870-page law casebook becomes a $10 eTextbook

PaidContent writes about a new, 870-page legal casebook titled “Advertising & Marketing Law: Cases & Materials” written by trademark experts and bloggers Eric Goldman and Rebecca Tushnet. Two things make this new book stand out:

1: It's being published on Scribd as a DRM-free PDF download, and
2: It's priced at $10.

On his blog, Goldman writes at length about the new book. He's far from happy with Scribd:

Scribd is a horribly limited platform for eBook publishing (and for doing just about everything else). [Among other limitations, I believe it only completes sales with US residents, and (for no good reason at all) it requires buyers to log in via Facebook to complete the purchase. If you can't complete a purchase via Scribd due to these limitations, email me and we'll set up a PayPal transaction.] [Update: I got an email from Scribd informing me that they just opened up international sales, and you must be logged into Scribd to make the purchase and you can (if you navigate around) find a way to log into Scribd without connecting with Facebook.] We are working on moving away from Scribd to a better eBook publishing platform...once we figure out what that is. If you have any recommendations, please email me.

Here's Goldman's analysis of the pricing model:

Here’s how I see the math: a $150 casebook may have a $110 price wholesale (or less). At 10% royalties to the authors, Rebecca and I would share $11. At the $10 download price, Scribd takes $2.25 a download, leaving us author royalties of $7.75. So discounting the retail price 93% perhaps reduces our royalties by less than 30%. Let’s hear it for disintermediation! Plus, just like any demand curve, the lower price point should lead to higher sales, which may, in fact, make our approach profit-maximizing. (Just so we don’t delude ourselves, we’re not talking big numbers in any case).

Goldman also admits that the casebook isn't quite done yet:

While we’ve deemed the book ready for public release, it’s not “done.” I’d say it’s only about 90% done. Unfortunately, you’re going to notice some of the unfinished 10%, starting with the crap-ass book “cover” I whipped up in about 5 minutes some time around midnight one night last week, and continuing with the countless typos and formatting errors you’ll find throughout the book. We’ll be fixing errors as we find them, so please send us your corrections and suggestions. Because Rebecca and I own the copyright and completely control the publication schedule, we anticipate issuing new versions fairly frequently. No promises, but I anticipate we’ll publish annual editions for at least the next few years.

Goldman's and Tushnet's casebook combines elements of commercial eBook publishing with the Open Access academic publishing model. It's not quite free to students, but compared with the $150 that such a casebook would typically cost, $10 is pretty darn close to free. And, as Goldman points out, he and Tushnet have dropped the retail price by 93% while reducing the royalties that they would have earned if the book was published by an academic publisher by only 30%.

New Kobo Vox Coming This Fall?

On The Digital Reader blog, Nate Hoffelder writes about a MobileRead post from a current Kobo Vox user who was told by an Indigo Books salesperson that a new Vox model is coming in the fall. Given Google's new Nexus 7 and the multiple rumors about new Kindle tablets coming as early as the end of July, it makes sense for Kobo to be working on a new version of the Vox.

Call for lower, uniform eBook VAT in Europe

The Bookseller reports that the Federation of European Publishers, supported by European Commission vice-president Neelie Kroes, is calling for a uniform, and lowered, Value Added Tax for eBooks throughout the European Union. Currently, there are big differences in the VAT from country to country; for example, in Luxembourg, where Amazon has its European headquarters, the VAT on eBooks is 3%, but in the U.K, the VAT is 20%. However, as the Federation points out, the decision on changing individual VAT rates is up to the finance ministers in each country.

The Federation is also calling for consumers to be able to move eBooks from device to device without constraint, although it didn't propose any rules for doing so.

Samsung may be dropping Kobo as its European eBook supplier

The Digital Reader reports that some users of Samsung Android devices in Europe are getting a warning message when they open Samsung's own eReader app. The warning informs users that they need to download Kobo's app from the Google Play store if they want to continue reading the eBooks that they purchased for use in Samsung's eReader app, and that Samsung plans to release its own "new and improved" eReader service soon.

