Both the US Justice Department and the European Union are launching investigations into the way ebooks are priced. Smack dab in the middle of the controversy is Cupertino, CA, based Apple Inc.
In Europe, formal antitrust proceedings have been opened to investigate five international publishers: Hachette Livre, Harper Collins, Simon & Schuster, Penguin, and Macmillan Publishers. The investigation will be looking into whether these publishers and Apple engaged in “illegal agreements or practices that would have the object or the effect of restricting competition in the EU or in the EEA.”
Here in the US, the Justice Department has confirmed that they are investigating the possibility that Apple and publishers colluded in fixing ebook prices.
At the heart of the matter is the pricing model that is used to figure the retail price of an ebook. In the past, Amazon would purchase an ebook at a wholesale price set by the publisher, and then retail it at any price they would like. They might set the price at full retail when demand was high, take a loss on it to move inventory, or maybe even have it as a loss leader.
When Apple began selling books for its iPad tablet, they used a different model that prevented the retailer from setting the price of the book. The publisher would set the retail price, and Apple would receive a 30% commission. Also, part of the deal with Apple included that if another retailer was selling a particular ebook at a lower price, Apple could sell it at that lower price well. Many publishers then required Amazon to use the same model to sell their books, so that Amazon could not undercut Apple’s prices, which would cause the publisher to have to lower there’s. The change prevents Amazon from discounting ebooks from publishers that require this pricing model.
No time frame on either investigation was provided. Stayed tuned for more on this here at NFS as developments happen.