Apple Rebuts Antitrust Charges Over E-Book Pricing

EbookReader · Apr 13, 2012

I would recommend everyone who haven't read it, to take 10-15 minutes of your time to read the DOJ complaint:

http://assets.sbnation.com/assets/1053857/e-books_complaint.pdf

You will LEARN a lot.

If you don't have time, then read the short version.
Analysis from The Verge
http://www.theverge.com/2012/4/11/2...k-price-fixing-case-against-apple-an-analysis

gnasher729 · Apr 13, 2012

chrono1081 said:
Then why did I buy The Lost World for $5 less with Amazon? I would have rather had it on iBooks because I like the formatting better.

The price is the same now ($8) but back when I bought it It was $15 on iBooks and $10 on Amazon.

So its definitely possible unless this is some recent new thing.

EDIT: Case in point, look up OpenGL Superbible: $47.99 on iBooks, $27.35 on Kindle.

When you compare prices, you should mention that many people load up on iTunes gift vouchers whenever someone sells them at 20% rebate, so they get everything from Apple 20% cheaper than advertised.

I've also found things on iTunes for half the price of Amazon (that is in the UK, I don't care for US prices).

----------

flameproof said:
...but the accusation wasn't that Apple prevented innovation or broke Amazons monopolistic grip.

The accusation was that Apple prevented competition. No better way to foster competition than by breaking a monopoly. Monopoly = no competition.

EbookReader · Apr 13, 2012

thewitt said:
It s not a slam dunk, but it's likely to never get to a judge.

Apple doesn't need the agency model any longer. The iBook store has plenty of momentum now.

They will likely admit no wrong doing, settle out of court, drop the agency model, then lower prices to force Amazon to lose money to compete. They can spend $1,000,000,000 punishing Amazon this way.

Wanna play hardball Amazon? Let's play.

Apple didn't want to play in the first place. It wants the 30% profit margin instead of the 5%-10% if it compete with Amazon

It's perfectly legal to sell 2-3 ebooks as loss leaders and make profits on the other 97-98 ebooks. Amazon Kindle Store has always been profitable.

http://assets.sbnation.com/assets/1053857/e-books_complaint.pdf

When Amazon launched its Kindle device, it offered newly released and bestselling e-books to consumers for $9.99. At that time, Publisher Defendants routinely wholesaled those e-books for about that same price, which typically was less than the wholesale price of the hardcover versionsof the same titles, reflecting publisher cost savings associated wi th the e l e c t roni c format. From the time of its launch, Amazon' s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.

EbookReader · Apr 13, 2012

gnasher729 said:
The accusation was that Apple prevented competition. No better way to foster competition than by breaking a monopoly. Monopoly = no competition.

Amazon got 90% of the ebook market because they were the first mover. First movers always have a huge advantage at first. And beside Kindle, what else were there back in 2009?

Apple: nothing yet (before Ipad)
Google: no ebook store
Sony: in the market but struggling

In 2009, ebooks make up less than 5% of the book market.
Is it such a surprise that a company that launch the ebook version of the Ipod sell a lot of ebooks back in 2009-2010?

Why can't Apple break the Amazon 90% monopoly the regular way?

-Sell a few popular titles at huge discount but make money from the more profitable ebooks?
-Amazon Kindle Store has always been profitable (they lost money on a few ebooks but they make MORE money from the ebooks that they do sell at a profit). A classic case of a loss leader. That's how business work.

Source: http://assets.sbnation.com/assets/1053857/e-books_complaint.pdf

From the time of its launch, Amazon' s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.

Apple did it the other way. By forcing Amazon to raise prices through the publishers. Customers got screwed because prices went from $9.99 to $12.99/$14.99.

When customers got screwed, the Department of Justice will take notice.
When customers got screwed, they sometimes file a lawsuit.

the8thark · Apr 13, 2012

Daveoc64 said:
Utter nonsense.

Apple is incredibly late to the ebook game, struggling to gain marketshare and offers an inferior technical platform to deliver the books.

"We will finally have electronic books within easy reach"!? Sounds like the Kindle before the iPad was even launched - and that was by no means the first ebook reader.

Apple was not the first portable music player or the first phone or the first tablet either. Not first by a long shot. But being first means nothing if when you do it, you do it right. And Apple had done it right. Apple is ensuring the publishers, Authors and Apple get their fair price for each book. And I agree with this.

If you bleed the publishers and authors dry with low low low final sale prices (like Amazon is trying to do) just for more sales, then eventually you get less quality content. Because less people will find it economically viable to write that book.

