The Business Rusch: Writers and The DOJ Lawsuit
Kristine Kathryn Rusch
This week, the Department of Justice filed its lawsuit against Apple and five publishers. Three publishers settled immediately with two, as of this writing, going forward—Penguin and MacMillan.
I am not a lawyer, so I cannot comment on the filing. A few have, including Charles Petit on his website. He points out various things not discussed in the filing, how the filing shows multiple hands on the complaint (legal and “policy wonks”), and talks about other publishing concerns.
The story hit all the major news outlets. Let me caution you as you read these news articles: reporters are generalists. They have to be or they can’t do their jobs well. As generalists, they must rely on “experts” and “analysts” to interpret a news story, particularly one like this, which relies on some arcane knowledge of an arcane industry (publishing), some technical knowledge of a technical industry (e-commerce), and a legal education in both politics of the law and the law itself (to understand the DOJ).
A reporter is only as good as her sources. And on a story like this, reporters usually have no sources at all because publishing is a poorly covered industry. Most reporters hope to break into “real” writing one day (“real” writing being getting a book published), so they’re both in awe of the publishing industry and afraid of rocking a boat while covering it.
In other words, what you read in the mainstream press comes from sources of dubious provenance, press conferences (the DOJ), statements from the parties involved (usually drafted by lawyers to avoid any legal issues), and whatever is in the media already (usually misinformation or partial information). Add to that the need to cover a complicated case in either a story that lasts 30 seconds to two minutes (TV/radio) or in about 1,000 words (print/blogs), and you have the makings of severe misunderstandings.
What does the DOJ case mean for writers, traditional or indie?
Um…no one knows.
Not yet, anyway. It depends on how things transpire. If MacMillan and Penguin settle, then we can actually discuss what the case means for us, if anything. Sometimes large corporate lawsuits have an impact on the vast business in its internal practices, but means nothing to the cogs in the machine (us small fry). Sometimes large corporate lawsuits change everything.
Is this one a game-changer? Again, we don’t know.
We would be having a different discussion if we worked at Penguin or Apple or MacMillan right now. Or if we worked at (or ran) Amazon or Barnes & Noble. (The announcement of the filing had an immediate negative impact on B&N’s stock price, for example)
Readers might also see some kind of impact years down the road, especially if we bought books through the iBookstore. As Michael Cader in Publishers Lunch pointed out on Wednesday, don’t expect any immediate changes in any ebookstore, including Apple’s iBookstore. The settlements aren’t final for the three publishers—there’s a sixty-day review period in which anyone can comment on the terms of that settlement directly to the Justice Department—and of course, the lawsuit against the other two publishers and Apple has just been filed, not litigated. (And if you don’t know the difference in those terms, you’d better not be writing mystery novels and/or ever bring a lawsuit yourself.)
So pretty much anything you see in the press aside from the facts of the filing itself is most likely speculation.
Although you won’t be able to tell it’s speculation from all the screeching that is already going on.
Why didn’t they go after Amazon? the pundits are asking. Amazon is the Big Bad here. Forgetting, of course, that the five publishers and Apple were responding to Amazon’s domination of the marketplace in 2008-2010 when the actions cited by the DOJ occurred.
And as Charles Petit points out, a resolution in this case will have an impact on Amazon and Amazon’s relationship to its publishers because Amazon also uses a term in its contracts that Apple used in its—the Most Favored Nation clause. This clause was specifically cited by the DOJ, and referred to in the settlement with the three publishers.
If the Most Favored Nation clause becomes poisonous in relationships between Apple and its publishers, then it follows that the clause will become poisonous to other retailers and the publishers they deal with.
All of that is arcane legal stuff that I barely understand.
However, I do understand two things: the impact a lawsuit of any type has on a business, and the subtle effect that media coverage has on perception.
Let’s deal with the impact of a lawsuit first.
If you’ve read this blog for the past three years, you’ll notice that I often advise you to settle problems early to avoid even the possibility of lawsuit. For writers, that usually means making certain that you understand contract terms so that you know what you’re signing. You have to know what you’re giving up as well as what you’re settling for. You have to know how those terms will apply to a successful project as well as an unsuccessful one.
A corporate lawyer friend of mine has stated his position repeatedly: if a case goes to court, someone has failed. Not because they’ve failed at negotiating their contract, or because they’ve done something wrong, but because someone—somewhere—has been intransigent and is unwilling to compromise. [Note that my friend is a corporate attorney, not a criminal one. He works in the civil side of the law, which, by the way, is where the DOJ brought this lawsuit. It’s not a criminal complaint, but a civil one.]
