Apple's Closing Arguments Concludes E-Book Price Fixing Trial

EbookReader said:

what if that company with 0% market share want

1) to eliminate retail price competition ("the prices will be the same") so it can effectively compete on price
2) guarantee 30% margin

and to get there, it needs at least 4 Major Publishers on board. And these 4 Major Publishers will only get on board if Apple could guarantee that they are not alone. In other word, 1 Publisher with 12% market share won't get Amazon to move away from $9.99 but 5 Publishers with 60% market share will be large enough that Amazon will have to raise the price of best sellers to $12.99 / $14.99.


DOJ evidence:

"You are absolutely correct: we've always known that unless other publishers follow us, there's no chance of success in getting Amazon to change its pricing practices."

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Penguin David Shanks: "My orders from London. You must have the fourth major or we can't be in the announcement."

Apple Eddy Cue: "Hopefully this is not an issue but if it is I will call you at 4pm. It would be a huge mistake to miss this if we have 3."

"No change here, he is waiting for the others to sign. We have executables ready to sign but he wants an assurance that he is 1 of 4 before signing."

"Once previous two are signed, I will head to their offices to get this one signed."

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1) Apple doesn't care about the retail price (as long as it's not excessive to the point where no one would want to buy ebooks). They don't mind if publishers want to sell at 9.99 or even less. Apple just wants to pay 70% of whatever the retail price is. In fact, Apple was clear that publishers cannot set the price of ebooks as high as paper books because there wouldn't be a market for it. Why don't you quote Eddy Cue's slide where he makes this point? Publishers could easily have just told Apple "no".

Some people seem to forget that Apple is primarily in the business of selling high margin hardware (iPhones, iPads, Macs, etc.). Their iTunes business is simply there to create more demand for Apple hardware products. That's why they kept trying to push music publishers to maintain LOWER prices, not higher prices. That's also why they warned publishers they can't price books more than $12.99 or $14.99 or there wouldn't be a viable ebook market.

After taking a 30% cut and paying overhead, Apple's profit margin is in the low single digits (this was again in one of the slides). In short, Apple has no incentive to drive UP the price of ebooks. They want to sell as many ebooks as possible so people would buy more iPads/iPhones/iPods.

2) MFN clause is used in many retail businesses by those with enough marketshare that wholesalers are willing to go along with the MFN clause. Considering the fact that Apple had 0% marketshare of the ebook business, and had not even released the iPad or any other normal sized ereader yet, and Amazon controlled 90% of the ebook market, Apple really had no leverage over the publishers and the publishers could have easily refused the MFN clause and froze Apple out of the ebook market completely.

Instead, the PUBLISHERS wanted to wrestle power away from Amazon and saw Apple as a means to do it. So, the PUBLISHERS agreed to the MFN clause in order to facilitate Apple's entry into the ebook market.

The publisher's tactic is similar to Amazon's $9.99 loss leader price strategy. Amazon is willing to sell certain books below their cost to build marketshare and bring customers in to buy other products from Amazon. An unstated motive is it also allows Amazon to bury their competition, i.e. Barnes and Noble and other ebook retailers who can't compete b/c they don't have the same cross-selling opportunities or scale as Amazon.

Similarly, the publishers knew Apple's MFN clause was a potential money losing proposition but the PUBLISHERS still decided it was good business strategy for THEM to give Apple the MFN clause because it would bring Apple into the ebook market and screw Amazon.

Did Apple want a MFN clause? Of course. Was Apple in position to force the publishers to give it to them? No. The publishers CHOSE to give it to them for their own business reasons. Apple was going to release the iPad with or without an iBook store. In fact, with the Kindle and Barnes and Noble and other ereader apps, iBooks and the iBook store is redundant.

iWatch said:

.....The question is whether or not a judge will "feel" for the plight of the publishers against the "presumed" harmful acts of amazon.

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Even though she of course has to stick to the letter of the law in considering all the evidence, it may very well come down to that.

Interesting both sides agreed to have the case heard and decided by a judge, rather than a jury.

whocaresit said:

I read through all of the slides. What's MFN?

