Apple Ordered to Stagger E-Book Contract Negotiations, Refrain From 'Most Favored Nation' Clauses

[4nNtt]

Progressives being progressives.
This is what happens when you have progressive interpretation of the constitution most specifically the commerce clause - the ability to pick winners and loser in the marketplace.

People bitching and moan all the time about the government/lobbying but if it wasn't for the progressive they wouldn't be an issue.

Not really. They are saying the opposite. The publishers get to pick the winners and losers instead of using a free market, not the government. The DOJ is saying MFN clauses are allowed because Apple was forbidding them.

----------

MFN was a positive as it kept prices down and kept Amazon (in particular) from using books as a loss leader to sell Kindle because at least Apple could match their prices.

Again we have power-hungry politicians wanting to control everyone else and decreasing competition as a result.

It isn't MFN, it is anti-MFN. The publishers were picking favorites by giving some customers lower prices then others. So basically the DOJ is anti-anti-MFN. The free market can't always sort things out on its own, but this is one place the DOJ shouldn't interfere. The system was working just fine.

From what I understand the MFN has nothing to do with loss leaders. This just has to do with Amazon (or other customer) negotiating prices that are much lower then their competition is able to purchase for. However if loss leaders are used in an anti-competitive way by Amazon, the DOJ should be looking in to that instead.

Apple has been saying the DOJ has been looking at this backwards the whole time. I agree with that view.

---------

In a win for Apple, Cote's ruling does not require the company to allow the return of direct store links from competing e-book distributors in their App Store apps, something the U.S. Department of Justice had requested in its proposed penalties.

This is really scary if it didn't win. Do they expect Walmart to require putting Targets prices on everything in their own stores?

 

[gnasher729]

According to you

Exactly. I looked at what happened, I looked at what evidence was there and what evidence was excluded by the judge, I saw comments made by the judge that clearly showed bias, so there's my conclusion.

----------

MFN + Agency had the effect of increasing consumer prices, not to keep them down. Amazon makes no profit on Kindle sales, the profit comes from the content sales and ads (ebooks sales included).

That was Amazon raising prices, wasn't it?

 

[FakeWozniak]

Sigh, I can't wait for the appeal.

 

[monokakata]

That was Amazon raising prices, wasn't it?

Amazon raised ebook prices because the colluding publishers wouldn't sell to them unless they (the publishers) were allowed to set Amazon's prices.

That was one of the major points of this whole business.

 

[giantfan1224]

Apple and other competitors are not prevented from entering, they are prevented from doing so with illegal practices. There is no reason Apple cannot compete with Amazon excluding their own unwillingness to operate on thin margins.

They are prevented from entering by the very fact that they can't compete with Amazon on price. Some may call it loss-leader, some may call it predatory pricing. Should it be legal for Amazon to be a loss-leader seemingly more often than not? When was the last time Amazon as a company made money? Amazon does not operate on "thin margins", they essentially operate on zero or negative margins.

----------

Amazon raised ebook prices because the colluding publishers wouldn't sell to them unless they (the publishers) were allowed to set Amazon's prices.

That was one of the major points of this whole business.

It's not illegal for a publisher or manufacturer to set the price. It's still a matter of debate whether they colluded...

 

[monokakata]

It's not illegal for a publisher or manufacturer to set the price. It's still a matter of debate whether they colluded...

It may be a matter of debate among MacRumors posters, but wouldn't you say that the DOJ settlements imply pretty strongly that it's no long a matter of debate among the principals?

From what I've read, indeed it's not illegal for a publisher or manufacturer to set the price for its items. That's "a publisher," singular. It is illegal for a group of publishers or manufacturers to join and set prices, which brings us back to collusion.

 

[RiverCitySlim]

They are prevented from entering by the very fact that they can't compete with Amazon on price. Some may call it loss-leader, some may call it predatory pricing. Should it be legal for Amazon to be a loss-leader seemingly more often than not? When was the last time Amazon as a company made money? Amazon does not operate on "thin margins", they essentially operate on zero or negative margins.

Why can Apple not compete with Amazon on price? If Amazon is profitable in their ebook division using a loss leader strategy then why couldn't Apple be profitable?

 

[giantfan1224]

It may be a matter of debate among MacRumors posters, but wouldn't you say that the DOJ settlements imply pretty strongly that it's no long a matter of debate among the principals?

Settlement does not always imply guilt. How often do parties settle just to avoid costly litigation? The fact that publishers did settle and Apple did not tells me that Apple has the deep pockets to fight where they believe they're right. The publishers don't have Apple's balance sheet.

Look, I've read extensively about the case, read the briefs, studied the law(s) in question and read opinions of many people and I'm just not convinced that Apple or the publishers were in the wrong. I believe Apple has a good shot at winning on appeal.

 

[GadgetDon]

Why can Apple not compete with Amazon on price? If Amazon is profitable in their ebook division using a loss leader strategy then why couldn't Apple be profitable?

