Shannon Stapleton / Reuters

In response to the government suit, Amazon.com, which controls about two-thirds of the market for e-books, plans to bring some major titles down to $9.99 or less, from $14.99.

The government’s announcement that it plans to go after Apple and major book publishers over e-book pricing is a big boost for the nation’s largest bookseller Amazon.com, analysts say, and it’s heaping more pressure on the struggling book publishing industry.

On Wednesday, the Justice Department charged that Apple and a handful of book publishers conspired to push up the price of e-books and limit retail competition. The antitrust lawsuit alleged that Apple and the publishers had a common interest in fighting Amazon.com’s practice of selling e-books for as little as $9.99 and decided to work together in an effort to raise prices.

In response to the government suit, Amazon, which controls about two-thirds of the market for e-books, plans to bring some major titles down to $9.99 or less, from $14.99, according to The New York Times.

Amazon.com’s move, coupled with the federal lawsuit, is likely to have negative repercussions for traditional book publishers, according to Arun Sundararajan, a professor at New York University’s Stern School of Business.

“The traditional business model for publishers is under threat, and I think we will see it reshaped,” he said.

Whereas in the past book publishers held market power by owning the rights to a book and the means of producing it, in the new digital economy the companies that own content delivery systems -- Amazon.com’s Kindle, or Apple’s iPad -- are the holders of market power, he said.

Amazon.com has about two-thirds of the e-book market, compared with about 10 percent for Apple. The Justice Department’s announcement Wednesday has handed more of that power to Amazon.com, Sundararajan said.

“This decision increases the rate at which Amazon.com becomes the dominant channel for e-books,” he said. As the balance of power tilts even more toward the Kindle platform, book publishers will lose bargaining power, he added, and eventually, as it gathers more market power, Amazon.com will be able to raise prices.

If the Kindle consolidates its position as the dominant player in the e-book business, Amazon will be taking a larger share of what consumers pay for e-books, and publishers will have little leverage in dealing with the giant online retailer.

That sounds like bad news for consumers.

Indeed, booksellers and publishers have argued that the Justice Department’s lawsuit will allow Amazon.com to operate as a monopoly.

"We think the DOJ has got it all wrong,” said Oren Teicher, CEO of the American Bookseller Association.

“The agency model created a more competitive book market than we have now,” he said, referring to the e-book pricing arrangement detailed in the government’s antitrust suit, in which Apple established a deal with publishers upon the introduction of its iPad. It allegedly allows publishers to receive 70 percent of the retail price of the book and gave Apple a 30 percent commission.

The Justice Department contends the deal amounted to illegal collusion to raise prices.

“Amazon has a strategy of becoming the Wal-Mart of the web, and they have turned the book business into their loss leader in order to sell people flat-screen televisions and lawn furniture," Teicher said. "They are prepared to lose money on sales of books to sell people other things. But history is clear about this -- if you get one company that becomes a monopoly it’s never going to benefit consumers.”

On Thursday, Apple broke its silence on the Department of Justice’s allegations, calling them “simply not true,” according to The Wall Street Journal.

“The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon's monopolistic grip on the publishing industry,” an Apple spokeswoman told the Journal.

Sundararajan said it’s far too early to say Amazon.com has a monopoly in the e-book market. The web retailer does have a large market share, but e-books only make up 10 to 20 percent of the book market, he noted.

“Gaining market power isn’t a bad thing,” he said. “The government only comes after you if you do bad things with it.”

The challenge for the publishing industry is that Amazon.com could call the shots later when it has consolidated a leadership position, he said.

“I do worry that there is a point beyond which publishers can’t recover their costs,” he said, adding that it’s hard to say whether the lawsuit will ultimately be bad news for book publishing in general.

“On the one hand less revenue will go to book publishers, but on the other hand there are more opportunities for authors to self-publish, bypassing the publishing industry entirely, and they can do that through Amazon.com.”

Is Amazon.com about to reshape the publishing industry? Discuss it on Facebook.

© Rick Wilking / Reuters / REUTERS

A box from Amazon.com is pictured.

Amazon.com has taken on and beaten much of the retail world. Now it’s aiming for the biggest retailer of them all: Wal-Mart.

Five years ago only about one quarter of Wal-Mart’s customers also shopped online at Amazon.com, the world’s biggest web store. Now half of Wal-Mart shoppers say they also shop online at Amazon, and that’s a potential problem for Wal-Mart, according to new research from retail analysts at Kantar Retail.

