DOJ accuses Apple and other publishers of price fixing e-books

The U.S. Justice Department has warned Apple and five book publishers that it is planning to sue, alleging that the companies colluded to raise the price of digital books, reports The Wall Street Journal. The Wall Street Journal's sources also said that several, but not all of the involved parties have been holding talks in an attempt to settle the antitrust case before it reaches court.

The companies expected to be named in the lawsuit are Apple, Hachette Book Group, HarperCollins Publishers, Macmillan Publishers, Penguin Group and Simon & Schuster. Spokespeople from Apple and the five publishers declined to comment to The Wall Street Journal.

The federal attention is directed at the model in which e-books are sold by Apple. Traditionally, book publishers sell physical books to retailers for about half of the recommended cover price, and the retailers are then free to sell those books to customers for less than cover price if they want. This is called the "wholesale model." Amazon used this model to build its early lead in the e-book market by selling popular new books at $9.99 in an attempt to push its Kindle e-readers. Publishers were unhappy with this strategy, because they believed that it would make book buyers grow used to inexpensive e-books, thus devaluing them and limiting the publishers' ability to sell them at higher prices.

In early 2010, before the introduction of the first iPad, the late Steve Jobs suggested using an "agency model" for selling e-books on the upcoming tablet. In the agency model, publishers are allowed to set their own prices for digital books, and Apple then takes a 30% cut of that price. If that sounds familiar to you, it's because it is very similar to the model used for iOS apps sold through iTunes.

"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,'" Jobs was quoted as saying by his biographer, Walter Isaacson.

That decision affected the publishing industry as a whole in a big way, as the publishers then went to Amazon and demanded agency contracts as well.

Now the Justice Department believes that Apple and book publishers worked together to raise prices across the industry. Of course, the publishers have denied acting jointly. The Wall Street Journal's sources say that the DOJ is preparing to sue for violation of federal antitrust laws, though several of the involved companies are reportedly in talks to settle. Whatever the outcome, it will likely have huge repercussions on the book publishing industry. Revenue of digital books is the fastest-growing segment of the business, and it's no secret that sales of physical books are struggling, to say the least.

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30 Comments

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Borix said,
Is neowin getting paid not to report on the new ipad?

no they are not. A better resolution doesn't interest most of us, change the ui or the design then we'll talk. Back to topic: hope they break apple into separate companies, a company for selling books, one for music, hardware and software. Bet you only their h/ware would be successful

Borix said,
Is neowin getting paid not to report on the new ipad?

The answer for every magazine, blog, and website is the same as the answer to this question:

"Do advertisements for Apple products appear on this site?"

th3r3turn said,
Does this effect the sales in US or World Market?

Check a regional Kindle store and see if it has a "price set by publisher" line.

DoJ is a joke if they are serious about catching criminals like that they would go after the oil companies for price fixing.

shadodemon said,
DoJ is a joke if they are serious about catching criminals like that they would go after the oil companies for price fixing.

Not sure if serious.

shadodemon said,
DoJ is a joke if they are serious about catching criminals like that they would go after the oil companies for price fixing.

umm what? apple makes made more money in one quarter then any oil company has in a quarter in the history of the world.. Stuff is expensive that is pumped out of the ground and refined shipped from a third world country across the ocean to the gas station down the street from you..

shadodemon said,
DoJ is a joke if they are serious about catching criminals like that they would go after the oil companies for price fixing.

As Lachlan said, Apple makes more than oil, so if we are to punish companies that make big profits, why not go after Apple?

The DOJ was the hero when they went after Microsoft, but when they go after Apple, they are horrible haters for treating the glorious Apple in such a bad way.

Steve Jobs. The gift that keeps on giving.

"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,'" Jobs was quoted as saying by his biographer, Walter Isaacson."

I'll never understand why so many people worship "his holiness".

COKid said,
Steve Jobs. The gift that keeps on giving.

"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,'" Jobs was quoted as saying by his biographer, Walter Isaacson."

I'll never understand why so many people worship "his holiness".

Basically, from a Apple's fan perspective they got a big stick up in their *ss. Jeez...

COKid said,
Steve Jobs. The gift that keeps on giving.

"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,'" Jobs was quoted as saying by his biographer, Walter Isaacson."

I'll never understand why so many people worship "his holiness".

Blasphemer. How dare you? /s

Quite frankly, I was the one that didn't wait to make lots and lots of jokes they day he died. It ****ed off some people because they looked at that silly, skinny little man as the second incarnation of Jesus Christ Almighty.

Ahh, good times.

UndergroundWire said,

Blasphemer. How dare you? /s

Quite frankly, I was the one that didn't wait to make lots and lots of jokes they day he died. It ****ed off some people because they looked at that silly, skinny little man as the second incarnation of Jesus Christ Almighty.

Ahh, good times.


It's a little tactless to make fun of a cancer victim's skinniness.

Now, his STINKINESS on the other hand, that's up for grabs.

Joshie said,

It's a little tactless to make fun of a cancer victim's skinniness.

Now, his STINKINESS on the other hand, that's up for grabs.

ILL TAKE IT! lol

COKid said,
Steve Jobs. The gift that keeps on giving.

" and yes, the customer pays a little more, but that's ."

I am still amazed at how information like this does little to sway the apple faithful.

The Gunslinger said,

I am still amazed at how information like this does little to sway the apple faithful.

One day they will all learn the truth about Steve. Currently, no one wants to write it or publish it because Apple still outspends every other company in PR and Ad dollars.

That is why we keep seeing all these "Jobs spent an hour with a homeless man once" stories, because Apple continues to prop up almost every tech magazine, blog, and website with their ad dollars.

