DOJ Lawsuit Could Wipe Out The Digital E-Book Industry Says Congress.

by Jacqui Cheng-Jul 18, 2012 11:40 pm UTC

The US Department of Justice's lawsuit against Apple and a handful of e-book publishers "could wipe out the publishing industry as we know it," according to Senator Charles Schumer (D-NY). In an editorial published in the Wall Street Journal on Wednesday, Schumer argued that the lawsuit could make it more difficult for new authors to get published if Apple is forced to adopt Amazon's wholesale model for e-books, and that by moving forward with the suit, the DoJ is "[missing] the forest for the trees."

"If publishers, authors and consumers are at the mercy of a single retailer that controls 90% of the market and can set rock-bottom prices, we will all suffer," Schumer wrote in reference to Amazon, which completely dominated the e-book market until Apple introduced the iPad and its iBookstore in early 2010. "Choice is critical in any market, but that is particularly true in cultural markets like books. The prospect that a single firm would control access to books should give any reader pause."

The DoJ set its target on Apple, Hachette, Harper Collins, Macmillan, Penguin, Pearson, and Simon & Schuster in April of 2012 for allegedly colluding to fix e-book prices. At the time of the iPad's introduction of 2010, Apple also rolled out iBooks (and the iBookstore), a competitor to Amazon and its Kindle market. But unlike Amazon, Apple decided to allow publishers to use the so-called "agency model," which allowed them to set their own prices for e-books. Amazon's wholesale model allowed the company to sell e-books at prices below cost, a strategy that irked publishers because they felt Amazon was undercutting their prices and devaluing their products in the marketplace. Throughout 2010, publishers pushed Amazon to switch to the agency model as well, and eventually, it did.

When people refer to the "agency model," it's usually in reference to the sale of electronic content online—in particular, e-books.The "old" way to sell e-books was to use what is known as the wholesale model. Under the wholesale model, book publishers sell a certain number of books to a reseller (such as Amazon or Barnes & Noble) for a set price, then the reseller sets its own price on each book.

But such a change seemed to come at a detriment to e-book customers; the prices for many new releases ended up going up from Amazon's standard $9.99 to anywhere from $11 to $20 (and sometimes higher), which is part of the argument used by the DoJ against Apple. The DoJ--as well as a number of states--argues that Apple worked with the named publishers specifically to raise prices. But Apple defended itself after the suit went public by saying that the DoJ "sides with monopoly, rather than competition," and patted itself on the back for breaking Amazon's "monopolistic grip on the publishing industry."

If The US Department of Justice’s lawsuit is allowed pass Apple may be forced to adopt Amazon’s “wholesale” e-book model.

See full article on arstechnica.com

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