Why is Amazon the Winner in Apple vs. DOJ?
Amazon (NASDAQ:AMZN) may not be directly involved in the government lawsuit filed Wednesday against Apple (NASDAQ:AAPL) and five publishers over the setting of e-book prices, but the Kindle maker is probably set to gain the most from from any settlements or verdicts. The Department of Justice has accused Apple and the publishers of colluding over the price structure, which, the suit says, hurt competition.
However, some experts say the change in the pricing structure brought about after Apple introduced the iPad in 2010 allowed publishers to set their own prices, and that actually cut into the monopoly held by Amazon for years. After Amazon introduced the first Kindle e-reader in 2007, it began setting its own prices for e-books that were often much lower than those of publishers, and eventually resulted in making it the market leader by a wide margin.
Amazon currently has 60 percent of the e-book market share, and experts say it got there because it can afford to take losses on e-book prices sold for its Kindle reader.
Amazon reacted swiftly to the lawsuit by slashing some e-book prices on Wednesday, even bringing down some major titles from $14.99 to $9.99 or less. While this may seem like an early victory for the reader, the lack of competition that such behavior is certain to bring about will eventually start hurting the industry and, in turn, the consumer, industry analysts say.
“I am now more convinced that we need a viable alternative to Amazon or this nonsense will continue and get much worse,” Penguin USA chief executive David Shanks said.
HarperCollins (NASDAQ:NWSA), Hachette, and Simon & Schuster (NYSE:CBS) settled the charges on Wednesday, while Penguin (NYSE:PSO) and Macmillan will fight along with Apple.
Apple and two of the five publishing houses may be defending the charges in court, but another group is looking at the case with a lot of interest: the traditional bookstore industry. If Amazon is allowed to start lowering e-books prices again, sales of physical books are likely to drop off even further. That puts the whole industry, especially small bookstores, under threat of extinction. Part of that industry is Barnes & Noble (NYSE:BKS), which also makes the Nook e-reader but will not get the e-book price advantage of Amazon.
“To stay healthy, this industry needs a lot of retailers that have a stake in the future of the product,” book publishing analyst Michael Norris told The New York Times. “The bookstore up the street from my office is not trying to gain market share. They’re trying to make money by selling one book at a time to one person at a time.”