Are you paying too much for an ebook? On January 14th the law firm Hagen Berman filed a lawsuit accusing Amazon of striking a deal with 5 major publishing houses: HarperCollinsPublishers, Simon and Shuster, Penguin Random House, Hachette Book Group, and Macmillan. The alleged deal goes as follows. The publishing houses pay Amazon high commissions and other costs while Amazon raises the price of ebooks on their site. This may seem like a lawful deal between the houses and Amazon, but there is more. The publishers then charge the same price to all other book sellers they do business with. The WSJ quoted Gregory Arenson, an antitrust lawyer and partner at Kaplan Fox & Kilsheimer LLP, as saying, “If you are Barnes & Noble [a book seller that works with one of the publishers] and your stores are in trouble and your Nook device didn’t go as far as you’d have liked, you would have liked to be able to say that your digital books are 10% cheaper than on Amazon.” He’s saying that the other book sellers can make a higher profit if they can charge less for their ebooks. With the deal they are forced to charge the same price, causing the sellers to lose the profit they could have made if they could charge less than Amazon.
If that didn’t make enough sense here is a way to better see it.
Amazon: Amazon gets paid by publishers and then raises prices on Ebooks, so publishers get more money. Amazon also gets more business than other ebook sellers, earning more money.
Publishers: The Publishers pay Amazon to charge a higher price. Publishers force other book sellers to charge the same price as Amazon. Publishers get more money because more people go to Amazon and pay the high price.
Other Book Sellers: The book sellers lose business because they are forced to charge the same amount as Amazon and can’t get the same business they would have if they could charge a lower price.
Hopefully this shows the unfairness of the deal. Here’s some quick facts about Amazon e-books. The lawsuit says that Amazon sells over half of the books sold at retail in the US and around 90% of those books are digital. Okay so they are the leader in this market but other sellers can still make some money off of it, right? Wrong. With the deal in place Amazon can sell a massive amount of ebooks for the same price as everyone else and have the price go up, and up, and up, all while still having the same amount of business. Another crazy thing is that the publishers account for approximately 80% of the books sold in the US. The top publishers are working with the biggest seller to fix the price of the e-books you read.
The lawsuit itself is based on antitrust laws. Investopedia says “Antitrust laws are statutes developed by governments to protect consumers from predatory business practices and ensure fair competition.” Antitrust laws apply to price fixing which is what Amazon and the publishers were allegedly doing. In the case of the deal the lawsuit is claiming that multiple antitrust laws were violated and demanding that the matter go to a jury trial and that the jury decide whether Amazon violated these laws. So next time you buy an ebook, take a look to see what you’re paying.