This week, the Department of Justice sued Apple and five major publishing houses claiming a conspiracy between the parties to collude on the price of electronic books.  Three of the publishers – Simon & Schuster, Hachette (Grand Central Publishing, Little, Brown & Co), and HarperCollins – simultaneously settled with the Justice Department, while the other two – Penguin and Macmillan (Holt, FSG, St Martin’s Press) – have decided to face the civil charges in court.  According to the details of the settlement that have been released, publishers must end their current agency plan agreements and retailers can now resume discounting ebooks as they did before the introduction of the “agency model” in January 2010. The agency model gave publishers the opportunity to set their own ebook prices as opposed to selling ebooks to retailers at wholesale, after which the retailers set their own discounts.  The Justice Department is claiming that Apple and the five publishers devised the system in order to subvert the dominance of Amazon’s Kindle in the digital market.  Apple insisted on “most favored nations” clauses to make sure that no other retailer received better terms than they received from the publishers. While our analysis of the DOJ’s action is not a legal one, we believe that the agency pricing model fostered a competitive market.  Since the agency model was instituted, Amazon’s near monopoly has dropped from a 90% share to about 60%.  Barnes & Noble's Nook is now a viable competitor to the Kindle, with 25-30% of the market.  And while ebook prices did rise for consumers, they rose to a point where ebooks were financially sustainable for publishers.  Ultimately, it is our contention that a publishing ecosystem with more players is better for readers, authors, and the books we publish.  As Scott Turow asserts: “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition.” How will this directly affect your books? Until the litigation with Penguin and Macmillan is resolved and publishers sign new agreements with Apple and other retailers, we cannot know for sure. We are closely monitoring this situation and will keep you updated as we learn more. The David Black Agency.
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