Lower e-book prices ahead as government threatens Apple, publishers?
E-books are at the center of a government crackdown and that might mean lower e-book prices ahead.
The Justice Department has warned Apple and five major publishers that it plans to sue them for price fixing e-books, according to .
The antitrust lawsuit alleges Apple and five publishers, including HarperCollins, Hachette Book Group, Macmillan, Penguin Group Inc., and Simon & Schuster Inc., colluded to fix e-book prices. Some of those publishers have already moved to settlement discussions with the government before any such suit could be filed, in the hopes of avoiding a public fight, according to the WSJ report.
At stake: Apple鈥檚 signature agency pricing model. When the iPad was released, Apple introduced a pricing model with major publishers that allows publishers to set prices. In this model, publishers set fixed prices across all e-bookstores and retailers get a fixed percentage of sales. (In contrast, Amazon takes pricing decisions out of publishers鈥� hands.)
The DOJ鈥檚 concern is that this fixed pricing model, adopted by five of the big six publishers, has reduced competition in the e-books industry and raised e-book prices for consumers.
Following the dead-tree book model, e-books were traditionally sold to retailers under a wholesale model. 鈥淸P]ublishers and retailers negotiated a fixed cost per unit, and retailers are then free to charge customers whatever they like,鈥� explains . 鈥淏ut wholesale pricing causes two problems for publishers: it gives market leaders (read: Amazon) disproportionate negotiating power, and makes it possible to use heavily discounted e-books to boost sales figures, capture market share and sharply undercut sales of printed books.鈥�
That鈥檚 when the late Steve Jobs, then-chief executive of Apple, introduced the agency model, under which publishers set book prices and Apple takes a 30 percent cut. According to , 鈥淎pple also stipulated that publishers couldn鈥檛 let rival retailers sell the same book at a lower price.鈥�
Hence the price fixing lawsuit.
What鈥檚 ahead? Publishers will likely want to reach a settlement soon 鈥� which may involve modifying or completely eliminating the agency model.
It鈥檚 too early to tell what a settlement might look like for consumers but it鈥檚 likely to translate to lower e-book prices.
Husna Haq is a Monitor correspondent.
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