Barnes & Noble says e-books settlement hurts public

Thu Jun 7, 2012 10:59pm EDT

William Lynch, Chief Executive Officer of Barnes & Noble, holds the new Nook Tablet at the Union Square Barnes & Noble in New York, November 7, 2011. REUTERS/Shannon Stapleton

William Lynch, Chief Executive Officer of Barnes & Noble, holds the new Nook Tablet at the Union Square Barnes & Noble in New York, November 7, 2011.

Credit: Reuters/Shannon Stapleton

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(Reuters) - Barnes & Noble Inc (BKS.N) has objected to the U.S. government's proposed settlement of its price-fixing lawsuit against top publishers, saying it would harm book sellers and "millions and millions" of book buyers.

The top U.S. bookstore chain, which has been battling with Inc (AMZN.O) in the growing e-books market, said in a complaint filed with the U.S. Justice Department on Thursday that the settlement would lead to "higher overall average e-book and hardback prices and less choice, both in how to obtain books and in what books are available."

Barnes & Noble's share price fell 3 percent on Thursday, closing at $15.42.

In an antitrust lawsuit in April, the Justice Department sued Apple Inc (AAPL.O) and two publishers, saying they, and three other publishers with which it simultaneously settled, conspired to fix the prices of electronic books to break Amazon's dominance in the market.

Apple had successfully convinced publishers to use the "agency model" that allows publishers to set the price of e-books and in turn, Apple would take a 30 percent cut, the government said at the time.

Apple also allegedly extracted promises from the publishers that they would not allow rival retailers to discount their e-books, a so-called "most-favored nation" deal.

The strategy upended the "wholesale model" in which retailers pay for the product and charge what they like.

Barnes & Noble, which operates nearly 700 bookstores, said that before the adoption of agency pricing, it was "losing substantial money in an effort to compete with Amazon's pricing and was unable to gain significant market share."

Amazon, which got a headstart in the e-book market with its Kindle e-reader, had used the wholesale model to generally charge $9.99 for its e-books.

The settlement the government reached in April with three of the publishers would allow Amazon to resume discounting books, and terminate their most-favored nation contracts with Apple. Amazon said at the time that it planned to lower prices on books associated with its Kindle e-reader.


Barnes & Noble said in its comments on Thursday that the adoption of agency pricing had lowered Amazon's share of the e-book market to 60 percent from 90 percent. Barnes & Noble claims to have 27 percent.

Barnes & Noble has had to contend with Amazon's aggressive pricing on its Kindle devices. It has invested heavily, including on advertising for its Nook devices, to compete and that spending has weighed on the bookseller's earnings.

Sales in Barnes & Noble's Nook business, including e-books and the devices, rose 38 percent to $542 million during the holiday quarter, which ended January 28, easily outpacing the 4.2 percent rise in physical book sales during that period.

Barnes & Noble said the end loser of the proposed settlement would be the American public, saying they would experience higher overall average e-book and hardback prices and less choice in books and how to obtain them.

It also said the proposed settlement "will injure innocent third parties, including Barnes & Noble, independent bookstores, authors and non-defendant publishers."

The three publishers who agreed to settle are News Corp's (NWSA.O) HarperCollins Publishers Inc, CBS Corp's (CBS.N) Simon & Schuster Inc and Lagardere SCA's (LAGA.PA) Hachette Book Group.

Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and Pearson Plc's (PSON.L) Penguin Group, have said they plan to fight the Justice Department charges, along with Apple.

Justice Department spokeswoman Gina Talamona said that the department had no immediate response to the Barnes & Noble comments. "The department will respond to all of the comments in a filing with the court," she said.

HarperCollins could not immediately be reached for comment while Hachette and Simon & Schuster declined comment.

(Reporting By Phil Wahba; Additional reporting by Diane Bartz; Editing by Maureen Bavdek and Tim Dobbyn)

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Comments (3)
BentonVirtus wrote:
Poor Barnes & Noble, “… was losing substantial money in an effort to compete with Amazon’s pricing …” I guess what goes around, comes around, eh? After the thousands of small, neighborhood bookstores that B&N put out of business with aggressive (and temporary) low pricing? I’m not feeling too sympathetic.

Jun 07, 2012 12:05am EDT  --  Report as abuse
Jeepgirl wrote:
I had actually believed e-books would bring the cost of books down. Stupid me.

Jun 08, 2012 3:15am EDT  --  Report as abuse
This is standard fare for B&N and the big publishers, confusing the public by saying that “up is down” and “black is white.” For those of you who are confused, check out any high-priced e-book on Amazon and you will always see the note — “price set by the publisher.” Amazon wanted to fix a max price for e-books at $9.99, which is fair for something with no meaningful manufacturing and delivery costs. But this would drive everyone to ebooks and away from physical bookstores like B&N — and therefore completely undermine the ecosystem that drives all publisher profitability (like hardcover bestsellers at $40). So they made a deal with Apple which would cut out Amazon if Amazon failed to go along with the price fixing model. There is no industry in the United States in which a manufacturer can set the price charged by retailers to customers. That kind of price fixing is absolutely illegal, and the publishers know it. But they will try anything to keep people from moving to an e-book world they cannot control and which enormously undermines their price expectations. They see the music business, and they will do anything to preserve the old order. They’ll even tell you that an ebook cost almost as must to make and distribute as a printed book — a ridiculous tale that anyone who has ever self-published a digital book can easily refute. Apple’s role here is funny because they are just going along for the ride. They would likely profit as much as Amazon if ebooks were all cheap and everyone bought then instead of print.

Jun 12, 2012 1:02pm EDT  --  Report as abuse
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