By Chris Velazco
Apple (NASDAQ:AAPL) was surely riding high after the announcement of their new iPad yesterday, but that doesn’t mean that everything is OK in CA if a Wall Street Journal report published today holds true.
According to “people familiar with the matter,” Apple along with HarperCollins, Simon & Schuster, Penguin Group, Hachette Book Group, and Macmillan are on the verge of being slapped with a Department of Justice lawsuit that alleges they colluded to raise e-book prices.
At the heart of the DoJ’s beef with these publishers is their adoption of Apple’s agency book-selling model, under which publishers can set e-book prices on their own, but surrender a 30% cut from each sale to Apple. It’s no wonder then that these publishers would jump onboard — a presence in the iBookstore means they’ve got access to a ridiculous number of iOS devices, and can charge as much as they like in an effort to offset their payouts to Apple.
The industry’s talking heads have been more than a little outspoken about the pricing model shift. According to American Bookseller Association CEO Oren Teicher “the agency model is in the best interest of not only the book industry, but the consuming public as well.” I beg to differ Mr. Teicher — I can see how the book industry would love being able to charge whatever they want for their books, but I don’t see how you can frame higher costs for e-books as a boon for customers.
Rivals like Amazon (NASDAQ:AMZN) have been feeling the heat for over a year because of the agency model adoption. Given their longevity as a book retailer, Amazon sticks to a wholesale pricing model, under which they can purchase the rights to sell an e-book and determine their own selling price. While this choice (and the ensuing slate of $9.99 bestsellers) generated love among consumers, it has caused them to scuffle with publishers who think their digital editions are undervalued.
The five publishers reportedly involved in the suit are big players in the book industry, but at least one major publisher seems to have dodged the bullet here. Random House announced their intentions to switch to the agency model for their e-books at the end of February, but I wonder if that decision will stick now that the model faces legal scrutiny.
So what’s the end-game scenario here? If the Department of Justice gets their way, then cheaper e-books for you and me are on the horizon, though how exactly that sort of pricing shift could happen is still up in the air. The publishers in question are scrambling to come up with a solution that allows them to dodge legal heat while still raking in revenue. Among the ideas currently being floated is the possibility of sticking to the agency model but allowing certain retailers to offer discounts. Negotiations have apparently been going on for a while, and we’ll keep you posted if anything actually comes of them.