Apple accused of rigging e-book prices

Is computer giant Apple and the publishing community guilty of price fixing on ebooks?

The US Department of Justice alleges the massively successful computer giant plus several blue-chip publishers - including HarperCollins and Simon & Schuster - rigged prices on e-book titles. Not good news for consumers. Or is it?

Control clout

At the heart of the story is a so-called publishing 'agency pricing model'. In essence it's alleged several large publishers agreed with Apple a set pricing threshold - as long as 30% of all revenues were given back to the retailer.

This action, it's alleged, was spurred by Amazon's discounting. Many publishers were fearful of Amazon's buying clout and the effect on prices for the publishing industry. By joining Apple, several publishers could stave off competition from Amazon. The timing here was also aligned to Apple's launch of its massively successful iPad in 2010.

By doing so, the companies involved opened themselves to the accusation of price-fixing: that other e-retailers cannot sell the same product as Apple at a cheaper price.

Core business

Publisher Penguin faces, potentially, litigation on the issue. Quoted in today's Telegraph, Penguin gives its side of the argument: "We understood that the shift to agency would be very costly to Penguin and its shareholders in the short-term, but we reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well."

Apple shares haven't been affected by the news so far. They hit $644 on Tuesday - a 28% rise compared to its February $500 price; currently Apple shares trade at $626. Even if there are more unflattering revelations that could stick to Apple (or its publishing partners), ebooks remain a side-show for the computer company. They're not part of its core business.

Who gains?

The US Department of Justice allegations means though that the e-publishing industry is likely to be more careful on future pricing measures. Amazon, overall, could come out stronger as a result.

But whether that is good news or not depends on whether you think a bolstered Amazon is good for consumers, the publishing industry - and your local independent book shop. Plenty of strands.
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