Apple, Book Publishers Face Anti-trust Suit (AAPL, CBS, NWS, PSO, AMZN, BKS)
The US Department of Justice is prepared to sue Apple Inc. (NASDAQ: AAPL) and five book publishers for colluding to lift prices on electronic books according to a report in The Wall Street Journal. The publishers are Simon & Schuster,…
Apple’s late CEO, Steve Jobs, struck a deal with the publishers in early 2010, that shifted the retail sales model from a “wholesale” model, such as was in force with Amazon.com Inc. (NASDAQ: AMZN) to an “agency” model, under which Apple would receive 30% of the retail price based on a price for the e-book set by the publisher. The deal also included a requirement that none of the publishers sell e-books to any other company at a price lower than the publishers charged Apple.
Amazon had acquired e-books under the wholesale model, and sold them at a steep discount in order to drum up business for its Kindle e-readers. The publishers believed that such discounting would lead to a severe loss of revenue, in much the same way that Apple had chopped the revenue of the music companies.
According to the WSJ, the CEO of Barnes & Noble Inc. (NYSE: BKS) gave a deposition to the US DoJ “ in which he testified that abandoning the agency pricing model would effectively result in a single player gaining even more market share than it has today.”
The DoJ’s position is that the agency model is anti-competitive and results in higher prices for consumers. A settlement of the potential suit is possible, but no such deal is close according to the WSJ’s sources.
Paul Ausick
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Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.