The $69 million deal to settle charges that publishers conspired to fix prices of electronic books could mean that digital volumes sold by Amazon.com and other online retailers will become much less costly for consumers.
The settlement sets the stage for retailers, rather than publishers, to determine prices for many e-books, and for the cost to consumers to drop as much as 30 percent.
Although higher unit prices help drive profits for publishers, online retailers like Amazon have historically sold e-books at below cost in efforts to gain market share and drive the adoption of e-reading devices like the Kindle.
It was Amazon's discount pricing that prompted a group of the largest US book publishers and Apple Inc. to change their pricing model in 2010. The ensuing rise in e-book prices caught the attention of the Department of Justice and attorneys general across the country, who filed a number of lawsuits that alleged publishers colluded to fix prices.
Continuing legal actions and the settlement reached Wednesday between three major publishers and 54 attorneys general could free Amazon and other online retailers to again lower the prices of e-books.
"The price reductions are already happening," said Michael Norris, a senior analyst in the Trade Books Group at Simba Information, a market research firm in Stamford, Conn. "Amazon is already starting to lower the prices of e-books."
Other e-book retailers like Barnes&Noble.com and Kobo Inc. will face pressure to lower prices "to keep up with Amazon," he said. "It could turn into a race to the bottom."
Retailers had sold e-books through a wholesale distribution model in which they set the retail prices. Amazon.com took advantage of that model to sell e-books at bargain prices — frequently $9.99 — to gain a bigger share of the young market and to promote its new line of Kindle e-book readers.
In early 2010, however, as Apple was preparing to launch its iPad tablet computer and its own iBookstore, it negotiated with five of the six largest book publishers — Penguin, Macmillan, Hachette Book Group, Simon & Schuster, and HarperCollins — to make their e-books available using the so-called agency model, in which the publishers set the prices for e-books, usually $12.99 to $14.99.
Amazon did not respond to requests for comment, but the giant online retailer issued a statement in April saying it planned to reduce e-book pricess after the Department of Justice revealed its settlement with Hachette Book Group, Simon & Schuster Inc., and HarperCollins Publishers LLC — the same three publishers that settled Wednesday with the attorneys general. Macmillan Publishers and Penguin Group declined to settle with federal authorities and along with Apple are still being sued by the government.
Neither of the two settlements has yet been approved by the courts, but the settlement with the state attorneys general requires the publishers to distribute refunds to e-book purchasers, as account credits or checks.
The payouts to e-book buyers will be small, ranging from 25 cents for each non-bestseller sold more than a year after its publication date to $1.32 from every book on The New York Times bestseller list between April 1, 2010 and May 21, 2012.
And it will take some time before those refunds are issued, as legal actions against some publishers continue.
"Consumers aren't going to see any payouts right now," said Laura Hazard Owen, who covers e-book publishing for paidContent, an online publication that covers the digital media. "There's still a lot of waiting ahead."
The Department of Justice filed its price-fixing suit against Apple and five publishers in US District Court in New York in April. The same day, three of the publishers — HarperCollins, Simon & Schuster, and Hachette — elected to settle with the department.
A month later, Massachusetts Attorney General Martha Coakley joined 33 other attorneys general in a similar complaint, charging Penguin, Macmillan, and Apple with collusion to raise e-book prices.
Hachette, HarperCollins, and Simon & Schuster were not named in the complaint because talks toward the settlement reached Wednesday were already underway.
The three publishers have agreed to refunds totaling about $69 million — including more than $2 million that will go to Massachusetts customers, Coakley said in a statement Wednesday.
The payout applies to readers who bought e-books from Macmillan and Penguin, even though those two publishers are not settling.
The settlement "paves the way for restitution for consumers harmed by the scheme and restores competition in the e-book market by promoting competition among retailers," she said.
Still unsettled, however, are the suits by the state attorneys general and the Department of Justice against Penquin, Macmillan, and Apple Inc.
Of the five publishers involved in the lawsuits, only one responded to a request for a comment. A spokesperson for HarperCollins wrote in an e-mail that the company "did not violate antitrust laws but made a business decision to settle to avoid the expense and distraction of litigation."
Whenever these cases are resolved, the actions will have been worthwhile, said Edgar Dworsky, the founder of ConsumerWorld.org, a consumer resource guide.
"When retailers or manufacturers conspire to set prices, consumers lose," he said. "So this is a good result."