Apple and four publishers are reportedly trying to come up with an agreement that would make both Amazon and European regulators happy, as a way to settle an e-book price-fixing investigation. According to a source speaking to Reuters, Apple and the publishers are proposing a plan under which other e-book retailers—namely, Amazon—could sell e-books at a discount, rather than at the price set by publishers. The European Commission has not yet accepted the offer, according to Reuters, but is informally "market testing the commitments" to see whether such a solution would be workable.
In December 2011, the Commission began investigating Apple for allegedly colluding with publishers to fix the prices of e-books—some four months ahead of the US Department of Justice's lawsuit over the same accusations. The EU and US are now working together on the issue, though that doesn't necessarily mean the resolutions will be the same. Apple, along with two of the publishers, has so far stood firm against the DoJ in the US, even arguing that a settlement reached by the other publishers in the case is illegal.
But in the case of the EU, it looks as if Apple and four publishers want to make a compromise. Under the existing agreement, publishers are allowed to set their own prices in the iBookstore, from which they give Apple a 30 percent cut (this is known as the "agency model")—an arrangement that the publishers subsequently forced upon Amazon. But Amazon wants to continue buying e-books wholesale and marking them down to $9.99, a price that many publishers feel undervalues their work in the long term. Reuters' source claims that Apple and the four publishers are now willing to let retailers like Amazon sell books under the wholesale model for two years, presumably to soften the blow after having to switch so abruptly to a different sales model.
Agency model
When people refer to the "agency model," it's usually in reference to the sale of electronic content online—in particular, e-books. The "old" way to sell e-books was to use what is known as the wholesale model. Under the wholesale model, book publishers sell a certain number of books to a reseller (such as Amazon or Barnes & Noble) for a set price, then the reseller sets its own price on each book.
Read more…The publishers reportedly involved in the deal are Simon & Schuster, HarperCollins, Hachette, and Macmillan (owned by Verlagsgruppe Georg von Holtzbrinck in Germany). Penguin Group, which has stood firm with Apple in fighting the DoJ in the US, was not mentioned as being involved in the agreement despite being part of the EU investigation. None of the companies has yet commented publicly on the report.
In a separate US antitrust suit brought by 49 states, Simon & Schuster, Hatchette, and HarperCollins have already agreed to pay a collective $69 million back to customers who bought e-books from them between April 1, 2010 and May 21, 2012. The three companies have also agreed to terminate their agency agreements with various retailers for two years, which will undoubtedly result in lower e-book prices as retailers like Amazon begin setting prices again without input from publishers.
Given Amazon's statement following the DoJ suit in the US—"[W]e look forward to being allowed to lower prices on more Kindle books"—the online retailer has certainly not given up on its dream to sell subsidized content as a way of moving hardware and keeping people in the Amazon ecosystem, regardless of opposition from the publishers. Between the US and EU investigations, Amazon may well get its way—for a few years, at least.
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