March 19, 2024

Publishers Tell of Disputes With Apple on E-Book Prices

David Shanks, the chief executive of Penguin Group USA, fought with Apple over the e-book pricing it initially proposed.

And Ms. Reidy called an executive at Paramount Pictures to verify Apple’s claim that a 30 percent commission on sales in their iTunes store — which she considered too high — was standard.

These actions were described in testimony this week as evidence that, rather than illegally conspiring to fix e-book prices, Apple and the publishers were locked in intense negotiations during December 2009 and January 2010. Again and again, Apple lawyers sought to portray the actions as normal business proceedings.

Mr. Shanks and Ms. Reidy echoed that theme, saying the negotiations with Apple were much like those with other retailers, a push-and-pull series of talks that forced them to demand concessions and make some of their own.

Mr. Shanks and Ms. Reidy were the first publishers to take the stand in Federal District Court in Manhattan in the civil antitrust trial stemming from the lawsuit filed last year by the Justice Department.

The publishers, which have all settled with the government, are not on trial. But the proceedings have provided a glimpse into the state of the book business during the period several years ago when Apple decided to enter the e-book market to coincide with the introduction of the iPad.

Lawyers for the Justice Department have argued that the publishers not only used Apple as a conduit to communicate with each other, but also had conversations in which they shared information about Apple and its competitor, Amazon, the dominant force in e-books.

They have repeatedly pressed publishing executives this week on the phone calls and e-mails they exchanged, the private dinners they attended and their conversations at industry events, interactions that, according to the government, are evidence that the publishers were engaged in a conspiracy to raise prices on e-books.

When Apple entered the e-book market, it did so under the so-called agency model, in which publishers set prices for e-books and the retailer takes a 30 percent commission. At the time, publishers sold e-books to other retailers under a wholesale model, where publishers charged retailers close to half the cover price for a book, and the retailers set their own prices.

Amazon, which controlled 90 percent of the e-book market, had set the default price of most new and best-selling books at $9.99, a price that publishers felt undervalued their books and cannibalized hardcover sales. Eager for another big competitor in the e-book market, all six publishers engaged in talks with Apple.

It was during that time, the government said, that the publishers and Apple illegally colluded, eventually forcing Amazon to adopt the agency model as well.

Lawrence Buterman, a lawyer for the Justice Department, questioned Ms. Reidy on Wednesday about her conversation with Brian Murray, the chief executive of HarperCollins, while Mr. Murray was trying to move Amazon to the agency pricing model.

Mr. Buterman also asked her about a conversation with John Sargent, the chief executive of Macmillan, a fellow publisher, during which the two talked about Amazon.

Ms. Reidy shrugged it off. “I made some crack about the personalities at Amazon,” she said.

Mr. Buterman pointed to phone logs that showed several phone calls between Ms. Reidy and David Young, then the chief executive of Hachette. Ms. Reidy said she did not remember all of the calls.

Ms. Reidy, displaying occasional flashes of impatience and sarcasm during several hours of testimony, repeatedly deflected the government’s suggestion that the most-favored-nation clause imposed the agency model on other retailers. The most-favored clause is a provision in the publishers’ contracts with Apple requiring that no other retailer sell e-books for a lower price.

“As a practical matter, the M.F.N. made Simon Schuster want to move other retailers to an agency model,” Ms. Reidy said, emphasizing the word “want.” “It didn’t force us.”

Later, under questioning by Daniel Floyd, a lawyer for Apple, Ms. Reidy said she initially resisted the most-favored nation clause, but eventually agreed to include it.

Mr. Shanks, testifying on Tuesday, said he was not able to convince Apple to eliminate price caps of $12.99 and $14.99 on its e-books.

Ms. Reidy said she also opposed the price caps, but relented and allowed them to be written into the contract.

The antitrust trial, which is expected to take about three weeks, is presided over by Judge Denise L. Cote.

After the Justice Department filed a lawsuit against Apple and five publishers last year, the Hachette Book Group, Simon Schuster, and HarperCollins settled immediately; Macmillan and Penguin agreed months later to settle. Penguin and Random House, two of the biggest publishers in the business, are expected to complete a merger in July.

Ms. Reidy provided the most embarrassing moment of the day when an e-mail from her to Mr. Moonves was projected onto a large screen. In the e-mail, Ms. Reidy updated Mr. Moonves, the chief executive of CBS, which owns Simon Schuster, on her talks with Apple. She referred to an Apple executive as a “minion.”

The executive, Keith Moerer, was seated in the courtroom.

“Sorry, Mr. Moerer,” Judge Cote said, as the onlookers laughed.

“That’s just what I was thinking,” Ms. Reidy said.

Article source: http://www.nytimes.com/2013/06/06/business/media/publishers-tell-of-disputes-with-apple-on-e-book-prices.html?partner=rss&emc=rss

E-Book Sales a Boon to Publishers in 2012

E-book sales, especially in the thriving romance genre, gave the book business a lift in 2012, according to a survey of publishers released Wednesday.

In a year that was monopolized by the “Fifty Shades” erotic novels and their various knockoffs, e-book sales in fiction rose 42 percent over the year before, to $1.8 billion. Growth in nonfiction e-book sales was smaller, a 22 percent increase, to $484.2 million. E-book sales in the children’s and young-adult categories increased 117 percent, to $469.2 million.

