DOJ Threatens Apple, Book Publishers with Lawsuit Regarding E-Book Sales
March 8, 2012 9:55 AM
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Apple and five book publishers were using an agency sales model that raised the prices of e-books
The U.S. Department of Justice (DOJ) is planning to launch a lawsuit against Apple and five U.S. publishers for allegedly conspiring to raise e-book prices through an agency sales model.
Last December, the
European Commission opened a formal antitrust investigation
into whether five international e-book publishers had been practicing anti-competitive tactics with the help of Apple and its e-book store iBooks. Shortly after, the U.S. Justice Department climbed aboard the investigation as well.
After investigating the suspicious tactics, the DOJ has now warned Apple and the five book publishers that it plans to sue them for raising the prices of e-books. The five book publishers involved are
Hachette Livre (Lagardère Publishing France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp., U.S.A.), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany).
Traditionally, publishers sell physical books to retailers for about half of the cover price, which is considered a wholesale model. Retailers then had the power to sell those books to customers for a lower price if they wanted to.
However, the e-book industry rocked this model and rubbed publishers the wrong way. Amazon started selling best sellers for as low as $9.99 in an effort to encourage Kindle sales. When Apple came along with iBooks, publishers were worried that the tech giant would take over the book industry the way it did the music industry with iTunes.
Apple then struck a deal with publishers in 2010, where they'd settle on an agency model instead. The agency model allowed publishers to set the price of the book and Apple would receive a 30 percent cut. However, publishers were not allowed to let rivals sell
the same book
for a lower price.
According to the DOJ, Apple and the five publishers did this to raise the prices of e-books, which violates federal antitrust laws. The publishers reacted to these claims, saying that the agency model was used to "enhance" competition in the e-book industry by helping e-book sellers to make some money out of the deal.
The DOJ isn't buying this excuse, though. The government is wondering how competition could have increased when prices were increasing.
Apple, the publishers and the DOJ are currently in talks regarding e-book prices. While the DOJ warned Apple and the publishers that it plans to sue them for allegedly conspiring to raise prices, some publishing executives associated with the talks have said that a settlement is being considered. Some solutions that have been passed around included the idea to keep the agency model, but allow booksellers to offer some discounts.
Apple has jumped heavily into the
book selling and publishing business
with the recent launch of iBooks 2, which is the sequel to the iBooks app that provides students with books they need as well as study features, and iBook Author, which is Mac software that allows textbook writers and publishers to create textbooks for the iPad.
Undoubtedly, e-books are an essential part of the iPad experience, and with the announcement of
the iPad 3 release
just yesterday, Apple likely wants to get this DOJ business figured out quickly.
The Wall Street Journal
This article is over a month old, voting and posting comments is disabled
Trying to RAISE e-bookk prices? Try again. This is the REAL pricefixing
Bettor Off Single
Bettor Off Single
3/9/2012 8:00:45 AM
Figures the DOJ would get it wrong.
For smaller publishers, Amazon wanted to keep the price of e-books DOWN at $9.99. They didn't do this by requiring publishers to sell at that price, but simple math shows why most will:
Amazon's publishers make the following "royalties":
1. For a slae price of under $2.99, 35 percent of the sqale price.
2. For a sale price of between $3.99-9.99, 70 percent of the total sales price.
3. For a sale price abvoe $9.99, 35 percent of the entire sale price.
This makes it LESS profitable to sell an e-book for between $10.00-20.00, as the royalty is lower in that range, breaking even again only at $20.00. Even above $20.00, to make a greater royalty than with a $9.99 price tag, the author must pass the cost of the reduced royalty to the public.
An alternative would be to just pay 70 percent of the first $10.00, and 35 percent of any amount over that. The way it stands now, there is tremendous pressure on e-book publishers to price their work within the 70-percent window.
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