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EU antitrust regulators investigate Apple, e-book publishers

December 6, 2011 |  3:54 pm

Kindles

European Union antitrust regulators are investigating Apple Inc. and the e-book business model it uses to sell digital titles from five of the largest international book publishers.

Officials from the European Commission said Tuesday they were looking into the fairness of e-book sales agreements made by French publisher Hachette Livre, News Corp.-owned Harper Collins, CBS' Simon & Schuster, Britain-based Pearson Group's Penguin and the German-owned Macmillan.

In 2010 these companies switched en masse to a new pricing system for e-books, called the "agency model," in which publishers wrested away from retailers the ability to set prices. Before the agency model, e-book sellers such as Amazon.com Inc. sold e-books at any price they liked, much like bricks-and-mortar bookstores. (Once bookstores have purchased books from wholesalers, they can discount or mark up the prices at will.)

In the same way, before the agency model Amazon -- then the only major player in e-books sales -- was free to set its own prices. The company used that freedom to price its Kindle books at $9.99, a price so low that the company was generally thought to be losing money on most Kindle book sales -- in the name of attracting a large group of Kindle book buyers who would be drawn to the low and consistent pricing.

But publishers did not want Amazon's cut-rate e-book sales to give the Seattle company total control of the e-book market, especially by getting customers used to buying e-books for less than the industry believed they were worth. So, at around the time when Apple's iPad debuted, the five publishers agreed to a model in which they alone could decide book prices, and booksellers such as Apple and Amazon would receive a fixed commission on each sale.

Not long after, e-book prices began to rise. At Amazon, many bestselling Kindle e-books are now priced above $9.99. For instance, only five of Amazon's 20 "best" Kindle books of the year are below $10.

That price increase may in part be what antitrust regulators are looking into. In March, EU officials raided a number of publishers, reportedly seizing contracts and executives' smartphones and computers.

"The Commission will in particular investigate whether these publishing groups and Apple have engaged in illegal agreements or practices that would have the object or the effect of restricting competition," the group's statement on Tuesday said.

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-- David Sarno

Photo: Boxes of Kindle e-readers sit ready for dispatch in a distribution center in Ridgmont, Britain.  Credit: Chris Ratcliffe / Bloomberg

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