Major Publishers Being Sued Over the Agency Model
The United States Department of Justice is suing Apple along with publishers Hachette SA, HarperCollins, Macmillan, Penguin, and Simon & Schuster, for conspiring to raise the prices of ebooks. This article at PC World does a pretty good job of explaining the basics of the situation. Here’s the core of it:
At issue is Apple’s use of the “agency” model of e-book pricing, which lets publishers set their own prices. Apple takes a 30 percent cut of sales, but requires that e-books are sold for no cheaper elsewhere. That approach came into conflict with the “wholesale” model used by Amazon, where the bookseller pays roughly half the recommended cover price, then sets its own pricing.
With the wholesale model, Amazon could offer cut-rate prices on e-books — often $10 for bestsellers — in order to build up its Kindle service. When Apple launched the iPad in 2010, publishers flocked to the agency model, fearing that the wholesale model would lead to a race to the bottom in pricing. Amazon was forced to adopt the agency model, and today, a $10 bestseller is much harder to find. New books tend to sell for around $13 to $15 instead.
Apple and publishers may argue that the agency model leveled the playing field for booksellers, forcing them to compete on hardware and software features instead of pricing. And as Bloomberg points out, e-book sales rose 117 percent in 2011, so it’s hard to argue that higher prices ruined the digital book industry. source
Opinions on this could go either way, but if there really was a conspiracy by the big publishers to raise prices, that would be against the law. This is a big enough story that they even talked about it on the Nightly News with Brian Williams tonight. From my position as someone who works in this industry, it’s all kind of surreal because for the longest time ebooks were overlooked and not taken seriously. Now they’ve become popular and mainstream enough that there are serious legal issues being considered. I also know that the agency model created major headaches for independent ebook sellers, so for that reason it would be kind of nice if it was deemed illegal. However, I can also understand that from a publisher’s point of view, Amazon’s price cutting is very scary for them.
I wonder what actually happened. I remember that Amazon offered most Kindle ebooks for $9.99 in the beginning, and that suddenly stopped once Apple started requiring that publishers couldn’t sell their ebooks for a lower price than the price they set for iBooks downloads. But was that the only thing? Was it solely Apple’s decision, or was there some kind of secret meeting between publishing executives where they sat in a dark room around a table and agreed to raise ebook prices? The truth is probably something in between. It’ll be very interesting to see what comes of this and how it affects ebook prices and publishing in the future.