The rumblings about Apple and the possible anticompetitive nature of its deal with book publishers over “agency model” pricing have turned into an all-out roar, with the news that the Department of Justice has warned the various parties about an impending antitrust lawsuit. According to a report in the Wall Street Journal on Thursday, federal prosecutors have sent letters to Apple and five of the major publishers notifying them it is pursuing a case for collusion and price fixing—charges that are similar to class-action lawsuits filed recently involving Apple and book publishers. While the outcome of this case is not certain, one thing seems fairly clear: E-book prices are headed downward, whether publishers like it or not.
As my PaidContent colleague Jeff Andrews has described, the legal background of the case goes back to 2010, when Apple was preparing to launch the iPad. At the time, the dominant model in the e-book publishing market (and print publishing, for that matter) was what publishers called the “wholesale” model, which allowed retailers—such as Amazon—to cut deals with publishers and then set the price on e-books at whatever level they wanted. This allowed Amazon to set prices at $9.99 or lower, which it said was necessary in order to stimulate demand (and thereby also boost sales for its Kindle e-reader). But for publishers, this meant a significant haircut from the cover prices they were used to charging for print books and therefore a threat to profit margins.