Apple Rebuts Antitrust Charges Over E-Book Pricing

[nt5672]

A few facts to remember when discussing this topic.

1. Pricing stability helps markets including buyers, manufacturers, and distributors.
2. Competitive pricing benefits buyers not manufacturers and distributers.
3. Runaway bottom pricing hurts everyone. You might think the low price benefits the buyer, but it doesn't. Why? Because eventually the low price goes away when the market goes away and competition is eliminated.
4. Price stability is not antitrust.

With that said, the only conclusion that can be drawn here is that the government is about power, not being fair to buyers, distributers or manufacturers. Look at what the Clinton administration tried to do to Microsoft. Same here. This administration is only looking for ways to gather and exert its power while blaming the evil corporations. In the end the government is much more scary than any evil corporation. Why? Because only the government can put you in jail without cause. We all need to be much more afraid of the government than some book sellers and distributers.

The end result, sad to say, is that Apple will make a big fat campaign contribution to Obama and magically this will go away..... or rather they will be found not guilty of antitrust. And this is the government that you all have your trust in?

 

[jayducharme]

The whole antitrust action is because of collusion to keep prices high

But then why are they targeting Apple, which has worked with the publishers to lower textbook costs by nearly 90%?

 

[EbookReader]

here's why Apple got sued:

http://tech.fortune.cnn.com/2012/04/11/the-apple-e-book-conspiracy-three-days-in-january/

That is, instead of an MFN designed to protect Apple's ability to compete, this MFN was designed to protect Apple from having to compete on price at all, while still maintaining Apple's 30 percent margin.


Highly recommend read for everyone.
It will take about 15-20 minutes.
DOJ complaint:
http://fortunebrainstormtech.files.wordpress.com/2012/04/041112-us-v-apple-complaint.pdf

whether you agree with it or not, there are a lot of evidence in there.

 

[JHankwitz]

Apple had no right to require publishers to change their relationship with Amazon, just so Apple (not the publisher) could increase their own profits.

Of course they had every right. Its called negotiation. That's like saying that since AT&T has your companies business, Verizon can't say I'll offer you better terms if you come to us, but only if you switch these services too. The key is these companies deserve to make business decisions that increase their bottom line just like Amazon does. They are actually making less on each e-book but selling many more because Amazon is not the only player any more. The market is thriving now[/QUOTE]

Most retailers are faced with this on a daily basis. Retailers demand that suppliers give them the best price, and no other retailers can get a better price. Some suppliers demand that the retailer can't sell competative products, or they won't get theirs. Negotiations like this are a standard part of doing business.

 

[EbookReader]

But then why are they targeting Apple, which has worked with the publishers to lower textbook costs by nearly 90%?

because

before: $9.99 for popular titles

after Apple got involved: $12.99 or $14.99 for popular titles


If it was

before: $9.99
after Apple got involved: $9.99

nobody would have raised any complaint.





p.s.

textbooks have nothing to do this this.

p.s. 2
Did you read the DOJ complaint?
http://assets.sbnation.com/assets/1053857/e-books_complaint.pdf







Look at it this way:

Apple selling digital music at wholesale right now. Same with Amazon.

Apple sell popular songs at $1.29
Amazon sell popular songs at $0.99

If Apple and the music record labels did the same thing as they did with ebooks, Amazon would be forced to raise the popular songs to $1.29 (from $0.99) or have no songs to sell.

Does Apple and the music record labels have a right to forced Amazon to raise its MP3 price?
Amazon purchase MP3 at $0.91 and sell it at $0.99. (8% profit margin)
Same with Apple who purchase the MP3 at $0.91 and sell it at $1.29. (30% profit margin)

If Digital Music switched to agency, Amazon would be forced to raise it to $1.29.

Amazon profit margin would increase from 8% to 30%. But customers who buy MP3 at Amazon would pay more.

 

[Tumbleweed666]

Most retailers are faced with this on a daily basis. Retailers demand that suppliers give them the best price, and no other retailers can get a better price. Some suppliers demand that the retailer can't sell competitive products, or they won't get theirs. Negotiations like this are a standard part of doing business.

But very few suppliers say "we wont allow you to cut the price below a certain level even if we sell to you above that", eg if the supplier sells Widgets to the hardware store at $20 each, why would they care if the hardware store sells them at $2?

And whilst setting a lower price isn't illegal in all cases, there certainly must have been an issue with ebooks, because as said elsewhere here, if it was as simple as publishers not allowing Amazon to sell books below a particular price, there would have been no need for an agency agreement.

 

[JHankwitz]

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.

There was the Sony Walkman, then an assortment of mp3 players. Apple simplified technology and now owns the music industry. They did the same thing with Apps. And now, it looks like the same thing will happen with eBooks. Providing an effective, efficient, and easy method to purchase products will always win over cumbersome, time consuming systems. People will pay more for 'easy' because of it's perceived value.

