Apple SVP Eddy Cue Takes Stand in E-Book Trial, Admits Some E-Books Rose in Price

[iGrip]

I still don't understand what Apple allegedly did wrong. They set up shop a charged a higher price?

Not even close. But I suspect that you'd rather not know, and additionally, that any and all explanations that might be tendered would remain unaccepted.

But maybe I'm wrong and you really don't know. If so, here's a decent glimpse into what the DOJ is thinking in pursuing this action against Apple.

 

[samcraig]

Not even close. But I suspect that you'd rather not know, and additionally, that any and all explanations that might be tendered would remain unaccepted.

I like your sig quote. Also from that passage

"Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”

I wanted to add (I posted the same in another thread)

Apple could have entered the market. They just would not have made as much profit. That frustrated Apple. So they were on a mission to change the game to benefit themselves. Does anyone really think they wanted the publishers to make more money? Please. Side benefit. They wanted to make as much as they could off of ebooks and steal marketshare from Amazon. And if they stuck to their 70/30 split (which was only an internal "rule") they would not be profitable by selling books at 9.99. Nothing stopped Apple from doing a different split and/or pricing their books slightly higher to make up the difference. Many people in the ecosystem would have paid. They also could have offered extras with iBooks that weren't in the Kindle versions.

But they didn't. Did they?

I haven't seen anyone mention that before (I don't think). The 70/30 split. Apple could have done 80/20 or 90/10. Whatever. But that wasn't what they wanted. I'm not saying they were greedy. And obviously every company wants to make as much profit as possible. But let's not pretend there was NO way for Apple to make money...

 

[GadgetDon]

I like your sig quote. Also from that passage

"Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”

I wanted to add (I posted the same in another thread)

Apple could have entered the market. They just would not have made as much profit. That frustrated Apple. So they were on a mission to change the game to benefit themselves. Does anyone really think they wanted the publishers to make more money? Please. Side benefit. They wanted to make as much as they could off of ebooks and steal marketshare from Amazon. And if they stuck to their 70/30 split (which was only an internal "rule") they would not be profitable by selling books at 9.99. Nothing stopped Apple from doing a different split and/or pricing their books slightly higher to make up the difference. Many people in the ecosystem would have paid. They also could have offered extras with iBooks that weren't in the Kindle versions.

But they didn't. Did they?

I haven't seen anyone mention that before (I don't think). The 70/30 split. Apple could have done 80/20 or 90/10. Whatever. But that wasn't what they wanted. I'm not saying they were greedy. And obviously every company wants to make as much profit as possible. But let's not pretend there was NO way for Apple to make money...

No, they couldn't. Here was the situation. Amazon was deeply discounting their ebooks, to the point where there was almost no difference between the wholesale price paid to the publishers and the amount Amazon was selling it for. They disliked this deep discounting because Amazon was setting an expectation "this is how much an ebook should cost" that was killing hardbound sales and also they believed would lead to Amazon saying "So now the real price is 9.99, which means the wholesale price we'll pay is 5.00, pay or else you're cut out of the only ebook market and we'll also stop selling your physical books"

So if Apple had come in to sell at 9.99, either the publishers would have made even less from sales in the iBookstore than in the Kindle store, or Apple would have made zero profit. Not less, ZERO. And it would have done nothing to change the expectation being set of what the price should be. Either Apple wouldn't have done the deal, or the publishers wouldn't have done the deal.

And the 30% margin is the number Apple uses across all their stores. Music, movies, TV shows, apps, magazines.

 

[samcraig]

So if Apple had come in to sell at 9.99, either the publishers would have made even less from sales in the iBookstore than in the Kindle store, or Apple would have made zero profit. Not less, ZERO. And it would have done nothing to change the expectation being set of what the price should be. Either Apple wouldn't have done the deal, or the publishers wouldn't have done the deal.

And the 30% margin is the number Apple uses across all their stores. Music, movies, TV shows, apps, magazines.

Apple could have charged more to make some profit. They chose not to. And again - that 30% is arbitrary. Regardless of whether they use it for other models - they could have changed it for books if they wanted to.

Look - I am not saying Apple IS guilty of colluding, wrong for entering the market, how they wanted to profit or that they didn't do what any normal business would/should do.

However none of that matters IF and I say IF they broke the law in doing so. So even if I think Apple should be commended, exonerated, or whatever - if they broke the law, they broke the law.

Some people have no problem when it's another company being put through the ringer fairly or unjustly and thing they should be forced to "pay" before even found guilty. Apple, to some, is justified though.

Justified or not - like I said - IF they broke the law - they broke the law. And that is why I support the hearing. Not to find Apple guilty. But to find out the truth. And you can't do that without a hearing. And even then - there are no guarantees the truth comes out.

 

[GadgetDon]

Apple could have charged more to make some profit. They chose not to. And again - that 30% is arbitrary. Regardless of whether they use it for other models - they could have changed it for books if they wanted to.

Look - I am not saying Apple IS guilty of colluding, wrong for entering the market, how they wanted to profit or that they didn't do what any normal business would/should do.

