Book Publishers Caught Conspiring in "Upscale Manhattan Restaurants"

| Wed Apr. 11, 2012 11:15 AM EDT

I've been following the whole e-book pricing controversy for a while, but without a huge amount of interest. Nickel version: in the market for actual, physical books, publishers have long sold their titles at a wholesale price to booksellers, who then resold them for whatever price they wanted. Until recently, things worked the same way in the e-book market, with Amazon taking a loss on many titles because they were promoting a uniform $9.99 price in order to encourage adoption of their Kindle e-reader. Publishers didn't like this much and recently switched to an "agency" model, in which they set the price and simply pay the bookseller a cut.

The question is whether the publishers colluded in this action, and today's lawsuit from the Justice Department sure suggests that they did:

The lawsuit said that for at least one year beginning “no later than September 2008,” the chief executives of the publishing companies met once every several months, “in private dining rooms of upscale Manhattan restaurants” to “discuss confidential business and competitive matters, including Amazon’s e-book retailing practices.”

....“These private meetings,” the suit alleges, “provided the publisher defendants’ C.E.O.’s the opportunity to discuss how they collectively could solve ‘the $9.99 problem.’ ”....In early 2010, Steve Jobs, then Apple’s chief executive, suggested to book publishers that they sell e-books using agency pricing; Apple would serve as the online agent and take a 30 percent commission.

The five publishers made agreements with Apple for selling e-books, and Apple, which was about to introduce its iPad to the market, insisted on what is known as a “most favored nation’’ clause, which prohibited publishers from allowing other retailers to sell e-books for less than Apple’s price.

I wonder who ratted them out? One of their own? In any case, I'll be curious to see how this turns out. The collusion may have been illegal, but it's not clear to me that there's really anything anticompetitive per se about the agency model. Likewise, the "most favored nation" clause is standard practice for large customers in virtually every industry, so that doesn't seem especially problematic. The New York Times piece above makes the same point, suggesting that "investigators were zeroing in on the way agency pricing was adopted, not on the pricing model itself." Presumably this means that although any settlement might be bad news for the publishers, who may have to pay fines and agree to some kind of future conduct arrangement, it probably won't affect the price we all pay for books.