As you may know, the American Department of Justice (DOJ) has been considering taking legal action against the big 6 of the publishing world for some time for what they consider to be illegal collusion to fix the retail price of ebooks, the so called Agency Model.

The way that paper books are sold to book sellers is based on a system in which publishers set a wholesale price, normally about half the cover price, and then the retailer can decide how much they actually sell the book for.  In the early days of ebooks, this system was also used for ebooks.   But this changed about the time the iPad came along, at which point at the urging of Steve Jobs of Apple, the main publishers and Apple adopted what has become known as the Agency Model

What is the Agency Model?

The Agency Model is one in which the publishers sell the ebook to a retailer and set the retail price of the ebook, and base this on about a 30% mark up for the retailer.  The point at contention is that the publishers insist that the retailer sells the ebook at the price they (the publishers) set.  This is the heart of the legal case against them, as this is price fixing between producers of a commodity, and as such is illegal as it is seen as removing any sort of competition between publishers.

It seems that this whole idea was thought up by Steve Jobs as an attempt to break what was rapidly becoming an almost monopoly selling position for Amazon with ebooks, who had decided to sell ebooks for no more than $9.99 in order to bring customers to their store and to encourage them to buy the Kindle ereader (which basically only works with ebooks formatted in the private Amazon ebook format).   With the introduction of the iPad, Jobs hoped to break the powerful position of Amazon in the ebook market, but was not prepared to sell ebooks at a loss in order to achieve this state.  The whole point of Amazon’s price structure for ebooks was to build up their Kindle sales, and to capture this market at the cost of all other ereader makers, who used the more universal ebook format of e-Pub.  To achieve this, Amazon were perfectly happy to lose money on each ebook they sold.

Marshal Arts Steve:

Steve Jobs referred to the Agency Model as an aikido move against Amazon, amusingly.

Which publishers?

The publishers involved in this are Apple and Hachette, HarperCollins, Macmillan, Simon and Schuster and Penguin. Several of them have reached agreement with the DOJ and will thus will no longer be involved in this case, but Apple, Macmillan and Penguin have decided to fight it out in the courts.

They state that they will fight this action as the terms the DOJ demanded were too onerous to settle and would allow Amazon “to recover the monopoly position it had been building before our switch to the agency model”.

The charge, by the way is “for conspiring to end e-book retailers’ freedom to compete on price” according to a DOJ spokesman, who went on to say “As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles.”

Interesting stuff, and I for one shall follow the case with interest, as it might well effect not only the price we pay for our ebooks, in a positive way I hope, but also the whole issue of how publishers and others deal with the Moloch that Amazon has become.

As you may well have read in posts here on my blog and elsewhere, there is a lot of anxiety in the world of ebooks about how Amazon is thundering along, crushing all opposition and generally behaving like a very large and aggressive playground bully..  It was precisely this behaviour that the Agency Model was set up to stop… Oh, and to give Apple a stronger position in relation to Amazon of course.

Note added a bit later:

I have just read a post on Nate’s ereader blog (The Digital Reader) in which he poses a counter argument to the general trend of thinking.  He contends that Amazon is far from the Bogey Man it is generally painted to be, but is in  fact a pioneer in the “New Publishing”.  I would recommend you to nip over to his blog to read his thoughts, as there are always at least two sides to any battle, and in this case, it is more of a Polygon to be honest.

Share with us:

What are your views on this situation, should they be forced to scrap the Agency Model, and thus release Amazon (and everyone else) from all pricing restraints, or should the Agency Model be allowed to stand as a bulwark against Amazon?