Kobo has provided the eBooks and back-end transaction services for Samsung in Europe, but it looks like that deal is coming to an end. When Kobo and Samsung originally struck their deal, Kobo only had black & white hardware eReaders, but it's now competing with Samsung via its Vox Android tablet. Samsung may have decided that it doesn't want to funnel revenue to a competitor. There are many alternative vendors that Samsung could work with (txtr and Blio are two possibilities.)

ALA releases final version of Public Library Funding & Technology Access Study 2011-12

The American Library Association has released the final version of its Public Library Funding & Technology Access Study 2011-12. Here's a summary of selected findings:

* For FY2011-12, the average total operating expenditures funding for U.S. public libraries dropped by 2.4%, the third year in a row where available funding declined. Survey respondents anticipate that funding in FY2012-13 will drop by another 5.3%.

* Collections expenditures dropped an average of 1.64% in FY 2011-12, and libraries expect them to drop another 4.61% in FY2012-13. However, the numbers vary considerably by library location: Urban libraries' collection expenditures rose 3.2% in FY2011-12, and suburban libraries' collection expenditures also increased by 12.6%. By comparison, rural libraries' collection expenditures declined 37%.

* 76.3% of public libraries now offer eBooks to their patrons in their facilities, and 76.1% offer eBooks to patrons remotely (for example, over the Web.)

* 39.1% of public libraries make eReaders such as Kindles or Nooks available to their patrons for reading eBooks.

* 14.2% of public libraries have optimized their websites for use on mobile devices.

* 7.2% of public libraries have developed smartphone apps for access to library services and content.

RRKidz releases Reading Rainbow iPad eBook app

TechCrunch reports that RRKidz, co-founded by LeVar Burton and producer Mark Wolfe, has released a Reading Rainbow iPad app. RRKidz licensed the Reading Rainbow trademark and content from public television station WNED in Buffalo, NY. The app gives children access to eBooks from publishers including Little, Brown Books for Young Readers; Holiday House; Charlesbridge Publishing; Kane Press; Sleeping Bear Press; Peachtree Publishers; and Shenanigan Books. The eBooks feature interactive features, quizzes and narration. The app also includes videos shot in the style of the original Reading Rainbow television series.

The Reading Rainbow app is free and comes with four eBooks and videos. Parents can then subscribe to the service for $9.99/month, which gives them unlimited access to content.

Barnes & Noble's Q4 financial results

Reuters reports that Barnes & Noble released its Q4 financial results Tuesday morning:

• Revenue was $1.38 billion, up slightly from a year ago but below analysts' estimates of $1.48 billion. 
• The company had a net loss of $57.7 million, or $1.08/share, slightly lower than its Q4 loss of $59.4 million, or $1.04/share, a year ago. 
• Same-store sales at its 700 superstores were up 4.5% compared with Q4 last year. 
• The company had higher-than-expected returns of Nook devices from retailers after the 2011 holiday season, and a decline in sales of its eReaders and tablets in Q4. 
• Revenues at its Nook business, including eBooks, eMagazines and apps as well as devices, fell 19% to $164 million in the quarter. 
• B&N now has 27% of the U.S. eBook market, compared to 60% for Amazon. (That leaves 13% for Apple, Kobo, Sony and everyone else.) 

Publishers are undercutting their own arguments for agency pricing with discounting

The An American Editor blog looks at a new trend: Big 6 publishers deeply discounting selected eBook titles. One example is Zoe Ferraris' City of Veils, published by Little, Brown, which was put on sale by the publisher at $2.99. The first book in Ferraris' series, Finding Nouf, has a list price of $13.95 and is being discounted to $11.16. Another example is Matthew Dunn's Spycatcher, normally sold by HarperCollins for $9.99 but discounted with an excerpt of Dunn's new book Sentinel for $0.99.

