Apple and several major book publishers caused controversy in 2010 when they agreed to work together on a drastically different eBook distribution model than the one in place with then-eBook king Amazon.
Prior to Apple’s agreements with the publishers, Amazon purchased the rights to distribute eBooks at a wholesale price, which was typically about half of a recommended retail price set by the publisher. Amazon was then free, if it wished, to reduce the price of eBooks and sell them at a loss to drive hardware sales of the company’s Kindle e-reading device. Amazon notably settled on US$9.99 as the standard price for an eBook, a number that was usually below the wholesale price that Amazon paid.
Concerned about the power that Amazon had to set prices, and thus the public’s perception of what an eBook was worth, Apple and the publishers chose to pursue an agency model, in which the publisher could set the price the book was to be sold at and Apple would take its cut, which was 30 percent.
There were two concerns that drew the ire, and eventually the lawsuits, of state and national governments, however. The first was an additional clause in Apple’s agreements with the publishers that eBooks could not be sold anywhere else for less than their price on the iBookstore. This meant that publishers who wanted to make more money with higher prices under the agency model had to renegotiate their agreements with other retailers like Amazon to eliminate the wholesale model.
This resulted in an almost immediate increase in the price of eBooks. Books that cost consumers $9.99 under the agency model were now priced at $13 to $15, and some books even approached prices as high their hardcover equivalents.
The other factor was the way in which Apple and many of the major publishers arrived at this agreement. Under U.S. and European antitrust laws, competitors are prohibited from working together to “raise, fix, or otherwise maintain the price at which their goods or services are sold.”
Apple and the publishers claim that they all, in an isolated and independent manner, came to the same terms which, if true, would not be an antitrust violation. However, evidence in the form of internal Apple and publisher emails indicates that each publisher negotiating with Apple knew that they were working in concert with the other publishers.
After the U.S. Department of Justice filed suit against Apple and the publishers in April, three publishers settled immediately while Apple, Penguin, and Macmillan vowed to fight are currently working to rebut the government’s charges.
In the EU, Apple and the publishers’ concessions Friday are an attempt to avoid a similar antitrust suit. In the crosshairs of the EU’s regulatory agencies are Apple, Simon & Schuster, HarperCollins, Hachette, Macmillan, and Penguin, although Penguin has not yet joined the other companies in offering concessions.
Under the proposed concessions, Apple and the publishers will modify their agreements to allow other retailers, such as Amazon, the ability to continue selling books at a loss for up to two years. This will give retailers on the wholesale model, as well as consumers, time to adapt to the agency model, something that the publishers claim is essential for the long-term health of the eBook industry.
The concessions are now under review by the EU Antitrust Commission, which is soliciting opinions from members of the publishing industry on whether they are sufficient. If the EU rejects the offer, Apple and the publishers would face a formal investigation and, if found to be in violation of EU Antitrust regulations, would be subject to fines of up to 10 percent of each company’s global yearly revenue.
Teaser graphic via Shutterstock.