The gloomy forecast for Wal-Mart comes as the retail giant gears up to celebrate its 50th anniversary in July. Wal-Mart has pioneered mass retailing in physical stores. Amazon is pulling off a similar revolution within online commerce. To maintain its leadership position, Kantar says Wal-Mart should become an urban pioneer and e-commerce leader.

“If the trend continues, with Amazon up and Wal-Mart down, by the 2012 holiday season Amazon could well be the most shopped retailer,” said Anne Zybowski, a Kantar analyst.

When it come size, there’s no question that Wal-Mart still towers over Amazon, with $419 billion in revenue in its most recent fiscal year, compared with $48 billion for Amazon. But Amazon is growing rapidly, while Wal-Mart is showing all the signs of maturity.

The online mall’s revenue increased 40.6 percent in its most recent fiscal year, compared with growth of 3.4 percent at Wal-Mart. Amazon’s shares have jumped 15.4 percent since the beginning of the year, while Wal-Mart has seen its share price rise 2.9 percent.

Zybowski notes that the world of retail is changing, and it’s having a direct impact on Wal-Mart. The retailer’s traditional customers -- typically price-conscious consumers making less than $50,000 a year -- are migrating online and increasingly looking there for bargains, she said. At the same time, more affluent shoppers who turned to low-cost retailers during the recession are discovering Amazon.com’s bargain prices.

“There’s a misconception out there that Wal-Mart is just for low-income customers,” Zybowski said.

A turning point will come this holiday season when Wal-Mart’s dominance in retailing will come under threat, Zybowski reckons.

Wal-Mart was the top destination for holiday shoppers last year, with 53 percent of consumers shopping there. But that was down from 59 percent in 2009. Over the same three-year period, the percentage of consumers doing holiday shopping at Amazon rose to 46 percent from 38 percent three years previously, according to Kantar Retail ShopperScape data. By the time the 2012 holiday season is over Amazon could be crowned the holiday retail leader.

Amazon’s strength is its drive to turn holiday shoppers, who tend to purchase discretionary items, to “everyday” shoppers, buying everything from dog food to paper towels.

Amazon is working to generate “sticky” behavior amongst shoppers, Zybowski said. It has been able to turn holiday traffic one-time purchases into monthly sales, and while weekly shopping is something most often associated with grocery shopping, many Amazon shoppers are now weekly shoppers, she said.

Amazon got started by selling such products as books and consumer electronics. It's now focused on providing convenience in selling products, such as diapers or breakfast cereal, that used to require repeat trips to a physical store. Wal-Mart has typically sold these products in bulk.

Wal-Mart’s online operations have lagged those of its brick-and-mortar rivals for many years, but lately the company has made an effort to improve its offering.

Since last May the retailing giant has spent over $300 million acquiring online companies to build a talent base and expertise at @WalmartLabs, an initiative where the company is building its interactive experience.

A challenge for all online retailers is managing the expectations of consumers who now expect the same brand experience across all platforms -- in the store, or online, Zybowski said. In this regard, both Amazon and Wal-Mart will have to push to find efficiencies in the supply chain. For its part, Amazon recently paid $775 million for Kiva Systems, a maker of robots that move items around in warehouses.

“Wal-Mart pushed everyone in retail toward the world of massive stores and products in bulk, toward economies of scale and full truck loads,” she said. “But those efficiencies won’t necessarily work in a direct-to-consumer environment like e-commerce, so everyone is testing how they can manage the cost of transporting products along the last mile to the consumer.”

Can Amazon surpass Wal-Mart? Discuss it on our Facebook page.

Amazon now has 69 fulfillment centers around the country to support Prime shipping.

By Amanda Buchanan, The Motley Fool

Anybody who knows me knows that I am a proud member of the Amazon Prime Cult. I only clean my house with products I can order through Amazon.com's Prime service. In December, I chose holiday gifts for my family based on what I could order through Prime. I scoff at brick-and-mortar prices when I do make my way out into the world. And, dear Fools, I say this with as little bias as possible: You will one day join me. Convenience is king, and if history is any indicator of consumer shopping habits, Prime is the future.

In 1888, Richard Sears released the first Sears, Roebuck and Co. mailer to sell watches and jewelry. By 1894, he had expanded the catalog's selection and declared it the "Book of Bargains: A Money Saver for Everyone." Eventually the company released specialized versions of the catalog, including the iconic Wish Book.

The company grew like a well-fertilized weed. By 1914, Sears' annual mail-order sales were over $100 million, doubled from $50 million just nine years before. With westward expansion, more Americans were living in rural areas. They were essentially cut off from the rest of the country — no cars, no TV, no Internet. Sears, Roebuck and Co. (now Sears Holdings) disrupted the way people shopped, and gave them a new set of expectations. Thus the modern consumer was born.

