DOJ Files Suit Against Apple, Book Publishers
If you’re a fan of e-books, like me (and I have been for over a decade), this is welcome news:
Technology giant Apple and major book publishers are being sued by the US Department of Justice over the pricing of e-books.
The US accuses Apple and Hachette, HarperCollins, Macmillan, Simon and Schuster and Penguin of colluding over the prices of e-books they sell.
This lawsuit is over the firms’ move to the agency model where publishers rather than sellers set prices.
Basically, when the Amazon Kindle (my preferred platform) started taking off, Apple decided to introduce the iPad, and they wanted to sell books through their own online store. However, they knew they’d face an uphill battle against Amazon, who’s probably about the most dominant bookseller on the planet right now, so they sat down and made a deal that they called the “agency model.”
Electronic books are sold according to a different formula from that governing the sales of physical books.
For most physical books publishers set a wholesale price, often about half the cover price, and then let a retailer decide how much they actually want to charge for the title.
This model was initially adopted for e-books but has since been changed for what is known as an agency model.
Under this scheme, publishers set the price of a book and the agent selling it gets a 30% cut. The agency model was adopted by publishers largely at the prompting of the late Steve Jobs.
The shift to agency pricing was also seen as a protective measure to head off attempts by Amazon to corner the market in e-books. It had been aggressively cutting prices to win customers over to its Kindle e-book reader.
This is, in essence, a price-fixing scam. E-books are logically cheaper to produce and sell than physical (dead-tree) books. There’s no paper, ink, printing, warehousing, shipping to the bookseller, or dealing with the returns on unsold books. Amazon, realizing this, wants to charge less for e-books, and generally they do. But the publishers, at least the ones that went in with Apple on this price-fixing deal, wanted to get the same price for something that costs less to make, therefore pumping up their profits.
Some firms have already settled, but some have not.
But Hachette, HarperCollins and Simon and Schuster have already settled.
The case will proceed against Apple, Macmillan and Penguin “for conspiring to end e-book retailers’ freedom to compete on price”, the Justice Department said.
“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” Attorney General Eric Holder said.
On this particular case, I am firmly behind AG Holder.