Apple Notifies European Publishers of 5-Year Halt to 'Most Favored Nation' E-Book Clause

[MacRumors]

As noted by SetteB.IT, Apple has notified its European publishing partners for the iBookstore that it has suspended the "most favored nation" clause of its book-selling contract for a period of five years. The clause had prevented publishers from selling their books to other distributors at prices lower than those offered to Apple.

The arrangement had been the subject of an antitrust investigation by the European Commission and a settlement in that case was officially approved last week.

Apple hereby notifies you that, until December 18, 2017, with respect to any book sold in the European Economic Ares (EEA), Apple will no longer apply nor enforce any retail price parity (also know as retail price MFN) provisions in your eBook Distribution Agreement (e.g. Section 5(b) of the Agreement). The change is being made pursuant to a settlement between Apple and the European Commission to resolve case number 49847. The European Commission investigation of Apple's eBook business is now closed. The European Commission has signaled that it will not challenge any other term of our ebook distribution agreement.

Apple notes that the EEA where the new directive applies includes Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

Apple worked with publishers to facilitate a landmark shift in the business model for selling books, shifting to an "agency model" in which publishers set retail prices and distributors such as Apple receive a negotiated share of that retail price, similar to how the App Store operates. Under the previous wholesale model in which distributors were allowed to set their own retail prices, Amazon was able to hold a dominant share of the market as it sold books at or below cost in order to entice customers into visiting the site to purchase other products and services.

A key part of the agency model was Apple's "most favored nation" clause guaranteeing that Apple received the best possible pricing from publishers. The move effectively meant that all major distributors offered very similar pricing on books, but with the elimination of that clause publishers are now free to negotiate with distributors, a move that will likely to allow market leaders like Amazon to gain better pricing than smaller rivals.

Article Link: Apple Notifies European Publishers of 5-Year Halt to 'Most Favored Nation' E-Book Clause

[iGrip]

It is good that apple is doing this. It's too bad that they had to make a Federal Case out of it.

[realeric]

Now, I have to pay more to buy an eBook on Amazon? That's too sad.

[fishmoose]

If this results in more expensive Ebooks in the Swedish iBooks Store I'll be pissed. I just wish we'd find our balls and exit EU.

[iphone495]

Good! This shouldn't be there in the first place.

[Morod]

Hooray! This should result in less expensive ebooks. That "agency model" is what kept the price of so many ebooks so high.

[bergert]

Originally Posted by iphone495

Good! This shouldn't be there in the first place.

So you are saying price match is a dumb idea; because it is better to pay more if BestBuy cannot get the product at the same low price as WallMart ?
http://www.bestbuy.com/site/Payment-...at204400050011

To give you an example:
I bought the BluRay Movie "Leap Year" from ColumbiaHouse.com for $8.89, and on iTunes it costs $14.99 (both are 1080p). Because publishers can charge Apple more than what they charge the company which nowadays runs the ColumbiaHouse web-site. BUT THIS GOOD ?
And don't tell me the 30% which Apple is charging is causing the difference, because as you may know brick-and-mortar stores typically operate with overhead of about 50% - and not to rip you off; but just to make a profit to stay in business (Borders comes to mind).

[charlituna]

Originally Posted by fishmoose

If this results in more expensive Ebooks in the Swedish iBooks Store I'll be pissed. I just wish we'd find our balls and exit EU.

No reason why it should. The publishers set the price and even without the clauses they could keep the prices the same.

What I find amusing is that everyone is getting up Apple's butt over that clause when Amazon has the same one and had it for years. They even include promos like Starbucks pick of the week giveaways as pricing. For the whole period the codes can be cashed in. But where is the EU, the DOJ on them

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Originally Posted by Morod

Hooray! This should result in less expensive ebooks. That "agency model" is what kept the price of so many ebooks so high.

Nothing about the agency pricing was touched". Publishers still set the prices on their books.

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Originally Posted by eusceptic

From an self-published author's perspective how this will impact me? If now I have a book at 10 dollars in the store from which I get 7 dollars per book, how would the new measure affect the price of my book?

