ABA Urges Connecticut Attorney General to Shift Focus

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This week, ABA CEO Oren Teicher wrote to Richard Blumenthal, the Connecticut attorney general, to urge him to refocus his office’s recently announced inquiry into agreements between the industry’s major publishers and Amazon.com and Apple, Inc.

On August 2, Blumenthal’s office announced that it was investigating agreements between the publishers and both Amazon and Apple that, according to a news release from the attorney general’s office, “may block competitors from offering cheaper e-book prices.” Specifically, the investigation is focused on agreements that the attorney general’s office contends would ensure that both companies “will receive the best prices for e-books over any competitors – contract provisions known as ‘most favored nation’ clauses.” According to published reports, the Texas attorney general is also making inquiries about the e-book market.

In his letter to Blumenthal, Teicher wrote, “While we strongly share your commitment to maintaining the broadest access of books – in any format – to readers and consumers in Connecticut, we believe that the focus of your investigation misses the true potential danger facing readers…. In our view, the far greater threat to consumers is not what megastore book retailers are charged for the books they sell, but whether these online and bricks-and-mortar superstores are engaged in below-cost pricing and loss-leader marketing to consumers that will offer Connecticut consumers only a fleeting bargain while enacting serious long-term losses.”

Teicher’s letter argued that “the artificially low prices at which e-books have been sold are threatening any profitable business model for writing, publishing, and selling books,” and he stressed that “such below-cost pricing is very likely to drain the resources publishers need to discover, develop, compensate, and successfully publish new authors, a loss of diversity that will have deleterious long-term effects on many fronts.”

Teicher noted in his letter to Blumenthal that a new pricing model for digital content – the agency model – had been introduced by some publishers. In the agency model, explained Teicher, “a publisher sets a retail price for a specific book and engages an agent – typically a retailer – to facilitate the sale of that book to a consumer, at that price. In this model, the retailer is bound by the price set by the publisher.” Teicher stressed that ABA “strongly favors the agency model for the sale of digital content,” noting that it “puts a stop to unscrupulous and predatory pricing practices by online superstores, and allows for a wide diversity of retailers in the marketplace. It also helps to ensure the continued distribution of books by small independent businesses with a variety of viewpoints, ultimately benefiting consumers by showcasing not just cut-rate bestsellers, but a diverse selection of mid-list authors.”

In his letter to the Connecticut attorney general and in an earlier letter to the Texas attorney general, Teicher noted that, if left unchecked, ABA believed there could well be a situation where “megastores could have the ability to create a stranglehold on the book distribution channel both upstream to the publishers and downstream to consumers, positioned, in the long term, to raise prices and restrict services.”

On August 3, Suzanne Staubach, manager of the General Books Division of the UConn Co-op, wrote the Connecticut attorney general to express her concern regarding his investigation. In her letter, Staubach wrote: “I think you misunderstand what has happened in the book business. I know your priority is to look after consumers, but consumers will be ill served if there are no more independent booksellers, if authors make even less money on their work than the pittance most of them now earn, and if publishers can no longer afford to do what they do, which is acquire, edit, design and market books.”

In her letter to Blumenthal, Staubach also stressed the importance of sales tax equity. Requesting that the attorney general focus on the issue of e-fairness, she cited Amazon.com’s refusal to collect state sales tax, a decision, she wrote, that “gives them an unfair advantage over other retailers, not just booksellers, who must and do collect sales tax.”