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U.S. Government Warns Apple and Publishers of Antitrust Lawsuit over e-Book Pricing

Last December, the U.S. Department of Justice acknowledged that it was conducing an antitrust investigation into the new "agency model" of e-book pricing that was championed by Apple ahead of its iBookstore rollout, a model in which publishers could set the retail prices of their books but could not sell them to retailers other than Apple for lower prices. A similar investigation has been ongoing in Europe as well.

The Wall Street Journal now reports that the Department of Justice has warned Apple and five e-book publishers that it intends to file an antitrust lawsuit against the companies over the matter, in which the companies are alleged to have colluded to raise the price of e-books.
Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.

The five publishers facing a potential suit are CBS Corp.'s Simon & Schuster Inc.; Lagardere SCA's Hachette Book Group; Pearson PLC's Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc., a unit of News Corp. , which also owns The Wall Street Journal.
Many publishers were happy to sign on to Apple's agency model for book pricing, seeking to gain greater control of pricing for their content. After signing deals with Apple, they then turned to Amazon and other retailers, forcing them into the same arrangements by threatening to withhold their books from those retailers.
The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.

The publishers have denied acting jointly to raise prices. They have told investigators that the shift to agency pricing enhanced competition in the industry by allowing more electronic booksellers to thrive.
Arguments that the agency model has actually increased competition center on Amazon's dominant position in the retail book industry, where it had frequently sold books at razor thin profits or even losses in order to attract customers for its broader shopping offerings. Under the agency model, greater price uniformity across retailers has allowed more companies to be competitive in the marketplace.

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65 months ago
Sounds feasible to me, I know for a fact when I check e-book vs hardcopy prices I've found e-books to be much more expensive on numerous occasions. This doesn't make sense from a printing and delivery standpoint, and makes me believe these companies are trying to take advantage of the hype and popularity behind ebooks as a new technology. I hope they come down hard on Apple and Publishers if it's true, ripping off customers should not be a business model for any company. No sympathy for greed.
Rating: 40 Votes
65 months ago

Sounds feasible to me, I know for a fact when I check e-book vs hardcopy prices I've found e-books to be much more expensive on numerous occasions. This doesn't make sense from a printing and delivery standpoint, and makes me believe these companies are trying to take advantage of the hype and popularity behind ebooks as a new technology. I hope they come down hard on Apple and Publishers if it's true, ripping off customers should not be a business model for any company. No sympathy for greed.

Well said. The price of ebooks is WAY WAY too high. I even think they would make more profit if they had lower prices. Like 1/2 compared to the printed editions.
Rating: 23 Votes
65 months ago

Fact is it costs a great deal LESS to distribute an ebook.

Fact because of DRM and continually increasing limitations on library ebook loan programs the publishers will actually sell more books in the long run compared to paper books.

Why are none of these savings (and increased sales) not being at all passed on to the consumer? Collusion by publishers to save old profit levels and potentially make higher ones because ebooks are cheaper to distribute).

I can't believe it's taken this long to get the gov regulators involved. Let's see if they actually do anything...
Rating: 19 Votes
65 months ago

This isn't good! The government should not dictate what a company charges for it's products/services. If you are dissatisfied with Apple's pricing, you should buy your e-books from Amazon! If they overcharge, use Kobo or Barnes and Noble. If they overcharge, refuse to buy e-books until the pricing goes down.
It's called the free market.

Agreed that I am not a fan of government interference, but then again ... it is also a function of the government to keep a free market. If there was collusion to force others to raise their prices, then that is a place where the government has a rightful claim for interference.
Rating: 9 Votes
65 months ago
It's funny really: You see, on the one hand I feel it is appropriate to ensure people who make cultural things -- authors, artists, musicians and so on -- are able to make a comfortable living from their works. It enables them to focus on making the art I love.

On the other hand, I'm minded to oppose collusion. In this case, I fear only Amazon really wins, as if publishers can't keep publishing then we'll lose the more esoteric works as they'll focus entirely on mass market classics.

I find it hard to make a judgement call on what's right or wrong in this on those grounds.
Rating: 8 Votes
65 months ago

I think you're making the "mistake" of thinking about this logically.

Amazon gives a lot of money to democrats. The democrats are in power.

Apple competes with Amazon by undermining Amazon's monopoly on ebook publishing, and starts offering ebooks cheaper than Amazon was. So, Amazon calls their friends in washington-- Boom, Antitrust!

Antitrust is always used as a tool by one group to attack another group that is beating them in the free market.

IF you can't win in the marketplace, get government to use violence against your competitors.

This has nothing to do with Democrats or Republicans. It has to do with publishers getting together and setting prices for books and not letting book sellers, like Amazon, discount or deviate from the price they set. That's called price fixing and it's been illegal in this country for over 100 years. It's not a free market when companies collude to fix prices.
Rating: 7 Votes
65 months ago
I love Apple as much as the next guy...

...but c'mon guys, the blind faith that Apple can do no wrong is sometimes baffling.

My concern is that Apple may do to the eBook/text book industry as they did with iTunes and music: create a locked in eco-system by which the consumer has to use only Apple devices for their iTunes media through exclusive partnerships with publishing houses in which Apple dictates pricing (this is the case with app's, music, movies, etc already in the iTunes eco-system). I understand that DRM by the RIAA, et al was to blame for this and that most of the media (music mainly, not movies/tv shows) is now DRM free. However, if I decide I don't want an iPhone but a phone from company X, Y or Z, I then need to find another method to utilize my purchased content out of the iTunes eco-system.