The $2.99 price point is catching on, even with the Big 6 publishers. The An American Editor blog points out that publishers are thoroughly undercutting their arguments for why they need agency pricing in order to "protect the value of print books" when they sell new eBooks for $2.99, or for that matter, backlist titles for $0.99. With these discount prices, they're setting consumer expectations for how much fiction eBooks should sell for, and they're doing much more damage to themselves than Amazon's $9.99 pricing policy ever did.

Adult Trade eBook Revenues Beat Hardcovers For The First Time

TechCrunch writes that per the Association of American Publishers' March 2012 report, in Q1 2012, adult trade eBook sales exceeded hardcover sales for the first time--$282.3 million to $229.6 million. In fact, they were very close to paperback sales, which were $299.8 million. It's likely that eBooks will pass paperbacks, possibly as early as Q2, but almost certainly by the end of the year.

The problem isn't agency pricing, it's Most Favored Nation clauses

PaidContent writes about a letter written by American Booksellers Association president Oren Teicher, protesting the proposed eBook price-fixing settlement between the U.S. Justice Department and Hachette, Harper Collins and Simon & Schuster. In his letter, Teicher writes that the publishers shouldn't be prohibited from using Agency pricing, saying that the loss of the agency model would “significantly discourage new entry, and will lead to the departure from the market of a sizable number of the independent bookstores that are currently selling e-books." In an earlier letter to the Justice Department, Barnes & Noble made a similar request, with similar arguments.

The problem with these arguments is, as Jane Litte wrote on the "Dear Author" blog, that agency pricing is meaningless without Most Favored Nation (MFN) clauses in place with all the major book resellers. Apple's MFN clause requires publishers to insure that Apple can always sell their eBooks at a price no higher than the lowest price offered by any other reseller. The combination of Agency pricing and MFN is necessary in order to make this work.

As Teicher's letter points out, the Justice Department doesn't claim that Agency pricing is illegal. In fact, the settlement with the three publishers expressly permits Agency pricing with some restrictions. What it forbids, for five years, are MFN clauses. So what, exactly, is Teicher asking for? It sounds as though he wants the publishers to be able to implement Agency pricing with no exceptions. No reseller would have the ability to discount for sales or special events. Resellers couldn't negotiate with the publishers--the entire pricing scheme would be "take it or leave it." In other words, he wants industry-wide MFN in practice, without individual MFN clauses.

In any event, given that the ABA has lost its eBook eCommerce partner (Google) and hasn't come up with a replacement, Mr. Teicher's arguments are largely moot.

Summary of Association of American University Presses' Spring 2012 eBook Survey

In preparation for the Association of American University Presses' annual convention in Chicago, the group has released its "Digital Book Publishing in the AAUP Community" survey for Spring 2012. Here's a summary of selected findings:

• The most popular digital publishing strategies being pursued by university presses are short-run digital printing/print-on-demand programs for backlist titles, and individual sales of eBooks, both of which are being used by 93% of the presses. By comparison, mobile eBooks or book-based apps are being used by only 34% of the presses. 
• Amazon's Kindle and ebrary tied as the most popular platform, vendor or aggregator that university presses use to provide digital content, with 81% using them. Google's eBookstore, NetLibrary and Barnes & Noble's Nook follow with 74%, 71% and 68% respectively. 
• In FY2011, the majority of university presses got 3% or less of their revenue from eBook sales or licenses. However, in FY2012, most presses expect to get between 1% and 10% of their revenue from eBooks.
• PDF is the most popular format offered by the university presses (used by 94% of the presses), followed by EPUB, with 87%. Amazon's Kindle formats (MOBI, PRC and AZW) are used by 49% of the presses. Adobe Digital Editions is used by 29% of the presses, and no other format is used by more than 18% of the presses. 
• 99% of the university presses participate in Google Books for Publishers; 88% use Amazon's Search Inside the Book, and 43% use Barnes & Noble's See Inside. 
• Social media, such as Facebook, Twitter, Goodreads and Shelfari, are by far the most popular digital marketing services used by university presses; 91% use them. Choice Reviews Online is in second place with 25%, followed by Scribd with 24%. However, according to the report, pirated content often shows up on Scribd, making the service problematic for many presses. 
• Less than 50% of presses offer any free content from their websites; the most popular form is PDF excerpts, offered by 44% of presses. 
• 54% of university presses use a single ISBN for all digital formats, 41% assign a separate number for each publisher format, and 5% assign a separate number for each vendor format. 

