Authors Group Urges Opposition to E-Book Settlement

[rhadin]

Originally Posted by Elfwreck

They know what price Amazon is selling them for right now; they won't know if Amazon runs short-term sales unless they're tracking every single title they sell and have a constant feed updating when the price changes.

Even if they had a constant feed, they would have no way of knowing whether Amazon sold 100 or 1,000 copies at the sale price. The wholesale price that Amazon pays the publisher would not change based on Amazon's selling price. In addition, there is no way to know, in the absence of data from Amazon, how much money Amazon collected for a particular publisher's books. The only thing a publisher would know is that in the gross, Amazon sold x copies and paid y wholesale price for those copies.

[Elfwreck]

Originally Posted by rhadin

Even if they had a constant feed, they would have no way of knowing whether Amazon sold 100 or 1,000 copies at the sale price.

They could, by doing constant tracking. Amazon has immediate sale updates for publishers; if it were someone's job to track every single sale, they could compare that with the price at time-of-sale and get accurate sales data. A few titles might slip through (where time of sale was too close to a price change) but it'd be close enough to figure out whether they sold the line at a loss.

But that's a *lot* of record-keeping. I doubt publishers intend to track exactly what sold at what time at what price... they want Amazon to give them aggregate data by day or month, and just tell them how many books sold at what prices.

If they're not careful in their contract arrangements, Amazon might hand them a spreadsheet showing every single sale for all a publisher's books--ISBN/Title/Author/Retail price/time of sale--and leave it to the publisher to sort out individual titles and discount amounts.

[JSWolf]

Originally Posted by rhadin

And how do they get the sales records from Amazon? Amazon is not a party to the lawsuit and thus cannot be forced to provide the data.

If the terms say eBooks cannot be sold at a loss, then the sellers would have to give up the records of the eBook sales in order to satisfy this. That includes Amazon.

[Elfwreck]

Originally Posted by JSWolf

If the terms say eBooks cannot be sold at a loss, then the sellers would have to give up the records of the eBook sales in order to satisfy this. That includes Amazon.

The sellers aren't subject to the lawsuit. They aren't required to comply with the results of the ruling. It's possible that the publishers won't legally be *allowed* to sell at a vendor who won't give them that data--which means Amazon (and the other vendors) would have easy leverage to screw them over at will.

There's a big difference between "sellers are required to hand over that data because of a DOJ settlement," which is not the situation, and "future contracts between seller & publisher will include a section about data the seller is required to hand over"--which is possible, but gives Amazon leverage that the publishers don't want.

It's possible that the sales statements Amazon already hands over includes that data as a matter of course, in which case, publishers will have an easy time of it. However, again, there's a difference between "this data has always been available" and "this data will always be available in the future." A shift in Amazon's accounting or reporting software could change that.

[stonetools]

If the publishers are paid on the wholesale model, where they make a certain amount per sale, regardless of Amazon's price, they'd have to track all their books to find out if any are being sold below retail price--and then they'd need a way to force Amazon to hand over the record of how many they sold at the lower price.

Since Amazon's not a party to the lawsuit, I don't see how they can be required to comply with this. The DOJ doesn't have the ability to require businesses to change their record-keeping and accounting methods because someone else was found guilty of breaking a law.

EW puts her finger on a major problem with the settlement: the enforcement mechanism. Shatzkin (ahem! ) expands on this. Let me repost from his letter to the DOJ:

My second concern relates to the terms of the proposed settlement with three publishers which the Court is being asked to approve. In apparent partial recognition of the dangers of discounting by retailers, particularly the deep-pocketed Amazon, the settlement limits a store’s discounting to the total amount of margin it earns from a publisher within a year. As I understand it, that means that if a store were to sell $10-million of a publisher’s books in a year, the store could not discount more than the $3 million margin (assuming a 30% agency “commission”) it would have earned across all the sales it made.

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

At a minimum, it would seem that ebook retailers would have to report actual sales prices of all relevant transactions to the publishers, or have them summarized in a clearly defined and agreed-upon way. This is not data that any retailer, to my knowledge, now shares with its trading partners although, of course, the publishers monitor prices for compliance with publisher-set agency prices.

But even with the data being provided, when one comes to the last period of the year it will require forecasting and close monitoring to keep track of where things stand in every instance where a retailer is anywhere close to its contractual limit with any publisher.

And, then, what is the penalty if a retailer exceeds its discounting allowance? And who gets compensated? The publisher? Other competing retailers? The other publishers whose sales were compromised by the excessive discounts given to a competitor’s ebooks?

In the extremely contentious environment that exists in our business at the moment, I submit that these matters need to be clearly defined in advance if there is any hope for this solution to lead to anything except more litigation.

LINK

Boil it down to bullet points :

1.The publishers need detailed sales data to calculate whether a publisher exceeds its"discount quota".
2. The retailers don't provide such data now, and won't, unless ordered by the courts.
3. The courts don't have the legal authority to order retailers to do this, since they are not in the lawsuit.
4. Even if the publisher could correctly calculate the "discount quota", its unclear what the remedy is.
5. Even if 1-4 could be fixed, its unclear who would have a right to recover.


Now can all that be fixed? Maybe-there's some smart folks over at the DOJ. What's clear though, is that there's more work to do to make the settlement into a legally enforceable process.
Why does all this matter? Because the settlement must be accepted by the judge in order for it to go into force.The judge may just reject the settlement if she thinks its going to unenforceable or otherwise unacceptable. An example of this is the Google book-scanning case. The judge has twice rejected settlement proposals and has cleared the way for the lawsuit to proceed.
Until the judge in the current case accepts the settlement, all existing arrangements will remain in force-which means no changes in prices . The process of settlement renegotiation may take months, or even years-assuming that they can fix the problems detailed above .

