From The Wall Street Journal:
The Justice Department has warned Apple Inc. and five of the biggest U.S. publishers that it plans to sue them for allegedly colluding to raise the price of electronic books, according to people familiar with the matter.
Several of the parties have held talks to settle the antitrust case and head off a potentially damaging court battle, these people said. If successful, such a settlement could have wide-ranging repercussions for the industry, potentially leading to cheaper e-books for consumers. However, not every publisher is in settlement discussions.
The five publishers facing a potential suit are CBS Corp.’s Simon & Schuster Inc.;Lagardere SCA’s Hachette Book Group;Pearson PLC’s Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc., a unit of News Corp. , which also owns The Wall Street Journal.
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The case centers on Apple’s move to change the way that publishers charged for e-books as it prepared to introduce its first iPad in early 2010. Traditionally, publishers sold books to retailers for roughly half of the recommended cover price. Under that “wholesale model,” booksellers were then free to offer those books to customers for less than the cover price if they wished. Most physical books are sold using this model.
To build its early lead in e-books, Amazon Inc. sold many new best sellers at $9.99 to encourage consumers to buy its Kindle electronic readers. But publishers deeply disliked the strategy, fearing consumers would grow accustomed to inexpensive e-books and limit publishers’ ability to sell pricier titles.
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As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an “agency model,” under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price.
“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway,’” Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.
The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. “They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,’ ” Mr. Jobs said.
The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.
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Among the issues that the Justice Department has examined is the effort by three publishers involved in the probe to “window” e-books in late 2009, according to people familiar with the matter. That December, Simon & Schuster, HarperCollins and Hachette said they would delay the electronic publication of a certain number of titles for a limited time after the publication of the hardcover edition.
Link to the rest at The Wall Street Journal (link may expire)
Agency pricing was supposed to save Big Publishing. It would be ironic if price collusion hastened Big Publishing’s downfall.