Almost since the moment Amazon announced its Kindle ebook reader, a price war has been raging. It's been bloody complicated and has something to do with the limited number of book publishers, more to do with how they manage their ebook versus physical book businesses, and a lot to do with how new technologies get rolled out and what market lock-in effects mean.
The fight has largely gone on behind the scenes - the most obvious consumer-visible part of it has been the fluctuating prices for ebooks. Now it threatens to burst into full public view, with a class-action lawsuit filed in CA this week alleging that ebook publishers colluded (illegally) with Apple to fix the prices of ebooks.
The simple view of things - as presented in the suit - is that Amazon was working to force e-book prices down and the publishers decided they didn't want to play ball. In fact it's a complex situation revolving around who gets to set the prices for ebooks and whether or not a publisher will be locked in to a model or technology.
Initially, the retailer (Amazon) set the prices we would pay for ebooks as they do with physical books. Publishers charge the retailer a price but the retailer had the freedom to charge more or less than that price. In order to encourage adoption of its Kindle and to boost the nascent ebook industry, Amazon priced the ebooks low - often well below hardcover and even paperback prices. This frightened the publishers, who reasoned that Amazon would not forever take losses on ebooks; instead, they feared, once Kindle lock-in had happened, Amazon would insist on lower prices from the publishers. The publishers fought back with what is called "agency" pricing, meaning they and not the retailer would set the prices we pay. Under this model either Amazon plays ball and sells the ebooks for what the publishers want or the publishers deny Amazon access to the titles.
Although losing access to an individual title may not seem like a big deal it can be significant and relevant for adoption by customers. If customers can't find the titles they want on one ebook reader they're more likely to go with another and once you've bought your books on a particular reader you're locked in. In addition authors often have multi-book contracts with and stay with a publishing house for some years. If you want to read the latest Big Name Author book it's likely you're going to be reading something published by the same house that published her previous work. It's a complex Mexican stand-off with customers, publishers, and ebook maker/sellers all having some power to hold other parties to account.
The fight over the agency model started over a year ago with Macmillan going up against Amazon, which retaliated by discouraging people from buying new copies of Macmillan titles, and the Author's Guild and SFFWA weighing in on the publisher's side. This time it's not just one publisher, but the five big names (HarperCollins, Hachette Book Group, Macmillan, Penguin and Simon & Schuster) in publishing.
But wait, it's more complicated than that. Technically the argument isn't over the agency model itself - the model is used in lots of other places - the argument is over whether the model led to illegal collusion. The publishers are allowed to act to set prices, but they're not allowed to agree ahead of time what those prices are to be, nor to act in concert with outsiders, which is why Apple is named in the suit as well. As PaidContent.org notes, the switch by the big 5 publishers to agency models happened virtually simultaneously, happened in conjunction with the launch of the iPad, and came along with an agreement by the five to allow Apple to use the publishers' various trademarks in iPad promotion. Walks like a duck, smells like a duck...
The agency model has certainly had the effect the publisher desired - ebook retail prices have gone up some 30% in the past year. Given the introduction of new popular readers (Nook and iPad most obviously) it seems like prices ought to be going down. However, publishers do not want to be in a position where they can be dictated to, authors want more money for ebooks, and customers... well, we get the short end of the stick. Again.