Avoiding court and all that a legal case entails has been my friend’s job for decades. Even before I knew him, I did my best to avoid court even when I had the law on my side.
Lawsuits cost both time and money. Often, the only winners in a case are the lawyers themselves. Lawyers bill for their time. They get paid money for that time. Lawyers will profit from a lawsuit because that’s how their business is structured. Most people’s businesses aren’t structured that way. If you’re being sued—or if you’re doing the suing—you will lose both time and money. You will not profit.
John Sargent of MacMillan is standing on principle—or so it seems from the statement he released on Wednesday. He is clearly aware of the benefits of a settlement. He writes, “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….”
He goes on to explain the legal thinking from MacMillan. Then he adds (and I think this is his true point), “It is also hard to settle a lawsuit when you know you have done no wrong.”
From our (the writers) perspective, what John Sargent and the other CEOs did or did not do doesn’t matter. That is truly a matter for the courts now—at least in the case of MacMillan, Penguin and Apple.
But Sargent’s insistence on his innocence here opens his company to all kinds of risk that he clearly hasn’t considered. Seeking Alpha, a website devoted to stock market opinion, analysis and “vibrant, intelligent finance discussion,” Dana Blankenhorn has an article titled, “Apple, E-Books And The DOJ: Even If You’re Right, You’re Wrong,” which is a fascinating look at what the costs of a case like this to a company.
Blankenhorn, a business journalist who spent years covering the Microsoft antitrust case, focuses on Apple in his discussion as well he should. Apple is publically traded and its stock is riding high at the moment. Blankenhorn believes this suit will have a serious negative impact on Apple’s creative culture, and he may be right. He dismisses out of hand the impact of the suit on MacMillan and Penguin, saying they can compartmentalize.
He’s wrong about that.
But his point about Apple is valid. Let’s just look at it in a publishing context.
He writes, “Simply put, having Justice Department lawyers around is bad for any company. Especially anti-trust lawyers…. That’s due to the peculiarities of the antitrust law—actions that seem perfectly natural in any other context take on a whole new meaning when you’re seen as trying to create, or enforce, monopoly rents. The result is that stuff has to be saved, things have to be remembered and (more important) hands have to be stayed before they do many normal business activities….Apple has plenty of cash to fight this. That’s not the issue. The issue is what happens when lawyers go into other departments….”
The problem here for the publishing companies is that, as part of this suit, the Justice Department will be looking at book prices and profits. When you look at book prices and profits in an old-fashioned business like publishing, which has really not updated its computer systems to account for e-books in particular, you will be looking at accounting practices.
Accounting practices include royalty statements, and relationships with authors. Many of the bigger publishers have fudged the royalty statements and their e-book accounting systems, either deliberately or because of antiquated systems. See this post to understand what I mean. In at least one case, systems have not yet changed within the publishing house.
If the two publishers involved in the actual case change their accounting practices now, is it something the DOJ will look at as a way to avoid parts of the lawsuit? Is it just normal business practices? Or is it something more sinister?
Because as Blankenhorn writes, “actions that seem perfectly natural in any other context take on a whole new meaning” when antitrust lawyers are investigating a company.
Personally, if I were CEO of a publishing company being pursued by the DOJ, I’d settle like HarperCollins, Hachette Book Group, and Simon & Schuster did, even if I had done nothing wrong.
The costs of having lawyers, intent on finding misdeeds, examine the way that these businesses are run would be too high for me to risk–again, even if I had done nothing wrong.
Blankenhorn points out that Microsoft won its case with the DOJ after fifteen years. He believes the fight seriously damaged Microsoft and turned it from a competitive company into one that isn’t competitive.
He adds, “I know from having covered the story what the presence of the Department of Justice lawyers did to Microsoft over many, many years. This is a path I wouldn’t wish on my worst enemy.”
Right or wrong, the CEOs of MacMillan and Penguin are taking huge risks with their companies at a time when the entire industry is struggling.
So what does this mean for writers?
As a writer who keeps one foot in traditional publishing, I’ll be keeping my eye on the earnings reports from MacMillan and Penguin, the sideways news stories that come out of this case, and on the companies’ overall good health. Because there is stuff to be found in the accounts of most traditional publishers due to old-fashioned systems, neglect, and long-standing disregard for contracts and contract terms. Today’s decisions by two major publishers will have an impact that will be felt in a variety of ways. We just don’t know what those ways are.
Now let’s discuss media coverage.
