Amazon: Kindle Customers Will Get Credit in Ebook Settlement

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Amazon & the Publishing IndustryAmazon sent out emails to customers over the weekend effectively pre-announcing how a settlement between three publishers and the DOJ. Though that settlement won't be approved by the courts until February of 2013, Amazon told Kindle customers that they'll be getting credits of either $0.30 or $1.32 per book for purchases may between April 2010 and May of 2012.

"We have good news," the online retailing giant s. You are entitled to a credit for some of your past e-book purchases as a result of legal settlements between several major e-book publishers and the Attorneys General of most U.S. states and territories, including yours. You do not need to do anything to receive this credit. We will contact you when the credit is applied to your Amazon.com account if the Court approves the settlements in February 2013."

Amazon has a lot to be excited about with this settlement. It restores the ability of the firm to dump ebooks below price in order to gain share for its Kindle platform. The company routinely dumped Kindle books before April of 2010, when Apple shipped the iPad, in order to build the Kindle platform.

When the iPad did hit, Amazon had 90 percent of the ebook market, a share it had garnered by selling Kindle versions of best sellers for $9.99, less than the company paid for them. Publishers were concerned that Amazon was training customers to think that 's all books were worth, and readily banned together with Apple when that company offered them a way to move the ebook industry to the agency model.

From Books to Ebooks

The agency model allowed publishers to set the price of their books, with Apple taking a 30 percent cut off the top, the same as the rest of Apple's iTunes ecosystem. Apple's contract was built on the agency model and included a clause that prohibited books from being offered for less elsewhere.

It was that clause that publishers used to force Amazon to also move to the agency model, and it was that clause that raised the ire of the DOJ. The DOJ sued Apple and the five major publishers for colluding to raise ebook prices. We should also note that the ebook market grew substantially during that period, and that when the DOJ sued, Amazon's share had declined to 60 percent of the market, with Barnes & Noble taking about 15 percent and Apple taking 10 percent. The remaining share was owned by various smaller third party distributors.

In any event, three of those publishers instantly settled, and it's the terms of that settlement Amazon announced over the weekend to its customers—Apple and the remaining two publishers are fighting the suit.

The three publishers are contributing to a $69 million fund that will be used to issue credits to customers at the major ebook platforms. Customers who bought non-best sellers between April of 2010 and May of 2012 will get a credit of $0.30 per book purchased. Customers who bought best sellers will get a credit of $1.32 per title. Amazon's customers will be able to apply the credit to print books, as well.

The Wall Street Journal reported that Barnes & Noble is readying "similar information" for its customers, and CNN reported that Apple has also sent out letters to iBooks customers. We haven't seen those letters, and considering that CNN incorrectly reported that, "Amazon forced publishers to sell most books at $9.99," we doubt the report (see the above description of the issue for what actually happened).

Apple could be passive-aggressively waiting to announce the terms because not only will the court not rule on whether to accept the settlement until February of 2013, Apple is appealing that settlement. To our knowledge, there's nothing in the settlement itself that requires Amazon, Apple, or the other affected parties to announce the terms now.

In Amazon's letter, the company said, "In addition to the account credit, the settlements impose limitations on the publishers’ ability to set e-book prices. We think these settlements are a big win for customers and look forward to lowering prices on more Kindle books in the future."

Ebook image courtesy of Shutterstock.

Comments

mhikl

It would be interesting to see someone go in depths of historicity as to what all the fulmination this eBook shenanigan is about. And that’s about as politically correct as I can be today.

furbies

So if Apple appeals and wins, what’s Amazons’ story then ......

barryotoole

@furbies: I believe this payment is from the three publishers who have already settled, and won’t change even if Apple eventually wins.

Intruder

I received my letter from Apple before I got the one from Amazon.

Matt

The spin comment is more than a little excessive. Ebooks remove the single biggest cost center in the production and distribution of published content. Warehouses, factories, materials and fuel to send heavy objects all over the world are entirely eliminated. The “Agency” model embraced by Apple and an oligopoly of publishers sought to benefit from all of that reduction in cost without passing on any of it to consumers (or Authors or Editors for that matter)..

Beyond that, excessive price fixing is known to be self destructive. Just look at the RIAA. Broad, simple distribution at low cost requires a different model and getting more copies out to a broader audience at a reasonable price is far more likely to be a financially successful model in the future than one that sets them up for rampant piracy and mass market rebellion.

I’m not on board with all of Amazon’s strategy, but with eBooks they are making the right choices for what could be a much healthier global market for content creators and publishers that add value to content creation and marketing.

Bryan Chaffin

Hi Matt, you are mistaken in your premise: Post-iPad deal, best seller ebooks remained far cheaper than their hardback versions. They just weren’t being dumped below cost.

In addition, according to one IP expert who filed a brief in this case, the DOJ’s own guidelines allow for horizontal price fixing if it will, “create efficiencies in the operation of a market.”

Thirdly, the publishing industry’s actions bear no resemblance to the record labels, at least not from my perspective. For one thing, I don’t see “excessive price fixing” in the publishing industry.

Indeed, the retail price of best sellers stayed roughly the same as it was—the difference is that one retailer—Amazon—wasn’t dumping books below that price in order to gain share (and monopoly power).

Your mileage may vary, of course.

Lastly, I will vociferously disagree with your last paragraph. Reducing margins to nothing—the end result of Amazon’s strategy of dumping—can in no way result in “a much healthier global market for content creators and publishers.”

What we have with competition on the platform side in ereaders (i.e. hardware and software in the form of Nook, Kindle, iPad, etc.) is far healthier than the one-platform market we had before the agency model was brought into the market.

Rob

the last comment from The Mac Observer Spin was total bull@#$%. Publishing houses are raping the public and the authors, I am glad that Amazon was driving the price down, hopefully they now can continue.  I will tell why. I was looking at a couple of new fiction titles and the e-book edition was $1.25 MORE expensive than the HARDCOVER edition.  I refuse to pay $17 for an frigging e-book.

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