Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have been fighting for years over e-book pricing. Amazon is infamous for taking a loss on e-books at the $9.99 price point and below in order to claim market share. In the past the strategy has been extremely successful with Amazon at one point having 90 percent of the market. Apple, and most notably Steve Jobs, strongly disapproved of this strategy, asserting that it hurt publishers, authors, and ultimately the industry.
To fight Amazon’s e-book dominance, five major publishers — Hachette Book Group, Simon & Schuster (NYSE:CBS), HarperCollins (NASDAQ:NWS), Penguin Group USA, and Macmillan — and Apple entered contracts with each other which effectively let the publisher set the retail price of new e-books between $12.99 and $14.99. Turns out the Justice Department wasn’t having any of this.
Judge Denise Cote, the federal district judge who oversaw the case in Manhattan, said the Justice Department saw a “straightforward, horizontal price-fixing conspiracy,” and she supported this position. Hachette, Simon & Schuster, and HarperCollins decided to settle, and will have to end their contracts with Apple within a week. Penguin (NYSE:PSO), Macmillan, and Apple refused to settle, and will face trial next summer.
What this means is that Amazon will have control over its e-book pricing again, and will likely reiterate its previous strategy. Idea Logical Company CEO Mike Shatzkin said, “I think that everybody competing with Amazon in the e-book market had better fasten their seat belts.” With the September 6 announcement of Amazon’s new Kindle Paperwhite and Kindle Fire, this could spell great things for the company.
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