book prices to maximum price levels allowed by each tier.  Apple and Publisher Defendants  were well aware that the impact of their agreement was to force other retailers off the wholesale  model, eliminate retail price competition for e-books, allow publishers to raise e-book prices, and  permanently to change the terms and pricing on which the e-book industry operated.

The negotiations between Apple and Publisher Defendants culminated in all five  Publisher Defendants signing the Apple Agency Agreements within a three-day span, with the  last Publisher Defendant signing on January 26, 2010.  The next day, Apple announced the iPad  at a launch event.  At that event, then-Apple CEO Steve Jobs, responding to a reporter’s question  about why customers should pay $14.99 for an iPad e-book when they could purchase that e-  book for $9.99 from Amazon or Barnes & Noble, replied that “that won’t be the case. . . .     The prices will be the same.”  Jobs later confirmed his understanding that the Apple Agency  Agreements fulfilled the publishers’ desire to increase prices for consumers.  He explained that,  under the agreements, Apple would “go to [an] agency model, where [publishers] set the price,  and we get our 30%, and yes, the customer pays a little more, but that’s what [publishers] want  anyway.”

Those, friends, are smoking guns.

Meanwhile, Amazon played its hand in masterful fashion. And thanks to existing assets as well as smart moves that it had been making all along, it had a great hand to play. While the company certainly has its detractors among competitors, some publishers, some authors, and progressives who decry the company’s labor practices, it is nonetheless an enormously popular company. So progressives like me might wring our hands over the conditions faced by Amazon’s warehouse workers, but at the end of the day Amazon has more progressive titles and more progressive customers than any other bookstore. And publishers and authors might lament this, that, or the other thing about Amazon, but we all know they were not checking their sales rankings every hour on Barnes and Noble.

When it launched the Kindle, Amazon began with an unbeatable combination of the 4 Cs — customer base (more online customers than any bookstore in the world), catalogue (more online titles than any bookstore in the world), connectivity (easy, seamless, free wi-fi and 3G allowing customers to download any of its Kindle titles in seconds from almost anywhere), and convenience (the bookstore environment that it began building in the mid-’90s appeared in the Kindle Store on Day One, so that every customer knew how to use it from the get-go, and it only got better).

But of course those 4 Cs weren’t the only factors in establishing Kindle dominance. Amazon’s corporate wealth and power enabled it to take the notion of loss-leaders to a new level under the terms of the wholesale pricing model that had existed in the book trades for decades. From the DOJ court documents:

Under this wholesale model,  publishers typically sold copies of each title to retailers for a discount (usually around 50%) off  the price printed on the physical edition of the book (the “list price”).  Retailers, as owners of the  books, were then free to determine the prices at which the books would be sold to consumers.  Thus, while publishers might recommend prices, retailers could and frequently did compete for  sales at prices significantly below list prices, to the benefit of consumers.

By selling nearly every new release issued by a mainstream publisher at breakeven or a loss, Amazon made the Kindle a compelling money-saving gadget for avid readers. Although ebooks had existed as a futuristic dream with antecedents in the Palm Pilot, Project Gutenberg, and Doug Adams’ 1979 novel The Hitchhiker’s Guide to the Galaxy, it wasn’t until the Kindle’s launch late in 2007 that the ebook revolution began in earnest. Amazon sold out of its first Kindle units in under six hours and continued to dominate the small but growing ebook space throughout 2008. Oprah Winfrey ignited a new wave of Kindle love when she devoted a show to the little eInk gadget in late October 2008, and Amazon further cemented its dominant role with new Kindle models in early 2009 and mid-2010 and free apps that allow readers to “buy once, read anywhere” on any computer, smartphone or handheld device.

Although the Defendants’ launch of the agency model left Amazon with no short-term choice but to go along, the company understood the value of a symbolic fight in making it clear to its very loyal Kindle  customers that it opposed the new higher prices:

Starting the day after the iPad launch, Publisher Defendants, beginning with Macmillan,  quickly acted to complete their scheme by imposing agency agreements on all of their other  retailers.  Initially, Amazon attempted to resist Macmillan’s efforts to force it to accept either the  agency model or windowing of its e-books by refusing to sell Macmillan’s titles.  Other  Publisher Defendants, continuing their practice of communicating with each other, offered  Macmillan’s CEO messages of encouragement and assurances of solidarity.  For example, one  Settling Defendant’s CEO e-mailed Macmillan’s CEO to tell him, “I can ensure you that you are  not going to find your company alone in the battle.”  Quickly, Amazon came to realize that all  Publisher Defendants had committed themselves to take away any e-book retailer’s ability to  compete on price.  Just two days after it stopped selling Macmillan titles, Amazon capitulated  and publicly announced that it had no choice but to accept the agency model.