I am happier to pay that few dollars more for a book if I know the right people (ie the publishers and the author) is getting my money. That keeps the industry alive. Amazon are the real evil here. Sure I do make use of their low prices from time to time. But if I owned an iOS device I'd only be using iBooks. Their prices ARE resonable and I know where the money is going and to whom.

Tumbleweed666 · Apr 13, 2012

genovelle said:
Wrong just the Amazons e-books. Do you think the entire world buys from Amazon? They had over 90% of the market before the change because other retailers stayed out of the market because they couldn't make a profit. It actually hurt everyone but Amazon.

.. you missed out the customers, forced to pay higher prices because Amazon weren't allowed to discount.

genovelle said:
Publishers and Authors sold fewer books because of a limited market with only one supplier, Amazon who kept them from even direct selling because they would be undercut on their own product.

They sold fewer books because they were cheaper? Are you for real?
On the basis of your bizarre reasoning, all eBooks should be sold at $1,000 each in order that there are more books available to the public and more books sold overall.

genovelle said:
The book stores have been run out of business, and people who don't buy trust or care for or maybe have never even been on Amazon's site would not have access to the ebooks because of market limitations. If publishers and Authors can be in more stores they sell more and make release more books. If they do not do well they don't which means theres less books to buy.

As an avid reader, I don't see it as my duty to support book stores, any more than were I an avid traveller in 1920, it would have been my duty to keep buggy whip manufacturers in business by buying a horse and cart rather than a Model T.

Its also completely untrue that publishers couldnt sell eBooks because Amazon were selling some of them cheaper, there was and is nothing preventing them selling online directly. Then the folks you are still worried about who "don't buy trust or care for or maybe have never even been on Amazon's website" would still have a place to buy. Thats the publishers decision, not Amazons. Having a high price on Amazon doesnt help these mythical people you say cant/wont/dont shop frm Amazon.

I for one do not regret the loss of having to travel to a physical location to buy a book at full price, but if you personally think books should be more expensive, then I suggest every time you buy one on Amazon for say $5 marked down from $20, you also send a cheque for $15 to the publisher or author. I'll just stick with paying $5 thank you.

EbookReader · Apr 13, 2012

the8thark said:
If you bleed the publishers and authors dry with low low low final sale prices (like Amazon is trying to do) just for more sales, then eventually you get less quality content. Because less people will find it economically viable to write that book.

Disagree.

If you cut out the middleman (the publishers), then authors will make a lot more money.

Talented authors can hire editors (say $5,000-10,000 to edit a book). Self-publish the books and get 70% royalties (instead of the 17.5% that the publishers offer).

Price it at $4.99. With 70% royalties, the author will get $3.49 for each book sold.
Sell 100,000 ebooks = $349,000 royalties to the author.

Customers will also benefit. Good books at $4.99.

Publishers are good at 2 things

1) marketing
2) distribution to book stores (which in a digital world, they won't have this advantage anymore).

This author made $100,000 in 3 weeks from his self-published books that were rejected by the Big 6 Publishers.

http://jakonrath.blogspot.com/2012/01/100000.html

One hundred grand. That's how much I've made on Amazon in the last three weeks.

This is just for my self-pubbed Kindle titles. It doesn't include Shaken and Stirred, which were published by Amazon's imprints. It doesn't include any of my legacy sales, print or ebook. It doesn't include audiobook sales. It doesn't include sales from other platforms.

This is from my self-pubbed books. The ones the Big 6 rejected.

And this blog list 120+ authors who have sold more than 50,000 self-published ebooks. Cutting out the middleman will get you 70% royalties instead of 17.5%

http://selfpublishingsuccessstories.blogspot.com/

Listing the top 10 out of those 120 authors:

Amanda Hocking - 1,500,000 ebooks sold (December 2011)
Barbara Freethy - 1.3 million self-published ebooks sold (Dec 2011)
John Locke- more than 1,100,000 eBooks sold in five months
Gemma Halliday - over 1 million self-published ebooks sold (March 2012)
Michael Prescott - more than 800,000 self-published ebooks sold (Dec 2011)
Chris Culver - over 550,000 (Dec 2011)
Heather Killough-Walden - over 500,000 books sold (Dec 2011)
Selena Kitt - "With half a million ebooks sold in 2011 alone"
J.A. Konrath - more than 500,000 ebooks sold (November 2011)
Stephen Leather - close to 500,000 books sold (Nov 2011)

apolloa · Apr 13, 2012

Some of the comments on here are funny....

