Updated 4/12/12: After weeks of buildup, the Department of Justice sued Apple and five book publishers today and accused them of conspiring to set e-book prices. This is a big story and publishers, consumers and retailers may see the ramifications of today’s lawsuit for months or even years to come. Here’s what you need to know now.What is agency pricing, anyway?
Agency pricing is at the heart of the lawsuits but the legality of the model itself does not appear to be in question. Agency pricing allows book publishers to set the prices of their e-books, while the retailer (the “agent”) takes a commission. Under the agency model, the publisher is the only party that can discount e-books, and an e-book’s price must be the same across all retailers (i.e., an e-book can’t go on sale at just one retailer). The agency model is different from the wholesale model, in which publishers set a book’s suggested retail price and retailers can discount the books to any price they want.In early 2010, Apple negotiated with the big-six publishers — Penguin, Macmillan, Hachette, Simon & Schuster, HarperCollins and Random House — to make their e-books available on its then-forthcoming tablet, the iPad, through the then-forthcoming iBookstore. All of those publishers except Random House adopted the agency model at around the time of those negotiations.
Amazon turned off Macmillan’s “buy” button in protest over Macmillan’s switch to the agency model, but the retailer eventually capitulated and restored Macmillan’s books.
About a year later, Random House became the last big-six publisher to adopt the agency pricing model.
Background reading: “Price-fixing makes comeback after Supreme Court ruling” by Joseph Pereira (WSJ, 8/18/08) | “Big six negotiate with Apple, ready new business model for e-books” by Michael Cader (1/19/10) | “Most dramatic publishing event of 2010? Introducing agency pricing!” by Mike Shatzkin (11/30/10)
Full post at Paid Content.
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