Wednesday, February 02, 2011

OFT to investigate Agency Pricing

The U.K. Office of Fair Trading (OFT) is investigating antitrust complaints related to digital-book pricing, after receiving "a significant number of complaints."
The investigation is over the new agency pricing model and follows similar investigations that have been initiated in the US by attorneys general in Connecticut and Texas.

The agency model, forces retailers to adopt prices set by publishers ensures by contract that these are not undersold. The retailer merely becomes an ‘agent’ and collects a fixed percentage of each sale. The major publishers who have adopted this practice include Penguin, Hachette, HarperCollins, Simon and Schuster but do not include Random House who have elected to stay outside of the practice and continue to trade all their books via the existing wholesale model. Any online retail or wholesaler who does not accept agency pricing is effectively starved of agency priced titles.

Some would say this was a clear return to retail price maintenance, albeit on a selective basis and as such restricts retailers and also means that consumers do not benefit from a free and open market and competitive pricing.

The practice was initiated at the launch of the iPad and was strongly advocated by Apple and opposed by Amazon. The publishers claimed that it was Amazon’s deep discounting that had driven them to take control of pricing. Some suggested that the fact that it only was applied to ebooks and not physical ones, which were equally being discounted, would suggest the driver was aimed at building an alternative eplatform for Apple and assisting their launch. Some would suggest it was also aimed at enabling publishers to establish their own direct market offers free of being undersold by retailers. The claim by some was that this would create a level playing field for all retailers but the reality is that many retailers today face pricing challenges, not on ebooks, but on suicidal discounting and trading on physical books. There are many questions over contracts that prohibit any discounting and also whether the UK companies had any choice but to follow their US ‘parents’.

Why does agency pricing only apply to digital.

In 1962, The UK courts declared that, the then Net Book Agreement (NBA) was in the public interest to allow publishers to subsidise works of authors. However some would suggest that the NDA stifled creativity as much as it supported it. But today’s return to fixed pricing is not in support of creativity but to control pricing nothing more. It may ironically kick start even more authors to go digital by themselves with the likes of Amazon offering authors attractive ‘agency’ royalties.

The agency model is to some is a backdoor return to the NBA, albeit the eNBA. The NBA/ agency model is not bookselling, nor is it retail, it is a false economy that hurts the one person who puts real money into the mix – the consumer. We believe that the agency model is flawed just as the NBA was. Digital renditions are over priced and the real control is with the aggregators, new entrants, technology providers not any publisher.

We welcome the investigation but are cautious of it delivering a blow to the agency model and remember their investigations and findings into the initial CD price issues many years ago.

source WSJ

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