The Justice Department threatened Apple and five of the nation’s biggest book publishers that it will sue them for their alleged price-fixing of electronic books unless the companies agree to a change in their e-book business practices. Consumers have switched to e-book readers and tablets such as Amazon.com’s Kindle and the iPad for digital formats of books, newspapers, magazines and movies. They have also begun paying more for e-books released by the country’s biggest publishers. Federal officials have alleged that Apple, Simon and Schuster, Hachette Book Group, Penguin Group, Macmillan and HarperCollins Publishers “engaged in a pattern of behavior that violates antitrust laws,” according to the investigation reports.
When the original Kindle made its debut in 2007, Amazon set book prices at $9.99 to attract readers to the digital format. The traditional book-selling model allows retailers such as Barnes and Noble to buy books at wholesale prices from publishers and then set their own prices. At the time, publishers were unhappy with Amazon’s model of pricing e-books at about $9.99, lower rate than the cost of many paper books. Publishers Weekly reported that “Amazon had been asking for a steeper wholesale discount on books,” putting pressure on publishers to change their terms for e-books to be more favorable toward Amazon. Then Apple entered the e-book market with its revolutionary iPad tablet. Apple allowed publishers to dictate prices and split the proceeds. Apple commanded 30 percent of sales, and publishers collected the remainder. Publishers used Apple’s format to negotiate the terms of their deal with Amazon.
Today, the nation’s biggest book publishers decide how much a consumer will pay for an e-book through both Apple and Amazon, with prices ranging from $12.99 to $14.99. Federal regulators charge Apple and the publishers with purposefully conspiring to raise e-book prices on Apple’s popular mobile devices. The Justice Department’s threat to sue is real, reports the Wall Street Journal. The publishers argue that Apple’s business model introduced more competition by preventing Amazon from monopolizing the e-book market.
The digital book market continues to show growth. According to an estimate by Yankee Group, e-book markets can expect U.S. consumers to buy 381 million e-books by next year, four times what they bought in 2010.
Any regulatory limits on Apple’s digital book pricing could benefit the consumer, however, if it allowed Amazon to offer lower prices for e-books again. Consumers could go back to enjoying anywhere from $2 to $5 savings per e-book, perhaps further encouraging the growth of the digital media market. It is unclear if any legal action would have an impact on Apple’s finances. A majority of Apple’s revenue comes from the sale of mobile devices such as the iPhone and iPad, and not from the music, books and apps content sold on company’s iBookstore.
Nina, owner of NinaRotz.com, is a freelance writer and blogger. Nina’s work has been published and linked on Associated Content, Yahoo! Shine, Yahoo! Voices, eHow, Live Strong, CNN, USA Today, The Wall Street Journal, as well as various online magazines and blogs.