Will clash over ebook prices lead to delays in content availability?
By Chantal Tode
March 9, 2012
Apple faces antitrust suit alleging it conspired to raise ebook prices
Issues over how to price ebooks continue, with the U.S. Dept. of Justice reportedly preparing to sue Apple and a handful of publishers for violating antitrust laws unless they can reach an agreement first.
The Justice Dept. is threatening to sue Apple and the publishers for allegedly working together to raise prices for ebooks across the industry. While discussions between the department and several of the named parties over a settlement are reportedly in the works, it could still be some time before the pricing issues are resolved.
“The industry really does need clarification in terms of what is acceptable in terms of a pricing model,” said Jason Armitage, London-based senior analyst at Yankee Group. “That is what we are seeing not just in the U.S. but in the European Union as well.
“Essentially, we are dealing with fundamental changes in the pricing structure,” he said.
“If this results in a protracted process that could lead to delays in ebooks being made available through electronic channels. The sooner that the industry and regulators can come to an agreement as to what is acceptable for pricing, the better.”
Two pricing structures
At issue is whether Apple and the publishers worked together to raise prices for ebooks at the time when Apple was preparing to launch its first iPad.
The five publishers reportedly targeted by the department are Simon & Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins Publishers Inc.
The publishers reportedly have denied acting together to raise prices.
Any settlement with the Dept. of Justice could result in lower prices for ebooks.
“We are seeing the clash of two pricing structures,” Mr. Armitage said.
“Book pricing has been based upon models that have developed from physical distribution and that carried into the ebook space,” he said. “
On the other hand, we have the agency model which is more commonly found with digital goods and that is the model that Apple is using.”
Prior to the launch of the iPad, 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. The low prices were used to encourage consumers to buy Amazon’s Kindle ereaders.
However, publishers and other book retailers feared Amazon’s strategy would inhibit their ability to sell more expensive books.
Apple disrupted the traditional model of selling books 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 and, in effect, raising prices for ebooks.
Concern over how Apple and the publishers acted to set book prices is a widespread issue.
The European Union is also investigating allegations that these companies worked together in an illegal fashion to determine prices.
Additionally, several class-action lawsuits have been filed and consolidated in a New York federal court with similar allegations.
The issue has significant ramifications for the ereader and tablet markets, where ebooks availability and pricing play an important role.
“Strategically speaking ebooks are a pretty important part of the ereader and tablet markets in terms of competition between devices,” Mr. Armitage said.
“What is made available to tablets, ebooks and at what prices is something consumers are very aware of when looking at various devices,” he said. “So it is important to have the latest publications available and attractive prices available.”
Chantal Tode is associate editor on Mobile Marketer, New York
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