By Ingrid Lunden
Good news for Amazon (AMZN), and for consumers on the lookout for bargain prices for e-books in Europe. Apple, along with the publishers Simon & Schuster, Harper Collins, Hachette and Holtzbrinck (Macmillan), have reached a settlement over e-book pricing in Europe. That deal had become the subject of an antitrust probe initiated in December 2011: the European Commission believed it gave Apple and the publishers an unfair advantage over how they priced e-books. Ironically, the biggest winner in this antitrust settlement might be the biggest e-book retailer of them all, Amazon.
Before laying out the details of the settlement reached today, it’s also worth pointing out that Apple (AAPL), along with the publishers Penguin and Macmillan, are still duking it out with the Department of Justice in the U.S.
I think there is a good chance that Apple, Penguin and Macmillan will also settle in the U.S. For starters I can’t imagine the publishers and Apple would want to run two different pricing regimes. And second of all, the EC notes that it’s been working closely with the DoJ on its case:
“The Commission has worked closely with the U.S. Department of Justice (DOJ) in this case in order to seek a global solution to the identified horizontal concerns,” it writes in today’s statement.
We reached out to Apple earlier today to ask if today’s settlement might be a signal for what might happen next in the U.S.; we’ll update when we learn more.
Apple and the publishers have terminated their existing agency agreements for the next five years. The legally-binding commitment follows on from an announcement in September, in which Apple and the four publishers said they would terminate their agency deal. The so-called “agency model” moved away from the pre-existing “wholesale model” where retailers were able to set the price for books. The agency model gave Apple specifically preferred pricing on e-books for the iBookstore in a “most-favored nation” arrangement that featured “maximum retail price grids and the same 30% commission payable to Apple,” says the EC.
The implication here is that retailers like Amazon had been heavily discounting books in its operation. The agency deal would let those publishers pump the price back up, and to potentially strong-arm Amazon and others to accept the same terms, otherwise they would not be able to sell the same books.
The EC said no way: “The Commission was concerned that the switch to these agency contracts may have been coordinated between the publishers and Apple, as part of a common strategy aimed at raising retail prices for e-books or preventing the introduction of lower retail prices for e-books on a global scale.”
The publishers will let retailers set discounted e-book prices for the next two years. They call this a “cooling off period.” Effectively, this will let Amazon and others discount e-books as it chooses to do. While this may continue to commoditize the price of e-books, it will also make it hard for Apple to charge premium prices on the iBookstore. It’s not clear how pricing will proceed after that. The EC says that the discounts can be equal to the amount of commission that a retailer receives from the publisher over a one year period
Joaquín Almunia, Commission VP in charge of competition policy, makes it clear that the point of this is to give the best value for consumers more than for publishers with artificially inflated prices. ”While each separate publisher and each retailer of e-books are free to choose the type of business relationship they prefer, any form of collusion to restrict or eliminate competition is simply unacceptable,” he said in a statement. “The commitments proposed by Apple and the four publishers will restore normal competitive conditions in this new and fast-moving market, to the benefit of the buyers and readers of e-books.”
Penguin, which is merging with Bertlesmann’s RandomHouse, was also named in the EC probe. It is not part of this settlement, but Apple has already agreed to terminate agency agreements with Penguin, and the EC says it’s actively engaged in settlement discussions with Penguin to close its investigation of the publisher.
What happens after five years? Presumably the EC feels that the e-book market will have grown and stabilized enough by that point that pricing will not need to be so carefully managed. One thing that is implied here is that the publishers will be allowed to do at that point, at least for now, restore the most-favored nation status.