« Europe, Resources

Price Fixing vs Fixed Prices: Europe’s Emerging E-book Quagmire

On Monday, the European Commission investigated several French publishers for illegal e-book price fixing, this in a country with fixed book prices. Ironic, hypocritical…or merely confusing?

By Edward Nawotka

Yesterday we learned from a dozen news sources that on March 1 several European publishing houses were “raided” by European Commission officials in search of evidence of price fixing among e-book publishers. The official statement read: “The Commission has reason to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and other restrictive business.”

european union

Few specifics were given, such as which publishing houses were raided or what kind of evidence they might be seeking. So far, only French companies have confirmed their being investigated, though the EC’s statement indicated their investigation is taking place in “several member states.”

While there is so much that we don’t know, lets start with the word “raided.” “Raids” conjure up images of jack-booted, spectacle-wearing EC technocrats breaking through the glass doors of Hachette Livre with the butts of their H-K sub-machine guns, while editorial assistants cower under their desks and marketing directors clutching Blackberries scramble for the fire exits . . . The official EC statement called these “initiated unannounced inspections,” and they were probably no scarier than a health inspector checking kitchen for rat droppings in a restaurant –- in other words, they were perhaps a bit unsettling at most. One news organization had unconfirmed reports that cell phones and computers were taken from executives. There were no reports of injuries or hospitalizations. Calling them “raids” is probably a bit hyperbolic, if not alarmist.

What we do know is that EC’s actions follow those of the Office of Fair Trading (OTF) in the UK which began investigating Pearson, HarperCollins and others for price fixing last year after their adoption of the agency model. The problem, at least according to the OTF, is that some e-books cost fully twice as much as their hardback and paperback brethren -– and some have argued that the agency model is merely a backdoor into another Net Book Agreement. The EC, too, seems to think that the agency model is little more than a type of collusion.

This, of course, is even more confusing — or perhaps ironic — should you consider that fixed print book prices are the law in Germany, France, Spain, and Italy, currently the four largest emerging e-book markets on the Continent.

Euro

What’s more, when you consider that just this past October the French Senate voted to fix e-book prices through an extension of 1981’s Lang Law, it seems even more ironic that the EC is investigating individual firms rather than looking to work with a member state’s government first.

Finally, once you factor in the wildly varying rates of value added tax (VAT) -– which are typically much higher on e-books (which are considered software) than print books (which are not) -– then you have even more of an emerging quagmire. “In Italy, VAT on a paper book is 4%, whereas for digital books it’s 20%. In Germany it’s 7% for paper versus 19% for digital,” noted Cristina Mussinelli, a digital publishing consultant for the Italian Publishers Association and European member of the IDPF board, here earlier this year. She continued: “In some countries they are trying to align print VAT with digital VAT, but this is a matter decided upon by the European Commission, and then applied at the national level. For example Spain recently tried to harmonize the two VATs, but the Commission did not accept their law.”

At this point in the development of its e-book market, Europe faces a decision: will it tolerate fixed prices for print books, but ban them for e-books? Sounds a bit hypocritical, doesn’t it? Will they allow the market to compete freely, with member states taking the lead in their own affairs -– such as France’s extension of the Lang Law and Spain’s efforts to align VAT? Or will they dictate their own rules and regulations? They could, certainly, legislate a Europe-wide policy on e-books and pricing, much as they are trying to do with regard to electronic copyright on orphan works. But this will take time. And if there’s anything that publishers know about the emerging e-book space, it is that the one thing they don’t have a lot of is time.

If European publishers, retailers and legislators can’t come to conclusive answers with regard to fixed prices and VAT -– and do it fast –- then the people who will be most injured by these turns of events are the readers eager to forge ahead into the new digital realm, the very people who embody the future of Europe and the very people the EC is ostensibly trying to protect.

DISCUSS: Does Europe Need a Single Open Market for E-books?

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One Comment

  1. Posted March 3, 2011 at 11:40 am | Permalink

    It very much looks like the big players are attempting to squeeze the readers and the small independents, who mostly produce e-books at first in order to enter the field of publishing. It’s a low-cost and very egalitarian business model versus traditional power structures. When you consider the narrow margins claimed by big-box publishers, it’s clearly about market share, power, and punitive or prohibitive taxation.

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