Apple, Amazon Face E-Reader Probe

Two of the leading e-reader makers are facing an investigation over alleged anticompetitive practices with regard to e-book pricing, according Connecticut Attorney General Richard Blumenthal, who has sent letters to the companies’ lead attorneys.

Blumenthal plans on investigating whether Apple’s and Amazon’s deals with publishers unfairly block smaller competitors from offering e-books at lower prices.

Amazon’s Kindle e-reader and the Apple iPad are competing fiercely for the biggest possible piece of the burgeoning e-book market.

Blocking Cheaper Prices?

“These agreements appear to deter certain publishers from offering discounts to Amazon and Apple’s competitors – because they must offer the same to Amazon and Apple,” reads an 2 August note posted on the Connecticut Attorney General’s website. “This restriction blocks cheaper and competitive prices for consumers.”

In letters dated 29 July sent to Bruce Sewell and L. Michelle Wilson, the respective general counsels for Apple and Amazon, Blumenthal outlines how both companies follow an “agency model” for pricing e-books, as advocated by the country’s five largest book publishers. That model, coupled with Apple’s and Amazon’s apparent demand of a “most favoured nation (MFN)” clause – which would prevent competitors from selling publishers’ e-books for a lesser price – has the potential “to impair horizontal competition by encouraging coordinated pricing and discouraging discounting,” in Blumenthal’s words.

Furthermore, Blumenthal claims that Apple’s and Amazon’s aggressive manoeuvring is already having an effect, with identical pricing for certain best-selling e-books offered by Amazon, Apple, Barnes & Noble and Borders: “I am concerned that Apple and Amazon’s decision to use the agency pricing model, coupled with the MFN, has already resulted in achieving or maintaining uniform prices for e-books, to the ultimate detriment of the consumer.”

Blumenthal, who wants a meeting with counsel from both Amazon and Apple to “allay my concerns,” is currently running for US Senate as a Democrat. He has a Facebook page, but no word on whether he owns an e-reader or an iPad.

When contacted by eWEEK on 3 August, an Apple spokesperson said the company had no comment on the matter. Amazon did not respond to eWEEK’s request for comment.

Kindle versus iPad

Amazon announced its third-generation Kindle reader 28 July, in a bid to leapfrog both the iPad as well as e-readers such as Barnes & Noble’s Nook, both of which have begun to squeeze a market that Amazon once dominated, at least with regard to mind-share. The newest Kindle features a 6-inch e-ink screen with 50 percent better contrast, a lighter and smaller body, and an advertised battery life of up to one month.

In addition to heavily marketing e-books through its online storefront, Amazon has also been touting the Kindle’s abilities as a personal-document device, with added support for password-protected PDFs, Wikipedia access and dictionary lookup. The Kindle retails for $189 (£118), and the Kindle Wi-Fi for $139 (£87).

Both were originally scheduled to ship 27 August, but demand has apparently forced that back to 4 September.

While the Kindle proved a bestseller during the 2009 holiday shopping season, its sales numbers may have already been eclipsed by the iPad, which went on sale in April.

“Last night, Apple stated it has shipped 3.27 [million] iPads since the April product launch, surpassing our estimate for an installed base of [around 3 million] Amazon Kindles to date despite supply constraints,” Marianne Wolk, an analyst with Susquehanna Financial Group, wrote in a co-authored 21 July analyst report. “As [Apple’s] supply constraints ease, Apple iPad shipments should ramp and it could ship as many as 12 to 15 [million] iPads in 2010 – a compelling base for publishers to consider.”