In March of 2010, in the face of growing downward price pressure from e-books and open competition on pricing from online retailers like Amazon and Apple, the publishing industry took control of the price of its own products. It did so by abruptly and collectively by abandoning the long-time industry-norm of wholesale pricing and adopting instead what is called the agency model, in which retailers get a percentage of any sale rather than being allowed to set the price of goods themselves. (Like real estate agents and stock brokers, retailers who embrace the agency model never own the products they sell, they simply collect a fee for uniting buyer and seller.)
Fully two years later the federal government is signalling that the price-fixing party may be over:
Among the reported gripes the Justice Department has with the way Apple and publishers are doing business is a move toward setting standard prices and giving Apple a 30% cut of revenue for e-books sold on its devices. The business model, which Apple rolled out with the launch of its first iPad tablet in 2010, differs from what publishers offer to traditional bookstores, which is to sell books to retailers for about half of the suggested cover price and let the booksellers charge whatever they’d like.
As e-books have become more popular and brick-and-mortar bookstores have struggled, the industry has moved to the “agency model” Apple dictated with the iPad and, the Justice Department believes, publishers have acted in concert to replicate Apple’s model with Amazon and others. Publishers have denied such collusion, the report said.
So now you know. If you want to openly conspire to set prices in order to protect your market and limit competition at the expense of the consumer you will only be able to get away with doing so for two years, plus however long it takes the government to drag you into court, prove anything, and penalize you with a slap-on-the-wrist settlement in which you ultimately offer consumers a small price break they will almost certainly never take you up on for products they probably don’t want to buy anyway.
Or, you can avoid the icky, scummy feeling of being a money-grubbing liar by self-publishing your own books.
— Mark Barrett
I’ve been following this story with great interest. In the end, I think all the negative press Apple and Amazon are generating will push even more people toward self-publishing. It’s becoming increasingly easier for authors to publish their own work and keep all the profits.
It’s impossible to believe that five big publishers suddenly changed their business model in only a few days without some sort of conversation to that effect, particularly since the stated goal was to shore up prices for e-books. The fact that e-book prices then became almost as costly (and at times more so) than physical books is pretty much proof positive that collusion took place.
I’m also curious whether the Justice Department will comment on Apple’s and Amazon’s practice of compelling individual authors to offer their products at the lowest available rate, rather than letting authors set prices as they see fit on different sites. (Effectively authors are prohibited from adjusting prices to take into account each site’s sales cut or other costs.)
More on the original deal and Apple’s original involvement here: