Almost everyone in publishing or tech has heard by now about the lawsuits brought on by the Department of Justice against some of the largest publishers and technology companies in the World. Well if you are not familiar with the whole story,Digital Trends did a great job of telling the story from the very beginning. Check out an excerpt below.
Chapter 1: The deal
In January of 2010, prior to the launch of the first iPad, Apple CEO Steve Jobs made deals with the five aforementioned publishers to sell their e-books through the upcoming iBookstore. As part of the deal, the Apple agreed to buy the e-books under an “agency” pricing model, as a opposed to a “wholesale” pricing model — a key element of the case, and a publishing industry practice the Justice Department says it had been looking at since the summer of 2009.
The wholesale model, which allows individual bookstores to sell books at whatever price they like, is what publishers most often used for physical book sales, and is the model through which Amazon purchased its e-books. (Much more on this later.) The agency model, by contrast, allows publishers to set the cost of the books they sell to booksellers. So, if Simon & Schuster says that it wants a certain book to retail for $19.99, bookstores must sell it at that price.
It must be noted that using the agency model does not mean more money for publishers or authors — it actually means less, at least on a per-book scale. The real value of the agency model over the wholesale model is that it gives publishers — not Amazon — the power to control the market.
The deal Apple and the publishers agreed to meant that the publishers would set the price of new e-books, not just for Apple, but for all book retailers. This benefitted both sides: Publishers could keep their products from be sold a cut-throat prices, and Apple had a guarantee that it wouldn’t be undercut by the likes of Amazon, the thousand-headed leviathan of the book industry. In February of 2010, Macmillan kicked off the new deal by hard-balling Amazon into marking up the price of e-books from a standard rate of $9.99 to between $12.99 and $14.99, on average. If Amazon didn’t like the forced markup, it would have to wait several months to be able to sell new Macmillan e-book and hardcover titles, at which point it could sell the e-books at whatever price it liked. Not surprisingly, Amazon hated the deal, but admitted that it must comply. CLICK HERE to read the rest of the story.