 

[stockscalper]

There was the Sony Walkman, then an assortment of mp3 players. Apple simplified technology and now owns the music industry. They did the same thing with Apps. And now, it looks like the same thing will happen with eBooks. Providing an effective, efficient, and easy method to purchase products will always win over cumbersome, time consuming systems. People will pay more for 'easy' because of it's perceived value.

We're not talking about simplifying the way people buy books/ebooks. That had already been done by Sony, Amazon, Kobo and Barnes and Noble long before Apple got in the game. What's at issue is Apple conspiring with the six largest publishers to fix prices in a monopolistic scheme that has long been illegal in this country.

Anybody who had an ereader knows what happened to ebook prices when Apple cut this deal. There is case precedent, ala Standard Oil, that says the DOJ doesn't need proof of the conspiracy, only evidence of what happened in the market after the deal went into place. Here, as in the famous Standard Oil case, prices shot through the roof. I saw ebooks that had been selling for $5.99 go to $14.99. This is what is going to nail Apple's hide to the wall. It has nothing to do with "innovation."

 

[EbookReader]

Let's look at it this way (what if - make up example)

Itunes songs are sold at $0.99 (wholesale model...profitable but very low margin).
Google want to get into the MP3 business but it doesn't want to do wholesale because it want a 30% profit margin and selling at $0.99 would mean only a 5-10% profit margin.


Google and the music labels got together and decide to switch to agency pricing and signed an agreement that every other store will follow this model. Record labels set the price at $1.39 and agents store get a 30% cut.

The Record Labels came to Apple and said.

Sell your songs at $1.39 and you get 30% cut. If you don't, we won't give you songs to sell.

Apple pulled the "buy button" but after 2 days caved and raised MP3 prices from $0.99 to $1.39.

And to be cheeky, it put a

$1.39 (the price is set by record label ______)


-------------------

The above is exactly what happened with ebook pricing.

 

[Amorsolo450]

Advantages to renting college textbooks

There are a number of advantages to renting the textbooks that you need for your college courses. First and foremost, renting is becoming more prevalent, and textbook rentals are much more accessible than ever before. Saving money is perhaps the most appealing reason to rent. Finally, renting allows you to get the books off your hands when you are done with them so that you can make room for your next stock of books.

 

[thewitt]

The Apple case and the Standard Oil case aren't even remotely related. Sorry. Your analogy doesn't work.

 

[vrDrew]

Highly recommend read for everyone.
It will take about 15-20 minutes.
DOJ complaint:
http://fortunebrainstormtech.files.wordpress.com/2012/04/041112-us-v-apple-complaint.pdf

I've read the DoJ complaint.

The thing to remember about this (and indeed just about any legal complaint, civil or criminal) is that the plaintiff/prosecution ALWAYS paints the blackest possible picture. They present their side of the story, their version of events.

You also need to keep in mind that the Burden of Proof lies with the DoJ: They have to prove that Apple acted illegally. Nobody has heard, or read, Apple's side of the story.

The DoJ got the phone records, but they almost certainly don't have recordings of what was said during those phone calls. And there certainly don't seem to be "smoking gun" documents that lay out how, or if, Apple orchestrated any sort of conspiracy.

People are focusing solely on the "consumer prices went up" part of this story. Thats actually not completely accurate: Consumer prices on some titles went up: Specifically those of first-edition NY Times bestsellers, a category that Amazon was manipulating, selling below their cost, in order to goose sales of their Kindle devices. While that might be well and good for Amazon in the short run, the publishers felt - with justification - that longer term that it would be bad for the overall book market, including that of bricks-and-mortar book retailers. (I know this going to come as a shock to many MR computer nerds, but there are still a lot of people who actually prefer reading books printed on paper, that they buy at a local store... Where do THOSE people's rights and desires figure in all this?)

If you look a little deeper in the book catalog, you'll see that Apple, and its co-defendant publishers, often had the same or lower prices on "back catalog" books than Amazon does, or offers options that aren't available for the Kindle. Example: Tinker, Tailor, Soldier, Spy, the John LeCarre spy story recently made into a movie, is ONLY available in a movie-companion edition for $12 for the Kindle. Whereas Apple and Google Play both offer a "regular" digital edition for $9.99. (There is absolutely zero difference between the two editions other than the cover art.) And you'll find similar distortions throughout the e-book market.

Who is "raising prices for consumers" here?

In response to the DoJ's Anti-Trust allegations, Apple and its co-defendants is going to be able to present all sorts of evidence as to how their actions actually increased competition. That rather than concentrating monopoly power in a single entity it fostered competition among a variety of firms and delivery systems. Not just Apple, but also Google Play, and the on-going financial viability of Barnes & Noble's electronic and physical stores.

