WIth looming DOJ investigation, Apple may have to abandon “agency model” pricing on e-books

Wed, Apr 4, 2012


In late 2011, the US DOJ took a cursory look into the “agency model” of e-book pricing Apple instituted with its iBookstore. Under the agency model, Apple let publishers set their own price for books, albeit with the concession that they couldn’t sell said books at a cheaper pricepoint in other online venues. So the DOJ got a little anti-trust fever and decided to investigate under the assumption that Apple and five named e-book publishers were all colluding to raise prices.

Which, of course, is a bit preposterous because as Apple has stated quite publicly, it’s in Apple’s best interest that the price of e-books be low. Apple wants to sell as many e-books as possible and to get as many iOS users on the iBookstore as possible. Outrageously expensive books don’t help in that regard.

But the DOJ didn’t get the memo, apparently, and now Reuters is reporting that Apple may have to discard the agency model altogether.

While negotiations are still fluid, the settlement is expected to eliminate Apple’s so-called “most favored nation” status, which had prevented the publishers from selling lower-priced e-books through rival retailers such as Amazon or Barnes & Noble  the people said.

The deal could also force a shift, at least temporarily, in pricing control from publishers to retailers, one of the people said.

Such a move to a “wholesale model” would not only benefit consumers but also Amazon, which had been the leading bargain e-book retailer with its Kindle reader.

“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 Jim Friedland, an analyst at Cowen & Co.

I guess this debate ultimately boils down to who you want to look out for. Consumers or the content creators, in this case publishers. Personally, the agency model seems a-ok to me. Why not have publishers set their own price and let the good ole’ supply and demand curve of Econ 101 do the rest? Of course, the clause that prevents these publishers from undercutting iBookstore prices elsewhere is admittedly a cause for concern.



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