The “$9.99 Problem”

The New York Times is reporting that the U.S. Department of Justice will take Apple and two major publishers to court in an antitrust suit. Three other publishers initially named in the suit have agreed to settle out of court.

At issue is the “agency model” Apple negotiated for selling ebooks from major publishers. Before Apple’s new approach, ebooks were being sold according to the “wholesale model” publishers and brick-and-mortar bookstores have used for ages: publishers sold their books to bookstores for a set amount (half their retail cost, for instance), and bookstores resold them to customers for whatever price they wanted. The wholesale model allowed Amazon to sell ebooks to customers for $9.99, even though Amazon sometimes took a loss at that price. The agency model, in contrast, allows publishers to sell their books through online retailers, such as Apple, for whatever price the publisher wants. The retailer makes its money through a percentage commission on each sale.

Because the advent of the agency model brought an across-the-board increase in ebook prices, the Department of Justice is accusing Apple and the five publishing houses of price-fixing.

I have mixed feelings about this case. I’m all in favor of there being multiple ebook retailers, and Amazon really had a corner on the ebook market before the agency model took effect. Now Amazon’s share of the market has dropped from 90% to 60%, according to the Times. On the other hand, ebooks cost way too much, given the greatly reduced costs involved in producing and distributing them. There’s no reason we should have to pay $12.99 or $14.99 for an ebook. The price pressure Amazon was exerting would, over time, have forced publishers to become leaner, meaner companies capable of making money at a much lower ebook price point. Even $9.99 is way too much, if you ask me.