By Philip Elmer-DeWitt
March 12, 2012

A closer look at the deal Steve Jobs offered the publishers suggests a way out

When regulators — first at the European Commission, then last week at the U.S. Department of Justine — alerted Apple (AAPL) and five major book publishers that they faced antitrust suits for alleged collusion to raise e-book prices, some of the sharpest negotiators in business started looking for a way to settle.

But how to do it?

Going back to the way things were — when Amazon (AMZN) was putting bookstores out of business by buying e-books as a “wholesaler” and selling them below cost — didn’t seem tenable.

And dismantling the so-called “agency model” that Apple introduced — where publishers set whatever price they wanted and Apple took 30% — was equally unattractive.

In his version events — as told to his biographer, Walter Isaacson — Steve Jobs made it sound like it was the publishers who stepped over the line into collusion:

“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.

“They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books.’ “

But in Saturday’s Washington Post, columnist Steven Pearlstein tells a different story. The problem, according to Pearlstein, stems from two provisions in the contract Apple got the publishers to sign.

  • One that prohibits the publishers from entering into “wholesale” arrangements with Amazon or any other major distributor,
  • A second that guarantees that no other distributor will be allowed to sell books for less than Apple.

Settlement talks now underway, Pearlstein says, are focused on those two provisions. If they can be written out of Apple’s contract, and the publishers can agree to pay some reasonable fines, perhaps a deal could be struck.

For the record, the five publishers are

  • Hachette Livre, owned by Lagardère Publishing
  • Harper Collins, owned by News Corp

  • Simon & Schuster, owned by CBS

  • Penguin, owned by Pearson Group

  • Macmillan, owed by Verlagsgruppe Georg von Holzbrinck

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