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Amazon updates Kindle readers

TechCrunch reports that Amazon has updated its HTML5 Kindle Cloud Reader, iOS and Android Kindle apps with a number of new features:

• Graphic novels, comic books and children's picture books are now supported in all three eReaders. There are more than 1,000 comic and children's books available. 
• Kindle Text Pop Up enlarges text in selected children's books. 
• Kindle Panel View makes comic books and graphic novels look more like their printed equivalents.
• Android and Cloud Reader eReaders now support two-page view mode. 
• iOS users can now search their library of eBooks by title, and the margins on the iPad have been made smaller for more display space. 

First numbers on Oprah's Book Club 2.0 are out

Publishers Lunch Deluxe reports on the first Nielsen Bookscan print book sales report following the announcement that Cheryl Strayed's Wild would be the initial selection in the new Oprah's Book Club 2.0. For the week ending June 10th, the title sold approximately 11,300 copies, up about 7,700 copies from the previous week (with weekly sales for the four weeks before the announcement ranging from 3,100 to 4,400 copies.) That made it #31 on the Bookscan bestseller list and #8 on the adult non-fiction list. In addition, a Knopf spokesperson said that "digital sales are extraordinary," with eBook sales almost three times the number of print sales reported by Bookscan. Knopf printed an additional 100,000 copies since the Oprah announcement, for a total of 225,000 copies in print.

While Oprah's announcement has undoubtedly increased sales for Wild, it's far too early to tell if the effect will last, and for how long. In addition, given that most of the exposure to the new Book Club is on the Internet, the greatest impact for this and future selections may be on eBook sales, not print.

McGraw-Hill Education cuts "pay-for-performance" deal with Western Governors University

In what's certainly one of the first deals of its kind, McGraw-Hill Education has agreed to a "pay-for-performance" compensation deal with Western Governors University in Salt Lake City, which specializes in online courses. The publisher will sell its eBooks and adaptive learning tools to the University for a discounted flat fee; in turn, the University will pay McGraw-Hill a premium for each student who uses the materials and passes the course. The press release doesn't say how deeply McGraw-Hill is discounting its eBooks and tools, but given that the publisher is selling directly to the University instead of through a third-party bookstore operator, it has quite a bit of room to discount without affecting its profit margins.

British supermarkets compete for the U.K.'s eBook business

PaidContent reports that J. Sainsbury, the third-largest supermarket chain in the U.K., has purchased a 64% stake in aNobii, a social discovery web engine for books whose other owners are HarperCollins, Penguin and Random House. Of the 64%, 45.4% came from HMV, which disposed of its ownership in aNobii after selling off Waterstones. The former owners who sold their shares of aNobii didn't value it very highly--Sainsbury's only paid £1 for its stake.

aNobii may help Sainsbury's in competition with Tesco, the biggest supermarket chain in the U.K., which has launched an eBooks store and acquired 80% of Blinkbox in order to get into on-demand movies. Both Sainsbury's and Tesco offer digital music downloads.

Google settles some French book scanning lawsuits

Bloomberg reports that Google has settled the remaining lawsuits with the Syndicat National de l'Edition (SNE, the French Publishers Association) and the SGDL Society of Authors (it previously settled with Hachette Livre and La Martiniere Group.) The settlements will allow Google to begin to sell out-of-print titles in France, although no financial terms were released. Google will also sponsor a school-reading program run by the SNE, and will financially support development of a database of book authors and rights-owners by the SGDL Society of Authors.

eBook Wars: Browser Wars All Over Again

At the IDPF Digital Book 2012 Conference earlier this week, Michael Tamblyn, who's Kobo's Executive Vice-President for Content, Sales and Merchandising, gave a status report on his company's market success and progress in implementing an EPUB 3-compliant eReader. Mr. Tamblyn said that because there are "a half-dozen ways to do anything in EPUB 3," it's essential that his developers test Kobo's EPUB 3 prototype using live samples, but his company is having difficulty getting enough document samples for testing. He also said that some publishers are waiting to actually get commercial EPUB 3 readers in-house, so that they can develop their documents to use the features actually implemented by eReader developers.

