Monday, September 21, 2009

More legal problems for the book industry are a precursor to the next suit to come

I'm not surprised by the news that the Justice Department has recommended that the proposed Google settlement be rejected as written. Given the complex issues involved, more work needs to be done to achieve a fair settlement for all parties involved, one that does not lock in an unfair advantage for Google over its competitors. Clearly, this is just the latest example of litigation playing a critical role in shaping the industry's business models.

Recall that in 2001, just 8 years ago, the ABA (American Booksellers Association) settled its antitrust case against Barnes & Noble and Borders for $4.7 million. The 1994 lawsuit and its accompanying evidence exposed many discriminatory deals made by the two bookstore chains with the major publishers. Many commentators at the time noted that the deals helped to financially feed the 1990's superstore expansion, while at the same time crippling the ability of independent bookstores to compete on the same playing field. By the time the lawsuit impacted the industry enough for publishers to offer fairer terms to independent bookstores in the late 90's, the damage had been done. The industry was left with the 2 chains as the increasingly dominant booksellers.

At about the same time, the internet and Google emerged to become the next new challenge for the industry. In this latest case, Google's behavior in digitizing entire library collections, initially without regard to copyright issues, was the core of the problem. While the publishers and the AAP sued to stop the library program, a negotiated settlement became the vehicle to resolve the dispute.

As the industry continues to struggle with digitization in general, the almost arcane focus in the settlement on "orphan works", those out of print or rare works without a clear and identified rights holder currently, can be seen as a microcosm of a larger dispute that will eventually be settled in the courts. Since Google's strategy could be characterized as digitize first, then negotiate, they were able to attain the competitive advantage early on, and have leveraged that to steer the proposed settlement. Their major argument is that digitization is in the public good, giving wide access to these rare works. Of course, that access is through Google's book search. And parties wanting to claim their orphan works and opt out of Google must do so actively, the onus is on them to navigate through the structures defined in the proposal. It will be interesting to see how this all turns out in the end.

But I think this particular legal action is the precursor to another one. It is my guess that the future dispute will be whether the major publishers' individual and confidential agreements with Google, Amazon, etc, violate Robinson Patman, or the Sherman Act, and give those companies an unfair advantage over their competitors. Whether it is about ebook terms, book search terms, or terms about any income derived from scanning and digitization of works, more litigation is the only certainty.

Tuesday, September 15, 2009

Dan Brown and Publishing Pricing in 2009

In the article (see link above) in UK's Independent, DJ Taylor bemoans the fact that Uk retail cutthroat discounting on major bestsellers like "Lost Symbol" and Harry Potter, etc are a lost opportunity for struggling book retailers to realize profitable revenue. With UK chains selling the title at 50% discount or half price, Mr Taylor notes that selling a copy is either a loss leader to drive traffic, or a break even proposition at best. Mr Taylor neglects to note the major cash flow advantage that retailers will see in selling many copies quickly to consumers, collecting that cast, then paying their suppliers with extended dating.
He writes, "All this renders the book's publication horribly symbolic. For all the bright-eyed talk about 'diversity' in the nation's bookshops, the over-riding tendency in publishing is for more discounted copies to be sold of fewer, similar books. Some might argue that putting Dan Brown on sale at half-price is a thoroughly democratic way of making literature more accessible to a mass public. In the end, though, price-cutting simply devalues the allure of what remains. "
Mr Taylor may not have noticed, but a sort of consumer price deflation has hit many physical media products in the last year or so. I would propose that the revenue dampening impact of the global recession, combined with the emergence of digital media, the increased visibility of used products (via eBay and, and the corresponding weakening in physical media product sales and retailer performance has driven this phenomena. Lost in many industry blogs and trade articles about eBook pricing and the $9.99 Kindle consumer price target is the fact that in 2009, the price of physical book product matters much more to publisher's top and bottom line results.
The industry is in an almost existential juggling act, trying to find the balance of consumer value vs publisher profitability while many of the primary factors that influence both are changing. What is indisputable in 2009 is that the industry needs more consumers to buy books, whether in the US or UK, whether in chains or indie bookstores.