If this happens for eBooks/text books (only readable for iDevices at the moment, I can't read an eBook in iTunes on my Mac), and Apple [again] compels publishers to deal with Apple's iTunes conduit, as is the case with music, then how is this helpful to us, the consumer? Amazon and other companies provide online digital music, but let's be honest, most of us buy it through iTunes as it's much more convenient and that's the way Apple wants it.

I believe there is much more to this than we realize (i.e. it's not simply about the pricing of books but the availability or lack there of in obtaining eBooks in the future should these partnerships with Apple become exclusive). Based on Apple's history it isn't a stretch to understand where this "partnership" may lead, just as it did with the music industry and now the movie industry. Apple is dictating the rules, and they have $80+ billions in cash and a strong consumer market to tap into. Either play by Apple's rules or get out of the sandbox.
Rating: 7 Votes
65 months ago

See above if you actually want to understand *why* e-books can (and sometimes do) cost more than their dead-tree versions.

Sorry, but I think you are trying to excuse the inexcusable. I have four eBooks published in the Amazon Kindle store and except for my own work and the Scrivener license, there were no costs involved.

In the past I also had printed works published and know the involved price difference.

Amazon revolutionized the publishing business -- they made it possible for all authors to get their work published on a global scale at almost zero cost. WITHOUT NEEDING TO GO THROUGH A PUBLISHING HOUSE.

So please pardon me when I call ******** on the argument that eBooks can even cost more than a printed version. I also say that it's ******** when somebody wants to make you believe that publishing an mp3 file costs more than publishing a CD, or that publishing an mp4 file costs more than shipping BluRay discs. It's like saying that the delivery of an eMail costs more than sending a hand-written letter. It's pure nonsense, plain and simple.

The truth is that publishing houses, record labels and disk manufacturers are quickly becoming obsolete and desperately try to uphold their no longer needed business models and services.
Rating: 7 Votes
65 months ago
A little off-topic...

...but I'm glad there is an open dialog regarding this issue and that [most] are civilly discussing good points on both sides and are open to having their minds changed. It's [sadly] rare that this happens in online forums, and very refreshing. :)

ok, carry on
Rating: 6 Votes
65 months ago

Look at it this way: Apple agrees with the publisher to sell the book for $14.99. For some reason the same publisher than makes an agreement to sell through Amazon for $9.99. Apple won't sell much. People who pay $14.99 and then find out they could have bought the same book for $9.99 at Amazon will be very unhappy and angry with Apple. So what would you expect Apple to do? I would expect them to stop selling the book for $14.99, and since they can't sell it for $9.99, they are not going to sell it at all.

That's not what's happening though.

Before, with the wholesale model, a publisher and a company (Company A) negotiates a price that the company will pay to get the book for. Company B does the same thing. Company C does the same thing. The price Company A, Company B, Company C, etc. paid the publisher for the book could all be different or the same.

These companies were now free to sell the book for whatever price they felt will generate sales, be profitable, etc. It could have been more than the negotiated price or it could have been less than the negotiated price. Regardless of the selling price, the publisher still got paid. But publishers didn't like this wholesale model because

- they felt that if a company sold a book for less than the negotiated price, it devalued the book or made the book look like it wasn't any good (a flop).

- the publisher couldn't always negotiate a better price in their favor, especially if a company had selling and pricing power.

Apple didn't like the wholesale model because they couldn't (and likely didn't want to) compete with Amazon, Barnes & Noble, et al on price since Amazon, Barnes & Noble, et al have been in the book selling business a lot longer than Apple and thus have a larger customer base. This gives Amazon, Barnes & Noble, etc. pricing power. As a result, Amazon, Barnes & Noble, etc. are all able to negotiate a lower price than what Apple can get the book from the publisher for. Apple didn't like this because it would affect their profit margins.

Enter the Agency model. The publisher offers a book to Company A, Company B, Company C, etc. for $X; $X is the same for everyone. Those companies now must sell the book for $Y. $X is 70% of whatever $Y is.

But if the publisher is still getting their 70% cut ($X), then why should a company be prevented from selling the book at whatever price they see fit? This is the problem. It's price fixing.

Apple created this Agency model so that Apple didn't have to compete on pricing. Apple saw that they couldn't compete with Amazon, Barnes & Noble, et al on price so Apple came up with this Agency model. Plus, Apple wanted to be guaranteed a 30% cut of the selling price; Nice and consistent profit margin there.

Let's say this happened with a physical book and not an eBook. Say a publisher offers a book to Company A, Company B, Company C, etc. for $X and those companies have to sell the book for $Y, but the book turns out to be a total flop. How are these companies suppose to get rid of the books if they're not allowed to mark them down below $Y? Who wants to be stuck with inventory that doesn't sell? When a item doesn't sell well, a company puts that item on clearance to move it out. But because this is a digital copy and there's no physical inventory, the publishers think it's okay.

Interestingly, we don't see Apple complaining about how unfair it is that other tablet manufacturers have to pay more for their touch screens than Apple does. Since Apple has selling power with the iPad, Apple's able to negotiate a more favorable price for the touch screens than their competitors. Why isn't Apple pushing for a fair pricing model on tablet parts like they did with eBooks? As long as something benefits Apple, it must be okay.
Rating: 6 Votes

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