The United States Department of Justice brought down a Thor-like gavel on Apple and five publishers today as they officially filed an antitrust lawsuit over allegations of e-book price-fixing.
The DoJ along with 15 states claim Apple and publishers colluded in attempt to raise the price of e-books costing consumers and estimated $100 million over two years by adding between $2 and $5 to the price of each e-book.
Attorney General Eric Holder claims executuves at the highest levels of each company conspired to eliminate competition in the e-book market. DoJ antitrust chief Sharis Pozen confirmed previous speculation that publishers were desperate to get Amazon to raise the pricepoint of e-books above the popular $9.99 the company had set for the most popular titles. The low price significantly undercut the price of the publisher’s hardcover and paperback equivalents.
The five companies named in the lawsuit include Hachette, Harper Collins, Simon & Shuster, Macmillan, and The Penguin Publishing Co. Ltd. The first three have already reached a settlement with the DoJ. Apple, Macmillan and Penguin appear to be planning to fight the charges, at least initially.
With the settlement, and if the lawsuit is successful, the DoJ will have effectively eliminated the “Agency Model” of selling books. Through this model the conspirators agreed that they wouldn’t sell books to retailers thereby letting the retailer decide what retail price to charge. Instead they would make the retailers “agents” who could sell the books, but would not be able to alter the publisher-set retail price. The scheme then called for Apple to receive a 30% commission on each e-book it sold. The paradox with the Agency model though is publishers most often ended up earning less money from each book sold as Apple took 30% of the revenue off the top.
Apple earned a special place in the DoJ’s hearts as well with a clause in the Terms and Conditions that stated books sold via iBooks couldn’t be sold cheaper anywhere else. Apple reportedly removed this clause from the terms and conditions earlier this week after learning of the DoJ’s intent to sue.
The terms of the settlement Hachett, Harper Collins, and Simon & Shuster reached with the DoJ states the companies agree that for two years “they will not restrict, limit or impede an e-book retailer's ability to set, alter or reduce the retail price of any electronic book.”
Before Apple and the five publishers introduced the Agency Model Amazon had 90% of the e-book market share. Today Amazon’s piece of the e-book market is estimated around 60%, with Barnes and Noble’s Nook pulling in 25% and Apple’s iBookstore pulling in between 10% and 15%.
The collusion worked, but with it now gone Amazon could potentially regain lost market share. Whatever the outcome, it looks like consumers might be the beneficiaries of a gruesome e-book price war.
Source: The Huffington Post