Lawsuit Against Agency Model Balloons

[Hellmark]

Originally Posted by Elfwreck

Then why hasn't Baen gone bankrupt? For ten years, they've been selling ebooks cheaper than paperbacks. You'd think that, if the breakdowns were accurate, Baen would feel horribly squeezed by their ebook sales, rather than casually saying, "here, have another CD's worth of free ebooks."

The breakdowns I've seen put most of the expense with marketing, editing, layout, etc that are shared by both print and ebook. Those are fixed expenses, and not a per unit cost, and so after a while, they've made back that money and its gravy from there.

[JoHunt]

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

[Fbone]

Originally Posted by bfisher

There is nothing that would stop a publisher from witholding an e-book version or raising prices, other than their economic interests.

If readers have the choice of buying Title A at $20.00 or Title B at $10.00, and they are equally appealing, the seller of Title B will likely make more profits.

On the other hand, if every book is priced at $20.00 perhaps it becomes more attractive for many people to spend their money on something else, like renting a movie.

I am not talking about a $10 difference. In fact, we won't even see the price increases. If publishers are receiving $9.10 for a $12.99 ebook now, they can set the wholesale price to $12.00 and Amazon can still sell it for $12.99. The publishers would earn more money. The authors would earn more money. Retailers may be squeezed a little but they earn less than that on their self published ebooks already.

[HarryT]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase and retailers are not allowed to discount?

Cars. In the UK, at least, new cars are sold through dealerships who are agents for the manufacturer, and are not permitted to discount them without the manufacturer's permission.

[Fbone]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

Yes, hundreds of items in the US.

[rxmom03]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

Unless things have changed since I last bought some, high-end makeup and perfume. If you see an Ulta coupon for % off--it always excludes fragrances and certain make-up lines.

Mary

[rhadin]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

Yes. You quite often see the same price in "premium" electronics. For example: Ever wonder why the Sony TV seems to cost (within a very few dollars) the same everywhere? It's because Sony has set a minimum price for which its TV can be sold. When Sony TVs go on sale at one store, they inevitably go on the same sale at other stores.

About 10 years ago (give or take) the U.S. Supreme Court ruled that a manufacturer can set resale pricing requirements and a lot of companies have taken advantage of that ruling. There is generally little difference in premium product pricing across retailers; most of the variation lies with lesser known and generic brands.

[fjtorres]

Originally Posted by HarryT

Cars. In the UK, at least, new cars are sold through dealerships who are agents for the manufacturer, and are not permitted to discount them without the manufacturer's permission.

In the US, car pricing (except a few premium or high-demand models) is aspirational. Dealers aspire to sell at list price-plus and consumers aspire to a 50% discount. 12 visits and 6 draining hours worth of haggling later, both are equally frustrated and have grudgingly converged at a price within a few hundred dollars of the publicly published "dealer costs". (which of course doesn't factor in manufacturer and financing kickbacks and other under the table "incentives").
Manufacturers have no say in consumer pricing and on the rare occassion they introduce a car with high demand, dealers can brazenly tack on dealer markup surcharges to sell above list.

US car retailing is a specially "protected" business at the state level that makes it pretty much invulnerable to manufacturer pressure. In fact, the recent bankrupcies and liquidation of Chrysler and Government Motors was the only way they could rid themselves of undesirable dealers.

[Andrew H.]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

Some, even for traditional retailers who buy wholesale and then sell retail. But in this case, Amazon et al. are agents for the publisher, who is the actual seller. In this type of arrangement, amazon etc. simply receive a commission.

This is the same system used by iTunes, eBay, real estate agencies, and any number of consignment type stores. While there do seem to be some real anticompetitive concerns with the "MFN" provisions of the agency agreements, I don't see any basis for a court to require a publisher to use a wholesale/retail model as opposed to a seller/agent model.

[fjtorres]

Originally Posted by Andrew H.

don't see any basis for a court to require a publisher to use a wholesale/retail model as opposed to a seller/agent model.

One, probably not.
But five/six, acting in concert?
More, *switching* from wholesale to agency? How common is that?
Most agency-style businesses start out that way rather than switch mid-stream.

A further question the court might be interested in is why do agency *only* on ebooks but not on print books or audio books. After all, since publishers accept returns on print books, they are in effect using an on-consignment model that fits agency even better than ebooks.

Again, I doubt the final outcome will settle anything in time to make any difference in the current course of the ebook evolution but these are not frivolous lawsuits: there are substantive issues at stake and there is enough publicly-available info to justify the filings. Odds are the mess ends up before SCOTUS and in Congress after that.

