The $9.99 e-book might be making a comeback, but this isn’t necessarily the final chapter.
Antitrust legal rulings aren’t exactly page-turners like Fifty Shades of Grey or No Easy Day, but one recent decision could have a big impact on what people pay for digital versions of bestsellers like these and other e-books. For owners of Amazon’s Kindle line of e-readers, which the company unveiled new versions of Thursday, the upshot could be lower prices in the near future.
“In the short term under almost any scenario the price to consumers will drop,” said Jay Levine, a partner at the law firm of Bradley Arant Boult Cummings. "In the long term, that’s not necessarily true," he added, echoing publishing industry analysts' claim that an Amazon-led monopoly eventually could drive up prices.
In a ruling that vindicated the Department of Justice and undoubtedly pleased Amazon.com but left many in the publishing industry grumbling, a U.S. District Court judge approved a settlement between the DOJ and publishers Hachette Book Group, Simon & Schuster and HarperCollins Publishers on charges that they colluded with other publishers and Apple to fix prices on e-books to undercut Amazon’s ability to sell popular e-books at $9.99. Apple along with publishers Penguin Group and MacMillan declined to settle and are trying their luck at a trial scheduled for next summer.
Levine said Apple is likely to appeal the judge’s decision and ask either the district court or the appellate court for a stay that would keep the status quo of higher prices in place. Apple was already denied an earlier request for a stay, he said, adding, “It’s unlikely the second circuit appeals court will grant it but you never know.”
If the judge’s decision stands, the settling publishers wouldn’t be the only ones to drop prices, Levine said. “I think that would put some pricing pressure on publishers operating on the agency model,” which could deliver lower e-book prices across the board.
Amazon has set a precedent for loss leaders, including its Amazon Prime shipping service and at least some of its Kindle models. “Because Amazon has a very large commercial platform and they make money on users and merchants in very different ways, they can afford to lose money on something if it will help the overall platform,” said Ken Sena, an analyst at Evercore Partners.
"We want to make money when people use our devices, not when they buy our devices," Amazon CEO Jeff Bezos told the audience at the Kindle announcement in California Thursday.
The three publishers, which denied wrongdoing, agreed to scrap their contracts with Apple and renegotiate contracts with e-book retailers that include limits on retailers’ pricing autonomy or include clauses that other retailers can’t sell a certain e-book for less. These rules stay in place for two years and five years, respectively.
The defendants essentially had argued that Amazon was using this aggressive pricing in pursuit of a monopoly in the e-book market. They said creating an “agency model” for contracts, in which the publisher gets to set prices by establishing booksellers as sales agents rather than direct sellers, was the only way to thwart Amazon’s market-share grab. The decision is a blow for e-book retailers that aren't Amazon. “It makes it harder for pure plays to compete,” Sena said. Amazon earns money many different ways; Barnes & Noble and independent booksellers, on the other hand, depend on selling books and e-books to survive.
That's no excuse, according to the court. Judge Denise Cote wrote in her decision, “Even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing.”
“DOJ describes as ‘speculative’ the fear that Amazon might use its monopoly power to raise prices in the future,” she wrote.
Publishing analysts argue that a monopoly is inevitable if Amazon is allowed to recapture the 90 percent of the e-book market share it had before publishers implemented the agency model.
“If one company is the only road between the consumer and the content, that’s worse news than if they had to pay an extra couple of dollars” for a bestseller, said Michael Norris, senior analyst of the trade books group at Simba Information. Ultimately, if Amazon is the dominant provider of e-books, prices are bound to creep back up, he warned.
“How long do they think e-books are going to stay 'cheap'?" he said. "How long is a company like Amazon going to subsidize the cost of content?"
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