Justice Department to sue e-book publishers, Apple

Molly Wood Mar 9, 2012

Electronic book stores go out of their way to make the process of finding and buying a book as easy as possible. Just a couple clicks and you’re done. Super smooth, right? Sure, but that’s just the outside of the operation. Behind the scenes, the e-book world reads more like a high-stakes soap opera. The Department of Justice, according to the Wall Street Journal and the Washington Post, is getting ready to sue Apple as well as five publishers over anti-competitive practices related to the cost of e-books.

The situation dates way back to 2010. At the time, Amazon was the major player in the e-book market and was selling most of its higher-end titles for $10 a piece. That’s a price that kind of chafed at the publishers who were able to make a lot more money off the sales of physical books.

Then Apple launched the first iPad and with it, Apple’s own electronic book store. That’s where things started to get interesting.

“They knew they were at a disadvantage against Amazon, and so they went to publishers and said, ‘publishers, we know you don’t like the low prices that Amazon is charging, so we’re going to give you an advantage. We’re going to let you control prices, and presumably you’ll raise them.’” says Forrester analyst James McQuivey.

But if a publisher was going to charge a certain price on Apple, Apple wanted to make sure that same title wasn’t sold cheaper on Amazon or anywhere else.

“That was the tricky part that Apple said raise the price on our devices, fine, but of course you can’t let Amazon sell at a lower price or we’ll be at a disadvantage collectively, and that’s exactly what publishers did,” McQuivey says. “They went to Amazon and said we want you to sign the same deal that we just struck with Apple or we’re pulling our books out.”

Faced with having to raise prices, Amazon did not respond happily. “Initially Amazon said fine, take your books out. Actually, we’ll take all your physical books off our warehouse shelves as well. That happened with one publisher, Amazon shut them down for a week or two before they realized that they can’t live without Amazon in book form,” says McQuivey. “And Amazon realized you know what? This is not so bad a deal. Because if they raise the price, we get to blame it on them, and we’re guaranteed 30 percent on every sale. We’ll take it, and Amazon took the deal.”

So then you have the publisher charging more, Apple and Amazon charging more, and everyone making more money. Everyone, that is, except for people who buy books, who are now spending more money. But does the Department of Justice have a case have a case for collusion here? In short, are you, Joe or Jane E-Book Buyer, getting ripped off?

If all the publishers got together and agreed to work together to raise the price of e-books, that’s collusion and that’s illegal.

But Joshua Gans, an economist at the University of Toronto says anything short of that smoking gun is a gray area. “If they individually signed a contract with Apple not to discount anywhere in order to get their content on the Apple bookstore, that’s a murkier area,” he says. “If you had a market where this practice had been going on for 20 years, and you’d seen that innovation was hardly occurring at all and prices were staying high, you’d look at these practices and frown upon them as they did in the credit industry, but for a newer market like this, it’s really hard to say.”

Also on today’s program, a new version of the classic arcade game Asteroids has a slight change to the old version: you shoot the asteroids by moving your eyes around. It’s called EyeAsteroids 3D. Oh yeah, it’s also in 3-D. 

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