The recent news that the DOJ has brought a lawsuit against major publishers over e-book pricing with tales of secret meetings and greedy publishers has pushed the industry into the headlines. Even Brian Williams covered it.

For people who don’t work in publishing or who can’t quite wrap their head around agency pricing, here’s a quick primer:

—Days of yore: books had a suggested retail price: $12.00; $24.99, etc… “Suggested” = bookstores, acting as retailers, were free to price the book however they wanted. Thus, the corner bookstore might offer 10% off bestsellers, a discount for members etc… They were re-selling a book they had already purchased wholesale from the publisher, so they could price it at whatever level would ensure them sales and profit.

—Enter e-books: Amazon began pricing new e-books as low as $2.99 or $7.99. Their main goal was to sell Kindles, not books, so the price of an e-book was negligible to them. This was a drastic loss of revenue for publishers and authors and allowed Amazon to control 90% of the market. (This isn’t just a case of greedy publishers: many authors heavily depend on sales of their book, especially if their advance is low.)

—An alternative strategy: As the iPad was launched, agency pricing was introduced. This turned anyone who sold e-books from a retailer into an agent: they were selling the book as an agent of the publisher, meaning the publisher set the price and split the sale 70/30 with the agent. The agency model standardized the price of an e-book across the board so that a reader was offered the same price on an e-book no matter where they bought it.

—The benefits of the agency model: some prices rose, and others fell, but it gave consumers more choices.  In addition, the publisher of Smashwords has used hard data to conclude that e-book prices have decreased with agency pricing as competition has increased although some argue that major publishers are still over-pricing their titles. 

—The DOJ lawsuit: Disrupts the current system and forces publishers who have agreed to a settlement to reconceive agency pricing. Yes, this means immediate lower e-book prices for the consumer, but you have to question a decision that is opposed by the American Booksellers Association, the Authors Guild and which allows Amazon to regain the upper hand. Macmillan and Penguin vow to fight the lawsuit and each provide a cogent reason why the lawsuit is bad.

No one involved is against Amazon, or low prices per se (“Yay, $2.99 ebooks!”), the question is whether a system can be maintained that allows for a competitive market but one that doesn’t cannibalize the industry it supports.