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Mather Father gentlemaN

Mak47 said:

I'm quite certainly in my right mind, and my friend, those facts don't exist.

It appears to me that Apple, understanding a dissatisfaction with the status quo on the part of the publishers, made a move to jump into the ebooks market in a powerful way.

That is not illegal, nor is it even immoral by any reasonable person's measure.

The publishers were dissatisfied with Amazon's $9.99 model to begin with. They were pursuing a strategy that would essentially have killed Amazon by refusing to offer top quality new releases in the ebook format at all. Barnes & Noble was pursuing an agency model with the publishers before Apple even entered the conversation.

The fact is that content creators (the publishers) were no longer interested in Amazon's model. Ebooks did not have the market power in 2009 that they do today. They would have killed the $9.99 price point no matter what.

Apple stepping in to support the (already in development) agency model simply gave the publishers a better alternative. Now instead of windowing their high profile titles, they could release them at a price point they were comfortable with in all formats.

Apple did not require that the publishers stop doing business with Amazon. They didn't require that Amazon stop selling ebooks for $9.99, or dictate the price that publishers could sell to other retailers. They simply said they wanted equal pricing so they could remain competitive.

In the end, the publishers told Amazon they were no longer interested in their model--which they were going to do anyway, in one form or another. Amazon chose to remain in the ebooks market and agreed to pay the prices the content creators were asking. This is not collusion, it is not conspiracy and it is not illegal.

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All very good points.

I'd like to add, don't forget all the games going on between Amazon and the publishers already. I like Amazon but they broke a lot of promises. When the Kindle came out they promised $5 books. The books stayed that price for about a year. Then they went up to $10. Then they quickly went up to over that, and you started to find digital books costing more than the printed book. Amazon places a little tag next the price that says "price set by publisher". So they try and wash their hands of it, but it's still the deal they choose to make with the publishers. If anything this is not Apple's fault. If anything it's clear the publishers themselves wanted milk the consumer.

iWatch said:

Only a hardcore "fanboy" would think apple did absolutely nothing wrong here.
They obviously conspired with the big publishers at driving up the e-book prices in such a manner that Amazon would either have to sign a new contract or be blacklisted by the major publishers.

That is illegal.

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Like the music companies conspired with Amazon to force Apple's music prices up? Amazon was given unprotected music they wouldn't give to Apple, which Amazon could sell for whatever they wanted, undercutting the price that Apple wanted to keep, 99 cents. They won, eventually, and they took over music pricing on iTunes, to $1.29 a track. That's a 30% increase! How much noise did the DoJ make about that? Why, none. It's called business.

Amazon doesn't even have to make money, since they're supported by investors who apparently have designs on undercutting what anybody else in the world has. Why, who could be afraid of a burgeoning monopoly?

As the smoke & mirrors event winds down it's guilty as charged.

What do you expect from the system.

paradox00 said:

Bold text doesn't make the Agency model illegal. It simply moves the competition up to the publisher level. I'm not sure if you've been paying attention lately but Microsoft and Sony just released the details of their next generation consoles. The Xbox One is going to cost $499 everywhere and the PS4 is going to cost $399 everywhere. OMG PRICE FIXING, and what the deal with car dealerships? They all list their new cars at the same price. The customers are getting screwed!!! Well, perhaps they are... but it's not illegal.

Yes, an increase in costs is bad for customers, but quite frankly so is Amazon holding a monopoly on the market. I'm not sure why the impact on customers is frequently brought up when thee real question is simply, was something illegal done?

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I agree the Agency model is not illegal. Not in the least. But your analogy is flawed. Your comparison uses 1 vendor and 1 product respectively. That's not even remotely related to collusion. Neither Sony nor Microsoft can collude because collusion needs more than 1 participant. Sony and Microsoft simply set their MSRP. Retailers can sell either console at whatever price they wish. As for car dealerships, yeah no. Outside of Saturns (no longer in existence), no cars have the same price everywhere. Car prices are negotiated individually. Heck, two people in the same dealership at the same time will most likely pay different prices for the exact same car.