Just don't expect a judge to wave a magic gavel and make this mess go away any time soon.

[Daithi]

According to the FindLaw website--

Consignment sales. For many years it was accepted antitrust doctrine that, in consignments to a true agent (as opposed to a merely formal arrangement), a seller was free to set the price at which "its" products were sold, even though the agent was otherwise an independent business. The Supreme Court has raised serious questions with respect to the continuing validity of this rule. Vertical price fixing under the guise of a consignment appears to be dangerous whenever the seller is in a position, by using economic leverage, to "coerce" the consignees into compliance. The prudent course is to utilize consignment selling only if there is a good nonprice reason for doing so and, whenever such a method is followed, to treat the consignee as a true agent -- the seller should pay taxes and insurance, maintain inventory control, and give approval on significant decisions.

So, I think the bottom line is that none of us will know how the courts will rule until the courts rule. Although, it is interesting to speculate.

The Supreme Court has also ruled on the consignment question in Simpson vs. Union Oil Company, where they basically called Union Oil's use of consignment a scam used merely to provide "cover [for] a vast gasoline distribution system, fixing prices through many retail outlets." They also found that retailers had been coerced into participating in the consignment plan. No doubt the plaintiffs will be making the exact same argument.

Lastly, there is a really good article written by the NY Times discussing the Leegin Creative Leather Products, which is the case that reversed about 100 years of legal precedent concerning the setting of a minimum sales price. As a side note, it was a 5-4 decision with the conservative judges ruling that sometimes setting a minimum selling price is legal, while all of the liberal judges disagreed.

[Kali Yuga]

Originally Posted by fjtorres

One, probably not.
But five/six, acting in concert?
More, *switching* from wholesale to agency? How common is that?

About as common as a whole new medium taking shape and heading for wide-spread adoption.

Or as common as Apple telling every big music label that "either we sell your songs for $1 each, or we won't sell your stuff on iTunes." (A huge change, by the way, from retailers paying up front for physical LPs, tapes and CDs, and getting pricing and/or discounting latitude.)

Or as common as the music labels getting together to push back, and get Apple to accept variable pricing as high as $1.40 per song.

I.e. given the massive change to the market, it would be surprising if the industry didn't undergo a radical change in its pricing structure as well.

And let's face it, the wholesale method of pricing is basically ramming a physical retailing model onto digital goods. Amazon does not pay up front for 100,000 digital copies of the latest John Grisham novel; they do not take the risks or costs of storing 100,000 copies in their warehouses; they do not return the "unsold copies" to the manufacturer.

The only reason why people are in a snit over this is because of the perception that agency pricing increases costs. Considering that $10 was not the default price across the board, that B&N and Sony (remember them?) sold their new ebooks at pretty much the same price as the agency books, and I might add that I've seen many non-agency books go for very high prices, I have my doubts that the reality is anywhere near as bad as the perceived changes.

Originally Posted by fjtorres

A further question the court might be interested in is why do agency *only* on ebooks but not on print books or audio books.

Because those are physical items where it makes sense to use a wholesale model.

Originally Posted by fjtorres

Again, I doubt the final outcome will settle anything in time to make any difference in the current course of the ebook evolution but these are not frivolous lawsuits....

They may or may not be frivolous, but don't kid yourself about the motivation of the attorneys who are bringing the suit. They are well aware that they're suing companies with deep pockets, and are looking for a payout rather than pursuing a just cause.

[Greg Anos]

Set a thief to catch a thief....

[Hellmark]

Originally Posted by Kali Yuga

Or as common as Apple telling every big music label that "either we sell your songs for $1 each, or we won't sell your stuff on iTunes." (A huge change, by the way, from retailers paying up front for physical LPs, tapes and CDs, and getting pricing and/or discounting latitude.)

There is a difference here. Your example is one company going to a bunch of others and saying "These are our terms, take them or leave them", where as with ebooks it was several companies going to all of their e-tail partners and saying "these our our terms, take them or leave them", simultaneously. If it was staggered, such as others acting in response to a competitor, or just simply one, then it isn't a big deal. The idea that it was 5 at the same time brings up the idea that they worked together on it.

[wodin]

Originally Posted by joehunt

I'm just curious - is there any other consumer product that has the same price no matter where you purchase because retailers are not allowed to discount?

Yes, game consoles; most notably Wii.