After Amazon acquiesced to the agency model, all of Publisher Defendants’ major  retailers quickly transitioned to the agency model for e-book sales.  Retail price competition on  e-books had been eliminated and the retail price of e-books had increased.

All of that worked very well for Amazon, but no strategy has paid off more handsomely in Amazon’s path to dominance than the one that, of course, would never have occurred to the big publishers: Amazon made a multi-faceted commitment to emerge as the publisher of choice for thousands of authors. These authors ranged from the self-published to previously published authors who wrested their backlist rights away from legacy publishers for the chance to handle their own marketing, control their own retail prices, and earn 70% royalties that allowed them to make as much per-unit on Kindle books priced under $5 as they had ever received from legacy publishers on print books priced five times as high. Amazon saw authors and small publishers as its customers, too, and understood that more authors meant more readers just as more readers meant more authors.

Amazon’s Kindle Digital Publishing (KDP) platform was just the beginning. Over the course of the last two years the company’s new imprints, willingness to sign new deals with a wide range of authors, and hiring of Larry Kirshbaum — the former Time Warner Book Group CEO called “the ultimate publishing industry insider” by Business Week — to run its own New York publishing operation made Amazon Publishing not only part of the conversation in publishing but a potential dominant player within the next year or two.

The hundreds of thousands of ebooks published via these new channels have made for dramatic changes in the shape — and the pricing — of the offerings in the Kindle Store. Amazon was able to ensure that nearly all of these titles were priced at $9.99 and below. And many thousands of these ebooks proved to be quality books that consumers wanted.

Many Kindle Store customers didn’t like paying 30% to 100% more for ebooks under the agency model, and Amazon’s ability to let a (few hundred) thousand flowers bloom in the Kindle Store gave those customers lots of other places to go. A phenomenal array of promotional pricing programs such as the Kindle Daily Deal, the long-awaited opening of zero-price promotions to KDP authors, the Kindle Owners’ Lending Library, and Amazon’s monthly offering of 100 Kindle Books for $3.99 or Less put the spotlight on those places and rubbed the Defendants’ noses in what they were missing to such an extent that one wouldn’t blame some of the Defendants if they had breathed a sigh of relief when the anti-trust lawyers came knocking on the door to save the Defendants from themselves.

And they went to those other places, by the millions. Or, to put it another way, the Defendants lost millions of ebook sales over the past couple of years to indie authors, small presses, and the innovative publishers we mentioned earlier, including Amazon Publishing and its imprints. They lost extremely valuable real estate on the ebook bestseller lists, and they may not get it back. In many cases they lost the readers themselves: among 2,377 respondents in the Winter 2012 recent Kindle Nation Citizen Survey, 61% said they “agree” or “agree strongly” with this statement:

Higher prices for new releases from the big publishers have driven me to try more and more indie authors, and I like what I have found

While we have observed numerous indicators over the past two years that have shown the agency model’s lethal effect on the Defendants’ market share, we also have these remarks from the single individual who probably has more access to ebook sales and pricing data than anyone else in the world, in a June 2010 Fortune interview with Amazon CEO Jeff Bezos:

Fortune: In the past, you’ve been a big proponent of lower prices for ebooks and an open opponent of the book publisher agency model, which allows the publisher to set the final retail price whether there’s an intermediary retailer or not. Now that you’ve switched to an agency model, will ebookstores like Amazon’s get hurt?

Bezos: No. First of all, there are a bunch of publishers of all sizes, and they don’t all have one opinion. There are as many opinions about what the right thing to do is as there are publishers. So you’re seeing that some of them are being very aggressive on prices, pricing their books well below $9.99.

Others are trying to do everything they can to make prices as high as possible. And what you’re going to see is a share shift from one group of publishers to this other group of publishers.

Fortune: Do you expect a significant share shift? When do you see that happening?