The media will lose interest in this case relatively quickly because they don’t understand it. If they do cover it, they’ll cover it from the perspective of Apple and tech companies, not from the perspective of publishers. We’re seeing that already. When the news broke on Wednesday, I had to go through three different articles to find out which publishers settled and which didn’t. In some ways, I’m being as negligent as some of the journalists, because I’m not going into the filing and getting the names of the divisions of the corporations and/or conglomerates actually named in the suit. In other words, I’m not being specific either, partly because I’m lazy and partly because I hate reading legalese unless it pertains directly to my own career.
(All right: 90% lazy, 10% legalese)
So how will the media coverage impact indie and traditional writers? Simply put: pricing.
I’m on a lot of listserves with other professional writers, and for the most part, the majority of the listserves haven’t even discussed the DOJ filing. Most writers who’ve been in this business for a long time know that this stuff is above their pay grade and whatever happens happens. Some writers, though, seem to have just become aware that something happened—even though this has been in the wind for months—and are now panicking based on mainstream media reports, worried that the suit will cause theft of the writers’ profits (!) (These writers should really look to their contracts first. I’ll wager the writers signed contracts that’ll hurt them worse than any DOJ suit will.)
The DOJ case is about collusion to set prices and to keep those prices artificially high. Whether or not that actually happened is another matter, and will eventually be determined (or not) as the case goes along.
But as the media reports this, talk of e-book prices has hit the airwaves for the first time, as far as some consumers are concerned. Richard Alan Dickson, a businessman turned writer, made this comment on one listserve I’m on (and I reprint it here with permission):
“For those who might still fear the suggestion of raising their e-book novel prices above $2.99, or $3.99, or $4.99, think about what the general public will be hearing as this issue spins in the press for the next few weeks….Will your e-books priced at $6.99 or $7.99 (and even, gasp, $8.99) really be considered too expensive when the press spins a price of $9.99 as selling a book at a loss?” [emphasis mine]
I learned long ago that people listen to media coverage with half an ear. And one phrase that’s being repeated over and over and over again in this coverage is exactly the one that Rick pointed out: publishers consider novels sold at $9.99 underpriced. Sold at a loss. Cheap. (Look at NBC Nightly News’s coverage of this story on the day it broke as an example of what I mean.)
In other words, folks, those of us publishing indie will actually benefit from this week’s press coverage—if we are willing to price our books above bargain basement pricing (free/99cents/$1.99). The media is repeating that $9.99 novels are bargains. And those listening with half an ear will absorb that thought, and never examine it. So when they see your e-book priced under $10, they know they’ll be getting a bargain.
And those folks pricing at 99 cents or $1.99? Well, their books will be treated like those books sitting outside a bookstore in bins to attract customers. Readers usually give those books a glance, then walk on by. Only readers looking for something special or bargain hunters actually stop.
I want readers to buy my books the moment they come out, not because the books are cheap or on some bargain shelf. I want readers to see that the books have value.
Ironically, traditional writers are running scared, because their publishers are running scared. Amazon has already announced that it will lower e-book prices on some titles, most likely titles from the companies involved in the DOJ suit.
So what kind of impact will the DOJ suit have on writers? Hell if I know. But I do know that the media coverage will have a positive impact on the indie writers who price their books between $4.99 and $9.99.
The coverage is doing us a favor.
The rest of it…
Well, let me simply say that I’m glad I’m not Penguin, MacMillan or Apple going forward. I have a lot of lawyer friends, and no disrespect to them but I’d hate to have to do my job with a bunch of lawyers looking over my shoulder. That’s the future for those three companies.
Me, I’m going to follow my own advice on indie book pricing, continue to read the publishing business trades, and look at the earnings reports for the companies involved. That’s the extent of my knowledge and involvement in this lawsuit. It should probably be yours as well.
A lot of traditional publishing has just discovered direct-to-consumer marketing (yeah, I know. Head-shaking). This blog is direct to consumer because I designed it that way three years ago in the deepest darkest part of the Great Recession. I wanted to advise freelancers on how to survive as they started their new businesses (more businesses start in a recession than at any other time). I did that with The Freelancer’s Survival Guide, which is still free on this website, and will have a new edition at the end of the month.
But at the urging of readers, I continued this when I finished the Guide, and then because I couldn’t ignore the elephant in the room, I decided to focus on publishing. You can read all of the blog posts for publishing if you follow this link.
When I write this blog, it takes a hefty chunk of my weekly output and turns it away from fiction which is where I make my living. So I do need financial support to keep the blog going.
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“The Business Rusch: Writers And The DOJ Lawsuit” copyright © 2012 by Kristine Kathryn Rusch.