Yesterday, 3 publishers reached a settlement with the Justice Department on book price fixing, whereas Apple (AAPL) and 2 other publishers decided to go to court. The issue revolves around there being collusion to adopt agency pricing, where the publishers set the retail price for e-books and the retailers, such as Amazon.com (AMZN), Barnes & Noble (BKS) or Apple get a fixed commission as a percentage of the e-book price. This model was adopted in place of the former wholesale model, where publishers would sell the books to retailers, and these would set the retail price and define their own margins.
The reason the publishers colluded to force adoption of the agency model, was mostly because Amazon.com kept on deeply discounting the e-books, accepting very low margins but, in return, getting market share, bargaining power and driving competitors out of the market. The publishers saw this as undermining their position, and, over time, their margins. So they pushed towards the agency model -- which enabled e-book prices to remain higher than they would otherwise have been. This excellent article on WSJ goes into greater detail regarding the evolution of this situation.
So now that this settlement and lawsuits make it a certainty that the wholesale model will be back, what can we expect? Quite a few consequences, I'd say:
Amazon.com's margins will probably get hit again
Yes, Amazon.com is cheering this settlement. It seems to be chomping at the bit to start lowering Kindle e-book prices again. But remember something -- the e-books presently being sold under the agency model have higher margins. And Amazon is presently enjoying those higher margins on them, even if its own overall margins can best be described as "apocalyptic".
So, Amazon hardly needs a lowering of margins -- which selling cheaper e-books implies -- even though Amazon was the first to say that these developments will allow it to lower Kindle e-book prices. But knowing Amazon, the odds are that it will compromise margins further anyway, even if just to make a statement.
It doesn't change the new paradigm
This decision is not going to change where the books are sold, regarding Apple's ecosystem or even Google's (GOOG) Android - where competition with Amazon.com isn't as advanced. The fact that Apple was in on the scheme shows that Apple had no problem in pushing for somewhat higher prices, and in terms of market share there's no reason it can't compete at lower prices (though it might be less willing to entertain low margins, preferring to let price-sensitive buyers go temporarily towards Amazon).
This does present a risk for Barnes & Noble
In the present system, Barnes & Noble is estimated to have as much as 25% of the market (to Amazon's 60%). Having a large slice of the market when margins are kept higher than they would otherwise be increases Barnes & Noble's survival chances. So, this development is indeed a risk for Barnes & Noble, as it will probably force it to practice lower margins when it can ill-afford it.
Although this development is cheered by Amazon, there's little reason to believe Amazon or its shareholders will gain anything from it. Even if it enables Amazon.com to wipe out Barnes & Noble, making for a temporary market share gain, the same outcome will be impossible to achieve versus Apple or Google - so over time this temporary share gain will, once again, erode. In the meantime Amazon's margins will be made even thinner than they already are.