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Amazon gains, Apple loses in DOJ ebook price-fixing settlement

It is likely that ebook prices will soon start dropping as a result of a settlement reached between the Department of Justice and several book publishers last week.

The agreement is a blow to Apple, which was also named in a DOJ antitrust suit brought this spring alleging that the technology company and publishers fixed ebook prices. However, Amazon is likely to benefit by being able to sell competitively priced ebooks and attract consumers to its new ereader and tablets, which were introduced last week.

“Based on this ruling Amazon.com will undoubtedly grow its market share,” said Gary Schwartz, author of “The Impulse Economy” and the upcoming “Fast Shopper. Slow Store."

“But this ruling is a soft push down a slippery slope for the book industry that dates back to 2007, when we saw the first Kindle,” he said. “This was the harbinger of a new power game and more important, a new relationship with the digital consumer.

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“My concern is that Amazon.com is simply using books to build its m-commerce empire? It is a stepping stone to developing a commerce checkout for sectors such as apparel and electronics and the quality of the bookshelf will suffer.”

Ebook prices to drop
As part of the settlement, the publishers - Hachette, HarperCollins and Simon & Schuster - have agreed to abandon an ebook pricing system that they and Apple put in place to coincide with the launch of the iPad in 2010.

At the time, Amazon sold many new best sellers at $9.99, lower than what many book stores were selling them for and sometimes less than what Amazon had paid.

Apple disrupted this model by offering to take a 30 percent cut of book sales and letting publishers set the price for consumers as long as other retailers were not allowed to sell the same book for less. This opened the door to publishers imposing the same pricing structure, called the agency model, on all book retailers.


The iBooks app for iPad.

Since the agency model was introduced, ebooks have typically sold for between $11.99 and $14.99.

However, now that a settlement is in place baring the three publishers from using the agency model for ebooks, the book industry is afraid Amazon will return to its old pricing strategy, inhibiting publishers’ ability to sell more expensive books and potentially driving bricks-and-mortar retailers out of business.

The court said that the settlement is likely to restore retail price competition to the market.

Amazon takes on Apple
Amazon is likely particularly happy about the settlement given that it last week introduced a new ereader, the Kindle Paperwhite, and several new tablets. The online retailer wants to compete more directly with Apple’s iPad with the new Kindle Fire HD 4G tablet for $499.

Apple has reportedly suggested that it will appeal the settlement, insisting that the iPad and iBookstore have spurred more competition.

The publishers are also required, as part of the settlement, to phase out any contracts with retailers still using the agency model and bans them from imposing similar restrictions on prices for two years.

“Amazon.com says it is ‘pro-consumer’ but you cannot take the agent/publisher out of the value chain and expect the ecosystem to thrive,” Mr. Schwartz said. “The number of self-published titles in the United States has tripled over the past few years and will continue to grow.

“However, by cutting out the agency and publisher, the industry has made the online and mobile storefront into the Wild West,” he said.

“Publishing has become the easy part. Selling and driving profit for authors has become difficult.”

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Content, Amazon, Kindle, Apple, iPad, DOJ, Gary Schwartz, mobile marketing, mobile

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