The next day, I spoke to a manager from a document conversion and app development company on the BEA show floor. He said that his company recommends to publishers that they use EPUB 3  as the basis for creating eBooks. I asked, "But what about Amazon? They don't use EPUB 3." The representative said that Kindle Format 8 is "very close" to EPUB 3, and that Amazon might adopt EPUB 3 in the future. In any event, he said, it's fairly easy for his firm to convert EPUB 3 to KF8.

The era of "Browser Wars"

I came back from New York with a bad case of déjà vu. Anyone who was involved with the Internet from 1995 on remembers "Browser Wars," the battle between Netscape and Microsoft to dominate the web browser market. The engineering team that developed Mosaic, the first graphical web browser, at the University of Illinois, moved to Silicon Valley and wrote a new browser, code-named Mozilla, that became the Netscape browser. Netscape quickly became the most popular Internet software ever released to that date. Then, Microsoft licensed the original Mosaic code from the University of Illinois and released its own browser, called Internet Explorer.

Early on, Netscape introduced new tags and functionality to its browser at a fast clip. Some of these tags, such as frames, gave web designers more options for creating web page layouts, but the tags were implemented without being adopted by the World Wide Web Consortium (W3C,) the international standards-setting body for the Web. Microsoft adopted some of Netscape's tags and added many of its own. However, even when it adopted a Netscape tag, it would often adopt a different set of attributes (the settings that tell the tag what to do.) There were also variations in how browsers rendered tags: The exact same web page, using the same HTML tags and attributes, in two browsers that supported all the tags and attributes used in the page, could look different in the two browsers. For example, in one browser, the page might be displayed with a background color that bled all the way to the edges of the window, while in another browser, the same page might be displayed with a white border around the edges.

It wasn't only HTML that got "innovated" to pieces. The same scripting language got two different names--JavaScript at Netscape (where Brendan Eich invented it), and JScript at Microsoft. As with HTML, the two companies' implementations were different in subtle (and sometimes not so subtle) ways. This was the era of "Looks best in (Browser X)" and "We prefer (Browser X)". In some cases, web pages wouldn't even open in some browsers, and the user would be told to use or install a different browser.

Browser developers encouraged these differences in order to lock customers in, but they were a nightmare for website designers, who had to design different versions of their sites for different browsers, and even for different versions of the same browsers. Pressure from designers and software developers on browser vendors and standards organizations reduced, but to this day still hasn't completely eliminated, the requirement to do things in different ways for different browsers. The W3C took charge of defining new versions of HTML and pushed vendors to stop implementing their own new tags until they'd been reviewed and accepted by the W3C. The W3C also adopted Cascading Style Sheets (CSS,) which over the years have made it easier to tightly define the layout of web pages that work across browsers. Ecma International (formerly the European  Computer Manufacturers Association) took over standardization of JavaScript, and changed the name of the standardized version to ECMAScript.

However, even with all these standardization efforts, supported in some cases by companies whose annual revenues exceed those of the entire book publishing industry, there are still incompatibilities among browsers, and even among versions of the same browsers. For example, Mozilla has JavaScript in its Firefox browser, and Microsoft still has JScript in its Internet Explorer. Both are compatible with ECMAScript at a basic level, but both have additional features that are incompatible with each other.