The problem is that Amazon ISN'T profitable in their ebook division. They're not very profitable overall, but eBooks are on the red side of the ledger. They're OK with that because, once they own the market and eBook is a synonym for Kindle Book, they can do what they want. (Including dictating prices to the publishers.)

 

[IJ Reilly]

Settlement does not always imply guilt. How often do parties settle just to avoid costly litigation? The fact that publishers did settle and Apple did not tells me that Apple has the deep pockets to fight where they believe they're right. The publishers don't have Apple's balance sheet.

Look, I've read extensively about the case, read the briefs, studied the law(s) in question and read opinions of many people and I'm just not convinced that Apple or the publishers were in the wrong. I believe Apple has a good shot at winning on appeal.

You've read extensively, yet don't know that Apple has already lost at trial?

 

[giantfan1224]

Why can Apple not compete with Amazon on price? If Amazon is profitable in their ebook division using a loss leader strategy then why couldn't Apple be profitable?

"if" being the key word here. Amazon's whole strategy seems to be loss leader, to the point that they're not profitable, with a negative 0.23 EPS. I'm not an accountant but I'm sure there are some creative ways they could show that one division is profitable while the whole is not.

That's really not the point though. Amazon was selling ebooks at ridiculously low prices and the publishers didn't like it. Apple took advantage of that to introduce a model where publishers wouldn't be under Amazon's thumb anymore. The debate is whether that constitutes anti-competitive behavior or not. I believe in the long-run Amazon's business model hurts consumers because, for example, if ebooks become synonymous with kindles and Amazon then they will be free to raise their prices however high they want. And then they can finally return value to shareholders that have held out hope in their predatory pricing business model.

 

[Renzatic]

Government is overreaching here, by telling a corporation what they can and cannot do.

"You're not allowed to do anything illegal"!

"SOCIALIST COMMIES CAN'T TELL ME WHAT TO DO OLOL".

This is basically the extent of what the DOJ has done to Apple...

They can sell ebooks at any price they want. If Amazon, B&N, or Google offer up a link to their websites through their apps, they still have to pay Apple 30% of every sale made off that link. Same as always. What Apple can't do is negotiate most favored nation clauses for ebooks for the next 5 years, and has to pay X amount of money as recompense to their customer base.

This isn't the book getting thrown at them, this is a light slap on the wrist. All things considered, they got off better than the publishers who pleaded out.

 

[giantfan1224]

You've read extensively, yet don't know that Apple has already lost at trial?

Uhh...yeah. I do know that. That's why I said I believe they have a good chance at winning on APPEAL. It's right there in my quote you cited.

 

[TheHateMachine]

"if" being the key word here. Amazon's whole strategy seems to be loss leader, to the point that they're not profitable, with a negative 0.23 EPS. I'm not an accountant but I'm sure there are some creative ways they could show that one division is profitable while the whole is not.

That's really not the point though. Amazon was selling ebooks at ridiculously low prices and the publishers didn't like it. Apple took advantage of that to introduce a model where publishers wouldn't be under Amazon's thumb anymore. The debate is whether that constitutes anti-competitive behavior or not. I believe in the long-run Amazon's business model hurts consumers because, for example, if ebooks become synonymous with kindles and Amazon then they will be free to raise their prices however high they want. And then they can finally return value to shareholders that have held out hope in their predatory pricing business model.

Do you really think that Amazon makes a loss/thin margin because it sells some of ebooks as a loss leader or the fact that it reinvests all profit into infrastructure, growth and blanketing the world with shipping warehouses?

 

[giantfan1224]

Do you really think that Amazon makes a loss/thin margin because it sells some of ebooks as a loss leader or the fact that it reinvests all profit into infrastructure, growth and blanketing the world with shipping warehouses?

I never said or even meant to imply that Amazon does not make money simply by selling ebooks cheaply.

 

[TheHateMachine]

I never said or even meant to imply that Amazon does not make money simply by selling ebooks cheaply.

So you didn't mean this?

Amazon's whole strategy seems to be loss leader, to the point that they're not profitable,

 

[RiverCitySlim]

The problem is that Amazon ISN'T profitable in their ebook division. They're not very profitable overall, but eBooks are on the red side of the ledger. They're OK with that because, once they own the market and eBook is a synonym for Kindle Book, they can do what they want. (Including dictating prices to the publishers.)

I'll have to look for it but I am sure I saw that there was evidence that ebooks as a whole were in fact making a profit for amazon.

 

[bsolar]

They are prevented from entering by the very fact that they can't compete with Amazon on price. Some may call it loss-leader, some may call it predatory pricing. Should it be legal for Amazon to be a loss-leader seemingly more often than not? When was the last time Amazon as a company made money? Amazon does not operate on "thin margins", they essentially operate on zero or negative margins.

Amazon is profitable in selling ebooks, that's why it can sell Kindle devices at zero cost or even at loss.
This article offers an estimate of the Kindle ecosystem profits split by product and shows ebooks as the more profitable. If you claim they are not profitable in the ebooks market please provide some reputable source backing up your claim.