Bezos: It’s a significant shift and we’re seeing it already.

The point, of course, was that Fortune’s inaccurately premised question notwithstanding, Amazon did not “switch to an agency model.” Amazon acquiesced in the decision by some publishers to force the agency model on it, and then took all possible steps to expose its readers to as many non-agency titles as possible.

To put it another way, the Department of Justice statement in court documents that “retail price competition on  e-books had been eliminated and the retail price of e-books had increased” due to the agency model is not accurate. Amazon’s multi-pronged initiatives with authors, other publishers, and its own new publishing imprints meant that that there would be a different kind of price competition: price competition between the Defendants’ titles and all the other titles in the Kindle Store. And the retail price of all those other ebooks would be lower, not higher than in the past.

On April 1, 2010, the day that the agency model went into effect for its proponents, there were 480,236 ebooks in the Kindle Store, and 23% of them were priced at $10 and up. As of April 15, 2012, the total Kindle catalogue had almost tripled, to 1,356,286, and fewer than 14% of those titles were priced at $10 and up. At that same point on Sunday, April 15, only three of the top 20 bestselling titles in the Kindle Store were published by the Defendants (two by Hachette and one by MacMillan), and two of those three were priced at under $8.

With trends like these, it’s probably fair to say that the agency model would have died, eventually, even without Dept. of Justice intervention. Apple’s failed iBookstore never grew to a point where it would have provided real cover for the Defendants if Amazon had called their bluff and started picking them off one at a time. By most accounts the iBookstore accounts for no more than 10% of the ebook market, and our anecdotal impression is that the Kindle App accounts for far more reading on the iPad and other Apple devices than iBooks. The Google books initiative that was touted (however ludicrously) as the savior of indie bookstores just a couple of years ago is dead.

One of the rich ironies in all of this is that the Defendants actually lost money by switching to the agency model. Under the wholesale pricing model that had been in effect for ebooks for over two years, the suggested list price for a new release Kindle book was usually the same as the suggested list price for a hardcover. For a book listed at $20 to $25, the publisher received $10 to 12.50 from Amazon for each copy sold, and Amazon was free to set its own retail prices — usually $9.99 on Kindle and about $14-$17 for the hardcover. Under the agency model, when the publisher mandated a retail price of $12.99 to $14.99 for an ebook, it stood to receive 70% from Amazon or another retailer — or somewhere between $9 and $10.50. You’ve gotta hand it to Steve Jobs for the sales job he must have done on those helpless Defendant publishing executives!

Now, of course, the publishers stand to lose even more under the agency model. The infrastructure required to support the model was expensive, and the switch-back will also be expensive. Whether or not the publishers’ corporate counsel were earning their keep back in early 2010, there are certainly some serious legal costs now as all of the Defendants are being represented in federal court by some of the highest-billing law firms in the country.

And then there’s the coup de grace: While the federal Department of Justice was acting to secure remedies that it said will restore competition to the ebook marketplace, 16 state attorneys general were suing for another kind of remedy. It was announced on April 11, 2012 that two of the Defendants had settled with these states to create a $51 million restitution pot for ebook customers. It now appears that this fund will soon become much larger, as Jeff Roberts reported on PaidContent.org that “a HarperCollins lawyer predicted that three publishers could reach a settlement with all 50 state governments in the next two months.  Such a deal would not only expand an existing proposed settlement that would refund money to e-book buyers…. The developments came at [an April 18] status hearing in Manhattan attended by Apple, the five ‘big six’ publishers who are under investigation, the Department of Justice and  three state governments.” By the time we’re done, the cost of these restitution settlements is likely to amount to hundreds of millions of dollars.

The hand-wringing by friends of the big publishers in the mainstream media over the Department of Justice’s moves has been something to behold, but it comes as no surprise. Big publishing and big news media are closely linked as a matter of economics, ownership, and corporate culture. The story line of much of the media coverage has been very simple: the DOJ has just killed off the entire US publishing industry and named Jeff Bezos king.

The truth is that the big publishers and their chosen intermediaries (traditional-model literary agents, brick-and-mortar distribution channels, etc.) had one collective dinosaur foot in the coffin before they launched the agency model strategy, and most of the moves that they have made since the launch of the Kindle will only hasten their coming descent into total irrelevance.

