Many consumers were hoping they would get a better deal by ordering electronic books rather than getting that bestseller off the shelf at a local bookstore.
Such deals, however, haven’t materialized for many and the Justice Department apparently thinks it knows why. The agency is suing Apple Inc., the maker of the popular iPad e-reader, and several publishers, accusing them of scheming to manipulate e-book prices to limit competition. Apple gets a big chunk of the e-book sales, while the publishers get to protect revenue in the face of growing competition from Amazon.com and its Kindle, and other e-reader competitors.
In addition to Apple, which is dominating the e-reader industry, the Justice Department is suing Hachette SA, HarperCollins, Macmillan, Penguin and Simon & Schuster. Several of the publishers – Simon & Schuster, Hachette and HarperCollins - reportedly want to settle with the government to avoid a lengthy legal battle.
At the core of the case is the publisher’s decision to stop selling ebooks at wholesale prices to Amazon, Barnes & Noble, which makes the Nook e-reader, and others. As the LA Times and Bloomberg explain:
Under the original system, publishers sold ebooks to retailers at about half the cover price and let the retailers determine what to charge consumers for them. Amazon had been selling popular new ebooks at a loss — and, to the publishers’ chagrin, at a far lower price than hardback editions — to promote sales of its Kindle reader….When Apple came out with the iPad in 2010, it let publishers set their own prices for e-books as long as it got a 30 percent cut and the publishers agreed to offer their lowest prices through Apple.
Apple and Macmillan haven’t signaled they are willing to settle with the government. They are expected to argue that Apple’s relationship with the publishers actually enhances competition. The government, however, says online retailers should decide how much they want to charge consumers.
Some argue that if Apple and the publishers lose, it would hurt the rest of the book industry and give Amazon an inside track to a publishing monopoly.
Should the government get involved in this e-battle?