Next on the list to help mold consumers' expectations for maximum convenience coupled with low prices was Sam Walton and his big-box powerhouse, Wal-Mart Stores.

What's the only thing better than ordering your low-priced goods from the comfort of your own home and having them delivered weeks later? In the 1960s, it was going to a huge warehouse near your home and choosing your low-priced goods by hand for immediate gratification.

In less than a decade, the company grew from one store to 276 stores in 11 states. Today, they operate over 10,000 stores in over 28 different countries. According to the 2006 book "The Wal-Mart Effect," 90 perent of Americans live within 15 miles of a Wal-Mart store.

Again, the company was able to disrupt the way people shopped and reframe their expectations. Immediate gratification had been introduced to the low-price game, and shoppers were hooked.

In the book "Influence: The Psychology of Persuasion," Robert Cialdini explains that humans are wired for efficiency. That's why consumers' shopping habits evolved in the direction of Sears catalogs and Wal-Mart stores.

Enter Amazon Prime, the new disruptive force that will once again redefine consumers' shopping expectations. Prime was launched in 2005, and four years later, it only had 2 million members. By 2011, though, that more than doubled to 5 million members. Take a look at how that growth has correlated both with the company's stock price and total revenue:

Keep in mind that even after these booms, Prime still only represents 4 percent of the company's total customers, is growing at over 20 perent year over year, and that Prime customers spend 130 percent more than regular Amazon customers.

Prime gives us everything we've been conditioned to appreciate and even expect: ordering without leaving the house, home delivery, and nearly instant gratification with free two-day delivery. And over the next decade I definitely see this shifting toward even quicker shipping times.

Other companies have caught on as well. In December, Google announced a plan to partner up with other online retailers to offer low-cost next-day delivery. The war for impatient consumer loyalties has begun, and while Google may give it a run for its money, Amazon is still best positioned for victory.

Threats do exist from other more established retailers as well. If Wal-Mart or Best Buy could figure out a way to leverage their existing store locations to get same-day delivery, it would greatly threaten one of Prime's greatest benefits. But with the 17 new fulfillment centers Amazon opened last quarter, bringing its current total to 69, I don't see that happening. These fulfillment centers not only mean faster shipping for Amazon, but also lower shipping costs, making this an even more sustainable business model for Amazon in the long run, and an easy thumbs-up CAPScall for me.

Sears and Wal-Mart have proven that retailers can change the way people shop if they just pay attention to consumers' needs. Some of our top analysts have found another retailer ready to change the way people shop in Latin America. It's our top pick for 2012, and would make a great addition to your portfolio. Read more about The Motley Fool's Top Stocks for 2012. 

By msnbc.com news services

Netflix is launching its first original series to grow its streaming business and shift its focus away from DVD rentals.

Netflix calls “Lilyhammer” a gripping fish-out-of-water story set in Norway and starring “The Sopranos” mainstay and E Street Band guitarist Steven Van Zandt. The new original series is available to watch on Netflix as of Monday.

The move comes as Verizon Communications and Coinstar reveal a joint venture to challenge Netflix with a streaming video service that will combine the Redbox DVD rental kiosk business with an Internet video offering from Verizon.

The venture's success in competing with Netflix and other online rivals like Amazon.com and Hulu Plus will depend hugely on the price of the service and the depth of content it has available, according to analysts.

Verizon and Coinstar will likely have to invest heavily to convince Hollywood studios to participate if they are to offer a comparable service to Netflix, Daniel Ernst, an analyst at Hudson Square Research said.

"The question is, how much are they investing to get a large library of programming? Netflix is spending up to $1 billion a year on content," said Ernst. "For me, it's doubtful that these two companies will invest to that level."

Reuters contributed to this report.

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Shannon Stapleton / Reuters

A move into retail stores is a curious one for a rapidly-growing and highly profitable online retailer.

By msnbc.com staff

Amazon.com is planning to open a retail store in Seattle within the next few months, according to a report on the Good e-Reader blog, a provider of news on the e-reader and tablet computing market.

The store’s main emphasis will be on books from their growing line of Amazon Exclusives, and also on selling e-readers and tablets, the report said. Amazon will use the store as a test to gauge the market and see if a chain of retail stores can be profitable, according to the blog.

Amazon did not immediately respond to a request for comment on the report.

A move into retail stores is a curious one for a rapidly growing and highly profitable retailer that has built its success on the elimination of brick-and-mortar retailers.

