This morning, the U.S. Justice Department formally charged Apple and book publishers Hachette, HarperCollins, Macmillan and Penguin for allegedly colluding about e-book pricing and sales. Some of the publishers — News Corp.’s HarperCollins, Simon & Schuster and Hachette — settled their suits today, Bloomberg reports. Apple and Macmillan have so far refused to engage in settlement talks.
As CNET reports, the lawsuit is based on changes about how publishers charge for e-books. When the iPad appeared in 2010, Apple initiated the use of the “agency model,” which allowed publishers to set their own prices for e-books so long as Apple received a 30 percent share and so long as publishers said they would offer their lowest prices through Apple. With the agency model, Apple and publishers have control over the price of e-books.
Under the traditional wholesale model — followed by Amazon and Barnes & Noble — publishers buy the rights to a book for about half the cover price and then set their own price for e-reader devices. This model has often not been to the advantage of publishers as “the retailers turn bestsellers into loss leaders, causing them to be undervalued in the publisher’s view,” says TechCrunch. This pricing model came to light in 2010 when book publishers asked Amazon to increase the price of e-books on its website above $9.99. Amazon refused and, for some time, many popular books from Macmillan were not available on its site.
Both the traditional and the agency models can be “effectively argued as pro-consumer,” TechCrunch notes. The agency model may still remain in place even if the DOJ rules against Apple; the technology giant and publishers would, though, have new and “stringent regulations” to comply with.
There is plenty at stake: E-books generated $969.9 million in sales in 2011, a 117 percent increase from the previous year, says Bloomberg. Bestsellers and new books are now generally priced between $12.99 and $14.99. Amazon has lost market share in selling e-books, going from 90 percent to 60 percent since the agency model was instituted.
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