Where do we go from here?

Amazon has occasionally been criticized by investors and analysts for growing its gross-revenue top line and various digital and physical delivery systems at the expensive of net profits, but the company is certainly profitable. What it is really doing with loss leaders and paper-thin margins on products and services like Amazon Prime and Kindle hardware is growing market share. As the Defendant publishers and their physical book distribution systems get smaller and less profitable, competitors like Barnes & Noble teeter on the Borders of financial failure, and Apple becomes bored with an iBookstore whose marketplace it cannot control by illegal means, Amazon’s share of the total book trades market only grows, and grows, and grows. That market share grew dramatically throughout 2011 and early 2012 even while Amazon was barred by the Defendants from competitive pricing of their ebook offerings. Now that Amazon is free to hit consumers’ sweet spots with Kindle prices for all books, the growth will only intensify. As astonishing as it may seem, Amazon could well reach a 50% market share for the entire U.S. trade book business across all formats by the end of 2013.

Along the way, we can expect to see new release bestsellers offered again at prices under $10 in the Kindle Store, with prices falling to the $4 to $8 range after books have been available for several months, and hundreds of thousands of ebooks and many future bestsellers priced at under $4, with many of these highlighted through the promotional programs noted earlier. For an advance look at what Kindle prices and the Kindle bestseller lists may look like in the future, it’s worth checking out the 140,000 “Prime-eligible” titles that currently make up the Kindle Owners’ Lending Library:

  • All of them, of course, are priced below $10.
  • Among the 100 most popular titles on the list as of April 15, 43 are priced under $3, 24 are priced between $3 and $4.99, and 33 are priced between $5 and $9.99.
  • Authors earned 70% royalties on any sale of the vast majority of these 140,000 titles.
  • Kindle owners with Prime memberships “borrowed” these titles about 275,350 times in March 2012, and although each “borrow” transaction was free for the customer, Amazon paid authors or publishers $2.179 per borrow.

Of course there will continue to be some books priced above $10, as there should be. “Boxed set” offerings such as The Hunger Games trilogy at $15 do very well with price-conscious Kindle customers, and customers show a consistent willingness to pay over $10 for certain textbooks, business, and technology titles, to name a few categories. Readers generally will pay a little more for a book that will save them money, and even more for a book that will make them money. It’s not that the books we read for pleasure are of lesser value to us, but there is a lot more competition for our attention when it comes to a good mystery, romance, biography, or literary novel.

It all sounds like a rosy future for Amazon, but the company needs to proceed with caution and pay close attention to some ticking time bombs. The likelihood that Amazon will approach a 50% market share in the trade book market place will not, in and of itself, make it the target of any serious anti-monopoly actions. But if Amazon uses its market dominance in a willful way to put others out of business or constrain their ability to conduct business, there could be trouble ahead. The 140,000+ titles in the Kindle Owners’ Lending Library are only there now because their rights holders have given Amazon the exclusive right to sell them. That exclusivity clause is a winning tactic that is probably unassailable as a way of fighting back against the anti-competitive maneuvers of Apple and the other Defendants, but once the Defendants are forced to start behaving themselves, its demand for exclusivity could well bring Amazon unwanted legal or regulatory attention.

Other predictable consequences of Amazon’s dominance not only in the ebook sphere but beyond could create problems for the company if it does not make forward-looking changes in the way it does business. The company is seen by many as a tax-avoiding bogeyman that is destroying not only publishers and wholesalers but independent bookstores in particular and Main Street in general, and while there are major economic forces at work here that would probably lead to the same conclusion without Amazon at the head of march, Amazon has to realize that it should do everything possible to avoid being seen as the online version of Walmart. And while Amazon has escaped much of the kind of negative attention that has surrounded Apple and its FoxConn manufacturing plant in China, there is an emerging campaign among labor activists and progressive journalists to focus a spotlight on poor conditions in Amazon fulfillment centers. As with all of these concerns, there are real issues at play, and Amazon’s best moves would be substantive rather than media-driven.

Interesting story, eh? But just in case it might at some point have ceased to resonate with you — say, halfway through one of my 75-word sentences — here’s a paragraph to print out and stick to the refrigerator door.