While the establishment of retail stores is a costly move, it’s one that has precedence, notes Rob Enderle, an analyst with Enderle Group. Microsoft and Apple have both opened retail stores, with Apple seeing significant success, he said. Now that Amazon has started to develop its own line of products, including the Kindle e-book reader, a small chain of stores like Apple’s chain makes sense, he added.

“It reminds people that Amazon is out there,” he said.

Enderle expects Amazon to follow roughly the same path as Apple, opening a limited number of stores nationwide and focusing on highly-affluent markets with significant foot traffic. The idea, he added, would be to capture sales in places where consumers are clearly still buying, but where Amazon currently has no “storefront” -- in malls and busy shopping centers.

What do you think of Amazon's plan? Discuss it on Facebook.

Jeff Chiu / AP

Customers shop at a Target Store in Colma, Calif.

In an effort to prevent consumers from taking a look at merchandise in-store, but using smartphone apps to shop for cheaper prices online, low-end retail chain Target is scaling up its business model by asking vendors to create Target-exclusive products.

The problem, experts say, is that there isn’t much Target and other big-box retailers can do to quash competition from online giants like Amazon.com and Overstock.com. The practice of so-called "showrooming," when shoppers hit the brick-and-mortar venues to determine whether they like an item, but then buy it for cheaper on Amazon.com, is here to stay, these experts note.

“The bottom line is that the more commoditized the product is, the more people are going to look for the cheapest price,” said Morningstar analyst Michael Keara. “If there’s a significant price difference [among retailers] and you’re using it on a regular basis, you’re going to go to Amazon.”

Consumers turned to online shopping in droves this year, spending a whopping $37.2 billion during November and December of 2011 alone, representing a 15 percent increase in spending over the same time period in 2010, according to digital research company comScore.

And while many retailers, from J.Crew to Barnes & Noble, offered free shipping and steep discounts on merchandise in the days leading up to Christmas, smaller brick-and-mortar retailers cried foul when Amazon.com rolled out its Price Check App last December.

Amazon offered customers an additional 5 percent discount on products they purchased using the app, which would essentially strangle brick-and-mortar stores by encouraging shoppers to seek products there, but buy them online.

Indeed, Target sent an “urgent” letter to vendors last week, asking them to “create special products that would set it apart from competitors,” according to The Wall Street Journal. Citigroup’s Deborah Weinswig told the Associated Press that Target’s letter insisted that it would not “let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands.” 

Target would not comment on the letter, but did say that the company “has long prided itself on having truly collaborative vendor partnerships and we continually work with our vendors to remain competitive in the ever-evolving retail environment,” according to an e-mailed statement from Target spokesperson Molly Snyder.

Other big-box retailers -- such as Wal-Mart, Best Buy and Sears -- did not immediately respond to requests for comment. Amazon did not respond to a call for comment.

Target also recently announced that it would partner with a number of boutique chains -- such as The Candy Store and Cos Bar -- to carry specially designed Target wares, and it has long teamed up with high-end designers to create special budget lines for its stores to increase demand.

Analysts say that other big-box retailers will likely try to follow Target’s example of creating exclusive products and shopper loyalty programs, such as Target’s RedCard, which offers cardholders free shipping for online purchases and a 5 percent discount on select products.

“The trend toward more exclusives has been growing anyway, and showrooming is just another accelerant,” wrote Sean McGowan, a senior analyst at Needham & Company, in an e-mail message.

And whether Target likes it or not, when it comes to higher-end products and national brands, consumers aren’t loyal. The advent of online shopping just exacerbates that.

“This company is under extreme pressure to keep their margins down,” said Morningstar's Keara. “They really need you to come into the store and buy things that are a little higher margin.”

But that’s where Amazon goes in for the kill, because today’s cash-strapped consumer just wants a lower price.

“I think we’re slowly, gradually coming to this realization that consumers aren’t going to spend what they did in the last 10 to 15 years,” he said.

Emmanuel Dunand / AFP - Getty Images

The Amazon Kindle Fire tablet.

New versions of e-readers from Amazon.com and Barnes & Noble will no doubt grace Americans with their now-more-affordable presence beneath Christmas trees this holiday season.

But what happens when the price of the e-books to be read on a Nook or Kindle suddenly shoots up, making the whole arrangement a lot less affordable than previously thought?

The problem of so-called "e-book sticker shock" is becoming a reality ever since six of the top book publishers banded together and agreed to set prices for the electronic books they sell, according to a story in The Wall Street Journal. In some cases the price for the e-version of a book is actually higher than the physical version, the article said.

Retailers have been selling e-books for around $9.99, or sometimes less, making the ownership of an e-reader look like a value proposition when compared with the double-digit price of buying a new hardcover book.