The simple FACT is, DOJ has obvious evidence of wrong doing by the publishers and Apple, it's not going to waste tax payers money and go through court with giant corporations without being satisfied with it's proof and evidence.
I suspect like most things this big, as the case moves along you'll find out things you never heard off which will surprise you, and these will be the evidence and reasons behind the court case.

Oletros · Apr 13, 2012

the8thark said:
If you bleed the publishers and authors dry with low low low final sale prices (like Amazon is trying to do) just for more sales, then eventually you get less quality content. Because less people will find it economically viable to write that book.

How they were bleed when they were paid full retail price?

EbookReader · Apr 13, 2012

Oletros said:
How they were bleed when they were paid full retail price?

exactly.

Some people need to understand Wholesale and Agency Pricing before they post.

This post should be must read for everyone who are still confused between the two:

JadedRaverLA said:
People here don't seem to get the different models.

The WHOLESALE model that Amazon prefers is essentially the same as any other good you purchase at a store. The store pays the wholesale price and then sells it at whatever price they want. MSRP's are still set by the manufacturer but the retailer can choose to offer any kind of discount they want, for whatever reason. For example, a book publisher (or in this case an ebook publisher) could set their MSRP at $15.99, and charge a wholesale price of $11.19 to the retailers. But the retailers are still free to charge a lower price if they want. That's the beauty of competition. In many cases, Amazon was willing to charge only $9.99 for the ebook, taking a loss on the sale in order to get customers to the store and potentially buying other items.

The AGENCY model that Apple uses for the iBookstore (as well as the App store) essentially takes the retailer out of the equation. The publisher (or app developer) sets their own pricing, determines when and if something goes on sale, and Apple gets a cut for acting as the seller's "agent" in the transaction (processing payments, allowing the item into their store, etc.) In the above example, the publisher could set it's price at $15.99, and Apple would pay them 70% ($11.19) for each one sold -- exactly the same as the wholesale model. The difference is that the only one who could choose to put an item on sale is the publisher -- Apple isn't acting as a traditional retailer, merely as the publisher's agent.

So, while the publisher makes the exact same amount in both scenarios, the agency model produces higher prices for consumers -- Apple's 30% can't be changed, while Amazon, under the wholesale model, can sell books at a loss if they want. The publishers can complain all they want about Amazon's pricing "devaluing" their product (despite the fact that they'd receive the same amount of money for each copy, and, logically, Amazon is going to sell a lot more copies at their lower price to consumers), but, really, publishers are just scared of Amazon becoming even more powerful -- eventually demanding lower wholesale prices. This is the way Walmart behaves. They become far and away a manufacturer's biggest retailer, then start demanding price cuts once the manufacturer can't survive without them.

I don't know if Amazon plans to do that or not, but I do think Amazon has a much better grasp of what electronic content (without any production and distribution costs that applied to physical items) can sell for, than do the book publishers. In other areas (particularly music), it was Apple who had to tell the "don't-get-this-whole-internet-thing" executives that their product wasn't worth what they thought it was, but, by selling at a lower price, they could sell far more product, and make more money in the end.

Anyway, since I can read Kindle books on my Kindle, iPad, Android tab, MacBook Pro and Air, and desktop, I'm looking forward to prices going back down. Apple makes a ton of money in other areas -- they don't need their bookstore to be super-profitable in order to be the most successful company on earth.

Keep in mind that Apple sell digital music and digital movies using WHOLESALE.
Keep in mind that Amazon Kindle store has always been profitable (even when it sold ebooks at deep discount).

Abazigal · Apr 13, 2012

apolloa said:
Some of the comments on here are funny....

The simple FACT is, DOJ has obvious evidence of wrong doing by the publishers and Apple, it's not going to waste tax payers money and go through court with giant corporations without being satisfied with it's proof and evidence.
I suspect like most things this big, as the case moves along you'll find out things you never heard off which will surprise you, and these will be the evidence and reasons behind the court case.

I dunno, seems more politically motivated by Amazon than anything else...

Tumbleweed666 · Apr 13, 2012

thewitt said:
It s not a slam dunk, but it's likely to never get to a judge.

Apple doesn't need the agency model any longer. The iBook store has plenty of momentum now.

They will likely admit no wrong doing, settle out of court, drop the agency model, then lower prices to force Amazon to lose money to compete. They can spend $1,000,000,000 punishing Amazon this way.

Wanna play hardball Amazon? Let's play.

As a stockholder, I really hope they don't pointlessly waste a billion dollars doing that and now that a rational person is in charge they are incredibly unlikely to.

