Here are a few examples of ebooks and the discounts they are receiving at various retailers. Note that Kindle, Nook and the iBookstore are matching each other’s discounts, while in most cases Kobo and Google hadn’t begun discounting as of Thursday afternoon.

According to the terms of the settlement, Macmillan — like the other settling publishers — can’t restrict retailers like Amazon from setting, changing, or lowering ebook prices for two years. Though Macmillan only settled in February, its settlement gave it a back-dated head start on the two-year period, running from December 18, 2012 — the same date that Penguin agreed to settle.

Speaking of Penguin: Retailers still have not begun discounting its ebooks, Publishers Lunch notes, even though it settled nearly four months ago. Amazon still lists Penguin’s ebook prices as being set by the publisher.

Discounts on ebooks from Hachette, Simon & Schuster and HarperCollins — who settled with the DOJ back in April 2012 — have been in effect for several months. In most cases, retailers haven’t offered steep discounts on any of the settling publishers’ titles, and to my knowledge, we haven’t yet seen any of the bundling promotions or ebook giveaways that are largely allowed by the settlement.

Macmillan is the smallest of the big-six publishers, and the only one that is wholly privately owned. Sargent says there are two reasons Macmillan is not settling: “First, it is hard to settle when you have done nothing wrong. Much as the lawyers explain to me that settling is completely standard business procedure, it still seems fundamentally flawed to me somehow.” More importantly, he writes:

Since the very beginning, the government’s demands have never wavered in all our discussions. They still insist on the two year discounting regime that forms the heart of the agreement signed by the three settling publishers. It was our belief that Amazon would use that entire discount for the two years. That would mean that retailers who felt they needed to match prices with Amazon would have no revenue from ebooks from five of the big publishers (and possibly the sixth) for two years. Not no profit, no revenue. For two years. We felt that few retailers could survive this or would choose to survive this.

Nevertheless, Macmillan has entered new contracts with most ebook retailers “except one whose term was not up yet” (he does not specify which one). Sargent explains the new terms: “All the new contracts are compliant with the government’s requests in their complaint. They contain no most-favored nations clauses and no price limits. They also allow 10 percent discounting on individual books priced at $13.99 and above.” (This was partially reported by Publishers Weekly on Monday.) (Macmillan settled in the European Union “because of many differences in their system and because the discounting change will not materially affect the market there for us.”)

Despite these measures, the lawsuit continues. “The legal bills look like the unit sales numbers for 50 Shades of Grey,” Sargent writes. But though Macmillan is the smallest of the big-six publishers it has no plans to merge with another as Random House and Penguin are doing. Being small “has never hurt us in the past, and I expect it will not hurt us in the future,” Sargent writes. “Publishing trade books is, in the end, a human endeavor…You need a certain level of capital and infrastructure, but that does not require being a behemoth. We will be more than fine in the land of the giants. I expect we will continue to grow and prosper.”

Sargent also comments on Macmillan’s business overall. Twenty-six percent of the publisher’s sales were digital in 2012, and “our e-book business has been softer of late, particularly for the last few weeks, even as the number of reading devices continues to grow.”

The DOJ alleges that publishers, fearing Amazon’s practice of selling ebooks at $9.99, conspired with Apple at the launch of the iPad and iBookstore to adopt agency pricing, in which the publisher sets an ebook’s price and pays the retailer a commission. Previously, publishers had used wholesale pricing for ebooks, where the publisher sets a suggested list price and the retailer buys the ebook at a discount (usually 50 percent) and can then sell it at whatever price it wants. The DOJ says that that the alleged collusion led to higher ebook prices for consumers and harmed competition in the ebook marketplace. Publishers maintain that agency pricing created a more diverse marketplace by leveling the playing field and reducing Amazon’s power. (Here’s some background on the case.)

Penguin said in a statement:

Penguin has always maintained, and continues to maintain, that it has done nothing wrong and has no case to answer. Penguin continues to believe that the agency pricing model has encouraged competition among distributors of both ebooks and ebook readers and, in the company’s view, continues to operate in the interest of consumers and authors. But it is also in everyone’s interests that the proposed Penguin Random House company should begin life with a clean sheet of paper.

The DOJ said it is “currently reviewing the proposed joint venture announced by Penguin and Random House Inc., the largest U.S. book publisher. Should the proposed joint venture proceed to consummation, the terms of Penguin’s settlement will apply to it.” Random House was not included in the DOJ’s original lawsuit, because it adopted agency pricing over a year after after the other big-six publishers did.