But the new pricing agreement among publishers effectively prevents retailers from discounting e-books without a publisher's permission, and no such agreement exists when it comes to printed books, according to the story.

That means retailers can still slash the price for physical books as much as they please in order to entice readers to buy, but they'll have to comply with the new, higher prices for e-books set by the publishers. The wholesale price charged by the big publishers for both e-books and hardcover books was $12.50, meaning that before the agreement, Amazon.com was losing money by selling e-books at $9.99, books, according to the Journal, but the low price encouraged consumers to get in the e-reader game.

The Journal story goes on to explain the reasoning behind the change:

 “Under the new pricing model, a $25 hardcover is often priced at $12.99 for the e-book. And because publishers receive 70% of the e-book retail price -- while retailers retain 30% -- that means publishers receive only $9.09. Publishers were willing to accept the lower profits because they felt the new arrangement preserved the value of books and encouraged other retailers to enter the e-book market. Indeed, the new arrangement means guaranteed profits on best-selling titles for retailers like Barnes & Noble Inc., which today claims about 27% of the digital books market, as well as Amazon.”

The whole agreement was actually launched at the behest of Apple’s Steve Jobs, who had wanted to create an e-bookstore for the iPad but didn’t want to compete with Amazon.com’s cheap titles, according to the story. And now the Justice Department is looking into whether Apple and book publishers improperly colluded to prevent price discounts, the Journal said.

Some examples of these pricing snafus? Well, the WSJ cites Ken Follett's 985-page novel "Fall of Giants," which costs $18.99 as an e-book, but can be purchased in paperback for $16.50 on Amazon.com

And while e-books do offer advantages -- such as portability, convenience, and the ability to highlight and take notes, which might account for an elevated price -- comments on the Journal's story showed readers were less than thrilled by the new prices of e-books.

Reader Melanie Premo, for example, wrote:

“I bought a Kindle when ebooks cost 9.99. Since Amazon raised the prices for ebooks, my Kindle mostly sits, unused. If I'm going to pay 15 bucks for a book, I want to be able to loan it out or give it away when I'm done with it.”

Tom Pennington / Getty Images

The closing of Borders bookstores around the country may have proved a boon for other booksellers this holiday season, the New York Times reports.

Now that electronic readers like Amazon’s Kindle and Barnes & Noble’s Nook have been on the market for a few years, long enough to become cheaper and more ubiquitous than ever, it’s no wonder that e-books have proliferated like mad.

Earlier this year, Amazon reported that its e-books for the Kindle were outselling regular books on its website, and Barnes & Noble shared the perhaps depressing news (for brick and mortar booksellers, anyway) that it sells three times as many e-books on BN.com as it does all categories of physical books combined.

And while the sinking of the bookseller chain Borders seemed like yet another signpost on the march toward the certain death of the actual, physical book, book retailers are actually singing a cautiously optimistic tune this holiday season, with pricey coffee table books and massive hardcover biographies flying off the shelves, according to a story in The New York Times. 

Sales at Barnes & Noble were 10.9 percent higher during Thanksgiving weekend this year than they were during the same weekend last year, and the American Booksellers Association’s members experienced a 16 percent increase in sales during the week of Thanksgiving as compared with the same week last year, The Times reported on Tuesday.

“The initial weeks of Christmas shopping, a boom time for the book business, have yielded surprisingly strong sales for many bookstores, which report that they have been lifted by an unusually vibrant selection; customers who seem undeterred by pricier titles; and new business from people who used to shop at Borders, the chain that went out of business this year,” The Times said.

The Times spoke with a number of small book retailers across the nation, many of which reported that sales of print books were way up this holiday season in comparison with last year. The owner of the Next Chapter Bookshop in Mequon, Wis., told The Times that sales at her shop were 15 poercent higher this year, possibly because of the closing of a nearby Borders store, and that her store “was just going gangbusters and having a great time.” (She did also add that she was worried about sales in 2012, since “everybody’s going to open their electronic device for Christmas.”)

The story reported that non-fiction books have been very popular this holiday season, from Walter Isaacson’s biography of Steve Jobs to books written by media personalities like Bill O’Reilly and Glenn Beck.

And large, glossy coffee table books are also selling well, according to the owner of King’s English Bookshop in Salt Lake City, who told The Times that her store was running through “$50 and $75 books that we’re selling hand over fist.”

Cathy Langer, the owner of Tattered Cover bookstores in Denver, told The Times that she thought customers were less reluctant to buy pricier, fancier books this year. “Maybe people are just tired of being afraid to spend money,” she said.