Thursday, March 08, 2012

Justice Dept. set to sue Apple, publishers over collusion on e-book pricing

Apple doesn't always win, despite what it might seem. On Thursday, the Wall Street Journal reported that the Justice Department has warned the electronics giant and five publishers that it was going to sue them for alleged collusion in attempting to raise the price of e-books.

The five publishers in the Justice Department's crosshairs are HarperCollins which ironically also owns the WSJ, Simon & Schuster; Hachette Book Group; Penguin Group (USA); and Macmillan. Some of those involved, according to the report, have been discussing a settlement which, if successful, could potentially lead to less expensive e-books. That said, not all the publishers are involved in such discussions.

When Apple introduced its first iPad in 2010, it was seen as a possible rival to the Amazon Kindle, and the iBookStore was seen as a threat to Amazon.com's e-book sales. That threat never materialized, however, but in Steve Jobs' bio, published late last year, Jobs said that prior to the iPad's intro,

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.' They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"

Prior to this change, Amazon.com was the giant in the e-book industry, and the industry was using a wholesale model: publishers sold e-books to retailers which then sold the e-books at a price they set themselves. In the case of Amazon.com, it was trying to build market share, so it often sold e-books below cost.

In the eyes of publishers, this was training consumers that e-books could have low, low prices, and they didn't want buyers to get used to prices that were unrealistically low.

The Justice Department believes that Apple and publishers worked together to get this system changed.

A settlement could signal a return to wholesale pricing, which would in turn probably mean a return to lower-priced e-books. The big winner here could be Amazon.com, which despite Apple's entry into e-books, has remained a dominant force in the market.

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