Shorter term, there’s that restitution fund that could approach half a billion dollars by the time all the Defendants pay their share for all the states, and if Amazon plays its cards right it could end up seeing much of that money invested in Kindle book purchases. For starters, the company should make it easier for its customers to download and print out a spreadsheet of all their past Kindle orders, just as we can do currently for everything else we buy from Amazon via the Download Order Reports link on our Amazon account page. I don’t think many people use that link right now, but it could become a very popular page if some tech wizard in Seattle or Mumbai were to spend 15 minutes improving the link so that we could print out a list of all the Kindle books for which we paid $10 and up since April 2010 and get paid several bucks each for them by the Defendants.

Huge Win for Citizens of Kindle Nation, and Amazon:  U.S. Justice Department Sues Apple and Five Big Publishers Over eBook Price Fixing; Three of Five Rush to Settle; Millions to be Paid Out to Customers

What went up must come down.

You may feel free to consider this an obituary for the so-called “agency model” price-fixing scheme that has cost the citizens of Kindle Nation millions of dollars over the past two years.

As we have been predicting since the launch of the agency model in the Spring of 2010, the U.S. Justice Department filed suit today, in a New York federal court, accusing Apple and five of the Big Six publishers of conspiring to fix ebook prices.

The Launch of a Conspiracy: Steven Jobs Unveils the iPad, and the Agency Model, Early in 2010

Three of the publishers — News Corp’s HarperCollins Publishers Inc, CBS Corp’s Simon & Schuster Inc and Lagardere SCA’s Hachette Book Group — agreed to a settlement aimed at restoring the lower ebook prices, usually $9.99 and below for new releases, that were in place from the launch of the Kindle in November 2007 until the agency-model scheme took effect as the iPad was launched on April Fool’s Day 2010.

Two of these three, Hachette and HarperCollins, also settled with several U.S. states, agreeing to pay $51 million in restitution to consumers who bought e-books at the higher prices. Kindle Nation Daily will provide information soon on the steps involved for customers who believe they may be eligible for such payments.

“This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” Amazon spokesman Drew Herdener told Kindle Nation Daily this afternoon.

The settlement will allow Amazon to resume discounting books, will terminate the publishers’ “most favored nation” contracts with Apple, and will set a two-year moratorium on any publisher moves to prevent retailers from offering discounts on ebooks.

U.S. Attorney General Eric Holder appeared at a news conference in Washington todays and charged that executives at the highest levels of Apple and the publishers had worked together to eliminate competition among sellers of e-books.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” Holder said.

Reuters reported this afternoon that three of the six defendants — Apple and publishers Penguin and Macmillan — plan to fight the Justice Department lawsuit, but the Justice Department said it will vigorously pursue the suit against Apple and the two publishers that did not settle. The lawsuit was filed in the U.S. District Court for the Southern District of New York.

Court documents filed by the Justice Department feature “smoking-gun” evidence that late Apple CEO Steven Jobs was at the heart of the conspiracy, with tidbits such as this:

To persuade one of the Publisher Defendants to stay with the others and sign an agreement, Apple CEO Steve Jobs wrote to an executive of the Publisher Defendant’s corporate parent that the publisher had only two choices apart from signing the Apple Agency Agreement:(i) accept the status quo (“Keep going with Amazon at $9.99″); or (ii) continue with a losing policy of delaying the release of electronic versions of new titles (“Hold back your books from Amazon”). According to Jobs, the Apple deal offered the Publisher Defendants a superior alternative path to the higher retail e-book prices they sought: “Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

The Beginning of the End for eBook Price-Fixing? Justice Department Nears Antitrust Suit Against Apple and Five of Big Six Publishers over “Agency Model” Collusion

By Steve Windwalker

For over two years now, the citizens of Kindle Nation have had to put up with a joke that isn’t funny: the so-called “agency model” ebook pricing structure through which Apple and five of the Big Six book publishers have colluded to mandate artificially high prices for ebook titles under their control. We knew it was wrong, we knew it was anti-consumer, and we knew it was illegal.

And now, finally, it was widely reported this week that the Justice Department has advised Apple and the five publishers that it intends to sue them for colluding to raise ebook prices.

It’s about time.

The agency model price-fixing scheme has cost millions of Kindle owners millions of dollars over the past two years — money that we would not have spent on ebooks if Apple and the publishers had not entered into a clear conspiracy that the late Apple CEO Steve Jobs described in detail to biographer Walter Isaacson.