From Browser Wars to eReader Wars

eBook designers have a variety of formats that they have to work with: Amazon's .AZW (based on the Mobipocket format acquired by Amazon) and Kindle Format 8 (based on HTML5 and CSS with extensions), EPUB 2.X, Apple's iBooks (EPUB 2 .X with Apple's extensions), Kobo Color Content (EPUB 2.X  with Kobo's extensions,) Nook Digital Replica Plus (EPUB 2.X with Barnes & Noble's extensions,) EPUB 3 (HTML5 and CSS3 with the IDPF's extensions) and PDF.

To eBook designers, the word "extensions" is a synonym for "incompatibilities." Two different eReaders may perform the same functions, but if the tags or attributes that tell the eReaders what to do are even slightly different, eBook designers will have to either design around the differences or not use the functions.

Can we draw lessons for the eBook industry from the Browser Wars years? I think that we can:

1. Incompatibilities among eReaders from different vendors, and even among different generations of eReaders from the same vendor, are inevitable and won't go away.
2. Amazon will adopt EPUB 3 48 hours after Apple provides full support of Flash in iOS. In other words, it'll never happen. Amazon's eBook formats are strategic technologies for the company, and it won't allow any competitor or group of competitors to dictate how a strategic technology must work.
3. Despite the best of intentions, browsers' implementations of HTML5, CSS3 and JavaScript are still incomplete, although they're much less incompatible than they once were.
4. EPUB 3 is based on HTML5 and CSS3, and most eReader developers will either base their software and devices on an existing web browser to avoid "reinventing the wheel," or will use the customer's existing web browser and then support the EPUB 3 extensions with JavaScript. Either case makes EPUB 3 subject to lesson 3 above.
5. In order to minimize time and cost, eBook designers and developers will inevitably gravitate to a "lowest common denominator" approach, where they'll either only use features supported compatibly by the largest number of eReaders, or will design eBooks so that features that aren't supported by a particular eReader are either simulated or ignored without crashing.

EPUB's developer takes sides in the Justice Department's eBook price-fixing case

I just returned from Book Expo America in New York City. While I was there, I attended the International Digital Publishing Forum's Digital Book 2012 Conference. On the first day of the event, the IDPF apparently took sides against the Justice Department's eBook price-fixing case, and it did so in a particularly cowardly and damaging way.

First, I'll briefly describe the charter of the IDPF--it's the organization that develops the specifications for the EPUB format (the current version is EPUB 3.0.) I’m a member of two large, well-recognized international technical standards organizations: The Society of Motion Picture and Television Engineers, and the Audio Engineering Society. Despite the many political and legal battles that the movie, television and recording industries have found themselves in over the years, to my knowledge, neither group has ever taken a position on legislation, litigation or political issues. Standards organizations maintain their credibility by taking a neutral stance on everything except the technical standards that they accept and manage. That's what made the IDPF's actions on Monday so surprising.

At the start of one of the morning sessions, a panel discussion that included Madeline McIntosh from Random House (the only Big 6 publisher not charged by the Justice Department,) Bill McCoy, the Executive Director of the IDPF, told the audience that questions about the Justice Department's case, agency pricing and related topics would be off limits. That made perfect sense, and suggested that the IDPF was going to take a "hands off" approach.

However, after lunch, McCoy introduced Paul Aiken of the Authors Guild. Aiken took the stage and launched into an unscheduled 30-minute-long screed against Amazon and the Justice Department's case. I've written extensively about the Authors Guild's position--suffice it to say that Aiken added nothing new and did no better a job than other Authors Guild representatives of explaining how higher eBook prices from the Big 6 are good for consumers, or under what grounds the five publishers in the original case were justified in taking allegedly illegal action in order to prevent what they saw as Amazon establishing a monopoly in eBooks. There was no subsequent presentation of any alternative points of view, and McCoy led the audience to believe that the IDPF concurred with the Authors Guild’s position.

I confronted McCoy after Aiken's presentation to find out why the IDPF had chosen to take sides and refused to allow any discussion of other viewpoints, but he brushed me off and refused to answer any questions until the conference ended. In any event, should Mr. McCoy not believe it beneath him to respond to an industry analyst and blogger, I’d be happy to update this post with his response.

