News article that was originally published in the Guardian on 4 March, 2011
The European commission has launched morning raids on several publishing houses suspected of fixing the prices of ebooks, as a huge battle for the future of the sector is fought within the publishing and technology industries.
Officials in Brussels have refused to say how many or which publishers were targeted although a spokesman for Hachette, famed for its dictionaries, confirmed that it was among them. The inquiry is understood to be focused on French companies.
In a statement, the commission said that it “has reason to believe that the companies concerned may have violated EU anti-trust rules that prohibit cartels and other restrictive business practices”.
The EU competition spokeswoman, Amelia Torres, said: “We have suspicions of collusion to keep prices high. But if our suspicions prove to be founded, this would have an impact across the EU because ebooks are sold across borders.” She added that the firms involved face fines if the commission finds “hard evidence”.
The development comes on the heels of an investigation in January by the UK’s Office of Fair Trading into whether arrangements between certain publishers and retailers over the sale of ebooks “may breach competition law”.
Investigation teams have asked many of the biggest London publishing houses, including HarperCollins, Hachette and Penguin, for all records and documents relating to ebook sales.
The OFT said the investigation was “at an early stage”, stressing: “It should not be assumed that the parties involved have breached competition law.” It is thought the investigation could last a year.
The focus for the price-fixing investigation is understood to be what is called the agency model, which has been adopted by almost all the biggest publishers for their ebook sales.
This is distinct from the traditional wholesale model, in which retailers buy the books from the publisher and can then do what they wish with them. Under the agency model, the retailer acts as an agent of the publisher, which itself sets the retail price of the ebooks, with the retailer taking a commission.
Publishers see the agency model as crucial because it allows them to trade with Apple, which was already using it for iTunes, and also to control the price at which their ebooks are sold.
Until the agency model was imposed, Amazon had been setting a $9.99 (£6) standard price for new bestsellers in the US and discounting the Kindle editions of some of last autumn’s UK bestsellers by as much as 72%. Amazon, the ebook pioneer that makes the Kindle reading platform, unsurprisingly dislikes the agency model. The OFT said it had received “significant” complaints but did not name the sources.
Ronald Blunden, Hachette’s head of communications, denied that the company engaged in price fixing. “Emphatically no,” he said. “We are dealing with distributors who have considerable clout.
“We found that in the US, electronic retailers began to apply large discounts on ebooks, driving the cost down. Steadily the spread between the price of a printed book and an ebook became so substantial that we felt it was just unacceptable.”
“It’s important for the publisher to control the retail price,” Blunden continued. “We don’t want the items sold below cost, as the perceived value of books becomes damaged. Once this happens, can we expect online retailers to absorb the cost of financing the editing and publishing of books?”
John Makinson, the Penguin group chief executive, argued that the “very important” agency model contributes to a competitive ebooks marketplace. “To have vibrant competitive markets, it’s important that Apple and the other digital vendors have a place in that market. The agency model made it possible to have that choice,” he said.
Makinson added that he saw “a certain irony” in an OFT investigation designed to ensure competition and consumer choice. “That in our view is what the agency agreement has provided,” he said.
Novelist Nick Harkaway, author of The Gone-Away World, agreed. “If the agency model is really a problem under EU law, the law is the problem, not the industry,” he said. “Otherwise you fall back into a situation where Amazon controls the market. This is not to demonise Amazon, but they are a massive portion of the physical market and if their wholesale model also dominates the digital book market, it becomes much harder to negotiate with them.”
Philip Jones, deputy editor of the trade magazine The Bookseller, said control over pricing was the most single important issue facing publishers. “I don’t think they can convince consumers that ebooks themselves are worth the same as print books, therefore they effectively have to strong-arm them,” he said.
“If you allow the market to decide, ebooks will become too cheap and you won’t be able to pay authors, editors, or all the infrastructure that sustains the industry.”