Today news broke that the Justice Department warned Apple and a number of big publishers of its intent to file suit against them. The DOJ alleges that Apple and the publishers conspired to increase the price of ebooks. Publishers affected apparently include the following:
The five publishers facing possible Justice Department action are Simon & Schuster Inc, a unit of CBS Corp (CBS.N); Lagardere SCA's (LAGA.PA) Hachette Book Group; Pearson Plc's (PSON.L) Penguin Group (USA); Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH; and HarperCollins Publishers Inc, a unit of News Corp (NWSA.O). -- Reuters
If DOJ wants confirmation, it might check with consumers, particularly those who owned Kindles and bought them based upon Amazon's promise to try to keep ebook prices below $9.99. Yes, Virginia the roosters coming home to roost this time arise from the publisher's battle with Amazon over ebook pricing that resulted in publishers and Apple concocting the "agency model" of pricing. What is the agency model? It's where the publisher decides what its price will be and the retailer is not allowed to change it.
Think of the agency model like this (and this is only an example, based on nothing more than the odd imagination of a certain duck lady) - imagine that Wrangler is really peeved at Wal Mart for selling its blue jeans for $19.99. Wrangler has decided it wants it's blue jeans to have an upscale image and a price tag to match. Wrangler decides that Wal Mart can only sell its jeans if they are priced at the numbers on the tags shipped with the jeans and they start at $49.95 a pair. If Wal Mart doesn't like it, then they can't sell Wrangler jeans.
Well, that wouldn't work if just Wrangler did it, now, would it? Wal Mart would say to Wrangler - screw you and the horse you rode in on. Where will you sell your jeans with those terms, Wal Mart would ask. The store that Sam Walton built might reply that it would just sell Levis instead. But what if 5 or 6 big companies control all the well known jean brands? And what if all of them say the same thing to the big chain store? And when the chain store asks, in a much softer voice, well, where will you sell your product, then - who will ever accept those terms? And the merchants answer - Target. We've all reached a deal with Target on exactly those terms and Target will keep a set percentage for profit based on the price we set. Well, Target would be making a chunk of change too, wouldn't it? And Wal Mart would lose all the customers who wanted to buy big name jeans. AND, worst of all, the customers would pay a lot more for the product.
Now, understand that the big publishers are the blue jean companies and Apple is Target. That's agency pricing and in the long run, the victims are the consumers.
Federal Antitrust legislation exists to prevent monopolies that destroy competition and damage consumers. The most famous example of DOJ's heavy hand with Antitrust action was the break up of the old Ma Bell network of AT&T. Since that time - look at what's happened to telephone service. Consumers have options at every price point and every service level. And as much as I dislike the Feds regulating most things, Antitrust legislation has an important and valuable purpose.
So, DOJ may very well be right on target in breaking up this scheme because prices consumers pay should be set by the merchants from whom consumers buy. The merchants pay a wholesale price and sometimes they'll sell some items below wholesale in order to promote some other items. That's what Amazon was doing with ebooks to sell its Kindle devices - and again, that's what publishers were trying to prevent.
Yes, if agency pricing goes then the whole system will have to adjust. Indies like me would be hurt because we are little tiny pebbles caught between giant boulders. Amazon says to indies, you can only sell on our platform if you price you ebooks at your cheapest price. Oh, and if your price is lower anywhere else - we'll match the low price and base your royalty payment on that figure. Presently, the agency pricing system gave indies got a benefit of sales platforms mostly selling indie work at the price the indies set. So indies don't get caught in a price reduction whirlwind at Amazon, often the biggest sales source.
Even though readjusting the system to get it back to a wholesale/retail marketplace would hurt indies, like me, for a while, I expect that pricing would work itself out after a period of some turbulence. And even if it didn't, and I took a hit along with other indies, well, that's okay. We'd have to adapt because ultimately, the agency pricing results in readers paying high prices across the board when in a wholesale/retail market, competition would keep prices lower. READERS SHOULD NEVER BE HURT BY AND OVERCHARGED BECAUSE OF A "SECRET" SYSTEM THAT'S KEEPING PRICES ARTIFICIALLY INFLATED.
It's not something I say often but in this case, I've gotta make an exception - YOU GO, DOJ. Ma Book should go the way of Ma Bell.