 

[velocityg4]

Luckily the only books I get through Kindle are works that are now public domain so they are free. Otherwise if I have to pay I get the hardcover through Amazon since it is as much or cheaper than an ebook. Trying to read off an ereader just is not the same as a book, it's a hindrance really. Also if I'm going to pay for something I want to physically own it.

 

[Daveoc64]

"First" doesn't matter. I know Apple was not the first to make eBooks, but they are finally making them available to a LOT of people and everyone who uses the most popular tablet, the iPad.

You're still totally ignoring the fact that Apple has lower marketshare than both the Kindle and Nook.

I don't see how that means they're "finally" making them available to "a LOT of people", when other companies are doing a far better job. Amazon / Barnes and Noble have been doing that:

a) for longer
b) cheaper
c) on more devices
d) with more content

The iBooks platform has a lot of pitfalls for consumers and that's why it's not as popular as the other platforms.

Apple has done nothing new
Apple has done nothing different
Apple has done nothing better

The iTunes Music Store offered convenience that other stores just didn't have - iBooks is not the same.



----------

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.

This sounds like Agency Model Propaganda to me.

With the wholesale model, publishers STILL get to set how much they receive for each book.

If the publisher sells a book for $10 under the Agency Model, they get $7.

If they publisher sold the book to Amazon for $7 wholesale, then they could get the same money for the content creators, yet consumers would benefit from a competitive market.

This is how the paper book model works, as well as virtually everything else we buy (e.g. food).

 

[Rocketman]

Anti-trust law was initially created to regulate fungible goods like oil. While there are various grades of crude, light sweet from Texas, Saudi or Russia are interchangable to a refinery. Tar sand crude likewise.

A book is a discreet good. A Harry Potter book is not interchangable with a Star Trek book, a Bible, or a text book on U.S. History. Even within the categories of books on U.S. History there are many competing discreet works, some hardcover, some softcover, some vetted by school districts, some vetted by private party fact checkers. Retail pricing is all over the map, but particularly with text books there is price fixing at the retail level now which happens at on-campus book stores for example. These are very expensive books, far beyond the actual production cost. The price is almost entirely wholesale and markup and under 15% physical cost.

The electronic distribution model is not the only aspect of what Amazon in particular was doing. They were also selling books at or below cost to end users as a promo or enticement to buy other products. That was in actual reality disruptive to the physical and electronic markets where the books were being sold at traditional prices and markups as even Amazon charges on "most books".

Theatrical release is also price controlled as passes and discounts are typically not allowed during the first week or two of release. Ticket prices vary regionally but are universally not heavily discounted.

These are perfectly legal actions. A book or a musical work or a movie are all discreet works with no viable "substitution" as a fungible good might have, such as oil.

So Amazon was the one who was targeting"first week" and "top 10" discreet works for exceptional discounting, causing customers to buy almost exclusively from them and disrupting the worldwide market for books and other discreet works which rely on traffic from new and hot items to drive traffic to sell "library" goods.

Therefore it is perfectly within the private ownership rights to simply not sell through that channel since they have disagreeable policies. They were simply all offered a viable alternative at the same time by an enterprising and concerned and interested firm called Apple, using a method propounded by a worldwide recognized pioneer and unparalleled successful business leader, Steve Jobs. (and his rather large crew)

This is the private sector doing what it could and should do to protect a large and growing set of businesses serving millions of customers.

Amazon was acting like Wal-Mart to try to funnel all business to them and their limited distribution model (single point of distribution). In the process "cut out the middleman" and use that margin as the inducement for the chnage of source of product. In addition to all that they also discounted popular items contrary to longstanding industry practice.

They violated so many different industry customs, besides simply distributing electronically, it is perfectly reasonable for some folks to simply say no thank you.

Those folks not bothered by that non-standard practice are free to have Amazon act as their publisher with all its risks and benefits.

Rocketman

 

[BaldiMac]

Let's look at it this way (what if - make up example)

Itunes songs are sold at $0.99 (wholesale model...profitable but very low margin).
Google want to get into the MP3 business but it doesn't want to do wholesale because it want a 30% profit margin and selling at $0.99 would mean only a 5-10% profit margin.


Google and the music labels got together and decide to switch to agency pricing and signed an agreement that every other store will follow this model. Record labels set the price at $1.39 and agents store get a 30% cut.

The Record Labels came to Apple and said.

Sell your songs at $1.39 and you get 30% cut. If you don't, we won't give you songs to sell.

Apple pulled the "buy button" but after 2 days caved and raised MP3 prices from $0.99 to $1.39.

And to be cheeky, it put a

$1.39 (the price is set by record label ______)


-------------------

The above is exactly what happened with ebook pricing.

Well, except that Apple wasn't selling top songs at a loss to drive down the value of music and eliminate competition. And you were using "profit margin" when you were referring to the retail margin. And there is no evidence to date that Apple and the publishers "got together and decide to switch to agency pricing." And there was no agreement on a specific retail price (or margin for other stores.)

