Comment permalink

Justice Department to Sue Apple Over E-Book Prices

Accuses company of collusion with publishers

Seems the lawsuit-happy consumer tech giant is about to find itself on the other end of the suing stick. The US Justice Department has stated that it plans to sue Apple and five of its e-book publishers over a scheme to artificially inflate the prices of books purchased for iOS.

Before Apple released the iPad in 2010, Amazon reigned as the primary seller of e-books and e-readers with its popular Kindle and wide selection of titles. E-book apps for the iPhone and iPod touch existed, but the hardware's small resolution couldn't compare to the easy reading of designated e-reader hardware. But when Apple launched its tablet, it also launched an attack on the way book publishers sell their digital products. 

Amazon and other e-book retailers used to operate on a wholesale model. They would pay up front for the right to sell a title, then set their own customer price. When the iPad came out, Apple decided it wanted a better deal than that. Jobs and company therefore devised an agency model by which Apple would take a 30% commission off the sale of every e-book. In order for publishers to turn a profit, the list price would have to rise. Customers were essentially paying more to make sure Apple got a better cut off book sales.

Certain e-book apps were forced to close shop after refusing to raise their prices to satisfy Apple's commission. The big publishers happily adopted the new model--and agreements with Apple forced them to refuse to let competitors like Amazon sell their products via the old wholesale system. As a result, we saw a spike in e-book prices across the board.

Apple does seem to have single-handedly forced out any kind of competitive pricing on e-books, but does it count as collusion? Some, like Mark Coker of e-book distributor Smashwords, say that taking down the agency model will only serve to hurt publishers and allow Amazon to restore their pre-iPad e-book monopoly.

Despite the rise in prices we saw with the adoption of the agency model, the e-book industry is thriving. Consumers don't seem to mind paying more to be able to read books on their iPads, Kindles, and Nooks. The industry saw $1.7 billion in sales in 2011, up from a mere $78 million in 2008. 

Personally, I'm doing okay with the prices at my local used bookstore, so Apple's price manipulation doesn't affect me much. And given that the company has more money than a lot of countries do, I'm sure they'll hold their own on the brunt end of the legal battle.