Tor announced that their books were going to go DRM-free as of July. My coworkers have been buzzing about it, and I remarked that there’s some bigger wrinkles on this, and that this decision could impact the ebook sales landscape as a whole. I was asked to explain, so I compiled it into an email.
This is that email.
As a caveat, I don’t have any insider knowledge — this is all info I gleaned from the Internet. If someone has more accurate information from a credible source, I’d be happy to update this post.
Earlier this month (April 11th, specifically), the Department of Justice started a lawsuit against major ebook publishers and retailers for allegations of price fixing. Specifically, they were targeting groups like Apple, Amazon, and Barnes and Noble working in conjunction with publishers like Macmillan to keep prices within a specific range (generally, $2.99 to $9.99). 1
Now, some of this comes from publishers like Macmillan choosing to move to the agency model, specifically to prevent retailers like Amazon getting a complete monopoly. For those not in the know, the nutshell is that in the original wholesale model, the publishers sells units to a retailer as a predetermined price, 2 while in the agency model, the publisher sets the retail price, and gives the retailer a set percentage. The issue is that the DOJ is alleging that publishers and retailers conspired to keep ebook prices within a certain range.
So, on the surface, this looks like either a) Amazon and Macmillan are being douches, and the DOJ is stepping in, or b) the DOJ and the U.S. government are woefully out of touch with 21st century business models.
Now it gets a little weird.
Most of the companies contacted by the DOJ have settled. While names are not mentioned (which is common in settlements), two companies have openly admitted to fighting the lawsuit: Apple and Macmillan. Particularly, the CEO of Macmillan posted an open letter on Tor.com. This is the key point:
“We have been in discussions with the Department of Justice for months. 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. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.
“When Macmillan changed to the agency model we did so knowing we would make less money on our e book business.” [emphasis mine]
Apple, as I understand it, has made similar statements. For a while, it looked like Macmillan would be filing a countersuit with companies like Apple and Amazon in this. Now, it looks like Amazon has settled (which, frankly, I’m a little surprised by if it’s true), which leaves Apple. Still not a lightweight partner.
Then Tor pulls this. This is notworthy for two reasons (and kind of a third):
- Tor caters to a very tech-savvy audience. Tor.com is a well-run site, and their blog clearly caters to a sci-fi and fantasy audience well beyond just literature. So they’re getting a lot of the heat on the DRM decision, and probably have been for years (more than, say, Harlequin or the non-fiction publishers).
- Tor is owned by Macmillan. This means that Macmillan has made the decision to take its most tech-savvy portion of the audience and give them what they want. DRM has mainly been something left to the retailers to enforce and encourage. So, effectively, Macmillan has decided that it doesn’t need retailer support as much as it did before April 11 (although the decision might have been earlier).
- The founder of Tor Books, Tom Doherty, owns a chunk of Baen Books, which has been DRM-free and on the outer edge of ebook marketing and retailing for years. So it’s entirely possible that this has been floating around Macmillan for a while.
Macmillan and Amazon are the two companies mainly targeted in the past year or so for being the price fixers. This move, though, really only benefits Apple, who has been steadily moving to push people towards their own storefront (iTunes) while still allowing other retailers to use their wares on Apple products. Making Tor’s books DRM free basically says “Hey, all those books you bought on the Kindle? You can still read those on other devices.”
It’ll be interesting to see how this all shakes out.
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- Interestingly, while much of it was around the retailers and authors not having the ability to lower their prices below $2.99 without losing significant royalties, there are some groups that also want to increase prices, particular textbook publishers. It’s not just about lowering prices. ↩
- This is why many prices are marked MSRP, or “manufacturer’s suggested retail price.” It’s just that – a suggestion – and retailers can change the price in the wholesale model. ↩