AAR

[Leigh]

WASHINGTON (Reuters) - The Justice Department could reach a settlement in the next few weeks with Apple Inc and some of the major publishers suspected of colluding to push up electronic book prices, according to two people close to the negotiations.

While negotiations are still fluid, the settlement is expected to eliminate Apple's so-called "most favored nation" status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Amazon.com Inc or Barnes & Noble Inc , the people said.

The deal could also force a shift, at least temporarily, in pricing control from publishers to retailers, one of the people said.

Such a move to a "wholesale model" would not only benefit consumers but also Amazon, which had been the leading bargain e-book retailer with its Kindle reader.

"It would be a positive for Amazon because the company's greatest strength is as a high-volume, low-price retailer and the wholesale model plays into that," said Jim Friedland, an analyst at Cowen & Co.

The Justice Department is seeking to unravel agreements Apple secured from five publishers about two years ago, as the Silicon Valley company was launching its iPad and was seeking to break up Amazon's dominance in the digital book market.

The publishers are Simon & Schuster Inc, a unit of CBS Corp ; Lagardere SCA's Hachette Book Group; Pearson Plc's Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc, a unit of News Corp .

The Justice Department declined comment. Apple did not reply to calls seeking comment. The publishers involved either did not return telephone calls or declined comment.

As part of the agreements with Apple, the publishers shifted to an "agency model" that allowed them to set the price of e-books and give Apple a 30 percent cut.

Prior to that, Amazon had operated on the wholesale model, in which publishers sold books to retailers, which were then free to set whatever price they wanted.

Amazon was able to charge only $9.99 for many e-books, sometimes pricing new releases or popular e-books below cost, to draw in shoppers.

The tactic worried publishers who felt readers might get used to cheaper books and that Amazon would gain more market power, putting downward pressure on sales and prices of physical books.

The Apple agreements effectively barred publishers from allowing rival retailers such as Amazon to sell the same e-books at lower prices.

Friedland estimated that a switch back to the wholesale model could increase Amazon's revenues by about $1.1 billion this year and $1.6 billion in 2013, although gross profit may not increase as much because of the expected discounts.

The impact on Apple is expected to be minimal. Apple generates about $50 million from e-book sales, a tiny portion of its revenue of more than $100 billion.

GROWING PRICES

The Justice Department and the European Commission are examining whether the way that Apple reached its agreements with the publishers rose to the level of violations of antitrust law.

While agency pricing itself is legal, the Justice Department believes that publishers may have colluded to implement it with e-book retailers.

Apple's push for agency pricing was detailed in Walter Isaacson's biography of Apple founder Steve Jobs, who died last October. Jobs was aware of publishers' frustration with Amazon's low-price strategy and took advantage of it, according to the book.

Isaacson quotes Jobs as saying: "So we told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more but that's what you want anyway.' ... So they went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"

When Apple entered the digital books market with its iPad in January 2010, Amazon had nearly 90 percent of the e-book market.

Amazon now has about 65 percent of the e-book market, while Barnes & Noble has 20 percent and Apple has 10 percent at most, according to Cowen & Co estimates.

As the market shifted, prices have risen.

A class action lawsuit against Apple and the publishers that was brought last year in a Manhattan court on behalf of e-book customers said the price of e-books sold by the five publishers rose 30 to 50 percent in just a few months after Apple reached its deals.

Despite the higher prices, the digital book market has continued to grow rapidly.

The e-book industry has grown from $78 million in sales in 2008 to $1.7 billion in 2011, according to Albert Greco, a book-industry expert at the business school of Fordham University.

Greco estimates e-book sales will be $3.55 billion in 2012.

In its request to dismiss the private lawsuit, Apple said it individually negotiated separate vertical agreements with each of the publishers and it insisted on agency pricing because it had "no desire to incur the losses that would flow from retailing in such an environment."

