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US Justice Department Now Looking Into the Price Fix Six

Earlier this week we learned that the EU was continuing an investigation into Apple and their co-conspirators, and today I can report that the EU isn’t the only govt investigating the cabal led by Apple. The U.S. Justice Department confirmed that it is investigating the pricing of ebooks, with a more specific focus on whether there was collusion by Apple and publishers to fix the price of the ebooks.

Earlier today Sharis Pozen, the Justice Department’s acting antitrust chief, confirmed in front on a Congressional panel that they had been conducting an investigation since last year.  "We are also investigating the electronic book industry, along with the European Commission and the states attorneys general." And it looks like the Justice Department is investigating the same 5 publishers as everyone else: Macmillan, Simon & Schuster, Penguin, Hachette , and HarperCollins. Once again Random House ducked the noose.

At this point I’m sure my readers all know about Agency pricing, but I feel the need to be redundant today. The Agency Model is a system where publishers set a fixed retail price and collect a 70% cut of that price. Ebookstores are considered to be agents of the publishers and cannot lower the price.

Now, it’s widely accepted that publishers went with Apple’s plan because they feared the growing dominance of Amazon and the Kindle Store.  But what the publishers failed to realize at the time was the weapon that they were handing Apple.

It was the shift to agency pricing that gave Apple a chance to drive their competitors' ebookstores off of the iPad and iPhone. With over a hundred million eGadgets in use, Apple had a platform that they were able to control ruthlessly (and they did).

Between one day and the next in early January 2011 Apple decided that the ebookstores needed to move all ebook sales inside their apps and pay Apple a 30% fee. Naturally no one could afford this, given that they were only earning that 30%. It would have left them nothing.

One of the indies went under as a result, and a number of iOS developer came close to closing doors. Eventually Apple backed down a degree and settled for making life difficult for their competitors. Amazon, B&N, Kobo, and the other apps could stay, but you couldn’t even tell people that the app was connected to an ebookstore. Apple won’t even let the apps link to online help pages.

And that’s where we re today. To be honest, I don’t understand why the earlier collusion is being investigated but not the later blackmail. I’d have thought that was the greater offense.


image by barockschloss

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Syn December 7, 2011 um 11:05 pm

Price fixing leveled the playing field. Finally, Apple ran up on a competitor (Amazon) they couldn’t compete with.. Price fixing changed all that..

Amazon is now competing where they can still control prices.. and thats the Hardware..

I love Apple Products.. love my iPad but I refuse to buy ebooks from them or Agency Six. Right now I think the Agency Six has been the best thing to happen to Indie publishers.. I’ve been finding a lot of good authors, I would have otherwise missed.

fjtorres December 7, 2011 um 11:34 pm

And by Amazon (and B&N and Kobo) competing so ruthlessly on hardware, they’ve pretty much squeezed all readers not attached to their bookstores right out of the US. (With other markets to follow if the Fix stays.)

If they keep it up much longer the generic readers go away pretty soon and with them the market for Adept DRM-ed ebooks and the ebookstores selling them. (Sony is probably only hanging around to save face but sooner or later they’ll have to bail out if hardware prices go much lower; they don’t have anywhere the volume of Nook, much less Kindle. And without significant ebook revenue to balance the books…)

Even now, what’s the (non-Kobo) market share for Adept-DRM’ed ebooks in NorthAm? Low single digits, no? Agency Pricing at work.

Competitors compete wherever they can.
Moving the price-based competition to the enabling hardware just forced Amazon and its imitators to go the back way around.

Syn December 7, 2011 um 11:56 pm

Couldn’t agree with you more..

Its actually interesting to see the ebook readers, like Nook Tablet, make it hard to justify a 7" Galaxy tab, priced near the iPad’s, price point.

I guess we can always joke that the Agency Six, helped to screw up the 7" Android tablet market.

Kidding aside, all these cheap hardware prices is going to make something with a Marisol screen a hard sale. That company might be a day late and a dollar short.

fjtorres December 8, 2011 um 8:24 am

What people tend to ignore, both in government and outside is that there is a sort of conservation law in market competition. Denied one channel to express itself by market distortion (by law, regulation, or price-fixing) it will seek other ways to manifest.
The BPHs thought Amazon and co would just take the short-term windfall of the 30% cut and shut up. It’s what *they* would’ve done. Being smarter and longer-term focused, the walled-garden vendors just invested the money in the hardware arena.
The distortion in one area causes a counter-balancing distortion in another.

The comment in the EU investigation thread about Amazon italy’s sales promotion is a good example: denied the ability to discount books as much as their strategic marketing prefers, Amazon came up with the idea of what amounts to rebates. Buy a book at the mandated price–get a rebate. But, to skirt the law, the rebate can’t be used for books, so its not an outright discount of book prices. Plus, to use the credited bonus, the consumer has to buy something else from
Now Amazon just doesn’t get the book sale, they get the tag-along (and likely bigger) sale of the second item.

I suspect we may see broader use of this tactic, as it is one way Amazon can leverage their deep stock catalog to entice book (or ebook) sales without discounting agency-priced ebooks. ("Buy ten Agency-priced ebooks at full price and get a US$20 Amazon credit towards video games, clothes, or electronics.")
And it is one few competitors (outside of, maybe, Kobo) can match.

Competitive companies find ways to compete. Not being particularly competitive themselves, the BPHs just don’t get it.

Luqman December 8, 2011 um 8:47 am

I would like to see more gift card sales like the big one Sony had back in 2010.

DOJ Anti-trust Lawsuit Against Price-Fix 6 Only Bewnefits Amazon. – The Digital Reader March 8, 2012 um 6:58 pm

[…] looks like that ant-trust lawsuit against the Price-Fix 6 (which we last heard about back in December) is about to go to trial. The WSJ is reporting that the Dept of Justice is threatening Apple and 5 […]

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