Price-fixing suit hits as eyes turn to e-books

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By Glenn Chapman / AFP

E-books are the future of publishing, and the legal tangle launched this week shows how high the stakes are in the fledgling but fast-growing industry.

Unlike the music and film industries which struggled to harness the revenue potential as people devoured entertainment on computers or mobile gadgets, book publishers tapped into a flourishing market ignited by Amazon’s Kindle readers.

More than $2 billion will be spent this year on e-books, according to Forrester analyst James McQuivey, and the figure is projected to top $10 billion annually by 2016.

“This is one of the few industries where all of the stars are aligned when it comes to going from analog to digital and (publishers are) actually making money doing it,” McQuivey told AFP after US authorities filed an antitrust suit against Apple and five publishers alleging a conspiracy to raise e-book prices.

“There is a perfect storm,” he said. “This is why Apple, Amazon, Barnes & Noble and everyone jumped in.”

While the music and film industries were vexed by young fans with little cash eager to get free songs or movies online, books have a more mature audience with money to spend.

“Book publishing is the pinnacle of the culture industry; a business in which people greet one another with two kisses on the cheeks even if they are not from Europe,” McQuivey said.

“TV and movies are the most powerful culture business but the one people are most embarrassed of because it is a little tawdry,” he continued.

“But books are the world of Ernest Hemingway … there is language and national culture bound in this industry.”

A Pew study released last week showed that US book lovers are increasingly turning inkless pages.

Slightly more than a fifth of US adults reported having used an e-book during the past year, their ranks swollen by the popularity of Kindles, Nooks, iPads and other gadgets during the year-end holiday gifting season.

The percentage of adults reading digital books jumped from 17 percent in mid-December to 21 percent by February, according to Pew research funded by the Bill & Melinda Gates Foundation.

“Every institution connected to the creation of knowledge and storytelling is experiencing a revolution in the way information is packaged and disseminated,” said Lee Rainie, an author of the study.

“It’s now clear that readers are embracing a new format for books and a significant number are reading more because books can be plucked out of the air.”

E-reader users are far from letting go of ink-and-paper works, with 88 percent of them saying they have read traditional printed books in the past year.

When Seattle-based online retail titan Amazon released the first Kindle in late 2007, book publishers were eager to invigorate their industry with the availability of digital works.

As Kindle e-readers dominated the market, Amazon set a standard for selling new releases for $9.99 in a move that frustrated publishers accustomed to getting higher prices for hardcover books in brick-and-mortar shops.

After the release of the iPad two years ago, Apple courted book publishers with the freedom to set their own prices for digital editions on the coveted gadgets — with the California company taking a cut of revenue.

“Steve Jobs broke the pricing model,” McQuivey said, referring to the late Apple co-founder.

Apple winning over publishers with freedom to set prices was ironic, given that the company used the popularity of iPod MP3 players and the iTunes online shop to impose a 99-cents-per-song standard on music sales, the analyst noted.

“It was all a ploy and it worked well,” McQuivey said of Apple busting into the e-book market. “I think publishers flew right from meeting with Jobs in California to meeting with (Amazon chief) Jeff Bezos in Seattle.”

Amazon caved into the pressure to raise e-book prices, getting guarantees of 30 percent profit and adding notices informing shoppers that the publishers were at fault for making them pay more.

The US Justice Department sued Apple and five publishing firms alleging a conspiracy to raise prices and limit competition for e-books, and immediately announced a settlement in the case with three of the publishers.


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