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DoJ May Foil Apple, Publishers' E-Book Pricing Plot

DoJ May Foil Apple, Publishers' E-Book Pricing Plot

The DoJ may not have to take overt action to end Apple's e-book pricing deals with publishers -- the pressure of an investigation may be enough to induce them to cave. "I do think something will give," said tech consultant Bruce Abramson. "The way things happen is that the government pushes, and the companies will respond. Some companies look to fight to the wire, but if the wake ... creates more headaches than it solves, they'll abandon it."

By Peter Suciu MacNewsWorld ECT News Network
03/08/12 12:46 PM PT

The United States Justice Department is reportedly investigating Apple and five of the largest U.S. publishers, accusing the companies of colluding to control the price of electronic books. The five publishing companies facing DoJ action include Simon & Schuster, Hachette Book Group; Penguin Group (USA); Macmillan; and HarperCollins.

Several of the parties have held talks to settle the antitrust case and avoid a potentially damaging court battle, The Wall Street Journal reported.

"This is an ongoing matter, and we can't comment further," Deputy Director Gina Tallmona, a spokesperson for the U.S. Department of Justice, told MacNewsWorld.

However, Tallmona pointed to testimony before the U.S. House of Representatives Judiciary Committee's competition subcommittee last December, which first revealed the investigation. The testimony was given by Sharis Pozen, acting assistant attorney general in charge of the DoJ's antitrust division.

Pozen and Jon Leibowitz, chairman of the U.S. Federal Trade Commission, told lawmakers then that their agencies were looking into the tech industry for possible antitrust violations.

Apple's Bite Into Publishing

Apple's arrangement with the publishers was devised by the late Steve Jobs, then its chief executive, in advance of the release of the iPad. Jobs suggested moving to an "agency model" that would allow the publishers to set the price of a book, whereby Apple would take a 30 percent cut. Apple further stipulated that publishers could not let rivals, including Amazon, sell the same e-book at a lower price.

Publishers have maintained that Amazon, which had sold many bestsellers at deeply discounted prices to encourage consumers to buy its Kindle e-book reader, was making it hard for other book retailers to compete.

"This is really what this has been about -- getting people hooked on your hardware even if you don't make the money selling the content," Bruce Abramson, J.D., Ph.D., president of Informationism, told MacNewsWorld. "By and large, Apple wanted to come with a distribution system that fed its revenues, and Amazon wanted to come up with a distribution system that fed its revenues."

Antitrust or Changing Market

The issue at present is not so much whether Apple, or even Amazon, dominates the market, but how the publishers dominate the market, and how they are collaborating to respond to the changing role of content, Abramson suggested.

"What we are seeing is a collection of incumbent players who want to keep their existing business models going in a rapidly changing technological environment," he noted. "The distribution channels are changing, and the content creators and publishers are scrambling to stay relevant."

The key that makes Apple a critical player is that it introduced a new type of contract, and Abramson noted this is different from the contract Amazon had with the Kindle, as well as different from what publishers had with traditional retailers. Each was looking for the best method to capture market share.

The changing market has been a boon to new authors, tech analyst Jeff Kagan told MacNewsWorld.

"The industry is transforming. It used to be an old-fashioned industry that worked the same way for a hundred years," he said. "Then the e-book came about and transformed the industry."

While there is the issue of the price-fixing, the lower prices have allowed new authors to find a voice in the market, said Kagan.

"The market is transforming itself, and while the publishers are looking at this from yesterday's methods and are looking backward, that will only work with existing big name authors," he added. "New authors and those breaking in could benefit from an evolving business model."

DoJ May Nix the Model

How the business model evolves depends on what the DoJ's investigation finds and whether it slams the book shut on some of the changes.

"There is enough there for the government to investigate," noted Abramson, "but unlike with most lawsuits, the government investigation doesn't have to be fully successful in finding what it wants -- but to get the companies instead to change the way they do business. [The DoJ officials] have to make it uncomfortable for the players involved to back down."

This is the investigative truism, he said. "I do think something will give. The way things happen is that the government pushes, and the companies will respond. Some companies look to fight to the wire, but if the wake -- in this case the deal with Apple -- creates more headaches than it solves, they'll abandon it."

Amazon declined to comment for this story, and Apple did not respond to our request for comment.


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