[Elfwreck]

Originally Posted by stonetools

LINK

Boil it down to bullet points :

1.The publishers need detailed sales data to calculate whether a publisher exceeds its"discount quota".

Yes. And potentially other terms of the settlement.

2. The retailers don't provide such data now, and won't, unless ordered by the courts.

Uncertain, but likely. It's possible the terms were crafted based on data that's already provided to publishers--but even if that's true, the vendor (s, possibly, except we all know they're only talking about one vendor) has no requirement to *keep* providing exactly that data.

3. The courts don't have the legal authority to order retailers to do this, since they are not in the lawsuit.

They've got some measure of authority, but yes, it's very limited what terms of a settlement can apply to people and companies not directly involved. They could find as a matter of law that some data is required to support healthy businesses, and demand that data be turned over. However, I strongly suspect the courts are not going to decide that "ebook retailers have a legal obligation in general that requires turning over exact lists of what-sold-for-how much," considering that pbook stores are not required to do anything of the sort.

4. Even if the publisher could correctly calculate the "discount quota", its unclear what the remedy is.
5. Even if 1-4 could be fixed, its unclear who would have a right to recover.

That last is a good point... if Amazon fails to turn over the data, or is found to have been underselling... who is the harmed party that could bring a lawsuit? Even if the new contracts demand compliance, what's the damages for breach of contract?

I could see other bookstores being the harmed parties... but they don't have access to the data that would be necessary to bring a case.

[murraypaul]

Originally Posted by stonetools

1.The publishers need detailed sales data to calculate whether a publisher exceeds its"discount quota".

The only data needed is "For the financial year ending ... the total list price of eBooks published by you and sold by us was $X, and the total amount we charged for those books was $Y."
Plus the right to appoint an independent auditor to validate the numbers. (Which I don't think would be an unusual contract term.)
Where it does get complicated is with things like gift vouchers, store credit and so on. Simplistically you would simply not include those in the total amount figures, which would overstate the discounting applied.

[geekmaster]

eLuddites?

Except instead of burning looms then want to burn eBooks.

But eBook burning can have consequences:

[SteveEisenberg]

Originally Posted by murraypaul

The only data needed is "For the financial year ending ...

Suppose that Amazon paid a billion dollars for eBooks, and sold them to customers for a billion dollars.

They actually would be losing a lot on those books for reasons such as:

-- Payments to credit card companies.

-- Costs of their data processing infrastructure

-- Cost of funds (Amazon doesn't have a lot of corporate debt, but they have some)

-- Taxes (if no profit, you don't pay corporate income tax, but there are other taxes)

-- General corporate expenses ranging from rent to salaries to paying your law and accounting firms

Some of these expenses would be incurred even if they stopped selling eBooks. The question then becomes the extent to which a line of business, such as eBooks, is responsible for overall corporate expenses.

It seems to me that figuring out whether books are being sold at a loss is complex and filled with judgment calls.

[murraypaul]

Originally Posted by SteveEisenberg

Suppose that Amazon paid a billion dollars for eBooks, and sold them to customers for a billion dollars.

They actually would be losing a lot on those books for reasons such as:
[...]
It seems to me that figuring out whether books are being sold at a loss is complex and filled with judgment calls.

The settlement details that have been discussed do not address this, only the sale price vs list price. They do not require the retailer not to make an operating loss, only requires them not to discount sale price by more than 30%, so that there is some money left from their Agency cut. That could be as little as 1c over the entire ebook line from that publisher, and still meet the requirements, even though that clearly wouldn't cover their costs.
It is a way of 'protecting' ebooks prices, not a way of preventing Amazon out-discounting other retailers.

[JSWolf]

The way I look at it, the current contracts will be null and void and a new one will have to be drawn up and signed. Now, in these new contracts, a provision to hand over sales data could be added in and if Amazon won't agree to that, they don't get to sell the eBooks from the price fix six. It's as easy as that.

[murraypaul]

Originally Posted by JSWolf

The way I look at it, the current contracts will be null and void and a new one will have to be drawn up and signed. Now, in these new contracts, a provision to hand over sales data could be added in and if Amazon won't agree to that, they don't get to sell the eBooks from the price fix six. It's as easy as that.

Another way of looking at it is that the big six can't afford not to sell at Amazon, and have to have this clause in place, so may have to accept worse contracts in order to get Amazon to provide the sales data. Maybe the next split will be 65/35 rather than 70/30.

[stonetools]

Maybe the DOJ can weigh in and say that if the retailers refuse to provide the necessary data, the retailers don't get to discount from the publisher set price. Things are still fluid and the DOJ can still tweak the terms.

[murraypaul]

Originally Posted by stonetools

Maybe the DOJ can weigh in and say that if the retailers refuse to provide the necessary data, the retailers don't get to discount from the publisher set price. Things are still fluid and the DOJ can still tweak the terms.

The retailers are not party to the settlement.

[stonetools]

Yeah, but the publishers are. The DOJ can tell the publishers " If the retailers don't agree to provide the necessary data, you don't have to allow them to discount.In effect, you can go back to full agency".
IOW, if the retailers want the benefits of the settlement ( freedom to discount), they are going to have to play by the settlement 's rules (hand over detailed sales data).