It could be a fascinating anti-trust case according the details reported by The Wall Street Journal. The paper says that the Justice Department is gearing up to sue Apple and five top publishers — Simon & Schuster, Hachette, Penguin Group, Macmillan, and HarperCollins — for conspiring to fix e-book prices around 2010 when the tech company introduced its iPad. The group allegedly wanted to end Amazon’s practice of selling e-books for a deeply discounted $9.99, part of the company’s strategy to promote sales of its Kindle e-readers. Hoping to loosen Amazon’s grip on the market, and help its new iPad, Apple encouraged publishers to stop selling books wholesale — which enabled retailers to set the selling price– and to adopt a so-called “agency model.” That empowers publishers to set the sales price, and pay retailers a fee of about 30%. The late Apple CEO Steve Jobs told biographer Walter Isaacson that he told publishers “the customer pays a little more, but that’s what you want any way.” He added that
Shares are -8.7% after the e-retailer presented a mixed report about its 4Q results, and projected a decline in its 1Q operating profit. Amazon generated net income of $177M in the last three months of 2011, down 57.5% from the same period in 2010, on revenues of $17.4B, up 34.6%. The revenue figure fell short of the $18.2B that analysts projected. Earnings, at 38 cents a share, handily beat the 19 cents forecast. The profit drop is partly due to Amazon’s expenditures to build new fulfillment centers, and sales of its Kindle e-readers and tablets – priced below cost in order to gin up sales of books and other media. The company says that Kindle sales were up 177% over the holiday season. But investors were surprised to see that profits are still under pressure. Amazon forecast that operating income in 1Q will come in anywhere from a $200M loss to a $100M profit — which means it will be down as much as 162% or as little as 69% from the period in 2011.
SEATTLE — Amazon.com (NASDAQ:AMZN) today announced an expansion of a licensing agreement with PBS Distribution that will allow Amazon Prime members to instantly stream, at no additional cost, current and archived PBS programming. This will bring the total number of Prime instant videos to 12,000 by the end of this year, more than doubling the Prime instant video title count since its launch. Amazon Prime members can enjoy this selection on over 300 different devices, including the recently announced Kindle Fire—the Kindle for movies, TV shows, music, magazines, apps, books, games, and more. Kindle Fire customers enjoy a free month of Amazon Prime right out of the box.
A few surprises this morning in Amazon’s release of its Kindle Fire tablet. The bad news: It’s Wi-Fi only, which means you can’t download content when you’re away from a hot spot. Other tablets, including Apple’s iPad, can handle wireless 3G connections. But Amazon says it will offer free cloud storage for content bought from Amazon. The company also will deploy its Whispersync technology for movies and TV shows: If you’re watching a video on your Kindle and are interrupted in the middle, you can pick up where you left off later on another device including the TV set. The Kindle Fire will have a 7-inch screen and cost $199 beginning Nov. 15 when it goes on sale. The company also announced new, low-priced versions of the Kindle e-reader. Here’s the release:
SEATTLE, Sep 28, 2011 (BUSINESS WIRE) — (NASDAQ: AMZN)–Millions of people are already reading on Kindles and Kindle is the bestselling e-reader in the world for four years running. Today, Amazon is excited to introduce an all-new Kindle family: three all-new Kindle e-readers that are smaller, lighter, and more affordable than ever before, and Kindle Fire – a new class of Kindle that brings the same ease-of-use and deep integration of content that helped Kindle re-invent reading – to movies, TV shows, music, magazines, apps, books, games, and more.
“We’ve now reached the magical two-digit price point for Kindle – twice: the new Kindle and Kindle Touch are only $79 and $99. Kindle Touch 3G is the new top of the line e-reader with free 3G – no monthly fees or annual contracts – and is only $149,” said Jeff Bezos, Amazon.com Founder and CEO. “Kindle Fire brings together all of the things we’ve been working on at Amazon for over 15 years into a single, fully-integrated service for customers. With Kindle Fire, you have instant access to all the content, free storage in the Amazon Cloud, the convenience of Amazon Whispersync, our revolutionary cloud-accelerated web browser, the speed and power of a state-of-the-art dual-core processor, a vibrant touch display with 16 million colors in high resolution, and a light 14.6 ounce design that’s easy to hold with one hand – all for only $199. We’re offering premium products, and we’re doing it at non-premium prices.”
Most summers, the biggest late-week concern among publishing honchos is Long Island Expressway traffic to the Hamptons. This week has proven different. Debate is raging about how vulnerable major publishing houses suddenly are after book agent Andrew Wylie formed an electronic publishing imprint for his authors and made an exclusive deal with Amazon. This means that instead of leaving it to a publisher and taking a low split, Wylie gave Amazon sole e-book rights to titles like Ralph Ellison’s Invisible Man, Vladimir Nabakov’s Lolita, Philip Roth’s Portnoy’s Complaint, Hunter S. Thompson’s Fear and Loathing in Las Vegas, John Updike’s Rabbit Run series, Norman Mailer’s The Naked and the Dead and Evelyn Waugh’s Brideshead Revisited. You can read all of them only on the Kindle for $9.99 each, under Wylie’s own Odyssey Editions imprint.
Random House responded with sheer thuggery, blacklisting Wylie in a clear attempt to scare other authors and their reps from trying the same thing. Other publishers also expressed outrage in different ways, like Macmillan CEO John Sargent, who railed about how Wylie’s exclusive deals excluded other e-devices like the Sony Reader (like Macmillan really cares about anything other than its own fortunes). What neither of these houses addressed is the $64,000 question: do they control e-book rights in contracts signed before anyone imagined that e-books might surpass print titles? Many feel the answer is no.
Random House, unable so far to prove different, is using intimidation as a fallback ploy. It’s scary, given the sheer volume of books it publishes, but probably not effective in the long term. The publisher tried in 2001 to nip this whole thing in the bud, suing for summary judgment to stop an e-book venture called Rosetta Books. Random House lost. More recently, Bertelsmann Publishing chairman Markus Dohle sent a warning shot to agents, telling them the publisher was determined to protect its e-book rights, but once again, not mentioning whether it actually controlled them.
“They’ve not said we have the e-rights to the books you’ve written,” said one well connected dealmaker. “They say, we have publishing rights to these books, it costs us a fortune to run this place, and e-books are a huge source of revenue. If we can’t have it all, we’re not working with you.”
Amazon.com is crowing that for the first time, its e-book sales volume has surpassed hardcovers. Am I the only one who sees this as an apocalyptic sign for the great pleasure of book reading? Amazon’s basing its assertion on sales figures for the last three months, when buyers were lining their Amazon Kindles with summer beach reading. Amazon chief Jeffrey Bezos marvels that the milestone is more remarkable given that Amazon has only been selling e-books 33 months, as opposed to the 15 years it has been moving hardcovers. A report on the milestone in The New York Times indicates that within the next decade, less than 25% of books sold will be in print.
The lure of e-books is easy to understand: with no trees killed, books come cheaper to consumers, who no longer have to lug around hardcovers when an entire library can be loaded into a single lightweight device. On the cost front, I wonder what will happen when the makers of Kindle and other devices corner the publishing market and are no longer interested in selling its software at loss leader prices so that it can move hardware. That confrontation is inevitable, when more brick and mortar stores vanish.
My biggest problem–and the reason I’ll always stick to print books–is that I think the entire experience of reading a books is cheapened by technology, same as it was in …