The first major change in eBook pricing to come about since the launch of the iPad is at hand. The U.S. Department of Justice has already negotiated settlements with three of the six major publishing houses implicated in a DOJ price fixing investigation only shortly after the filing of the lawsuit. Kindle owners can expect to see an almost immediate drop in many eBook prices, once the court has had a chance to approve the settlement terms. Amazon has already declared this a big win for consumers and announced plans to drop prices on affected titles.
For those who have not been keeping track, the early days of the Kindle brought significantly lower eBook prices than we are now used to. This was the result of Amazon being able to buy their stock wholesale and price things as low as they wanted from there. Publishers were rather unhappy with this arrangement since it meant that customers might well become used to seeing affordable prices on their reading material and cause paper copies of books to lose perceived value.
When Steve Jobs approached the Big 6 publishers with the idea of moving to the Agency Model, wherein publishers would set prices and retailers get a fixed percentage for each unit sold, they jumped on it. As soon as the iBooks store opened, Kindle Edition prices began to rise. There was some drama when Amazon attempted to hold out in protest and pull titles from their store, but without those publishers it is hard to operate a major bookstore.
Since then, prices have remained high and those involved in the Agency Model arrangement have come under investigation in both the US and EU. The biggest being raised by the DOJ, aside from alleged secret meetings and clandestine correspondence between heads of supposedly competing publishers in the days leading up to implementing the Agency Model, is the Most Favored Nation Clause. Apple managed to get this introduced in their agreement with every publisher.
Typically, a MFN is put in place to prevent favoritism from allowing a wholesaler to sell more cheaply to another retailer at a lower price. In this case, since publishers were setting the price, the DOJ is arguing that it was meant to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.”
The result of all this has been artificially inflated eBook prices meant to turn customers away from things like the Kindle. That last point is more fact than opinion, as any look at publisher comments regarding the “troublesome” convenience of eBook borrowing at libraries that has gone along with Penguin dropping out of the library system altogether.
So far we know of settlements with HarperCollins, Hachette, and Simon & Schuster. These will prevent use of the Agency Model for a number of years and create various other consumer protections. Apple, Macmillan, and Penguin are all still denying wrongdoing at the moment, but it remains to be seen how well they can hold out. Even if all three remaining defendents get off somehow, Kindle pricing will be completely altered for the indefinite future. The Agency Model could only be forced on Amazon through solidarity across every major player in the publishing industry. With that gone thanks to these settlements, things can’t help but improve.