Anyway, its just not a simple as, if its 5c cheaper on iBooks everyone will buy the iBooks version. Think of all those Kindle users without an iPad (or even with one, but who generally prefer to read on the Kindle, like me). These dwarf iPad users by a long way.

Unless a book was really really substantially cheaper on iBook, I'd still buy the Kindle version, if only because I can then read it on my Kindle, my iPad (via the Kindle app), my Android phone, and keep it synced between all 3, and if i read books on a laptop PC that also. And it will be available in the future on multiple devices from multiple vendors, for example Win8 tablets. Buy an iStore book and you are effectively locked in to Apple only. Plus, if I have say 500 books on Kindle, and thats just naturally where I buy my books, I am unlikely even to start looking on other sources anyway, I'd be blissfully unaware that "flights of fancy" is 5c cheaper on iBooks than Amazon.

IMO people who only want to read on an iPad and like the iPad book reader will buy iBook versions. Everyone else (and that includes many iPad owners) will continue to buy Kindle or their other preferred eReader version, and pricing differences wont make any, errm difference.

Except that iBook readers are likely to find that Apple's pricing comes down closer to Amazons. Which surely is a good thing?

EbookReader · Apr 13, 2012

http://www.youtube.com/watch?v=k5PpQuL3CVE
From Channel 4 News (UK)

jayducharme · Apr 13, 2012

The DoJ's action looks to me like collusion to keep the cost of textbooks high. College students pay upwards of $100 for a book they can use for 1 semester, after which the publisher makes a few minor changes rendering the previous edition worthless. Students get a much lower resale value for their edition and then the whole cycle begins again.

Apple's model breaks that cycle, with books having a top price of $15 including unlimited updates. It's better for schools, better for students and better for teachers. But I guess it's just not better for the DoJ.

Tumbleweed666 · Apr 13, 2012

jayducharme said:
The DoJ's action looks to me like collusion to keep the cost of textbooks high. College students pay upwards of $100 for a book they can use for 1 semester, after which the publisher makes a few minor changes rendering the previous edition worthless. Students get a much lower resale value for their edition and then the whole cycle begins again.

Apple's model breaks that cycle, with books having a top price of $15 including unlimited updates. It's better for schools, better for students and better for teachers. But I guess it's just not better for the DoJ.

Your argument is nonsensical, because there is nothing at all in the DOJ case that would preclude Apple from continuing to sell textbooks, and nothing in it to make them raise the prices of those textbooks (if anything, its the opposite). How often updates are brought out and what the charge for them is, is irrelevant to the case and since its entirely in the control of the publishers its nothing at all to do with Apple either.

The whole antitrust action is because of collusion to keep prices high, a fact Steve Jobs himself acknowledged , so reality is the exact opposite of what you are arguing about !

Felix01 · Apr 13, 2012

I've read that corporate Apple (under SJ), as well as individual wealthy Apple employees, contributed 4X as much to the Democratic Party and individual Democratic politicians versus Republicans. Maybe this lawsuit will cool that off a bit. Biting the hand that feeds so to speak.

Let's see if those in Congress who've benefited have the stomach to oppose Apple publicly...especially since many legal scholars believe is not winnable by the DoJ.

Flitzy · Apr 13, 2012

It's a stupid case that was just brought up because it's a political year and a "win against business" is a good way to make the base happy.

It's not even true, any way, since most (if not all) of the books I've bought on the iBookstore were the same or cheaper than their print or electronic counterparts elsewhere.

bocomo · Apr 13, 2012

Mr. Gates said:
Of course they won't be found guilty.

I've seen this time and again.

The Judge has an iPad or Macbook, thinks he's all cool for owning it, has a big ol' boner for Steve Jobs because it's "The cool thing"

Dismisses the case, never even hears the argument and Apple goes scot free

Link?

Tumbleweed666 · Apr 13, 2012

Flitzy said:
It's a stupid case that was just brought up because it's a political year and a "win against business" is a good way to make the base happy.

Lowering prices is stupid????

Flitzy said:
It's not even true, any way, since most (if not all) of the books I've bought on the iBookstore were the same or cheaper than their print or electronic counterparts elsewhere.

That proves nothing at all!

The entire point is that they would have been even cheaper had this collusion not gone on, that the collusion raised prices above where they would have been. Not that they should be cheaper than paper books. And it doenst apply to all books, only those by the 6 publishers.

The agreement said that Amazon couldn't undercut Apple pricing. So if a text book was $100 in paper, $90 in iBook format , it would also have been $90 in Kindle format, whereas Amazon may, for example have sold it at $50.