Andrew Gavil, who teaches antitrust at the Howard University School of Law, said the consumer would win under a Justice Department settlement that rips up the agency model, even temporarily.

"The consumer will be the short-term winner because the autonomy to set the price of e-books will go back to Amazon. Manufacturers may have to lower the price of hard cover books. They may have to adjust their expectations of profits of hard copy books," said Gavil.

http://www.huffingtonpost.com/2012/03/31/e-books-settlement-apple-justice-department_n_1392501.html
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Gone to Rainbow Bridge - Lily 2000-2011

[Islandgirl2]

Thank you so much for keeping us informed. I have to tell you I went browsing through amazon to order for my kindle and the prices for old books listed at 10.99 or 12.99 when it used to be 5.99 is so frustrating and had me seek other books for reading.
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Romance my favorite reading pastime.

[Leigh]

For the first time in a while I am feeling a little optimistic that agency pricing might go away.

I recently threw out my Heyer collection because the books were so old and dusty. I would give myself an asthma attack just by opening a book. Some of them had prices of 95 cents on them. I had them for that long. So I would love to get them on my kindle.

I am going to go de-clutter this next month. And I probably going to get rid of a bunch of books. Space is such a premium at my house.

So yes, I would love to get some kindle copies of certain books too.
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Gone to Rainbow Bridge - Lily 2000-2011

[library addict]

I'm hopeful, but not holding my breath.

I would love to get some of JAK's older single titles. But many are priced at $8.99 or even $15.99 (for Family Man). And I just can't justify those prices when I already have the books in print.

[Leigh]

So there is a settlement with:

The government reached a settlement with three of the publishers, Hachette, HarperCollins and Simon & Shuster.

However the U.S. govt. and 15 states filed suit against:

But it will proceed with its lawsuit in federal court in New York City against Apple and Holtzbrinck Publishers, doing business as Macmillan, and The Penguin Publishing Co. Ltd., doing business as Penguin Group.

Thanks to Lee for bringing this to my attention:
http://seattletimes.nwsource.com/html/nationworld/2017955690_apuselectronicbooksantitrustlawsuit.html
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Gone to Rainbow Bridge - Lily 2000-2011

[Islandgirl2]

http://news.yahoo.com/blogs/cutline/apple-major-publishers-hit-federal-antitrust-lawsuit-over-162802123.html

Just to show the latest being reported looks like a few made settlements.

All I can say is the best thing to do is not purchase. If we make a stand and stop buying e-books for those high prices then eventually they will have no choice but to lower.

It's ridiculous that they save money on shipping/packaging/materials but now charge double the price of what we used to pay for a paperback.

Anytime I see a book for $10 to $12 I simply do not buy unfortunately for my Kindle.
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Romance my favorite reading pastime.

[Nicole]

[Leigh]

I just looked at a book by Avon - Rescue Me by Rachel Gibson and it is priced at $4.99
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Gone to Rainbow Bridge - Lily 2000-2011

[Leigh]

These are the states that filed suit also:

Connecticut and Texas, with Alaska, Arizona, Colorado, Illinois, Iowa, Maryland, Missouri, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Vermont, West Virginia, and Puerto Rico joining the ranks
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Gone to Rainbow Bridge - Lily 2000-2011

[nepaauthor]

I've been following this and it's about time. These CEO's should be ashamed of themselves...but then corporate greed is nothing new in this modern business environment. Now Amazon can drive prices down to a realistic amount.

[library addict]

I'm not a fan of Agency pricing, but I don't want Amazon in charge of everything either.

It will be interesting to see if Amazon delists the big 6 again for print books since they refuse to sign the large increase Amazon wants for co-op fees.

[Linda in sw va]

I am enjoying this thread and hoping for an end to Agency Pricing!! I thought they were going to get away with it, here's to hoping they don't.

Linda
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"The Bookshop has a thousand books, all colors, hues and tinges, and every cover is a door that turns on magic hinges." ~ Nancy Byrd Turner