According to the DOJ’s competitive impact statement (PDF), Penguin has agreed to “substantially the same terms” that the three other settling publishers — HarperCollins, Simon & Schuster and Hachette — agreed to in April: The publisher will terminate its existing agreements with ebook retailers and enter into new ones that, for two years, allow retailers to freely discount its ebooks (with a few limitations). Most-favored nation clauses (which state that no other retailer can charge a lower price) are prohibited for five years. If and when the settlement is approved by Judge Denise Cote of the New York federal court, Random House will be subject to the same terms and will also have to negotiate new retailer contracts.

Like the original settlement, the DOJ’s proposed settlement with Penguin (PDF) is subject to a 60-day public comment period. The DOJ received over 800 public comments on the original settlement, the vast majority of them opposing it. Judge Cote approved it anyway.

Since the original settlement went through, HarperCollins, Simon & Schuster and Hachette have entered new ebook contracts with Amazon and other ebook retailers. They are still setting the prices for their ebooks and paying retailers a commission, but retailers can discount the books as they wish and can sell them at a loss. The DOJ claims that “[the] settlement likely will lead to lower e-book prices for many Penguin titles; prices for titles offered by HarperCollins, Hachette, and Simon & Schuster fell soon after those publishers entered into new contracts as a result of the Original Judgment.” (Many of the settling publishers’ ebooks have only dropped in price slightly.)

Penguin is discussing a similar settlement with the European Commission.

The DOJ notes that “of course, the case against the remaining Defendants” — Apple and Macmillan’s parent company Holtzbrinck — will continue.

“We have entered new agreements with our ebook agents that are in compliance with the DOJ settlement,” S&S SVP of corporate communications Adam Rothberg said in a statement, “and we look forward to working with our retailers to expand the readership for our authors and grow the ebook marketplace.”

All three settling publishers are still using a modified agency pricing model: They set an ebook’s list price and pay the retailer a commission. Under the new contracts, the difference is that retailers can discount the ebooks as much as they want (and can take a loss on the sales of those books).

There are a few exceptions: The settlement allows publishers the option to negotiate retailer contracts that include “a commitment from an e-book retailer that a retailer’s aggregate expenditure on discounts and promotions of the Settling Defendant’s ebooks will not exceed the retailer’s aggregate commission” — though that doesn’t prevent deep discounts on specific titles. The settling publishers can also negotiate one-year contracts that “prevent e-book retailers from cumulatively selling that Settling Defendant’s e-books at a loss over the period of the contract.” More on the settlement and ebook prices here.

Apple, Macmillan and Penguin did not settle with the DOJ, and are set to go to trial in June 2013.

Photo courtesy of Shutterstock / Borys Shevchuk

The problem began around 10:30 p.m. ET and seemed to affect only ebooks published by Random House, Penguin, Simon & Schuster, Macmillan, HarperCollins and Hachette. Publishers Marketplace’s Sarah Weinman tweeted:

Reports coming in of Amazon removing buy buttons from titles by Penguin, Random House, Hachette, Macmillan, Harper, S&S. Any other pubs?

— Sarah Weinman (@sarahw) November 9, 2012

Amazon just pulled Nate Silver’s buy button. The Internet is going to explode. amazon.com/The-Signal-Noi…

— Evil Wylie (@EvilWylie) November 9, 2012

Digital Book World has a statement from Amazon: “The Kindle Store is experiencing a technical issue. We’re working to correct it.” According to some reports on the MobileRead forum, users were also unable to download Kindle titles that they’d already bought and titles that they’d added to their wishlists disappeared.

As of Friday morning, the buy buttons were restored.

It is odd that, apparently, only big-six titles were affected. Some wondered if the problem was associated with agency pricing — were only publishers who set their own ebook prices affected? But that doesn’t make sense for a couple of reasons: HarperCollins reached new agreements with Amazon (and other ebook retailers) in September, following the approval of the DOJ’s settlement with HarperCollins, Hachette and Simon & Schuster. Amazon has been discounting HarperCollins titles since then. And self-published authors set their own ebook prices through Amazon’s KDP, but those books weren’t affected, either.

It is also possible, as Nate of the Digital Reader points out in the comments, that non-big-6 titles were affected as well and nobody noticed. I have been searching Twitter and haven’t found reports of non-big-6 titles affected — and with the discussion around this topic, it seems as if those would have turned up, especially from individual authors — but it’s a possibility.

The most notorious case of Amazon purposely turning off a publisher’s ebook buy buttons happened in January 2010, when the company turned off Macmillan’s Kindle buy buttons to protest the publisher’s implementation of agency pricing. More recently, in February 2012, Amazon turned off buy buttons on nearly 5,000 Kindle titles from distributor Independent Publishers Group after IPG refused to capitulate to Amazon’s demand for better terms.

