Apple and five publishers are facing a government lawsuit over ebook pricing, the Wall Street Journal reports.The Department of Justice is accusing them of colluding to raise the prices of e-books.
(The five publishers are Simon & Schuster Inc., Hachette Book Group, Penguin Group, Macmillan, and HarperCollins.)
Publishers used to sell books to stores like Amazon and Barnes & Noble at half the cover price. The stores could then sell the book for whatever they wanted.
Amazon was selling its e-books at a deep loss to gobble up market share. This had publishers, and rivals like Apple and Barnes & Noble worried. The publishers worried that Amazon was going to totally control the book market like Apple totally controlled the music market. Barnes & Noble, and to a lesser extent Apple, were worried they would be shut of the market.
So, Apple came up with a solution. Publishers would switch to an “agency model.” In the agency model the publisher sets the price and the seller gets 30% of the sale. Apple also added a stipulation that publishers couldn’t let anyone else sell books for less than Apple could.
The result was that new books went from being $9.99 at Amazon to $14.99. Also, Amazon lost an edge on the competition.
Now the government is going after Apple and publishers for their agreement.
The DOJ hasn’t sued yet, it is planning on it. According to the Journal’s sources, a settlement is being consider.