Apple and a number of publishing houses are the target of a price-fixing probe by the US Justice Department.
We first reported that an investigation was being launched by both the Justice Department and the European Union back in early December of last year. At the time, Apple, along with Hachette Livre, Harper Collins, Simon & Schuster, Penguin, and Macmillan Publishers, were being investigated for the possibility that there was collusion between Apple and the publishers to fix e-book prices.
According to a report in the Wall Street Journal, the Justice Department is now warning Apple and the publishers that it plans to sue them concerning the alleged collusion.
The WSJ says that sources have told them that the parties involved are attempting to work out a deal before the case goes to court. The deal has the potential to cause e-book prices to fall.
The charges of collusion date back to contracts Apple signed with publishers back in 2010, when Apple began selling e-books for its iPad tablet. In the past, retailers would generally purchase books at a wholesale price, and set their own retail price. This continued when e-books became popular. But then Apple contracted with publishers to sell e-books on a commission basis, where the publishing company set the price, and Apple received 30% of the purchase price. As part of the contract, the publishers had to agree that if any other retailer sold an e-book for less than Apple, Apple could sell it for the lower price as well. Publishers then required Amazon to agree to the same terms to sell their books, so that the publishers could prevent Amazon from selling an e-book for less than Apple (because Apple would lower the price as well and the publisher would receive less money). In the end, retailers lost the ability to set prices on e-books or offer discounts, killing pricing competition.
If Apple and the publishers come to a deal with the Justice Department, it will shakeup the e-book industry and current pricing schemes. We will keep you updated here at NFS as further developments come out.