The Trial, Week Two: A Worst-Case Scenario Email; Spotlight on Apple’s Eddy Cue and Publishing House Heads. Where’s Random House?
Week two in the Apple ebook price-fixing trial wrapped up Thursday with Apple executive Eddy Cue, the man the DOJ says orchestrated the alleged conspiracy, testifying that he negotiated vigorously with publishers but had no idea what they were saying to each other, as Thomson-Reuters reports.
He said he also did not know of calls the government said publishers were making between themselves, nor did he think anyone else at Apple knew.
“If they were working together, I assume I would have had much easier time negotiating,” Cue said.
Cue was also questioned about another key aspect of the government’s case, the contention that Apple caused ebook prices to increase. Cue acknowledged that the cost of some books did go up from the $9.99 Amazon was charging after Apple opened it’s iBooks store, but he said it was publishers who pushed for higher prices.
Cue is scheduled to take the stand again when the trial resumes on Monday. Though he was considered the government’s key witness, so far the only really surprising revelation from his testimony is an idea Cue had back in early 2009, nearly a year before Apple announced the launch of its iPad.
Week two in the Apple fix-pricing trial began Monday with HarperCollins CEO Brian Murray and Macmillan CEO John Sargent testifying that they weren’t forced by Apple to revise their terms with Amazon–as the Justice Department’s claims–but simply engaged in tough negotiations with both e-tailers to get the best possible deal.
While all five major publishers originally named in the suit have settled with the DOJ, the government’s case hinges largely on their actions in 2010, when Apple allegedly acted as “ringmaster” compelling them to adopt the agency model.
Monday’s witnesses also included a Google executive who finished testimony that began last week, when the Apple’s lawyer aggressively grilled him about his contention that publishers had told him Apple forced them to adopt a model that would result in higher prices. CNET reported:
Apple started to pick away at the Department of Justice’s claim that the tech giant conspired to inflate e-book prices by repeatedly and rapidly firing questions at a key Google witness.
The tactic paid off for lead Apple attorney Orin Snyder, who began to wear down on Thomas Turvey, director of strategic relationships for Google. Turvey appeared increasingly frazzled and frustrated as the afternoon went on.
Asked to name a publisher who told him about Apple’s demands, Turvey could not.
Random House is now encouraging its authors to report suspected online piracy of their books through its Author Portal. The portal provides information on the suspected piracy directly to Digimarc Guardian, a company working with Random House to remove stolen ebooks from the Internet. Digimarc will verify whether the link actually leads to your book (often the links are fake) and, if so, “immediate legal steps will be taken.”
For more information, see the publisher’s Random Notes blog.
A HarperCollins analysis of its own figures confirms what the Guild has long pointed out–that when sales migrate from hardcover to digital, publishers’ profits rise at the expense of author royalties. Publishers Lunch highlighted the numbers in a piece today covering HarperCollins’ investor day conference.
In the sample case of a new release frontlist title, the ebook edition is 39 percent more profitable, returning an additional $2.20 in profit to the publisher over the hardcover. Authors and agents will immediately note that much of the additional profit exists because the royalty allocation once earned out is $1.58 lower on the ebook than for the hardcover. On a hardcover, the author earns 30 percent of the publisher’s gross revenue, and 42.5 percent of the total margin (what the author and publisher together earn). For now, on the ebook, the author earns 25 percent.
On the AARdvark blog, agent Brian Fiore said HC’s numbers confirm what publishers have been denying for years: “That their savings on printing, binding and distribution make up for the lower revenue from lower e-book prices– and that increased profitability is coming entirely off the backs of authors.”
Fiore also dissected the often-heard argument that royalty rates are irrelevant to the large percentage of authors who never earn out their advances. The current ebook royalty standard, he wrote, penalizes authors who exceed expectations while leaving untouched celebrities and big name writers whose sales don’t merit their big advances.
The only thing really surprising about these figures from HC is that they came directly from the publisher. More than two years ago, the Guild did the math showing the disparity and proposed an interim solution that would protect authors until a fairer industry standard could be worked out. Since then, the continued migration away from print toward ebooks has made the need for a more equitable royalty system even more urgent.
On day one of the civil trial against Apple for alleged ebook-price fixing, the Department of Justice presented its case in an 81-slide deck that highlighted email communication between executives at Apple and heads of the five big publishers formerly named as defendants.
Many of the emails (which will be familiar to anyone who has been watching the case) referenced concern over Amazon’s $9.99 pricing strategy and publishers’ fears of trying to go it alone in challenging Amazon’s terms.
Ebook sales increased by 45 percent in 2012 to make up 20 percent of the trade book market, according to a report released today by Bookstats, a co-production of the Association of American Publishers and the Book Industry Study Group.
Not surprisingly in the era of erotic mega-series like Fifty Shades and Crossfire, adult fiction, particularly romance novels, showed the strongest growth in ebook sales.
This sounds like great news for digital publishing, but the reality may be even better. Despite the impressive increase reported by Bookstats, the figures almost certainly underestimate true ebook market growth as titles self-published or released by micropublishers are not included.
The New York Times today also looked at the state of more traditional formats.
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.
Ahead of the June 3 trial start date of its price-fixing lawsuit, the Department of Justice is portraying Apple as the “ringmaster” that drew publishers into a scheme to sell digital books on the agency model.
In a memorandum filed in court yesterday, the DOJ ascribes tactics to Apple that ranged from enticing to coercive as it persuaded publishers that it offered their best chance to “challenge the $9.99 price point” set by Amazon.
Five major publishers named as defendants when the lawsuit was filed last year have since settled. According to yesterday’s filing, when the publishers “voiced fears that signing an Apple Agency Agreement would subject them to harsh market conditions unless the other Publisher Defendants signed too, Apple assured the publishers that they would be acting in concert to move the industry.”
Apple spokesman Tom Neumayr, speaking to The New York Times, disputed the government’s claims.
“We helped transform the e-book market with the introduction of the iBookstore in 2010, bringing consumers an expanded selection of e-books and delivering innovative new features,” Mr. Neumayr said.