Judge's decision on civil antitrust case will 'diminish competition' in digital book market

A judge's decision in favor of the federal government could start an e-book price war and limit competition, critics say.

The approval of a settlement between the U.S. Department of Justice (DOJ), and Hachette Book Group, HarperCollins Publishers and Simon & Schuster in a civil antitrust case that accused the companies of price-fixing digital books could have a negative impact on Christian retailers, according to industry observers.

In September, Denise Cote, federal district judge in Manhattan, N.Y., approved the settlement shortly after the three major publishers reached a deal for more than $70 million with 54 states and U.S. territories to settle their price-fixing claims. Cote has also granted preliminary approval to the e-book settlement involving states and territories.

Evangelical Christian Publishers Association (ECPA) President and CEO Mark Kuyper told Christian Retailing that Cole's decision could have “a very negative impact” on any retailer that sells e-books.

“While I appreciate all that Amazon.com offers to consumers, I believe the market would be better served by multiple, strong retail partners,” he said. “I believe Judge Cole's decision will, over the next few years, result in diminished competition in the e-book retail sector, contributing to the closing of many more retail outlets.”

“The judge said she believes 'these provisions suggest that they will not unduly dictate the ultimate contours of competition,' but I, and virtually all publishers and retailers I have spoken with, believe that this will prove to be false,” Kuyper added.

In her ruling, Cote called the matter a “straightforward price-fixing case,” of which the settlement had been widely expected to be approved, the New York Times Times reported. The ruling promised to empower Amazon to drop the price of many e-books back to $9.99 or lower in the coming months, a move that could pressure competing retailers to do the same.

The DOJ filed the antitrust suit in April against computer giant Apple and five publishers—Hachette, HarperCollins, Simon & Schuster, Penguin Group (USA) and Holtzbrinck Publishers (Macmillan)—to allow greater competition on e-book prices. Hachette, HarperCollins and Simon & Schuster denied wrongdoing, but agreed to settle with the government. However, Penguin, Holtzbrinck and Apple declined a settlement, so the companies face a trial next summer.

The DOJ said that the defendants sought to raise e-book prices “significantly higher” than the $9.99 level at which they were selling, Bloomberg reported. The publishers viewed Amazon.com’s discounted prices on e-books as a “substantial challenge to their traditional business model,” according to the complaint.

Hachette publishes Christian books under its FaithWords and Jericho Books imprints. HarperCollins is the parent company of Zondervan and Thomas Nelson. Simon & Schuster publishes Christian titles under Howard Books.

The settlement was criticized by Barnes & Noble, the Authors Guild and the American Booksellers Association. When the settlement was first announced, Amazon called it “a big win for Kindle owners,” and said it looked forward to eventually lowering its prices on e-books.

Chuck Wallington, president of Covenant Group and a leader in getting e-books into Christian stores last fall, told Christian Retailing that “all of us are still up in the air about what it [all] means.”

“All I know at present is that one of our top e-book publishers just sent us a termination letter saying the agreement would terminate on Oct. 10, but they would have a new contract to us shortly and not to expect any interruption in the ability to offer their titles,” he said. “So, at this point, we’re just staying tuned to see what happens.”

Baker Publishing Group Executive Vice President of Sales and Marketing David Lewis agreed.

“It remains unclear to us what the apparent demand to remove the 'most-favored nation' clause in e-book contracts for those companies who are settling will mean for publishers not being sued in court,” he said. “Currently, Baker Publishing Group sells e-books under distribution agreements with all accounts except Apple. Therefore, we do not expect a significant change in our e-book sales from this settlement agreement.”

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