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Senator says Apple e-book suit could destroy publishing industry

By Mikey Campbell
Wednesday, July 18, 2012, 06:08 pm PT (09:08 pm ET)

In a Wall Street Journal editorial on Wednesday Senator Charles Schumer (D-NY) warned the U.S. Department of Justice that its suit against Apple and two major publishers could "wipe out the publishing industry as we know it" by allowing Amazon to regain a monopoly share of the market.

Sen. Schumer asserts in his opinion piece, titled "Memo to DOJ: Drop the Apple E-Books Suit: Restoring Amazon's monopoly in digital publishing is not in the public interest," that Apple's stake in the e-book industry is vital not only for competitive consumer pricing but for young writers hoping to showcase their work.

"The e-books marketplace provides a perfect example of the challenges traditional industries face in adapting to the Internet economy," Sen. Schumer writes. "Amazon took an early lead in e-book sales, capturing 90% of the retail market. Because of its large product catalog, Amazon could afford to sell e-books below cost."

He goes on to say that publishers were faced with a Hobson's choice between going with Amazon's sales scheme or ignoring the march toward digital content.

"They could allow their books to be sold at the prices Amazon set, thus undercutting their own current hardcopy sales and the future pricing expectations for digital books—or stay out of the e-books market entirely," Sen. Schumer said of major publishing houses. "In an increasingly digital age, the latter was simply not an option."

The senator is referring to the so-called "wholesale model" Amazon adopted when the company first entered the e-book market. Power lies in the hands of resellers in this model as they buy content from publishers wholesale only to price the e-books at or below cost to drum up sales.

On the other end of spectrum is Apple's "agency model" which places the power with publishers that set content prices under a "most favored nations" clause. The DOJ has taken umbrage with the agency model and claims it may infringe on antitrust laws, thus the body took Apple and its publishing partners to court. For its part the iPad maker denies the allegations, saying it broke up a perceived Amazon monopoly.

Sen. Charles Schumer

Senator Charles Schumer speaking in Washington, D.C. | Source: Sen. Schumer's official webpage


Also noted in the WSJ article was the DOJ's apparent focus on new-release book prices which have gone up since Apple's iBookstore was launched. Sen. Schumer writes that the justice body "misses the forest for the trees" and has ignored the overall downward trend of average e-book prices. He qualified the bold statement by saying that while consumers have a short-term interest in new releases, they have "a more pressing long-term interest in the survival of the publishing industry."

Finally the senator voiced concern that the mere filing of the price-fixing suit has empowered monopolists and hurt innovators, positing that it will have a "deterrent effect" to companies in the broader U.S. economy that are trying to adapt to the oncoming digital age.

The DOJ's trial against Apple, Macmillan and Penguin Group is scheduled to begin in 2013.
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