Previously the rule was basically that Apple had to have the lowest price and if you lowered the price in another store (say Amazon) they had the right to lower it in iBooks

Now, for the next 5 years, this rule is gone. You can charge $10 everywhere or if Amazon offers to highlight your book for two weeks if you will lower the price to $5 exclusively on their site you can.

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Originally Posted by EbookReader

notice that Apple doesn't say how App Store and Itunes Store operate....because Itunes store for music and movies doesn't operate through agency. Apple use wholesale to sell music, movies.

Not in all cases. I've seen the deals for some of the movies I've worked on and it was agency. As are the deals for all my indie musician friends that sell in iTunes.

And the App Store is famously on the 30% model

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Originally Posted by EbookReader

If you lower the price of your book at another store, Amazon will assume that this will be your new price and price match. And they will pay you royalties based on this new price.

But you said before that Amazon buys wholesale. So it doesn't matter what the selling price is the publisher gets the same amount.

So which is it, wholesale or price based royalties

[GS17]

Originally Posted by realeric

Now, I have to pay more to buy an eBook on Amazon? That's too sad.

No, it means that you may buy it at the same price that you will find it on iBook store or maybe lower if amazon or others can get it at a lower cost to them or decide to sell it to a loss to get you to buy from them. It's a consumer win IMO

[Mr. Retrofire]

Originally Posted by realeric

Now, I have to pay more to buy an eBook on Amazon? That's too sad.

No one says that.

[CapnJackGig]

Who cares? iBooks has been a disaster anyway. Much like Maps and Match. Only a fool would buy an e-book that's tied to only one maker's devices.

[knemonic]

Originally Posted by CapnJackGig

Who cares? iBooks has been a disaster anyway. Much like Maps and Match. Only a fool would buy an e-book that's tied to only one maker's devices.

What I find amusing is there is nothing stopping people from finding PDFs of books in Google by doing a search for a book and choosing advanced search File:PDF and then converting the PDF using Calibre to ePub. True, you might not be able to find all your books, but I bet a lot will be available in PDF somewhere.

Then your issue of it working on any device is solved.

[foobarbaz]

Originally Posted by MacRumors

Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.

Well, not really in Austria, France, Germany, Greece, Italy, Netherlands, Portugal, and Spain where the EU isn't bothered by book price fixing and local governments actually require it.

[eusceptic]

From an self-published author's perspective how this will impact me? If now I have a book at 10 dollars in the store from which I get 7 dollars per book, how would the new measure affect the price of my book?

Is this means that my book will be sold at the regular price + VAT in E.U.?

This new move is really confusing, can someone please explain it to me?

[japanime]

Meanwhile, Amazon continues to do the very thing that Apple got in trouble for doing. And when Amazon "price matches" and lowers the publisher's list price, the publisher only gets paid based on that lower price.

[EbookReader]

Originally Posted by japanime

Meanwhile, Amazon continues to do the very thing that Apple got in trouble for doing. And when Amazon "price matches" and lowers the publisher's list price, the publisher only gets paid based on that lower price.

where you get this from?

Amazon pay the wholesale price (example $11) and it doesn't matter to the publisher if Amazon put it on sales for $15, $11 or $8. They would get $11 in each case.


With the price fixing between the publishers, Amazon is forced to take a 30% commission on each sales and can't discount.

Example: ebook price is $14.99 (Amazon takes $4.49 as the agent).

This ebook price is the same at every other retailers (Amazon, Apple, Google, B&N, Kobo, Sony etc..).
It's price fixing at the retail level and both the Department of Justice and EU Antitrust commission filed anti trust lawsuit. Most publishers have settled. In the EU, they didn't pay any fines. In the USA, the 3 settled publishers agreed to pay $52 million restitution to ebook buyers.

[EbookReader]

which publishers set retail prices and distributors such as Apple receive a negotiated share of that retail price, similar to how the App Store operates



notice that Apple doesn't say how App Store and Itunes Store operate....because Itunes store for music and movies doesn't operate through agency. Apple use wholesale to sell music, movies. Apple buy these products at negotiated price and sell it at whatever price Apple want.

But since Amazon dominated ebook, Apple didn't want to compete fairly. So the best way to do this is to fix price and forced Amazon to raise its ebook prices.


