Amazon Put the Heat On Apple’s Digital Book Deals

According to sources within the European Commission, Amazon strongly encouraged the setting up of the investigation which opened on December 6 into allegations of an illegal agreement between Apple and five major publishers. European authorities are looking into whether Apple and the publishers involved made a concerted effort to maintain artificially inflated prices for digital books. As a result of their negotiations, the publishers hoped to protect the distribution of paper books sold at similar prices to digital books. In return, they have agreed not to sell their books at cheaper prices than those available at Apple’s iBookstore.

Suspicions

A source close to the case has informed OWNI that Amazon representatives had pointed European commissioners towards the unusual behavior of some publishers, whose prices are in line with those charged across the Atlantic. The proceedings initiated by the European Commission will seek to determine whether an agreement was reached between Apple and Hachette (part of the French Lagardère group), Harper Collins (USA), Simon and Schuster (USA), Penguin (UK) and Verlagsgruppe Georg von Holzbrinck (Germany). In the United States, a class action suit has collected a high number of depositions relating similar occurrences.

The suspicion of the Directorate General for Competition were first aroused by the cautiousness of French publishers with regards to the digital market. Any agreement with Apple serves to protect their system of distribution and their catalogs of paper publications. European officials had also been alerted by publishers lobbying to “get legal protection against technological change and disintermediation by fixing the required selling price for the digital book, aligned without any underlying justification related to the selling prices of paper copies,” OWNI has been told by someone familiar with the case.

The Directorate General for Competition will pour over the terms of agency contracts that the publishers signed at the time of the opening of the Apple iBookstore in February 2010. European regulations surrounding this subject are not the same as those in the United States. Certain clauses which leave it to publishers to set prices for their eBooks are incompatible with European competition law. This clause represents the beginning of Apple’s charm offensives towards publishers. As it was prohibited to sell their books cheaper elsewhere, upon the arrival of Amazon to the European digital book market, the publishers were able to force Amazon to sell their books at the same rate as those on the Apple iBookstore.

Two models

For Apple, the priority remains selling its own reading device, the iPad. With a presence on the iBookstore seen as indispensable, Apple can simply dredge product from every publisher and distributor.

Conversely, Amazon sells its Kindle tablet at almost cost price and expects to make its profit in Europe from its books. That potential profit would be under threat from any agreement which Apple may have made with French, American and English publishers to fix a price which would hamper the development of digital books. Shortly after the launch of Kindle in France and the opening of Amazon’s digital bookshop, if the bookseller can not attract potential customers with unbeatable prices, they can no longer do nothing about Apple’s strategy.

By establishing its conditions with publishers, Apple is practicing its usual strategy of forcing its competitors out of business and then recovering their market share. A direct competitor like Amazon is no exception: the publishers are more concerned with looking after the profit margins – and therefore raising prices for eBooks – which have been promised by Apple as a result of the fall in the price of their books and the increase in digital sales. All of which would appear to be coming at the expense of readers, and heralding the emergence of readers and tablets which are becoming cheaper and more widely available.