And if you don't keep writing "nice" stories about Apple, you don't keep getting paid.

That is the REAL secret to Apple's buzz. It was all bought and paid for by one of the world's greatest SALESMEN.

This "agency" model has always seemed like collusion to me. Why not let the free market dictate the prices?

COKid said,
This "agency" model has always seemed like collusion to me. Why not let the free market dictate the prices?

From what I understand (which, admittedly, is next to nothing ) what if Apple and all the other major book selling-people came together and said "OK, guys, let's all raise our prices 20 bucks and then we'll all be so much richer, oh and we'll give the book publishers 5 bucks of that 20 to go along with it," and no government agency steps in to stop it, the prices can keep being inflated by the powerful EBook sellers, and then if those book publishers/stores get a piece of that 20 then they can agree to raise their physical book prices too, thus creating pretty much an endless loop of prices going up, and nothing really to stop it except for the government. Just my 2 cents

COKid said,
This "agency" model has always seemed like collusion to me. Why not let the free market dictate the prices?

It does; by not buying them.

Matthew_Thepc said,

From what I understand (which, admittedly, is next to nothing ) what if Apple and all the other major book selling-people came together and said "OK, guys, let's all raise our prices 20 bucks and then we'll all be so much richer, oh and we'll give the book publishers 5 bucks of that 20 to go along with it," and no government agency steps in to stop it, the prices can keep being inflated by the powerful EBook sellers, and then if those book publishers/stores get a piece of that 20 then they can agree to raise their physical book prices too, thus creating pretty much an endless loop of prices going up, and nothing really to stop it except for the government. Just my 2 cents

OMG I can't believe how badly I misread your comment *sry*

And therefore, why isn't the DOJ looking carefully at the world's most corrupt price-fixing racket...Hollywood.

They act as 6 divisions of the same company, sharing databases about movies in development and release dates, fixing prices on movie tickets, DVDs, online distribution, etc. There is no real competition between them.

excalpius said,
And therefore, why isn't the DOJ looking carefully at the world's most corrupt price-fixing racket...Hollywood.

They act as 6 divisions of the same company, sharing databases about movies in development and release dates, fixing prices on movie tickets, DVDs, online distribution, etc. There is no real competition between them.

I agree with you completely. E-books are small fish, but the companies involved are big fish. They also don't want to touch Hollywood because that is where a lot of politicians money originates. E-books are not, and it makes them look good. It is a horrible situation, but we are stuck here.

So if DOJ sues Apple for anti-trust practices, what's the difference between books and apps? Shouldn't they sue them for anti-trust practices for apps too?

Boz said,
So if DOJ sues Apple for anti-trust practices, what's the difference between books and apps? Shouldn't they sue them for anti-trust practices for apps too?

Umm, huge price difference.

How much is a physical book? How much is a eBook? You see that tiny difference there? How much is software for a phone? How about a computer? Oh wait, software is software. Never mind.

UndergroundWire said,

Umm, huge price difference.

How much is a physical book? How much is a eBook? You see that tiny difference there? How much is software for a phone? How about a computer? Oh wait, software is software. Never mind.

I don't understand what you are trying to say. It's the exact same thing. Software for desktops was in many cases free but now more and more it's costing something on iOS.

What is the difference between the books and ebooks and software on desktops vs software on mobile.

It doesn't make sense. If you are going after them for books price fixing then it should be the same for apps. It's the same model.

Boz said,

I don't understand what you are trying to say. It's the exact same thing. Software for desktops was in many cases free but now more and more it's costing something on iOS.

What is the difference between the books and ebooks and software on desktops vs software on mobile.

It doesn't make sense. If you are going after them for books price fixing then it should be the same for apps. It's the same model.

Software you are paying for development. Development doesn't change for desktop or mobile. It still being developed.

However, Books and eBooks are different. With physcial books you are paying for the content, marketing, manufacturing, distribution. Where eBooks you pay for content and marketing.

I see a huge difference but maybe that is just me. Don't get me wrong, I think a mobile app should be cheap but look at Photoshop for both mobile and desktop. Is that not a huge difference?

There are no free applications on the desktop that are sitting in the App Store with a price tag. Why? Because there are no desktop applications in the App Store. It's a different platform, using different code, requiring a separate development cycle.

Desktop applications are different software products from their mobile versions. Books and ebooks are the same content used in the same way, so with the dramatic reduction in production cost with ebooks, the price fixing is just a tad bit more egregious.

Boz said,
So if DOJ sues Apple for anti-trust practices, what's the difference between books and apps? Shouldn't they sue them for anti-trust practices for apps too?

When a software developer puts an app on the app store, the developer decides the price and Apple takes 30% to cover the cost of hosting the app on their servers, bandwidth, credit card charges, taxes, their own profit, etc. Apple does not choose the price, the developer does. The developer may add a little more to the price because Apple takes their cut and they want to make up the difference, but the developer still decides the price.

What Apple is being accused of is when the book publishers went to Apple to get in iBooks, Apple pressured the publishers into increasing their price so that Apple would get a bigger cut. But then Apple went one step more and told the book publishers that they must charge Amazon the new, higher price or they would not be on Apple's book store, and the publishers agreed.

This is like Apple going to the developers of Angry Birds, and telling them if they want to stay on the App store, they must increase the price and increase the price on the Android and WP7 app stores. Apple wanted the prices to be increased so they get more money, but they also forced the book publishers to raise the price for others, otherwise people would buy from Amazon rather than iBooks. This is price fixing, which hurts competition and the consumer pays more because of it. Amazon tried to stop selling books from the publishers because of the increasing price, but eventually had to fold and the buyer had to pay more.