Back in April, the United States Department of Justice filed a lawsuit against Apple, Inc.(AAPL:NASDAQ). The Department claims that Apple conspired with a number of book publishers to raise and maintain higher prices on e-books. Amazon (AMZN:NASDAQ), which competes with Apple as an online distributor of e-books, had been able to drive the down the price of e-books to as little as $9.99.
According to the Justice Department, a number of publishers including Hachette Book Group, Inc., Simon & Schuster, and the Penguin Group saw Amazon’s success in driving down prices as a threat to their revenue stream and profits. They allegedly enlisted the aid of Apple to help put in a new agency pricing model for books; a pricing model that gave publishers the final say in how much e-books would cost consumers to purchase.
The Justice Department, which probably thinks of itself as being on a little bit of a roll after derailing AT&T’s proposed acquisition of T-Mobile, filed a lawsuit in the United States District Court-Southern District of New York. The Department described the alleged deal between Apple and the publishers as a conspiracy to impede competition. Changing a hundred year old pricing model, the retailer or wholesale model, where retailers set the price for books bought from publishers, and replacing it with an agency model was the event that raised the red flag for the Department.
As the platforms for delivering media become diversified as a result of digitization, did the Justice Department fail to see the possibility that a hundred year old antitrust legal framework is becoming increasingly unworkable as we move further into the 21st century? Take for example the arguments made by Senator Charles Schumer (D-NY).
In an op-ed for The Wall Street Journal, Senator Schumer argued that the Justice Department’s lawsuit could wipe out the publishing industry as we know it while making it harder for younger authors to get published. Apple’s entry into the market meant was that Amazon is now facing competition for the delivery of books via the Internet. “The prospect that a single firm would control access to books should give any reader pause”, said Senator Schumer.
Amazon’s early entry into the online book distribution market and its large book catalog gave the company an advantage, allowing it to price below cost much like a monopolist. “I am concerned that the mere filing of this lawsuit has empowered monopolists and hurt innovators”, Mr. Schumer said.
On the other hand, Time Magazine’s Christopher Matthews points out that two wrongs don’t make a right; that the publisher and Apple had no excuse for breaking antitrust laws. “And the idea that we should ignore antitrust laws that have served this country well for over a century because legacy firms in the industry are convinced that the vibrancy of authorship and readership depends on their continued existence is more than a little tough to swallow”, Mr. Matthews wrote.
Mr. Matthews goes on to say that even if Amazon were acting anticompetitively, the publishers had no legal right to beat up on Amazon and string the company up in a high-tech lynching with Apple holding the rope.
While there are good arguments on both sides, the issue is whether it is a good time to modify antitrust law not only so it and legacy industries can keep up with a digital driven industry and economy, but so that allowances can be made by younger writers or emerging publishers in this area of media. For example, Senator Schumer’s point about younger writers not being locked out of having their content published can be expanded to address minority writers and minority-owned publishing houses.
Apple and the publishers alleged agreement could be viewed as a strategic partnership that gave Apple the opportunity to enter and be entrenched in the online distribution industry while providing publishers the opportunity to recoup investments not only in online properties but in hardcopy printed books as well. Higher prices not only signal that there is an opportunity for profits, but an opportunity for start-ups to recoup their higher costs of market entry. Also, minority firms could benefit from strategic liaisons with firms like Apple. Not only would a minority firm circumvent any bottlenecks that an Amazon monopoly would create, but it would not hurt having the near ubiquitous marketing power of Apple at a publisher’s disposal.
By focusing strictly on the black letter of the law, The Justice department may be missing an opportunity to broaden commercial activity in the publishing industry while making a way for additional access by small and minority-owned firms.