Rocketman · Apr 13, 2012

The publishers getting together to debate the pros and cons of the agency model vs. the wholesale model is in no way the same as price fixing and is not illegal. In fact debate is protected speech.

The fact some weak kneed publishers broke down crying on the DOJ's first phone call notwithstanding. I have seen first hand in the pyrotechnic chemical business, federal regulators extort companies with threats of actions against them if the companies do not voluntarily comply with a request that is otherwise outside of the jurisdiction of the regulator to enforce.

This exercise of federal power is unlawful and if it's not a crime it should be. It may be a crime. Fraud under color of authority. Perhaps extortion under color of authority. It would be a public service for some lawyered-up rights group to persue this direction. I can provide them with 3-4 other cases to show pattern and thus conspiracy.

If this is an anti-trust violation, so are industry conferences where they get together to discuss industry trends and developments.

The book publishers have a pricing strategy based on the sales channel, production costs (more than the dead trees, but the whole thing), author contracts, profit targets, etc. These are business decisions, not pricing collusion. This administration is continuing on its quest to criminalize business.

(sarcasm) That's sure going to help with more jobs.(/sarcasm)

Rocketman

bergmef · Apr 13, 2012

Tumbleweed666 said:
Lowering prices is stupid????

That proves nothing at all!

The entire point is that they would have been even cheaper had this collusion not gone on, that the collusion raised prices above where they would have been. Not that they should be cheaper than paper books. And it doenst apply to all books, only those by the 6 publishers.

The agreement said that Amazon couldn't undercut Apple pricing. So if a text book was $100 in paper, $90 in iBook format , it would also have been $90 in Kindle format, whereas Amazon may, for example have sold it at $50.

Not exactly true. I only read the states filing, and it quotes the agreement as saying (in paragraph 92 of the states filing) that the publisher has to alter the price in the ibookstore to match the other prices (they say publisher because in the filing they say (the states) that the apple agreement lets the publisher set the price and apple gets 30%). That is a big wording difference than what you wrote.

With the legal contract saying the publishers set the price, and the most favored nation saying the publisher has to lower the price in the ibookstore, I'll be curious to see how this plays out. I'm all for apple going to court on this. I think they will be eventually dropped from the suit and the other publishers will settle because they don't have the funds for a long battle. I'm a stockholder, and I'm 100 percent for going on with the court case.

If they go back to wholesale, I think you will see a change in the contract. Amazon will have to buy a block at a fixed rate, then when those are sold, then buy the next block. Money up front, no percentage of each sale. You want wholesale model, 1000 ebooks, that's 12.99 an ebook, sell them for what you want. You want agency, thirty percent is yours, sell for what we tell you.

edit: 2 things, I just threw out numbers in the last paragragh (the 12.99). I predict that they will sell to wholesalers whatever the 70 percent turns out to be in the ibookstore. The other thing is my guess is that Apple added the 'being ablle to match price' part because of the record companies and amazon getting together to sell tracks at a higher bit rate for 79 cents.

powers74 · Apr 13, 2012

great

More knee-jerk government action heading down a dead end path.

thewitt · Apr 13, 2012

apolloa said:
Some of the comments on here are funny....

The simple FACT is, DOJ has obvious evidence of wrong doing by the publishers and Apple, it's not going to waste tax payers money and go through court with giant corporations without being satisfied with it's proof and evidence.
I suspect like most things this big, as the case moves along you'll find out things you never heard off which will surprise you, and these will be the evidence and reasons behind the court case.

The DOJ BELIEVES it has evidence.

There is a huge difference in these statements.

EbookReader · Apr 13, 2012

http://www.macworld.co.uk/ipad-iphone/news/?newsid=3350944&pagtype=allchandate

According to an Information Week report, Balto said the evidence in the DOJ’s case against Apple is so strong that Apple, Penguin and MacMillan would be foolish not to settle.

Balto said: "One must wonder about the degree to which these business people thought about asking their antitrust lawyers for advice. Clearly the government has a case, and it will survive any motion to dismiss."

Balto also noted that the case has been assigned to Judge Denise Cote who is "She's fair, but she's very tough,” he also suggested that by refusing to settle, Apple risks harsher penalties: "The one thing about refusing to settle is that you can expect the government to be a lot tougher,” he told Information Week.

If the DOJ has no case, I don't think the three publishers would have settled.

And 2 of these already agreed to pay $52 million for restitution.

bergmef · Apr 13, 2012

Per my previous post, one page back, I still expect apple to be dropped from the suit.

Apple Rebuts Antitrust Charges Over E-Book Pricing

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