Until early 2010, most publishers sold print and electronic books to retailers at a wholesale price that ranged from 40 to 60 percent of the cover or “suggested list price.” Retailers were then free to set any price they wanted based on their own business strategies, and frequently set “loss leader” prices in order to lure customers. When Amazon launched the Kindle in late 2007 it sought to promote ebooks and ereaders in general, and the Kindle Store in particular, by adopting a very popular policy of setting $9.99 as a maximum price for almost all new releases and bestsellers in the Kindle Store.

Apple had not previously been involved in bookselling (other than audiobooks), and was slow initially to see Amazon’s Kindle business as competition. Early in 2008 Jobs said that the “whole concept” of the Kindle was “flawed from the top because nobody reads any more.” But by early 2010 when Apple was preparing to launch the first iPad, Jobs had done a dramatic about-face. As he introduced Apple’s iBooks store at the iPad launch announcement he said, “Amazon’s done a great job of pioneering this functionality with the Kindle. We’re going to stand on their shoulders and go a little further.”

Plagued by high prices, poor selection, and clunky search-and-browse infrastructure, the iBooks store has been a flop over the past two years and is widely seen as having something less than 15 percent of the retail ebook market despite the huge success of its hardware platform with the iPad, iPhone, and iPod Touch. But for a market-share failure, iBooks nonetheless stands alongside Kindle as the most significant, game-changing developments that have been seen in the book business in the past decade.

The significance of the Kindle, of course, is both that it has brought millions of readers into the ebook revolution with lower prices, wide selection and nearly instantaneous delivery and that it has brought radical disintermediation to the publishing business by removing barriers to publication, offering greater royalties to many authors, and raising questions about the role of traditional publishers, agents, distributors, and chain bookstores in an ebook future.

The significance of iBooks and Apple’s role, on the other hand, is that Apple played a conspiratorial “white knight” role that enabled a handful of big publishers — who were demonstrably panicked about the changes that ebooks would bring to their business — to insist on an entirely new pricing structure that would slow the growth of ebooks and counter Amazon’s market power. Lest there be any confusion about how this all happened, Jobs himself made the price-fixing scheme abundantly clear in this passage from Walter Isaacson’s bestselling 2011 biography Steve Jobs:

“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway,” Jobs told his biographer. “They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.'”

Beginning on April Fool’s Day 2010, two days before the iPad became available, thousands of agency-model publishers’ ebooks that had previously been priced at $9.99 and below on Kindle were increased in price to levels ranging mostly from $11.99 to $14.99.

Amazon’s position has always been that it would do everything it could to offer the lowest possible prices on Kindle books, but its only alternative to allowing agency-model conspirators to set their own retail prices was to keep books by the world’s largest publishers out of the Kindle Store altogether. That would not do.

Instead, Amazon has moved aggressively to reward non-conspirator authors and publishers with higher royalties, other forms of compensation, and prominent placement on the Kindle website, and the result has been that those authors’ and publishers’ books have gradually increased in their overall presence in the Kindle Store as well as their placement on the various Kindle bestseller lists.

So the agency-model publishers are losing out in four ways:
  • their per-unit revenue is lower in many cases than the wholesale proceeds that they were previously being paid by Amazon;
  • they are seen negatively by a growing share of readers as a direct result of their ebook pricing;
  • their market share is declining steadily; and
  • they are now facing the considerable expense associated with being corporate defendants in a lawsuit filed by the Justice Department.

Some kind of lawyers those publishers, and Apple, must have.

Federal lawsuits usually move very, very slowly, but stay tuned. This week’s reports included widespread speculation that some of the publishers are actively pursuing out-of-court settlement.

See You in Court? The Kindle Class Action Lawsuit Against Apple and the Big Publishers Over Agency-Model Price-Fixing: What It’s All About, How You Could Benefit, and How You Can Join the Affected Plaintiff Class

By Steve Windwalker

At long last, citizens of Kindle Nation, justice may be at hand!

Attorneys filed a nationwide class-action lawsuit this week that could bring an end to the onerous, collusive, anti-competitive, anti-consumer and illegal  “agency model” price-fixing scheme concocted by Apple and five of the Big Six publishers early in 2010.

