Apple Holds Firm as Macmillan Settles With Justice Over E-Books

Did the publishing industry ever have these sorts of problems when books were strictly paper-based?

The U.S. Department of Justice has settled with book publisher Macmillan in an ongoing case over the price of e-books, but still plans on taking Apple to court in June 2013.

“As a result of today’s settlement, Macmillan has agreed to immediately allow retailers to lower the prices consumers pay for Macmillan’s e-books,” Jamillia Ferris, Chief of Staff and Counsel at the Department of Justice’s Antitrust Division, wrote in a Feb. 8 statement.  “Just as consumers are already paying lower prices for the e-book versions of many of Hachette’s, HarperCollins’ and Simon & Schuster’s new releases and best sellers, we expect the prices of many of Macmillan’s e-books will also decline.”

The way the Justice Department summarizes the situation, five publishers (HarperCollins Publishers LLC, Simon & Schuster, Hachette Book Group, Penguin Group, and Macmillan) and Apple agreed to “raise retail e-book prices and eliminate price competition, substantially increasing prices paid by consumers.” Apple competes fiercely in the digital-media space against Amazon, which often discounts the prices of Kindle e-books as a competitive gambit; although all five publishers earn significant revenues from sales of Kindle e-books, Amazon’s massive popularity among book-buyers—coupled with the slow decline of bricks-and-mortar bookstores—gives it significant leverage when it comes to lowering those e-book prices as it sees fit.

The Justice Department’s Antitrust Division had previously settled those claims with the other four publishers. In a separate letter addressed to authors and agents, Macmillan CEO John Sargent claimed his company settled with the Justice Department “because the potential penalties became too high to risk even the possibility of an unfavorable outcome.”

The settlement, he added, “called for a level of e-book discounting we believed would be harmful to the industry.” As the other publishers settled with federal regulators, though, his company’s position became more untenable; it became clear that “Macmillan’s stand-alone selling at full agency price would have no impact on the overall marketplace.”

Under the terms of the agreement, Macmillan pledges to lift any restrictions imposed on discounting buy e-book retailers; it’s also restricted from entering agreements with similar restrictions until December 2014. For the next five years, the publisher is also barred from entering into any most favored nation (MFN) provision that could somehow weaken the terms of the Justice settlement.

According to certain analysts, e-books (delivered via the cloud to a variety of devices) are growing as readers’ preferred means of absorbing the written word. The number of Americans reading e-books has increased from 16 percent to 23 percent over the past year, according to recent data from the Pew Internet & American Life Project. That comes even as readership of printed books declined from 72 percent to 67 percent.

According to the Pew study, roughly a quarter of Americans above the age of 16 own a tablet, up from 10 percent in late 2011. Another 19 percent own an e-book reader such as Amazon’s Kindle or Barnes & Noble’s Nook, a rise from 10 percent last year. Those most likely to read e-books are between 30 and 49 years old, living in households that earn more than $75,000 annually.

However, a December research note from IHS iSuppli suggested the e-book reader market was in serious decline. “The rapid growth—followed by the immediate collapse—of the e-book market is virtually unheard of, even in the notoriously short life cycle of products inhabiting the volatile consumer electronics space,” read that firm’s note. “Unknown to consumers before 2006, e-book reader shipments skyrocketed for the next few years after first thrilling readers with a portable device they could take anywhere.”

Whether e-books are in decline or not, they still represent a sizable revenue stream for any company—and Apple, apparently still determined to face down the government in court, is unwilling to let Amazon dominate the space.

 

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