Have you noticed that the cost of some new e-books seems to be a few dollars higher than it was before? The U.S. Justice Department certainly has and they’re investigating why that is and if it’s legal. Specifically, the DOJ is looking into whether Apple and major publishers colluded to set e-book prices in a manner that would violate antitrust laws, the agency confirmed yesterday.
Media reports have pointed to the existence of such an investigation since last year, but yesterday an Justice Department official publicly acknowledged it, saying, “We are also investigating the electronic book industry, along with the European Commission and the states attorneys general.” That’s right, Europe and a handful of U.S. states are concerned about e-book pricing as well.
So what’s the big deal? When Apple launched the iPad and its iBooks marketplace in 2010, it worked out a deal with publishers to allow them to set the prices of the books themselves. In return, Apple gets a commission on each sale. As innocent as that may sound, the practice, known as “agency pricing”, may actually be a violation of antitrust law.
Authorities are looking into allegations that Apple took this route as a way of challenging Amazon, which had started selling e-books at prices lower than most paperbacks, something the publishers view as a potential threat to their traditional revenue streams.
Governments weren’t the first to raise their eyebrows at the practice. These investigations come after several class action lawsuits were filed against Apple and the major publishing houses for alleged price-fixing.
For publishers, having prices set higher means more than just increased revenue. It helps them delay the cannibalization of print sales, which still make up the majority of their income as less lucrative e-books grow in popularity. For Apple, such an arrangement with the publishers enabled them to launch an e-book marketplace to compete with Amazon and better market its iPad tablet as a device that’s ideal for reading and content consumption.
For consumers, however, the pricing model doesn’t make as much sense. In many cases, people end up paying just as much for an e-book as they would for a paperback. That doesn’t quite add up considering e-books forgo the costs of printing and distributing.