But, other than that it was a good analogy.

 

[Daveoc64]

Rocketman

Lovely analysis, but I don't see enough legal citations to back it up.

 

[Rocketman]

I presented a set of theories. Lawyers need to do the legal lingo, cites, and case law. I hope they do.

Rocketman

 

[jimboutilier]

All I can say is that I had all the content I wanted and paid a lot less before Apple got involved.

Apple appealed to publishers greed to get content they couldn't get any other way and all end users suffered higher prices as a result.

I have no problem with Apple negotiating whatever contracts they wanted to between themselves and publishers. But where those contracts impacted entities other than Apple and the publisher (e.g. other retailers), I consider that interference and collusion which should be punished.

 

[BaldiMac]

All I can say is that I had all the content I wanted and paid a lot less before Apple got involved.

Apple appealed to publishers greed to get content they couldn't get any other way and all end users suffered higher prices as a result.

Or, they considered the long term health of the industry and not just today.

I have no problem with Apple negotiating whatever contracts they wanted to between themselves and publishers. But where those contracts impacted entities other than Apple and the publisher (e.g. other retailers), I consider that interference and collusion which should be punished.

That's a pretty low threshold for "interference and collusion". I can't think of many successful companies whose business agreements don't impact other entities other than the signed parties.

I suppose exclusivity agreements are illegal where you are from.

 

[Rocketman]

All I can say is that I had all the content I wanted and paid a lot less before Apple got involved.

Apple appealed to publishers greed to get content they couldn't get any other way and all end users suffered higher prices as a result.

I have no problem with Apple negotiating whatever contracts they wanted to between themselves and publishers. But where those contracts impacted entities other than Apple and the publisher (e.g. other retailers), I consider that interference and collusion which should be punished.

So Amazon should also be punished for their business model which crushed essentially all book stores and record stores in the entire country? That's a whole bunch of lost jobs, and the loss of outlets caused an overall large loss of industry sales. Offset by a large increase in Amazon sales to almost all the industry electronic sales and a very large fraction of physical sales.

Again causing a reduction in overall industry sales and loss of "most" outlets.

Every claim of this nature is a double edged sword.

The recent natural gas price drop form $11 to $2 was caused by "fracing" adding only 11% to normal supply flow. It's still $11-$15 (per MBTU or whatever) everywhere else in the world.

Rocketman

http://en.wikipedia.org/wiki/File:Henry_hub_NG_prices.svg

BTW I read the lawsuit cover to cover. It is a monologue of claims. The response will be interesting.

 

[Tarzanman]

A lot of people claiming that Apple wasn't doing anything wrong and that Amazon (who isn't even part of the suit) was 'ruining things' have apparently not read the lawsuit and probably do not understand what Apple did in concert with the book publishers.

I hope Apple gets destroyed by the feds in court. Anyone abusing their position and breaking the law to illegally extract more money out of consumer pockets deserves punishment.

Apple damned well knew what the publishers doing was illegal collusion, and looked the other way. Apple's involvement implicates them since they have directly profited from the illegal action.

Go DOJ, go!

 

[cmwade77]

Hmm....If Walmart were to say to Hasbro we will sell your game, but you can't sell it cheaper anywhere else, including directly to the consumer, would we not scream about antitrust laws being violated?

The same holds true here, Apple said you cannot sell an eBook cheaper anywhere else, this is a clear cut violation of antitrust laws being violated.

Here is how it should work, Hasbro goes to Walmart and says we will sell you our game for $5.00 and we recommend you sell it for $10.00, but you get to set the price you sell it for and we will sell it to others as we see fit.

The same should be true for eBooks, the publisher should go to Apple, Amazon, whomever and say we will sell your our book for $5.00 and it is up to you to set the retail price, but we recommend $10.00.

So, I fail to see how Apple did not act illegally here.

 

[IJ Reilly]

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

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.

Exactly. This is the kind of information lacking in the only article on the subject that MR has deigned to mention. I can understand why some media writers would spin this subject if they can't see past their ideological biases, but I can less understand why MR wouldn't acknowledge the other side of the argument. Are they simply pandering to their audience? Trying to whip us up into a frenzy of indignation against our beloved Apple? Either way, not a shining moment for MR.

It's also worth mentioning that Apple's so-called response, is very obviously not a response at all.

 

[jimboutilier]

Or, they considered the long term health of the industry and not just today.



That's a pretty low threshold for "interference and collusion". I can't think of many successful companies whose business agreements don't impact other entities other than the signed parties.

I suppose exclusivity agreements are illegal where you are from.

Perhaps I should have been more specific about what I meant by impacts. It's the part where a publisher can not sell a product for less to any other retailer I was getting at. To me that's tortious interference and collusion.