This time around, though, if the problem was indeed unintentional, we are unlikely to get more answers from Amazon about what happened.

In a document filed with the U.S. District Court for the Southern District of New York, the states’ attorneys lay out two modifications to their original settlement:

1. Payouts: The settlement had originally said that consumers who bought agency-priced ebooks between April 1, 2010 and May 21, 2012 would receive $1.32 per book for purchase of New York Times bestsellers, $0.36 per book for frontlist titles [in their first year of publication], and $0.25 for backlist [older] titles.” But retailers have said they “will be unable to provide the degree of precision needed to accurately separate and identify frontlist and backlist purchases,” so instead there will now be just two payout categories: $1.32 for New York Times bestsellers and $0.3o for all other titles.

2. Credits: The way that customers receive credits is also changing. The settlement had originally said that retailers like Amazon and Barnes & Noble

would automatically deposit the calculated credit amount in eligible customers’ accounts and would send a notice to consumers telling them that the credit is available for use. As credits are used, the retailer would bill the settlement escrow account for reimbursement. At the end of one year, unused credits would expire.

Amazon will still use this system, and unused credits will expire after a year for Amaozn customers. But other retailers told the states “they would be unable to track the   amount of the specific settlement credit within a customer’s account if that customer has other sources of credit in the account, such as a refund for a returned book or a gift certificate.” The other retailers said they wouldn’t be able to terminate the credits after a year and wouldn’t know when they were used. “Retailers have also expressed concern that their particular method of crediting accounts might be viewed a gift card and could run afoul of certain state laws that require that gift cards have no expiration date.”

So now, Barnes & Noble, Apple and Kobo will use a different credit system. (Google and other ebook retailers are sending out paper checks.) Eligible customers will instead get an email about an account credit and will then have to activate that credit, either by clicking a “click to activate” button or by typing a code into their account. “The customers will have an entire year to activate their credits. However, once activated the credit will be available in the customer’s account for use at any time, and will not expire.”

Here’s the full filing, including a copy of the notice that will be sent to customers.

<em>Photo courtesy of Shutterstock user <a href=”http://www.shutterstock.com/pic.mhtml?id=104965325″>Mohd Hasmi Hamidi</a>.</em>

That won’t be the case for long. Soon enough, retailers will be able to sell the ebook edition of The Casual Vacancy for $9.99 or whatever price they want. But tomorrow, when the ebook goes on sale, and for several weeks after that, customers will be paying more for it than they would have before the ebook pricing settlement was approved.

Here’s why. The suggested retail price of The Casual Vacancy hardcover is $35. Publishers use wholesale pricing for print books: They set the books’ list price; retailers buy the books at a discount and can then resell them at whatever price they want. That’s why The Casual Vacancy hardcover is $20.90 on Amazon.

For ebooks, things are different. Recall that Hachette is settling with the Department of Justice over allegedly colluding to fix ebook prices. Upon the settlement’s approval, Hachette (and the other two settling publishers, HarperCollins and Simon & Schuster) had seven days to terminate their contracts with Apple. Now Apple’s price bands — which would have stipulated that The Casual Vacancy ebook be priced at a maximum of $16.99, assuming a hardcover price of $35 — are no longer in effect.

The settling publishers have longer to terminate agreements with other retailers, like Amazon: “Starting 30 days after the Court enters the proposed Final Judgment,” they may terminate those contracts ”as soon as each contract permits” (i.e., when it expires), or the retailers can terminate the contracts on 30 days’ notice. That adds up to about sixty days of wiggle room. (Thanks to Dear Author blogger and attorney Jane Litte who helped me with some of the math on this.)

The settling publishers can enact new retailer contracts much faster, as HarperCollins did, but they don’t have to if they don’t want to. Hachette CEO David Young told the WSJ on Wednesday that the company hasn’t yet agreed on new contract with retailers.

In the meantime, Hachette’s in a sweet spot where it’s no longer limited by Apple’s price bands, but non-Apple retailers like Amazon also aren’t allowed to discount its books. So if you want The Casual Vacancy tomorrow you’ll be paying $17.99. (A possible caveat: If Apple is now operating under a new contract with Hachette, it seems it could discount The Casual Vacancy if it wants to. At that point, Amazon and other retailers might be able to invoke the most-favored-nation clauses in their own contracts and drop the ebook’s price as well. We’ll see if this happens.)

Note: I’m aware this post is likely to engender a lot of “greedy publishers” comments. The fact is that the ebook pricing settlement incentivizes publishers to set higher ebook list prices. Depending on the new contracts that Hachette works out with retailers, there may be little difference between the money that Hachette gets from Casual Vacancy sales now and the money it gets once those new contracts are enacted.