The agency model scheme raised retail ebook prices for new releases and bestsellers from the $9.99 standard that Amazon had established in November 2007 with the launch of the Kindle and set new mandatory retail prices between $11.99 and $14.99.

The opening salvo in the lawsuit is a 42-page complaint filed in the U.S. District Court for the Northern District of California by Jeff Friedman, Shana Scarlett, and Steve Berman of the firm Hagens Berman Sobol Shapiro LLP. The initial named plaintiffs in the lawsuit are two customers named Anthony Petru and Marcus Mathis, “individually and on behalf of all others similarly situated” … but they could be joined, very soon, by you and me.

The defendants, of course, are the original perpetrators of price-fixing scheme: APPLE INC.; HACHETTE BOOK GROUP, INC.; HARPERCOLLINS PUBLISHERS, INC.; MACMILLAN PUBLISHERS, INC; PENGUIN GROUP (USA) INC.; and SIMON & SCHUSTER, INC.

If the case is successful, Kindle Nation citizens and others could be eligible to receive partial refunds for ebooks that they have bought at prices higher than the original $9.99 Kindle Store standard for bestsellers and new releases. Such restitution payments — and possible additional amounts in damage — would of course come out of the pockets or corporate coffers of Apple and the aforementioned publishers.

The court filing seeks important substantial remedies on behalf of all members of the class:

  • A declaration that Defendants’ conduct constituted a conspiracy and that Defendants are liable for the conduct or damage inflicted by any other co-conspirator;
  • A declaration that the pricing formula contained in the agency agreements described above is unlawful; and
  • Restitution and/or damages to Class members for the purchase of eBooks.

Individuals who believe they have been affected by the price-fixing scheme can apply to become plaintiffs and to join the class action on the Hagens Berman website at http://bit.ly/FIGHT-EBOOK-PRICE-FIXING.

The filing describes a chain of events that is well known to many Kindle Nation readers. After the launch and initial success of the Kindle, “faced with disruptive eBook technology that threatened their inefficient and antiquated business model, several major book publishers, working with Apple Inc. (“Apple”), decided free market competition should not be allowed to work – together they coordinated their activities to fight back in an effort to restrain trade and retard innovation.  The largest book publishers and Apple were successful.”

The big publishers had wanted to slow down the growth of the Kindle and Kindle book sales and raise ebook prices, but feared the loss of sales that would ensue if they insisted individually that prices be raised. They “solved this problem through coordinating between themselves (and Apple) to force Amazon to abandon its pro-consumer pricing.  The Publisher Defendants worked together to force the eBook sales model to be entirely restructured.  The purpose and effect of this restructuring was to halt the discounting of eBook prices and uniformly raise prices on all first release fiction and nonfiction published by these Publisher Defendants. Under the Publisher Defendants’ new pricing model, known as the “Agency model”, the Publisher Defendants have restrained trade by coordinating their pricing to directly set retail prices higher than had existed in the previously competitive market,” the complaint alleges.

Why did Apple participate in the alleged conspiracy? The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like music and movies. That day is coming very soon, of course, with the anticipated launch of the Kindle Tablet.

The complaint notes that Apple CEO Steve Jobs foreshadowed the simultaneous switch to agency pricing and the demise of discount pricing in an interview with The Wall Street Journal’s Walt Mossberg in early 2010. In the interview, he was asked why consumers would buy books through Apple at $14.99 while Amazon was selling the same book for $9.99. “The prices will be the same,” he stated.

When I spoke earlier this week with attorney Friedman, he agreed with Kindle Nation’s assessment that Jobs’ comment amounts to, at least, a circumstantial “smoking gun” with respect to the collusive behavior by the defendant companies.

The lawsuit claims Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act and the Unfair Competition Act.

The named plaintiffs, Anthony Petru, a resident of Oakland, California, and Marcus Mathis, a resident of Natchez, Mississippi, each purchased a least one e-book at a price above $9.99 after the adoption of the agency pricing model.

Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher. Friedman told Kindle Nation this week that the usual timetable for such cases can run from two to four years.

Friedman and the other attorneys who filed the suit are especially interested in securing plaintiffs from the following jurisdictions, which have particularly applicable consumer-protection law: Arizona, California, District of Columbia, Florida, Hawaii, Illinois, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Utah, Wisconsin, West Virginia, and Vermont.