The impact on customers is frequently mentioned because that's who the DOJ is supposed to be protecting. Whether they're taking the proper route is suspect at best. I am not privy to all the details so supposition by me is pointless. I do know, as a consumer, paying $9.99 makes a lot more sense to my wallet.

SamGabbay said:

Love how it's embedded in flash

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Yep. Fired up Firefox to play it. Within seconds MBP CPU and Fan starts ramping up...end FLASH already people.

HiRez said:

It's mind-boggling how this case was ever brought. DOJ seems completely inept and clearly didn't do their research on this, didn't even understand what they were suing over.

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Why is the DOJ's incompetence and ineptness mind-boggling or surprising to anyone? Just look at the DOJ's supreme boss.... Eric Holder. There's your answer right there.

springsup said:

Most Favored Nation. It means that if anyone else is getting the book cheaper than Apple gets the book, Apple can lower their price to match the other guy.

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The way I read the closing arguments presentation, it means that *the publisher* sets the consumer price to match the lowest offered consumer price, and Apple pays 70% of that. But IANAL.

iWatch said:

Only a hardcore "fanboy" would think apple did absolutely nothing wrong here.
They obviously conspired with the big publishers at driving up the e-book prices in such a manner that Amazon would either have to sign a new contract or be blacklisted by the major publishers.

That is illegal.

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Obviously. Unless, of course, you bothered to follow he trial and/or read the testimony.

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iWatch said:

I've been following this case since day one. I've read every piece of legal document available to the public and it is crystal clear that Apple (as much as I enjoy their products) conspired with the big publishers to increase e-book prices in a strategy to make amazon "play nice".
Nobody in their right mind can deny those facts exist.
That is why the DOJ brought forth this case.
The question is whether or not a judge will "feel" for the plight of the publishers against the "presumed" harmful acts of amazon.

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No. The DOJ brought the case because it couldn't see the forest for the trees. It thought Apple was the ringleader in a conspiracy. The testimony clearly demonstrated that wasn't the case. The DOJ screwed the pooch.

iWatch said:

Only a hardcore "fanboy" would think apple did absolutely nothing wrong here.
They obviously conspired with the big publishers at driving up the e-book prices in such a manner that Amazon would either have to sign a new contract or be blacklisted by the major publishers.

That is illegal.

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Your either a troll, a fandroid, a conspiracy theorist, or just need to get out into the real world.

People negotiating a business deal does not = collusion or dishonesty.
Apple never told publishers what they should charge. They told them "we have to make 30% of sale price, and you have to match pricing that others might use or were not interested" Then the supplier, publishers in this case, decides what he wants to do.

See Flat said:

Your either a troll, a fandroid, a conspiracy theorist, or just need to get out into the real world.

People negotiating a business deal does not = collusion or dishonesty.

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It all depends on how the negotiation is done, which is exactly the point of the trial.

See Flat said:

Apple never told publishers what they should charge. They told them "we have to make 30% of sale price, and you have to match pricing that others might use or were not interested" Then the supplier, publishers in this case, decides what he wants to do.

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From what I understood, Apple knew perfectly well that the publishers wanted to increase the price of ebooks and even suggested some realistic (higher) price points. They also knew that this strategy could work only with a critical mass of publishers playing along (aka, colluding). Not sure this makes them guilty, but to me they don't look so innocent either.

I have zero doubts that the publishers colluded. About Apple, I'm ultimately undecided. It could be found guilty too since it played a central role in the price-fixing strategy but I find some counter-arguments convincing.

Nice argumentation / set of slides.

The only place in the ebookmarket where Apple isn't doing a good job is in getting local-language books on the store. Amazons selection of, say, danish books is way better than Apples.

Does anyone know where I can see the slides, it looks like they are not loading anymore.

kkat69 said:

If Steve were alive he'd finish the summation with "But there's just one more thing..."

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And a BOOM !!

The prices on ebooks have gone up at Amazon.com. They have gone up to Apple's high prices. That's not 'price fixing'?

Really...