----------

The problem is that Amazon ISN'T profitable in their ebook division. They're not very profitable overall, but eBooks are on the red side of the ledger. They're OK with that because, once they own the market and eBook is a synonym for Kindle Book, they can do what they want. (Including dictating prices to the publishers.)

The article above tells another story, but if you have a more up to date reputable source who says otherwise please share it.

 

[BC2009]

Why would Apple want to use iBooks as a loss-leader? To get people to buy iPads? Doesn't make sense. No, Apple has always intended for iBooks to be a money maker. That's why this case is so interesting, because it appears to protect a monopoly like Amazon in the eBooks business, and prevent others from entering the market.

I agree that folks should make money on this business. Amazon supposedly makes money on eBooks if you calculate things traditionally, but some have argued that the DOJ's methods of calculating Amazon's revenue/profit are wrong for eBooks and that Amazon is indeed guilty of predatory pricing.

The fact remains that Apple could price eBooks lower than Amazon and still make a profit (assuming their costs are about the same as Amazon). Doing so would prevent Amazon from owning the eBook market and would put real pressure on Amazon to turn a larger profit in other portions of their retail business in order to support eBooks (Amazon has posted losses for the last two quarters and eventually investors are going to revolt).

Of course if Apple priced eBooks like Amazon, then Apple would like get investigated by the DOJ for predatory pricing and suddenly the DOJ would not be calling it a "loss leader".

 

[Todd B.]

Congratulations Amazon. I see all those bribes to the government paid off.....

 

[IJ Reilly]

Uhh...yeah. I do know that. That's why I said I believe they have a good chance at winning on APPEAL. It's right there in my quote you cited.

Also right there in your quote is you saying that settlement doesn't imply guilt. We are beyond that point already.

Those of us who said before that Apple had basically zero chance of winning at trial took a face full from those who were convinced that Apple had done no wrong. So now that Apple has lost at trial, we have to go through this argument all over again?

I hope Apple knows that they got a soft settlement from the judge. They should take it, and move on.

 

[BC2009]

Amazon is profitable in selling ebooks, that's why it can sell Kindle devices at zero cost or even at loss.
This article offers an estimate of the Kindle ecosystem profits split by product and shows ebooks as the more profitable. If you claim they are not profitable in the ebooks market please provide some reputable source backing up your claim.

Not trying to jump into an argument. But I came across this article which talks about an attorney who feels the DOJ is looking at the eBook market the wrong way.

One interesting quote is here:

Kohn argues that the DOJ mischaracterizes ebooks as a private good like “apples or printed books.” Rather, he says, ebooks are public goods: “an ebook can be consumed without leaving any less for others to consume” and can even be consumed free due to piracy. In addition ebooks are ”systems goods” that “need to interoperate with other products [like e-readers]to have value.” By contrast, “consumers can read printed books right off the shelf, standing alone.”

The fact that ebooks are public goods and systems goods matters because supply and demand don’t operate on them normally, Kohn writes. He says “antitrust analysis must take these differences into account in evaluating specific market circumstances in which transactions occur.” The DOJ failed to do this, he argues. By treating ebooks the same as “apples or printed books,” it ignored the fact that “the ebook market is best characterized as a stack of interdependent markets.”

Basically, calculated as a physical good, Amazon's eBook business is profitable and therefore there are loss-leaders, but no predatory pricing. But calculated as what he terms a "public good" or "system good", they would certainly be considered guilty of predatory pricing by pricing the best sellers below cost.

The full amicus brief legal filing is here.

 

[Renzatic]

Exactly. I looked at what happened, I looked at what evidence was there and what evidence was excluded by the judge, I saw comments made by the judge that clearly showed bias, so there's my conclusion.

I see a lot of people around here claiming bias, so I've got a question for you.

Why was Judge Cote biased? Who was she favoring? Amazon? Why would she favor Amazon over Apple in this situation? What would she have to gain by giving preferential treatment to one company over the other? How does it help the market by allowing one monopoly to survive while curtailing another before it became truly entrenched?

 

[Huracan]

I think this verdict is good for consumers. In a somewhat related note I would also like to see electronic books being sold without DRM. The single thing that prevents me from buying more electronic books is not the price, it is the being tied to a platform (Amazon, Apple, Google). I would like to be able to buy a book and read it in any platform the same way I can do now with a song.

 

[BaldiMac]

Amazon is profitable in selling ebooks, that's why it can sell Kindle devices at zero cost or even at loss.
This article offers an estimate of the Kindle ecosystem profits split by product and shows ebooks as the more profitable. If you claim they are not profitable in the ebooks market please provide some reputable source backing up your claim.

The article above tells another story, but if you have a more up to date reputable source who says otherwise please share it.

Well, that completely misses the point. Obviously, Amazon made profits under agency pricing. That has nothing to do with the claim.

But we've had this conversation before.