If Mr. McCoy does respond, here are the questions that he should answer—the same questions that I tried to ask him on Monday:

* Why was Mr. Aiken added to the schedule at the last minute?

* Did Mr. McCoy know that Mr. Aiken was going to talk about Amazon and the Justice Department?

* If Mr. McCoy didn't know about what Mr. Aiken was going to say, was misled by or didn't agree with Mr. Aiken, why didn't he make it clear at the end of his presentation that the opinion presented was that of the Authors Guild and not the IDPF?

* If Mr. McCoy did know, at least in general terms, what Mr. Aiken was going to say, why didn’t he give supporters of the Justice Department’s case an equal opportunity to present their side of the story to the conference’s attendees?

In short, the IDPF's role shifted last Monday from a standards-setting body to an industry advocacy organization, thanks to an exceptionally poor decision by Bill McCoy or his board. Companies that don't agree with the IDPF's position are even less likely to adopt or support EPUB than they were before Monday, which will result in further marginalization of the EPUB format, which is already a shambles due to incompatible extensions and DRM schemes that make it impossible to read supposedly "EPUB-compatible" documents on supposedly "EPUB-compatible" devices.

David vs. Goliath? How about Goliath vs. Goliath?

In the U.S. Federal, state, and private eBook price-fixing lawsuits against Apple and five of the Big 6 publishers, some observers have equated the battle to David vs. Goliath. The defendants are David and Goliath is Amazon, which, they argue, would have monopolized eBooks and wiped out the publishers if they hadn't imposed agency pricing. The problem with both the analogy and the rationalization is that most of the Davids are actually Goliaths. Here's a rundown:

• Apple: Until recently, it was the most valuable company in the world, with $100 billion of cash and equivalents on its balance sheet and profit margins that Amazon, and the other defendants, would kill for. 2011 revenues: $108.25 billion.
• Hachette: The second-largest publisher in the world, and a division of Lagardère Group, which owns magazines including ELLE and Paris Match, a variety of television broadcasters in Europe, a network of duty-free shops, and 7.5% of EADS, which is the parent company of Airbus. Parent company 2011 revenues: $10.02 billion.
• HarperCollins: A division of News Corporation, which owns Fox, The Wall Street Journal (which has been one of the most vocal critics of the Justice Department's lawsuit,) the New York Post, a bunch of newspapers in the U.K. (which are embroiled in an ever-widening phone hacking scandal,) newspapers and broadcasters in Australia, 39.1% of British Sky Broadcasting, and a lot more. Parent company 2011 revenues: $33.4 billion.
• Macmillan: A division of Georg von Holtzbrinck Publishing Group, owner of Macmillan Education, Nature, Scientific American, several German publishers and the newspaper Die Zeit. Privately held; parent company 2010 revenues: $2.98 billion.
• Penguin: A division of Pearson PLC, the world's largest education and trade book publisher; owns Pearson Education, the Financial Times and 50% of The Economist. Parent company 2011 revenues: $9.45 billion.
• Simon & Schuster: A division of CBS Corporation, which owns the CBS television network, multiple television and radio stations in the U.S., Showtime, CBS Television Distribution (which used to syndicate Oprah and still syndicates Dr. Phil and other shows,) and CBS Interactive (which owns CNET among other Internet properties.) Parent company 2011 revenues: $14.2 billion.

Amazon is certainly no slouch; its 2011 revenues were $48 billion. However, that compares to total revenues of the defendants of $178.3 billion. Even if you leave Apple out of the comparison, the parents of the five publishers had revenues of $70 billion. You can argue that publishing is only a small portion of the revenues of some of the parent companies, but books only represent a small portion of Amazon's revenues as well. In 2011, Amazon's media sales, which include books. music and video, were $6.01 billion--12.5% of the company's total revenues.

In short, the conflicts between the five publishers and Amazon aren't David vs. Goliath--they're actually Goliath vs. Goliath. When Apple is added into the mix, it's Amazon that could justifiably be called David.

Apple: Don Quixote de Cupertino?

