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The Real Winners And Losers In Justice Department’s E-Book Lawsuit

By Bernice Napach

At first glance the government's lawsuit against Apple and five publishers looks like a winner for Amazon (AMZN) and a loser for Apple (AAPL). Three of the five publishers charged --Hachette Book Group, Simon & Schuster and Harper Collins -- have already settled and are required to end their current e-book contracts with Apple. That presumably means less e-book business for Apple at least until it renegotiates contracts, and less competition for Amazon, which sells e-books primarily for its Kindle reader. After the announcement, Amazon announced plans to lower prices on major e-books.

But Josh Barro, economics blogger at Forbes.com, says the winners and losers in this case are not so "clear-cut." Apple has good reasons to fight the lawsuit," says Barro in an interview with The Daily Ticker. "The case against Apple is much weaker than the case against the publishers." And, Barro adds, "Amazon can't dominate the e-book market forever."

The stock market also isn't so sure about who the winners and losers are in this battle. Apple shares are only slightly lower today -- far less than Barnes & Noble (BKS), which publishes e-books on its Nook reader and whose stock has been in freefall for months. Amazon shares are up but only in line with the broader market.

The U.S. Justice Department argued that the five publishers, which also include Macmillan and Penquin, met privately, agreeing to raise the price of many best selling e-books that would be read on Apple's new iPad. Prices ranged from $12.99 to $14.99 -- well above Amazon's popular $9.99 on best-selling e-books. The suit contends that the publishers set those prices after Apple negotiated to offer the books on its bookstore -- but only if the publishers agreed to the higher prices for Amazon and others. The publishers then renegotiated their arrangements with Amazon, which abandoned the lower prices.

Attorney General Eric Holder said the publishers' arrangements with Apple cost consumers "millions of dollars more for some of the most popular (e-book) titles." An Amazon spokesman said the suit is a "big win for Kindle owners" and the company "looks forward to being allowed to lower prices on more Kindle books."

Is this a big victory for consumers? Josh Barro says the lawsuit may not have a big impact on consumers. He says the maturation of the e-book market, not the Justice lawsuit, is going to make e-book prices cheaper.

How much Amazon will cut e-book prices remains to be seen. The company may not want to squeeze margins on those sales. It's also unclear whether Apple will choose to leave the e-book market or just limit its offerings. What is more certain, says Barro, is that writers and content producers will suffer from smaller returns.