AppleInsider Staff
Citing two sources familiar with the matter, Reuters reported on Friday that Apple and the DoJ are closing in on a settlement deal that could take place within the next few weeks.
Apple is suspected of colluding with five major publishers to illegally inflate the price of e-books offered through its iBooks store, a matter that is already under investigation by the European Commission.
The sources say that, while negotiations are still active, Apple may concede its so-called "most favored nation" clause which blocked publishers from selling their wares through other online outlets like Amazon. The iPhone maker faced similar scrutiny over its business model in early 2011 when the DoJ and FTC looked into the App Store's terms and conditions for subscriptions.
In 2011, a class action suit was brought against Apple over e-book price fixing, and the Cupertino, Calif., company asked for a dismissal earlier in March saying that the claims were unfounded.
iBooks pricing is based on the "agency model" currently being investigated by the DoJ. | Source: Apple
One of the unnamed sources said that the alleged upcoming deal could force Apple to use a "wholesale model," and thus place pricing control power in the hands of retailers instead of publishers. Under this system, taken from the sales model used in physical distribution, publishers sell books to a retailer that then sets a price accordingly.
"It would be a positive for Amazon because the company's greatest strength is as a high-volume, low-price retailer and the wholesale model plays into that," said analyst Jim Friedland from Cowen & Co.
Amazon used the wholesale model when it first began selling e-books, allowing the company to offer publications at prices below cost to allure customers. This ended when Apple entered the market and inked the "most favored nation" agreements with five of the six largest publishers in the world.
The publishers in question, Simon & Schuster, Hachette, Penguin, Macmillan and HarperCollins entered into an "agency model" that allowed them to set e-book prices while giving Apple its traditional 30 percent share of sales.
If Apple were to settle, the company would not see much change to its bottom line e-book sales make up only a fraction of its total revenue, which was over $108 billion in 2011.
According to Cowen & Co. estimates, Amazon still leads the e-book market with a 65 percent share and is trailed by Barnes & Noble and Apple, which have a 20 percent and 10 percent share, respectively.
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Charles Martin
Malcolm Owen
William Gallagher
Christine McKee
Wesley Hilliard
33 Comments
"It would be a positive for Amazon because the company's greatest strength is as a high-volume, low-price retailer and the wholesale model plays into that," said analyst Jim Friedland from Cowen & Co.
Really? This plays right into Apple's power of the iBookstore and the roughly 200+ million users.
Apple thusly becomes the Reseller and Amazon wishing this reality will discover Apple can discount and drive their margins into the ground, if they choose to do so, and still protect Publishers.
Really? This plays right into Apple's power of the iBookstore and the roughly 200+ million users.
Apple thusly becomes the Reseller and Amazon wishing this reality will discover Apple can discount and drive their margins into the ground, if they choose to do so, and still protect Publishers.
Actually Amazon was the one who wanted to lower the price anytime but the deal btw the Publishers and Apple made it not doable.
Because AMZN sells each book for a loss, other ebook retailers must do the same. Since other ebook retailers can't, this model is very uncompetitive and a win for just AMZN. How does this make sense to the DOJ?
Meanwhile, the physical book stores will shut down because they can't sell books for that cheap. As more competition falls, AMZN will be only one left standing.
The sources say that, while negotiations are still active, Apple may concede its so-called "most favored nation" clause which blocked publishers from selling their wares through other online outlets like Amazon.
This is the first I'm hearing of this. It was Amazon that was going to block all books, physical and digital, from their store if they offered any books to iBookstore. Apple's contingency is that they must match prices on other bookstores.
Really? This plays right into Apple's power of the iBookstore and the roughly 200+ million users.
Apple thusly becomes the Reseller and Amazon wishing this reality will discover Apple can discount and drive their margins into the ground, if they choose to do so, and still protect Publishers.
Now that iBookstore is established they anti-competitve wholesale model will benefit Apple and Amazon while leaving smaller retailers out of the loop.
Because AMZN sells each book for a loss, other ebook retailers must do the same. Since other ebook retailers can't, this model is very uncompetitive and a win for just AMZN. How does this make sense to the DOJ?
Meanwhile, the physical book stores will shut down because they can't sell books for that cheap. As more competition falls, AMZN will be only one left standing.
I don't get it either. Apple tried to make it fair for the publishers and customers while breaking Amazon's anti-competitve monopoly of the eBook market. I think they successfully did that, but if the DoJ says that that wholesale model needs to be used then it will be Apple and Amazon that push everyone else out. So Apple wins regardless but the customer and publishers lose again.
I don't get it either. Apple tried to make it fair for the publishers and customers while breaking Amazon's anti-competitve monopoly of the eBook market.
As a iPad owner, and a amazon customer. I'm not seeing how Apples/publisher prices were fair. I've seen hardcovers listed cheaper then ebook. 18 dollars for an ebook is to much. They don't have the same expenses as shipping and storing, and printing a physical book.
I'm not saying sell at a loss, but an ebook should never cost more then its hardcover counterpart.