The survey revealed that e-books now account for 20 percent of publishers’ revenues, up from 15 percent in 2011. Publishers’ net revenues in 2012 were $15 billion, up from $14 billion in 2011, while unit sales of trade books increased 8 percent, to $2.3 billion.

The annual survey, known as BookStats, was compiled by two trade groups, the Association of American Publishers and the Book Industry Study Group. It includes data from about 1,500 publishers, including the six major trade houses.

The numbers reflected a publishing industry where more books are available in more formats than ever before, and where consumers’ preferences continue to shift. Print formats were flat or decreasing, while e-books and downloadable audiobooks boomed.

“You’re seeing an evolution in terms of the way that people are accessing content,” said Dominique Raccah, a former chairwoman of the Book Industry Study Group and the publisher of Sourcebooks, a midsize publishing company in Naperville, Ill., outside Chicago. “Audio downloads are up, e-books are up. There’s a migration in format clearly occurring. Customers can now access books in a lot of different ways.”

Publishers’ revenue from brick-and-mortar retail stores suffered, dropping 7 percent to $7.5 billion, while revenue from online retailers like Amazon boomed, rising 21 percent, to $6.9 billion. The survey was the first glimpse of a full year of book sales after the bankruptcy and liquidation of the Borders chain in 2011.

Sales of hardcover and trade paperback books were relatively flat: hardcovers accounted for just over $5 billion in 2012, up from $4.9 billion in 2011. Mass-market paperbacks, the smaller format of paperback popular in airports and grocery stores, also decreased in sales.

Another format that continued its rise in popularity was the downloadable audiobook, which had a 22 percent bump in revenues in 2012 compared with 2011, increasing to $240.7 million from $197.7 million. Publishers attributed the increase partly to the widespread use of mobile devices.

Article source: http://www.nytimes.com/2013/05/15/business/media/e-book-sales-a-boon-to-publishers-in-2012.html?partner=rss&emc=rss

It’s the Economy: What the Penguin-Random Merger Says About the Future of the Book Business

A combined Penguin-Random House, which would control a quarter of the global book market, is a conglomerate designed to take on another giant, though it’s not exactly a fair fight. Because the new entity will only have about a twelfth of Amazon’s annual sales, most observers expect that this is just the beginning of a series of mergers — like those in the music business — that will take the Big Six publishers down to the Big Three and perhaps one day even the Big One. As John Makinson, Penguin’s chief executive, told The Times, “We decided it was better to get in early rather than be a follower.” The question is whether this strategy will work.

There are two competing predictions about commerce in the digital age. One is that companies will get smaller and more disruptive as nimble entrepreneurs can take on giant corporations with little more than 3-D printers and Web sites. The other envisions a few massive companies — like Procter Gamble, Apple and Nike — that design everything themselves, have it manufactured cheaply in Asia and use their e-commerce sites to gather information about their customers. Nearly the exact same conflict occurred more than a century ago in the decade that straddled 1900, which was also a period of rapid technological change. In just a few years, 1,800 small companies were swallowed up as the electrical-power, telephone, auto, steel and chemical industries grew from patchworks of tiny companies into conglomerates. In “The Great Merger Movement in American Business 1895-1904,” the Yale economist and historian Naomi Lamoreaux wrote that back then everyone worried about the same thing that authors, editors and book buyers worry about now: Are large companies good for the economy? Do they grow through efficiency and innovation or by abusing their leverage?

Lamoreaux found that they did both, and many turn-of-the-century examples suggest what might happen to Penguin-Random and others. On one end of the spectrum, Lamoreaux told me, was U.S. Steel. Its predecessor companies competed by finding new ways of making steel at ever-lower prices. But after J. P. Morgan merged three companies into one behemoth, he discovered a better way to profit. Because all steel producers bought iron ore from the Mesabi Range in Minnesota, U.S. Steel bought most of the range and locked much of the rest of it in long-term contracts. As a result, the company hardly worried about competition; it had little need to innovate or compete on price, which made everything from cars to soda cans more expensive. Worse, it left a massive industry unprepared for the growth of innovative Asian companies during the 1970s and 1980s. By then, U.S. Steel all but collapsed, and a chunk of the U.S. economy went down with it.

Sears Roebuck, on the other end, “grew by solving market and technical problems,” Lamoreaux said, and, as it solved them, its market share increased. Unable to monopolize anything like iron ore, Sears needed to innovate to stay ahead. Through constant competition with Montgomery Ward and others, it adopted new strategies that ultimately benefited its customers. When the company got into trouble, closed stores and was bought in 2005 by a struggling competitor, Kmart, the retail industry was robust enough that the overall economy barely noticed.

The future of book publishing is somewhere between the two poles. Oddly enough, it seems to mirror what happened to the envelope business. In the early 1900s the envelope industry was large enough to support several big companies. Then the mergers started, and an industry of numerous small companies became two giants. Eventually, the envelope industry wasn’t large enough to sustain itself, and the companies became tiny divisions of larger conglomerates. U.S. Envelope still lives as a small part of the packaging manufacturer MeadWestvaco. American Envelope was bought by Cenveo, a business-stationery company whose chief executive, Robert G. Burton Sr., made clear that the century of mergers and buyouts is not over. “We’ve had people knocking on the door,” he told shareholders in August.

Article source: http://www.nytimes.com/2012/11/18/magazine/penguin-random-house-merger.html?partner=rss&emc=rss