Update, April 11, 2012: Bloomberg is reporting that the U.S. Justice Department filed suit this morning against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster for eBook price-fixing; Hachette, HarperCollins and Simon & Schuster settled with the Government.

Bloomberg reported that Apple, Penguin and Macmillan are unlikely to agree to a settlement with the U.S. Justice Department over eBook price-fixing accusations, and are preparing to go to court. The three other publishers in the case, Hachette, HarperCollins and Simon & Schuster, are said to be very close to agreeing to a settlement with the Justice Department.

Regular readers of my blog know my opinion on the subject: There's very strong evidence, even if circumstantial at this point, that the publishers imposed agency terms on all of their resellers at almost exactly the same time, including the exact same commission rate, and that all of them threatened to stop supplying eBooks to any reseller who refused to agree. Apple's precise role in the scheme isn't clear, but it's known from Steve Jobs' own words that Apple proposed the scheme to the publishers and knew that it included the part about refusing to sell eBooks to any reseller (including Amazon) that didn't agree.

Apple may believe that it didn't coordinate the actions of the publishers (or that it's covered its tracks well enough that the Justice Department can't prove that it did coordinate their actions.) It may also not want to agree to a settlement for fear of its impact on the civil price-fixing case underway in New York. However, in my opinion, Apple is taking a huge risk by not settling the case before it goes to court.

As it looks now, Hachette, HarperCollins and Simon & Schuster are close to a settlement. If they settle, they'll enter into what's called a consent decree, which doesn't require them to assume guilt for the charges. They'll be required to change their business practices, possibly pay a fine, and agree to court supervision for a limited period of time. The pain and reputational damage will be over quickly. For Apple, Penguin and Macmillan, however, their senior executives are in for months of depositions, they'll be required to provide many thousands of documents as part of the discovery process, and the court trials and appeals will likely take years to play out.

In addition, the Justice Department will be able to compel Hachette, HarperCollins and Simon & Schuster to testify against the other three companies. They'll have immunity as a result of their settlement, and they'll have no reason to protect their competitors or Apple. This is a standard part of most price-fixing cases: One or more defendants cut early deals with the Justice Department and gain immunity, and then they provide evidence against the other players in the price-fixing scheme.

The worst possible outcome for Apple would be for it to lose in court, even if it eventually wins on appeal. All they have to do is look at Microsoft to witness the damage that could be done. That case was eventually settled with a consent decree, but Microsoft was under court supervision for ten years. The company could no longer pursue the aggressive tactics that it had used in the past to suppress competition. Most importantly, it became a convicted monopolist, which changed both the public's perception of the company and the stakes for any future litigation. (When Bill Gates eventually passes away, stories about his philanthropy will have to share time with the videos of his depositions.) The press was no longer afraid of retaliation by Microsoft's public relations department for running negative stories, and Microsoft lost control of its messages.

Apple is unafraid of litigation, as witness its myriad lawsuits against Android licensees. In Walter Isaacson's biography, Steve Jobs clearly saw Android as not only a theft of Apple's intellectual property by Google, but a personal betrayal by Google Chairman Eric Schmidt, who served on Apple's board of directors for years. Jobs swore that he would spend Apple's entire cash horde, if necessary, waging "thermonuclear war" on Google and Android.

Unfortunately for Apple, its cases against Samsung, HTC and Motorola have been far from the "slam-dunks" that Jobs thought they would be. Apple has estranged perhaps the most important component supplier for its mobile products, Samsung, and it's being forced to bring alternative vendors up to its quality and deliverability standards. For example, Apple had planned to launch the new iPad with three LCD vendors, LG, Samsung and Sharp, but only Samsung was able to meet Apple's quality requirements and ship in the necessary quantities in time for the launch. In addition, some of Apple's own patents are being challenged and could be invalidated.

Apple, like Don Quixote in Cervantes' novel, enjoys its battles. Unlike Quixote, however, Apple's opponents fight back, and are likely to hurt Apple much more than Apple hurts them.