Macmillan CEO blasts U.S. DOJ; gov’t on verge of killing real competition for appearance of competition

MacMillan CEO John Sargent has posted the following open letter. Here it is, verbatim:

Dear authors, illustrators and agents:

Today the Department of Justice filed a lawsuit against Macmillan’s US trade publishing operation, charging us with collusion in the implementation of the agency model for e-book pricing. The charge is civil, not criminal. Let me start by saying that Macmillan did not act illegally. Macmillan did not collude.

We have been in discussions with the Department of Justice for months. It is always better if possible to settle these matters before a case is brought. The costs of continuing—in time, distraction, and expense— are truly daunting.

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

When Macmillan changed to the agency model we did so knowing we would make less money on our e book business. We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there.

It is also hard to settle a lawsuit when you know you have done no wrong. The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.

Other publishers have chosen to settle. That is their decision to make. We have decided to fight this in court. Because others have settled, there may well be a preponderance of references to Macmillan, and to me personally, in the Justice Department’s papers – often without regard to context. So be it.

I hope you will agree with our stance, and with Scott Turow, the president of the Author’s Guild, who stated, “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support”.

Since we are now in litigation, I may not be able to comment much going forward. We remain dedicated to finding the best long term outcome for the book business, for Macmillan and for the work you have entrusted to our care.

Thanks.

John

[Thanks to MacDailyNews Readers “Fred Mertz” and “Dan K.” for the heads up.]

Related articles:
U.S. DOJ hits Apple,major publishers with antitrust lawsuit, alleges collusion on eBook prices – April 11, 2012
U.S. DOJ may sue Apple over ebook price-fixing as early as today, sources say – April 11, 2012

35 Comments

    1. Well, there’s certainly “another side” to this story- it would be nice to also hear the DoJ’s arguments in full to be able to make an informed judgment on this…

      1. It pains me to say this but the Obama administration in the guise of the Department of “Justice” has left me with little choice. Come November I will join many others in being a “single issue” voter. I will cast my vote (reluctantly) for Mitt Romney.

    1. I didn’t think it was anti-business, so much as working for the biggest contributors (ie. Amazon lobbyists). It took both political parties to get to current play-for-pay.

      1. I’m not so sure about political push. The people in the Obama administration truly think different. They have little understanding and absolutely no respect for market forces. They really believe that prices go up solely based on greed, and prices go down only as a result of government intervention.

  1. Just read the Forbes article on Apple. I like this quote which puts some of this cost factor into perspective.

    “Step back from all this for a second: Now, you can actually buy an indestructible book that occupies no space, can be “written” on, highlighted and dog-eared yet not worn out; and that can be transported without being transported. Such a miracle, if we were honest, is worth hundreds and would have cost thousands were someone to have offered it a decade ago.”

  2. Apple only take a percentage and if I remember correctly, it was the “publishers” that get to dictate the price. I can see Apple arguing for a fixed model to keep the prices low for the consumer but what the prices would be, that was left to the publishers. Now, did a few of these publisher collude? Maybe but what does that have to do with Apple except give an easy target and make headlines.

    As they say, “you go after the money”. Who has the most money, Apple.

    Apple will know if they are in the right and will fight it if they are.

    1. Yea, but the government has a blank check.

      My understanding is that this agency model would spell doom to Amazon. I can’t imagine there isn’t lobbying on this issue. What doesn’t have a lobby associated with it. Our government is corrupt.

      Textbooks are a racket here at the university . It is not uncommon for books to cost hundreds of dollars. If and when we go electronic (newspapers are already making the change) will book publishers lose out on their golden egg? It’s ridiculous. We have faculty redoing their online courses just because the text book comes out as a new version. It makes older versions worthless and drives students crazy with the expense. I’d like to see textbooks that you can upgrade as new versions come out. And, because the costs are so much lower to make an e-book I think the price should be much lower.

      1. Amazon isn’t hurting at all. The agency pricing model, where the bookseller acts as the agent of the publishers and sells at the price set by the publishers, spells doom to Amazon’s practice of subsidizing e-book sales with money from other sales to sell below the price it must pay the publisher for the right to sell the book.

        IIRC, Amazon was paying publishers about $15 for each copy of an e-book it sold, but only charging $9.99 in the Kindle store. It was doing this to entice people to buy the Kindle hardware. With the ability to subsidize these sales, Amazon placed Barnes & Noble and other emerging e-book reader devices at a disadvantage, since they don’t have the breadth of products to sell every e-book at a loss.

        IMHO, publishers cannot collude to fix prices. Each publishes a unique portfolio of books and authors, capable of fetching a unique amount of money in the market place, and the only thing Apple has done is require that, if they are to offer a publishers e-book, that the publisher not sell the same e-book through another e-book seller at a lower price. Yes, the publisher fixes that price, not unlike the cover price on any dead-tree book. So what.

        What I can’t fathom is why the DOJ is pursuing a civil law suit. I thought their role was to catch and prosecute actual criminals. If there is a civil suit here, de facto indication that no law has been broken, shouldn’t it be filed by the injured parties. Looks like the injured party here is only Amazon. Why is the DOJ shilling for Amazon?

        What about all of the customers of Amazon who paid too much for other Amazon goods to provide the cash for Amazon to subsidize those $10 e-books? If anyone has a bitch, it’s them, IMHO.

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