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Canada’s Agency eBook Pricing Settlement Will Have Little Impact on eBook Prices

Yesterday’s news about Apple and three major trade publishers agreeing to give up agency price controls in Canada has been misreported in some circles, with one person going so far as to claim both that Canada had "passed a new law to lower ebook prices" and that "the Canadian Competition Bureau has commanded that Hachette, Macmillan and Simon & Schuster have to lower ebook prices".

What with all the misinformation flying around, it’s worth a few minutes of our time to read the actual settlement agreements and consider their impact on the market.

Since this post is in many ways an addendum to yesterday’s story, I will not repeat the background but instead focus on the specific terms and conditions. The text of the agreements have been released, and you can find them at the links below.

The four decrees are essentially the same and differ only in minor details. They require Apple and the three publishers to make specific changes to each company’s ebook distribution contracts.

Apple has to drop the most-favored-nation clause from its contracts with publishers, and it cannot add that clause again for three years.

Here are the specifics:

Apple shall not, for a period of three years from the date of the registration of this Agreement, enter into any agreement with a Major E-book Publisher that contains a Price MFN with respect to the Sale of E-books to consumers in Canada.

For each agreement between Apple and a Major E-book Publisher in force at the date of registration of this Agreement that contains a Price MFN with respect to the Sale of Ebooks to consumers in Canada, Apple shall, as soon as permitted under the agreement, take steps required under the agreement to cause the agreement to be terminated and not renewed or extended. Apple may, in lieu of termination, satisfy its obligations under this paragraph 3 as follows:

(a) by entering into an amendment to the agreement, effective no later than fifty (50) days after the registration of this Agreement, either (i) making the agreement inapplicable to the Sale of E-books to consumers in Canada or (ii) removing the Price MFN with respect to the Sale of E-books to consumers in Canada; or

(b) by notifying the Major E-book Publisher within twenty-five (25) days of the date of registration of this Agreement that during the period of three years from the date of registration of this Agreement, Apple will not enforce any Price MFN with respect to the Sale of E-books to consumers in Canada in any such agreement between Apple and the Major E-book Publisher.

Fun fact: This requirement specifically only covers the Big Five trade publishers – who are listed in the decree by name, which means Apple still gets to enforce that clause against everyone else.

Talk about a half-assed punishment; it costs Apple absolutely nothing that they value – not even money.

And despite the erroneous report mentioned above, this consent decree does not require that ebook prices go down; while that might happen it cannot be guaranteed.

The three publishers agreed to similarly weak consent decrees; they too have to give up the MFN clause. They are not required to lower their ebook prices, but they do have to relinquish control of the retail price for a period of nine months (*):

Subject to paragraph 5, the Respondent shall not, for a period of nine (9) months commencing no later than one hundred and twenty (120) days following the date of registration of this Agreement, directly or indirectly:

(a) restrict, limit or impede an E-book Retailer’s ability to set, alter or reduce the Retail Price of any E-book for Sale to consumers in Canada or to offer price discounts or any other form of promotions to encourage consumers in Canada to Purchase one or more E-books; or

(b) enter into an agreement with any E-book Retailer that has the effect described in paragraph 2(a).

Apparently the Competition Bureau believes that this period is sufficient to birth a new, more competitive ebook market, but as anyone who has watched the end and return of agency price controls in the US, that is obviously not going to happen.

In 2012 and 2013 the DoJ reached similar deals with four US trade publishers. The publishers had to relinquish control of their ebook prices for a period of time, but as soon as that period ended they regained control and price competition came to an end.

Rather than a lower average price for ebooks, Author Earnings Report has shown the major US trade publishers, aka the Big Five, have been steadily increasing their ebook prices quarter by quarter.

So instead of more competition in the US ebook market consumers are faced with stifling prices and no respite in sight.

And that is exactly what will happen in Canada.

That makes you wonder why the Competition Bureau even bothered to secure consent degrees with token punishments, does it not?

P.S. Note: The three publishers' consent decrees are verbatim aside from one small detail; S&S and Macmillan have 120 days to comply, while Hachette as 50 days.

image by Mel_DJ


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