Yes I like Apple. Yes I like that the US Justice Dept. is preparing to sue them.

Apple CEO Tim Cook introducing the 3rd generation iPad yesterday.

I spent close to an hour yesterday ordering a new Apple iPad so it’s very clear I’m a fan of the company’s technology. Yet this morning, I’m equally enthused to learn that the U.S. Justice Department is preparing to do what it should have done two years ago: Sue Apple and five of the biggest U.S. book publishers “for allegedly colluding to raise the price of ebooks,” according to the Wall Street Journal.

Apple’s collusion with book publishers to fix the price of ebooks may be called “alleged” for legal purposes, but it is clearly evident to anyone who purchased ebooks before Apple started selling ebooks vs. after that driving up ebook prices and eroding Amazon.com’s ability to sell ebooks at whatever price it chose was a major objective of the publishers, an objective Apple was clearly a party in enabling them to achieve.

The vehicle for the Apple-Publisher collusion, wait, sorry, alleged collusion,  goes by the euphemism, “agency pricing model,” a Newspeak term meant to suggest Apple is serving as the “sales agent” of the publisher, and not the retailer. (This perhaps makes sense to Apple because unlike the vast majority of companies in the world, it has the ability to exert tight control over the price retailers charge for the products it anoints them the privilege to sell.)

“Agency pricing” has been, since its inception, nothing more than a means to control the retail price that Amazon, not Apple, can charge for an ebook — a means to break Amazon’s strategy of using ebooks as loss-leaders to sell the Amazon Kindle. By having Apple as a viable ebook sales channel alternative to Amazon, the publishers were able to use Apple’s might to threaten Amazon that they would not be able to even sell the publishers’ books, unless it offered a publisher-priced option. And it worked: Amazon caved and started offering the publisher pricing model, also.

Price fixing, in this case, not only preserved the publishers’ ability to inflate the retail price of physical books, it helped independent book stores preserve the high retail price they need to compete with Amazon, Wamart and big box bookstores. While I am a fan of small businesses and the independent book store, I’m a bigger fan of book writing and book reading — and the free market. Bottomline: The agency model is for those who want to protect the broken, status quo of the book business who want books to be physical items that are sold for high margins through independently owned bookstores (translation: The American Booksellers Association and the major book publishers). Actions designed to preserve high retail prices and small footprint retail spaces benefit a few authors, a few publishers and a few retailers. Low-priced ebooks benefit readers and authors who aren’t published by Random House (or any house).

Two years ago, I came as close as I could to suggesting that “agency pricing” equals illegal price fixing, when I wrote:

While I don’t know if I’m quite ready to officially declare myself a conspiracy theorist who suggests book publishers are colluding (or, perhaps merely “signaling” one-another) by using the “agency pricing” model to, in effect, “restructure the eBook pricing model” and return the world to a place where publishers had the ability to dictate to Amazon what it must charge customers for a book, when I run across a book pricing strategy demonstrated on the screen shot above, it seems to me rather self-evident that the publisher is using the agency model to undermine eBook sales.

I’m glad to see that the U.S. Justice Department has finally recognized the same thing.

  • say what you will about the issue (focus should be on amazon’s predation) but when the standard margin averages 40% or less (certainly when freight is factored in) ” sold for high margins” is a ridiculous charge and undermines your credibility.

    Bookstores employ people, most provide health insurance benefits, must pay rent, local, state and federal taxes, etc. Most bookstores are in business for the love of books – not for the “high margin” (truly laughable). Passion in the pursuit of something other than the dollar.

     The irony of the Justice Dept pursuing those who are trying to respond to  the predatory pricing practices and  monopolistic action of Amazon is mind boggling…..the free market is a fiction….the justice department is misguided and perverse (big boys in the financial sector are untouchable)…would be shocking but it is the same Obama that installed Geithner and Summers to kick things off….

    competition is being trampled by the bullying tactics of amazon…..the idea of the “consumer” and best interests of the “consumer” was co-opted years ago….there is a high cultural cost to artificially low prices set to gain market share – and the result is less competition, not more….

  • I’m sorry. I appreciate your comment and point of view, but my post is about a specific illegal activity by Apple and the major publishers. Long ago, I blogged a lot about passion and books and bookstores and margins. Those things are wonderful and if booksellers are in it for the passion, they should be passionate about how to sell books today — not how to turn-back time. Speaking of turning back time, I wrote about this topic a lot, back when it mattered.

  •  it all still matters….and i think you are presuming a lot when you talk about “illegal activity” by Apple and the major publishers. My major objection and shock is really at how amazon can dictate so much (and bully and intimidate) and be protected and enabled by Obama’s justice dept….i think we can agree to disagree on this – but how amazon can effectively partner with the government in undermining an entire industry by attempts to monopolize with predatory pricing is truly mind boggling…..

  • Hmm.. interesting part is that Amazon vs Apple on E-books. buyrealfans.com