Last week the Department of Justice filed a lawsuit against Apple and five prominent publishers over price-fixing of e-books in the State of New York. Additionally, 16 other states, filed their own suit on Wednesday.
According to a complaint made to S.D.N.Y., the DOJ alleged the companies’ top executives participated in various acts of collusion by meeting in New York restaurants, emailing, and participating phone conversations regarding various price-fixing tactics in order to compete with Amazon’s low book (e-book) pricing at $9.99. The alleged price-fixing agreements between Apple and the publishers would involve a price increase in the e-books to retail at $12.99-16.99 on Apple’s iBookstore.
The Wall Street Journal illustrated there was a shift from the traditional “wholesale” pricing model to an agency model wherein publishers set the price and retailers take a commission. Whilst applying this agency model, Apple would take a 30 percent cut of the publisher’s set price and prohibit publishers from selling any e-books to competitor stores for a price cheaper than that on the iBookstore. Conversely, Amazon under the ‘wholesale’ pricing model set their own book prices.
Due to the application of the agency model the price of ebooks increased at the harm of the consumer but also decreased Amazon’s dominance in the market. Which was reported to be around 90 percent in 2009 and decreased to 60 percent presently by the Wall Street Journal. The DOJ reported that publishers began to get angry because Amazon has been contacting authors directly in order to get their books.
HarperCollins, Simon & Schuster and Hachette Book Group agreed to settle the antitrust case, but Apple, Penguin Group and Macmillan have not, according to the Justice Department.
I would imagine publishers would be happy to retail electronic books for $9.99 because the production and distribution costs (except for commissions) are low. Moreover, there is no risk of over-printing books, and no expense in dealing with excess books (and reselling them cheaply). One would assume that publisher’s sales to increase. Perhaps the issue is purely based on fear? Amazon contacting authors directly leads to publishers getting squeezed out of the deals. With the exception of J.K. Rowling’s Harry Potter, removing the middleman may sound good but I do feel that publishing companies provide an irreplaceable service to authors by giving them advances; editing the material therefore making books higher quality; and marketing. Furthermore, publishers seem to be in a little bit of a pickle while Amazon tries to remove them from the production and sales process and Apple just gave them a security blanket.
Presently, I feel that Amazon still dominates the ebooks market. It seems that Steve Jobs offered a sensible deal to the publishers (30 percent compared to the 50 percent publishers had to share directly through bookstores). Oddly, the beneficiary here is still Amazon, who would at a much higher price than before! Eventually, being that Amazon is an aggressive marketer; they will still maintain their lower prices. Moreover, inevitably forcing Apple to lower their prices as well due to the most favorite nation clause.
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