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Indie book publishers call Amazon, not Apple, a 'predator'

Amazon will price everyone else out of the business, indie publishers warn. Then again, lowering prices and grabbing market share worked well for Apple's iTunes -- and aren't consumers better off as a result?

A growing number of independent book publishers say that by tying the hands of Apple and the major publishers, the United States will enable Amazon to mow down competition in a price war.

Book publishers fear Amazon will become the 800-pound gorilla that pounds rival e-book sellers into jelly. Greg Sandoval/CNET

The U.S. Department of Justice filed a lawsuit last week accusing Apple and the country's five major book publishers of colluding to raise prices that consumers pay for electronic books (e-books). Three of the five publishers have already settled, largely by agreeing not to prevent retailers from discounting titles. But the DOJ got it wrong, say the indies. According to them, Amazon, not Apple is a bigger threat to competition.

"I hope this lawsuit fails," said Mark Coker, founder of Smashwords, an e-book publishing and distributing company. Randall White, chief executive of Educational Development Corp. (EDC), told The New York Times: "Amazon is squeezing everyone out of business" and he called the company a "predator." In February, EDC began pulling titles from Amazon's digital shelves.

If the DOJ investigation isn't benefiting indie publishers that's hard luck, but are consumers supposed to care more about them and bookstores than their own pocketbooks? Bookstores are nice places to sip coffee and read, but consumers want bargains and Amazon provides those. Amazon may also want to point critics in the direction of Apple iTunes. Nearly a decade ago, Apple irritated suppliers by lowering prices for every song to 99 cents. The strategy helped Apple grab dominating market share while competition lived on in some form and prices stayed low.

How is Amazon's situation any different?

The DOJ's lawsuit is tied to events of two years ago, when the top five publishers allegedly got together and jointly decided to change the way they distributed books to retailers. Instead of selling on a wholesale model, through which merchants are allowed to buy rights to a book and then set retail prices, the publishers switched to an agency model. With this, the book publishers are the ones who control what consumers pay.

According to Steve Jobs' biography, it was the late Apple CEO who gave them the idea.

After that, prices on the major titles went up and the DOJ began sniffing around. It is now indie publishers who are rushing to Apple's rescue.

Coker stepped up for Apple two weeks ago. He had heard that the Justice Department was preparing to sue and arranged a conference call with DOJ representatives. He offered details about how the agency model had resulted in lower prices on titles from self-published authors and those from some indie publishers. Coker told them that higher-priced books from major publishers were driving readers to lesser-known authors and less-expensive titles and competition in this area was fierce.

"My message to the DOJ was that self-published authors are benefitting from the agency model," Coker said.

A little laundry, a little e-reading. Publishers don't want to lose control of the fast-growing market for e-books Greg Sandoval/CNET

Coker also said that it shouldn't be overlooked that Apple has a good reputation with smaller publishers, a better one at least than Amazon. He says that Apple has a most-favored nation clause in most of its contracts with publishers but the company has never exercised it with Smashwords.

"One of Apple's executives told me he understood that books at their store sometimes would cost more," Coker said. "I never got the feeling from Apple that they ever felt threatened by other retailers. There's a completely different vibe with Amazon. The company is completely preoccupied about other competitors...Amazon is much more concerned about locking up authors into its platform."

Coker said that he believes Amazon is smart and has been good for book publishing. But he said the publishing world is afraid because in the past, when the Kindle e-book reader first came out, and also a decade ago when Amazon dominated online sales of paper books, the company would grab market share and then typically start demanding concessions from publishers.

But again, how's that bad for consumers?

Coker says that if Amazon engages in "predatory pricing," it would be good for consumers in the short term, but over the long haul they would lose too. It's been proven time and again that having numerous competitors in a market is the foundation for healthy competition.

"I told [the DOJ] to blame the publishers for setting prices too high," Coker said, "But don't blame them for the agency model. There's nothing wrong with that. If the DOJ dismantles the agency model then they're bringing a return to the e-book pricing war. In a situation like that only Apple and Amazon can afford to sell books at a loss over a projected time. It would quickly snuff out small, independent retailers."