Yesterday, the US Department of Justice sued Apple and six publishers, alleging that they had conspired to fix prices. It all centres around the switch from a wholesale model of selling e-books from the publishers to retailers (such as Amazon) to using the agency model of selling books that Apple and the publishers agreed to adopt in early 2010. Some of the publishers have already settled with the DOJ, but other publishers and Apple have vowed to fight the allegations.
But what is the agency model and how does it work? I’ve done my best to explain the two systems and some of the details surrounding the model that was adopted by Apple and the publishers that are in hot contention. I’ve also summarised the DOJ’s allegations as well as their timeline of events that the DOJ goes into great detail in their court filing. Finally, if you find yourself fascinated by the topic, at the end of the post is a further reading section to get more details and some opinions on the issue.
Jump the break to view the full article and video explaining the wholesale and agency models.
Research published yesterday by IHS iSuppli reveals that the US book publishing industry has reached a “major inflection point” in which there will be a long-term decline in revenue, as e-book sales fail to reach the levels required to compensate the fall in physical book sales.
Over the period of 2010-2014, the book publishing industry will face a compound annual growth rate (CAGR) decline of 3% for both e-books and paper books. This reflects a fall in revenue from $25 billion between 2005 and 2010 to $22.7 billion between 2010 and 2014. Driving the decline is a 5% fall in the CAGR of physical book revenue, which far outweighs the 40% CAGR in e-books. This is mostly due to the fact that the selling prices of e-books are on average 40% lower than those of paper copies.
Dedicated e-readers, however, are forecast to triple in sales from 2010’s 9.7 million sales to over 30 million units in 2014. Previous figures did forecast over 40 million sales, but IHS iSuppli believes devices such as the iPad and other tablets will limit the market for such dedicated e-reading devices. IHS iSuppli also reveals in its analysis that since the introduction of the iPad, e-reader manufacturers have been forced to shrink margins from 35% to far lower levels.
[Via IHS iSuppli]
Market research firm Book Marketing Ltd has revealed to GigaOM that in the UK both the iPad and iPhone are beating the Kindle as an eBook reader most used by consumers based on data from last September. The story however is very different in the US however with the Kindle far ahead after stellar growth throughout 2010 as the graph below the break demonstrates.
Apple seems to be tightening its control over the App Store ecosystem after telling some developers including Sony that the selling of e-books within their app must go through Apple. The move is somewhat contradictory of recent movements by Apple to open up the App Store and gestures of collaboration with publishers.
Steve Haber, president of Sony’s digital reading division told the New York Times that Apple rejected Sony’s e-book reader iPhone application on the basis that the app would have let users buy e-books bought from the Sony Reader Store, bypassing Apple and that any purchases made from within an app must go through Apple from now on. Mr. Haber said; “We always wanted to bring the content to as many devices as possible, not one device to one store.”.
[Updated and points clarified in light of responses to the NYT article]