11:58 a.m. | Updated Macmillan said on Friday that it had agreed to settle a lawsuit brought by the Department of Justice over the pricing of e-books, asserting that the potential costs of continuing to fight the action were too high.
The agreement means that all five major publishing houses have settled the charges brought by the government last spring.
Apple, which is also a defendant, will continue to trial in June, according to the Department of Justice. A company spokeswoman declined to comment on Friday.
In a letter addressed to authors, illustrators and agents, Macmillan’s chief executive, John Sargent, said that the risks were too great to go it alone.
“Our company is not large enough to risk a worst case judgment,” he said. “In this action the government accused five publishers and Apple of conspiring to raise prices. As each publisher settled, the remaining defendants became responsible not only for their own treble damages, but also possibly for the treble damages of the settling publishers (minus what they settled for). A few weeks ago I got an estimate of the maximum possible damage figure. I cannot share the breathtaking amount with you, but it was much more than the entire equity of our company.”
In a suit filed last April, the Justice Department accused the publishers and Apple of conspiring in e-mails and over lavish dinners to set the price of e-books at an artificially high level. The publishers had moved from a wholesale pricing model, which allowed retailers to charge what they wanted, to a system that allowed publishers to begin setting their own e-book prices, a model known as “agency pricing.”
The defendants said they were trying to protect themselves from Amazon, which was pricing e-books below their actual cost, putting financial pressure on the publishers that they said would drive them out of business.
Nevertheless, three publishing houses, HarperCollins, Simon & Schuster and Hachette, settled with the government immediately. Penguin, Macmillan and Apple decided to fight the charges. But in December, to clear the way for its merger with Random House, Penguin settled too.
The terms of the Macmillan settlement mirrors that agreed to by the other publishers. Macmillan will immediately lift restrictions it has imposed on discounting and other promotions by e-book retailers and will be prohibited until December 2014 from entering into new agreements with similar restrictions. The publisher must also notify the government in advance about any e-book ventures it plans with other publishers.
Macmillan had been holding firm that it wouldn’t settle, and analysts offered varying explanations for the sudden turnabout. James McQuivey, an analyst for Forrester Research, said that potential merger talks might be one motivation. The publishing industry has begun to consolidate to respond to the threat from Amazon, and when Penguin and Random House announced last October that they would merge, it fueled speculation that more alliances would follow.
“This was a fight not worth fighting in the first place,” Mr. McQuivey said of the lawsuit, “and given the likely nature of merger conversations behind the scenes, that’s where you finally decide the litigation is an obstacle to those talks, which are much more important.”
But Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a publishing consultant, downplayed the role of a potential merger. “There have been no rumors and no signs that Macmillan is merging,” he said. “I would actually take their statement at face value.”
He said he thought it was more likely that Macmillan realized that their stand on pricing was having no effect on the market. E-book prices have been declining steadily but not precipitously since the settlement with the first three publishers went into effect last September. “Their settling doesn’t change the overall market, and it looks much more that way to them now than when they were originally fighting,” Mr. Shatzkin said.
Media Decoder Blog: Macmillan Settles With Justice Department on E-book Pricing
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Media Decoder Blog: Macmillan Settles With Justice Department on E-book Pricing
