James Delahunty
8 Mar 2012 13:07
Justice Department warns that it is preparing to file a lawsuit.
Apple Inc. and five book publishers are in the sights of U.S. antitrust regulators over alleged anti-competitive price fixing practices in the electronic books market. The five publishers involved are Simon & Schuster Inc. (CBS Corp.), Hachette Book Group (Lagardere SCA), Penguin Group (Pearson PLC), Macmillan and HarperCollins Publishers Inc. (News Corp.)
The case stretches back to 2010 with the debut of the first iPad from Apple, which quickly became a competitor for Amazon's Kindle line of e-readers. Amazon had been charging low prices ($9.99 for new releases) in order to push up purchases of its electronic readers.
Publishers were concerned about Amazon selling e-books at such low prices (often sold for less than Amazon paid for them) because consumers might become accustomed to the lower prices. Also, publishers feared being in the same situation as record labels were when iTunes picked up stream, but Apple insisted on keeping single song costs at 99c, and that Amazon offering consistently steep discounts might discourage other traditional retail partners from offering e-books altogether.
Apple decided that it would put more power into the publishers hands by going with an agency model, in which publishers set the price and Apple took a 30 percent cut. However, Apple also made a deal that the publishers could not allow rival retailers, such as Amazon, sell the e-books at a lower price than through its own platforms.
"They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books,'" Steve Jobs reportedly told his biographer, Walter Isaacson.
This is where antitrust regulators on both sides of the Atlantic took notice. In the Justice Department's opinion, Apple and the five publishers acted in concert to raise prices across the industry, and is now prepared to sue them for violating federal antitrust laws, the Wall Street Journal is reporting.
There has reportedly been some negotiations between the parties, seeking to avoid a costly legal battle. They deny acting in concert to raise prices, but are against abandoning the agency pricing model would have the effect of a single player gaining more market share than it has now (clearly, Amazon).
In the European Union, regulators have also made it clear that they are concerned about what happened in the e-book market since 2010.