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Macmillan CEO: No, we won’t settle with the DOJ in the ebooks case

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Macmillan CEO John Sargent sent a letter to authors and agents on Wednesday afternoon, saying that the publisher does not plan to follow Penguin’s lead and settle with the Department of Justice in the ebooks lawsuit. But, Sargent said, Macmillan voluntarily entered new retailer contracts that conform with many of the requirements in the DOJ’s 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 (s AMZN) 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.”