The United States Department of Justice (DOJ) filed an antitrust lawsuit against Apple and five of the “big six” publishers (Hachette, Simon & Schuster, Harper Collins, Pearson, Penguin, and Macmillan). The DOJ suit asserts that the publishers— with Apple’s collaboration—colluded to raise ebook prices and force Amazon to adopt the “agency model” in which publishers set their own prices and Apple takes a 30 percent cut from each sale via Apple’s iBooks ebook store.
Three of the publishers—Hachette, Simon & Schuster, and Harper Collins— settled. Macmillan and Penguin opted to fight the suit. Random House, the sixth of the “big six” publishers did not enter into an agreement with Apple to abide by the “agency model” in 2010 with the debut of the iBook store and iPad, did begin selling ebooks via the iBook store in 2011, after the release of the iPad 2, but is not named in the suit, but with the merger between Penguin/Pearson and Random House, Random House agreed to abide by Penguin’s decision to settle.
There are, in addition, at least 17 states whose attorney generals have sued Apple and the five publishers, as well as an on-going consumer class action suit. Apple is still scheduled for a June 2013 trial. I suspect that too will change. With the merger of Penguin/Pearson and Random, reducing the Big Six to the Bigger 5, Macmillan CEO John Sargent has reluctantly agreed to settle with the DOJ.
I think Sargent did the right thing for his employees and authors, but I applaud his ethics and courage. Amazon is the winner, readers, writers, and publishing professionals? Not so much.
For those interested in the underlying issues, including the production and control of ebooks and ebook pricing I’ve created Amazon, The DOJ, Publishers, and Readers: A Timeline.
Here are some of the background articles you should read.
The DOJ’s “Competitive Impact Statement”
For AMZN, the big six insistence on DRM on ebooks was a windfall: it made the huge investment in the Kindle platform worthwhile, and by 2010 Amazon had come close to an 85% market share in the ebook sector (which was growing at a dizzying compound rate of 100-200% per annum, albeit from a small base). And now we get to 2012, and ebooks are likely to hit 40% of total publishing sales by the end of this year, and are on the way to 60% within five years (per Tim Hely Hutchinson, CEO of Hachette UK). In five years, we’ve gone from <1% to >40%. That’s disruption for you!
It doesn’t matter whether Macmillan wins the price-fixing lawsuit bought by the Department of Justice. The point is, the big six publishers’ Plan B for fighting the emerging Amazon monopsony has failed (insofar as it has been painted as a price-fixing ring, whether or not it was one in fact). This means that they need a Plan C. And the only viable Plan C, for breaking Amazon’s death-grip on the consumers, is to break DRM.