“Your Honor, I appreciate that there is ‘No Frigate like a Book,’ but to quote another famous poet, John Masefield, ‘All I ask is a tall ship and a star to steer her by,’” wrote attorney Bob Kohn in a missive to stop the settlement.

Kohn’s literary flourish is in response to U.S. District Judge Denise Cote’s inclusion of Dickinson’s poem in a decision last week that effectively ends some publishers’ power to set the price of ebooks.

Meanwhile, Cote, who is herself an ebook buyer, issued an order saying that she waives her right to collect under a refund agreement that will pay consumers 25 cents to $1.32 to compensate them for price fixing.

• See also: What the book settlement means for publishers, Apple and you

As for Kohn, who submitted a five-page comic strip to the judge this month, his latest appeal appears hopeless because today is when three publishers must tear up their contracts with Apple. The publishers must terminate those and other contracts in exchange for the Justice Department shelving an antitrust case against them. The development has already resulted in new book discounts by Amazon and other retailers.

Kohn, a music executive who has been one of the settlement’s most vehement critics, is arguing (correctly) that Cote’s refusal to stay the deal will result in the new pricing system becoming a fait accompli by the time the issue reaches an appeals court.

Apple and two other publishers are continuing to fight the price-fixing charges in court.

Here are the two poems followed by Kohn’s latest letter to the judge:

“Sea-Fever”

I must down to the seas again, to the lonely sea and the sky,
And all I ask is a tall ship and a star to steer her by,
And the wheel’s kick and the wind’s song and the white sail’s shaking,
And a grey mist on the sea’s face, and a grey dawn breaking.

I must down to the seas again, for the call of the running tide
Is a wild call and a clear call that may not be denied;
And all I ask is a windy day with the white clouds flying,
And the flung spray and the blown spume, and the sea-gulls crying.

I must down to the seas again, to the vagrant gypsy life,
To the gull’s way and the whale’s way where the wind’s like a whetted knife;
And all I ask is a merry yarn from a laughing fellow-rover
And quiet sleep and a sweet dream when the long trick’s over.

By John Masefield, English Poet Laureate (1878-1967).

Kohn Letter Sept 12 (1)

(Image by  Vikulin via Shutterstock)

We saw yesterday that HarperCollins has already entered into new contracts with ebook retailers like Amazon, Barnes & Noble and Google. Now Apple has a new deal with HarperCollins too. This morning I compared the prices of 12 HarperCollins titles across ebook retailers. Like Amazon, Apple is selling new bestselling ebooks for $9.99. (I’ve asked Apple for a comment on its pricing strategy for ebooks and will update this post if I hear back.)

Amazon is already dropping its ebook prices to match Apple’s, in the cases where Apple had priced a book lower than Amazon did. For instance, James Rollin’s Bloodlines and J.A. Jance’s Judgment Call were each $10.94 in the Kindle Store this morning and $9.99 in iTunes. Just a few hours later, both books are down to $9.99 at Amazon as well.

Sure, we can’t draw major conclusions about Apple’s new ebook pricing strategy based on what it’s done with one publisher’s books. But in the case of HarperCollins, we’re already seeing that even if Apple would prefer agency pricing, price bands and MFNs for books, it’s willing to compete on price in the absence of those things. And it has a lot more money to do so than other ebook retailers like Barnes & Noble and Kobo.

Under agency pricing, Apple’s ebook market share hovered around 10 percent. But if customers are drawn to Apple’s new low prices on ebooks, it’s actually possible to envision a world in which Apple’s ebook market share rises — under the terms it didn’t want.

(Note: The chart is cutting off part of the last column, Sony. You can see my full pricing spreadsheet here.)

A couple notes:

• Amazon doesn’t show the ebooks’ list prices. I had to go to Barnes & Noble for those. I obviously haven’t looked at HarperCollins’ entire list, but you can see that in some cases it’s raised ebooks’ list prices. For example, Michael Chabon’s upcoming Telegraph Avenue, which would have been priced at $12.99 or $14.99 under agency, has a list price of $17.99 in the new world.
• Apple is now discounting titles too (that wasn’t true yesterday). In some cases, as you’ll see above, Apple is offering lower prices on new bestsellers than Amazon. Amazon dropped prices to match Apple’s this afternoon. More on that here.
• Amazon is offering the lowest prices. Based just on the titles above, the average price on Amazon Kindle was $8.43; on Apple, $9.81; on Barnes & Noble Nook, $9.57; on Google Play, $9.91; on Sony (SNE), $10.42; on Kobo, $12.25.

Photo courtesy of Shutterstock / Thomas Bethge