Steve Jobs described Apple’s strategy in setting the retail price: “We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”

Of course, the DOJ doesn't like it when companies get together and fix the retail price and file its lawsuit. Same thing happen in EU. Australia and Canada government is also looking into it.

[dru`]

Originally Posted by EbookReader

notice that Apple doesn't say how App Store and Itunes Store operate....because Itunes store for music and movies doesn't operate through agency. Apple use wholesale to sell music, movies. Apple buy these products at negotiated price and sell it at whatever price Apple want.

Actually Apple wanted lower prices over all but the content providers demanded variable pricing so they could get more for newer "hot" content. Eventually Apple had to cave or risk losing access to content.

But since Amazon dominated ebook, Apple didn't want to compete fairly. So the best way to do this is to fix price and forced Amazon to raise its ebook prices.

It was Amazon who DID NOT COMPETE FAIRLY. They dominated by predatory pricing. Before the agency model, the BN Nook could not get a toe hold in the e-Reader market; after it rose over 20% market share. The e-Reader space became more competitive and customers benefited even if some readers paid slightly higher prices because they were actually market-based rather than Amazon's manipulated, predatory, subsidized, below wholesale prices.

The agency model prevents harm to authors, to publishers and to ebook competitors and thus to consumers in the long term. It's no surprise Amazon made these complaints to protect its monopoly with phony arguments that its undermining competition for e-readers benefitted consumers because of some lower ebook prices by taking losses going below wholesale pricing.

Can BN or Apple afford that? Apple could if it subsidizes ebook prices out of other things but it shouldn't. BN? They will probably be swept away by Amazon and this truly foolish gov't intervention and fundamental misunderstanding of markets and competition and the behavior of Amazon.

Monopoly positioned Amazon, not just in ebook but print sales as well, harms the publishing industry from content providers to consumers. This was the wrong view to take. The agency model was and is a good model for the ebook world.

[japanime]

Originally Posted by EbookReader

where you get this from?

My company publishes books, both "traditional" paper books and ebooks. My statement is based on firsthand experience with Amazon's digital publishing division.

Amazon pay the wholesale price (example $11) and it doesn't matter to the publisher if Amazon put it on sales for $15, $11 or $8. They would get $11 in each case.

That hasn't been my company's experience. However, we are a small publisher, and independent of the major publishing houses, which may have terms different than ours. We discovered in mid-2011 that Amazon was "price-matching" several of our ebooks, and only paid us based on Amazon's lowered price, not the price we set. The practice continues to this day.

With the price fixing between the publishers, Amazon is forced to take a 30% commission on each sales and can't discount.

Example: ebook price is $14.99 (Amazon takes $4.49 as the agent).

Again, our experience has been different. I'm not saying you are incorrect — what you assert may be true for the major publishing houses. I speak only as a representative of a small publishing company.

[EbookReader]

Originally Posted by japanime

We discovered in mid-2011 that Amazon was "price-matching" several of our ebooks, and only paid us based on Amazon's lowered price, not the price we set. The practice continues to this day.

did you lower the price to your book on another retailer (say B&N)?
or that retailer (say B&N) lower the price?

from my understanding, for indie publisher, the TOS is as followed:

70% royalties for book $2.99 to $9.99 (bandwidth charge of around $0.07 for 0.5MB, the typical size for an ebook)
35% royalties for book $2.98 and under (no bandwidth charge)

If you lower the price of your book at another store, Amazon will assume that this will be your new price and price match. And they will pay you royalties based on this new price.

[macs4nw]

Originally Posted by japanime

Meanwhile, Amazon continues to do the very thing that Apple got in trouble for doing. And when Amazon "price matches" and lowers the publisher's list price, the publisher only gets paid based on that lower price.

Exactly the reason why the Agency model is better for the authors and publishers, but not necessarily for the end-consumer. Of course no consumer is going to complain about a lower price, so when Amazon lowers those list prices, they're not going to get into 'trouble', but they're killing the smaller retailers, as well as hurting the authors and publishers.

So if I understand this correctly, the Agency model stands, but without the MFN clause. All fine and dandy, but what happens now after Dec. 2017? Are we going back to the status quo, or do the DOJ and the European Commission expect that the marketplace will have changed/matured enough by then to make the MFN clause all but irrelevant? Someone enlighten me please.