Justice Department threatening Apple, publishers over e-book pricing

Mar 9, 2012
Tech

Apple might have come to the rescue of publishers by opposing online retailer Amazon in the realm of e-books, but it seems not everyone is happy with the arrangement the iPad maker has made with the publishing industry. According to a story from the Wall Street Journal, the Justice Department has said it plans to […]

Apple might have come to the rescue of publishers by opposing online retailer Amazon in the realm of e-books, but it seems not everyone is happy with the arrangement the iPad maker has made with the publishing industry.

According to a story from the Wall Street Journal, the Justice Department has said it plans to sue Apple and several publishers for allegedly working to fix the price of e-books. Apple recently stepped up in e-book sales with its iBooks initiative, partnering with several publishers to sell books specifically to be read on Apple’s iPad.

The trouble began back with Amazon, which quickly became the leader in e-book sales on the Internet. Using its power as a retailer, Amazon was able to cut prices pretty substantially, taking a loss in order to promote its Kindle e-reader line. But that didn’t sit well with publishers, who traditionally sold e-books for about half of the suggested cover price to Amazon and other retailers. Amazon set the price it wanted to sell the books at, and by keeping the prices low, publishers felt the value of e-books was driven down because readers expected low prices, and that meant falling profit margins.

Enter Apple, which agreed with several publishing partners to go with an “agency model” for pricing. Under the agency model, publishers decide at what price e-books should be sold. That doesn’t bother Apple, because no matter what, e-books sold on Apple’s platforms bring in a 30-percent cut of the sale. Apple’s only mandate is that publishers can’t sell their e-books through other portals for less than Apple sells them.

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But that deal has run afoul of the Justice Department, it seems, and anti-trust legislation that makes it illegal for competitors to work together to set prices on products. Because of Apple’s requirement that prices not be set below those on its platforms, competitors like Amazon weren’t allowed to undercut e-book prices and compete freely, according to the allegations.

At the moment, though, the suit against the publishers and Apple isn’t proceeding straight to the courts. Instead, the Justice Department, Apple and the publishers are attempting to work out a settlement, which is probably in everybody’s best interests. Apple has seen success in selling e-books for the iPad and marketing it as a competitor to Amazon’s e-readers, and publishers don’t want to be tied up in court dealing with an anti-trust suit because they’re still busy trying to adapt to digital distribution and maintain profits.

A settlement is probably on its way, but it also seems likely that it’ll result in a change in the way e-books are priced. That could mean a return to lower prices, and possibly bigger changes in the way publishers sell their products in the digital age.

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Phil Hornshaw

Phil Hornshaw is a freelance writer, editor and author living in Los Angeles, dividing his time between playing video games, playing video games on his cell phone, and writing about playing video games. He’s also the co-author of So You Created a Wormhole: The Time Traveler’s Guide to Time Travel, which attempts to mix time travel pop culture with some semblance of science, as well as tips on the appropriate means of riding dinosaurs. Check out his profile.

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