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Apple, publishers in DOJ crosshairs over e-book prices

The Department of Justice is reportedly readying a suit against Apple and top publishing houses for price-fixing in the e-book market. This could mean cheaper prices for some ebooks along with a greater range of prices — some lower, some higher.

The Wall Street Journal cited unnamed sources Thursday who said settlement talks already have been taking place among some of the publishers involved. A possible solution could involve letting some sellers offer discounted prices, although industry analysts say a victor in the e-book war will win on technology, not price. 

"If retailers have more flexibility in pricing, yes there could be cases where prices could drop," Peter Wahlstrom, senior analyst at Morningstar, said via email. "However, the publishers still need to turn a profit, so that may drive prices of other e-books higher," he said. 

The five publishers reportedly involved are Simon & Schuster Inc., Hachette Book Group, Penguin Group (USA); Macmillan and HarperCollins Publishers Inc. (which is owned by News Corp., the Journal's parent company). All were reportedly worried by Amazon.com's practice of selling popular e-books as a loss leader to boost Kindle sales. They feared consumers would get used to and subsequently demand those low prices, which led to talks about how to avoid that, the Journal reported. 

As the Journal tells it, in discussions prior to the launch of the first iPad, Steve Jobs proposed a solution. Publishers would change their pricing method to what's been dubbed an "agency model." They'd set prices and Apple would take 30 percent off the top. So far, so good: But then Apple went a step further — and presumably over the line in the DOJ's view — in stipulating that other sellers couldn't undercut the price if they wanted to sell those titles.

The publishers involved have denied colluding, according to the Journal, and Barnes & Noble CEO William Lynch argued in favor of agency pricing in a DOJ deposition.

This focus on price misses the point, one analyst said. "Pricing is a huge issue, but what this really shows is that because the distribution channel controls the relationship with the consumer, they have all the power in this game," said Matthew Cavnar, vice president of business development at Vook, an ebook publishing platform.

 The holy grail for e-book heavyweights is a system that would be so user-friendly that customers wouldn't mind paying an extra buck or two for their reading material. "Having broader distribution and a deeper connection with consumers could give the larger retailers a long-term edge," Wahlstrom said.

Cavnar said tools like one-click purchasing straight from the device will ultimately be what makes readers loyal customers, not price. "When you lower the friction like that, changing the price by a dollar or two makes less of a difference."