However none of that matters IF and I say IF they broke the law in doing so. So even if I think Apple should be commended, exonerated, or whatever - if they broke the law, they broke the law.

Some people have no problem when it's another company being put through the ringer fairly or unjustly and thing they should be forced to "pay" before even found guilty. Apple, to some, is justified though.

Justified or not - like I said - IF they broke the law - they broke the law. And that is why I support the hearing. Not to find Apple guilty. But to find out the truth. And you can't do that without a hearing. And even then - there are no guarantees the truth comes out.

The reason I think it all matters is the argument is that Apple and the publishers were artificially inflating prices. By looking at Amazon's pattern of behavior, I think it's at least highly arguable they were artificially deflating prices.

Remember, every publisher set their "retail" prices for the eBooks, which was above the $9.99 Amazon was discounting to. They were setting the prices separately. If there was a true market going on when Apple entered the market, there would be stores that did no discounts, stores that deeply discounted a few books but not all, stores that deeply discounted all of them.

But due to Amazon's anti-competitive behavior, there was a market of one, and they made sure that market remained a market of one by discounting to the wholesale price (and threatening publishers who objected with removing their physical books from Amazon as well as eBooks).

So I'll go back to say if the DoJ had both said "the most favored nation clause won't fly in this market, it's anti-competitive" and had taken Amazon to task to stop their anticompetitive behavior, that would have led to a more open and competitive market, where retailers can enter and compete. By only going after Apple, they aren't creating an open market, they're creating an even less free market. This seems less like fighting against abuse of market power and more like selective prosecution.

 

[samcraig]

The reason I think it all matters is the argument is that Apple and the publishers were artificially inflating prices. By looking at Amazon's pattern of behavior, I think it's at least highly arguable they were artificially deflating prices.

Remember, every publisher set their "retail" prices for the eBooks, which was above the $9.99 Amazon was discounting to. They were setting the prices separately. If there was a true market going on when Apple entered the market, there would be stores that did no discounts, stores that deeply discounted a few books but not all, stores that deeply discounted all of them.

But due to Amazon's anti-competitive behavior, there was a market of one, and they made sure that market remained a market of one by discounting to the wholesale price (and threatening publishers who objected with removing their physical books from Amazon as well as eBooks).

So I'll go back to say if the DoJ had both said "the most favored nation clause won't fly in this market, it's anti-competitive" and had taken Amazon to task to stop their anticompetitive behavior, that would have led to a more open and competitive market, where retailers can enter and compete. By only going after Apple, they aren't creating an open market, they're creating an even less free market.

Well 1) there were other eBook markets. Did they have a big portion of the lionshare - no - but then again - their eReaders weren't as popular. And yes - obviously that was in due to Amazon's pricing. But Kindles at the time were also more expensive. Amazon really did built a successful ebook business. Sony had an OK one - but just like Apple and the iPod - Amazon made eBooks "cool"

2) What are you expecting to happen to Apple even after this inquiry? And the eBook market. Not too much. The collateral "damage" so to speak is already done in the marketplace. It would be hard to undo. A reason why I also find Apple and Samsung/etcs lawsuits "silly" (personally) - while I respect patents - the damage has already been "done" if there was any damage (Apple isn't selling less but MORE phones than they have ever). Nothing will really ever be gained by a "win."

I do see where you're coming from. At the end of the day - I believe in the process. Regardless of outcome.

 

[GadgetDon]

2) What are you expecting to happen to Apple even after this inquiry? And the eBook market. Not too much. The collateral "damage" so to speak is already done in the marketplace. It would be hard to undo. A reason why I also find Apple and Samsung/etcs lawsuits "silly" (personally) - while I respect patents - the damage has already been "done" if there was any damage (Apple isn't selling less but MORE phones than they have ever). Nothing will really ever be gained by a "win."

I do see where you're coming from. At the end of the day - I believe in the process. Regardless of outcome.

What's going to happen? First, nothings going to stop Amazon from pricing everyone else out of the market, and at some point they're going to use that market price to either force reduced wholesale prices (and as the only viable market, the publishers will have no choice) or raise the prices (and any company will be very leery about re-entering this market).

I think it's likely the Most Favored Nation clause is gone. It really pretty much is already, as part of the publisher agreements they've cancelled that part of the contract. That doesn't bother me too much.

The big concern is that the DoJ is trying to make the argument that the Agency model is inherently anti-competitive. And that's something that scares me if they manage to pull it off. Because the wholesale model really doesn't work for digital goods.

The wholesale model is based on physical transfer of goods. I buy a whole bunch of your goods and store them in my warehouses, and because I'm buying a lot, I get a really good price. I sell out of my warehouse, and when empty, re-order. That's not how digital goods are sold. There is no "I am buying a bunch of them now", you create them and sell them and pay the owner of the IP a percentage of what you collected.

 

[TMay]

I like your sig quote. Also from that passage

"Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”

I wanted to add (I posted the same in another thread)

Apple could have entered the market. They just would not have made as much profit. That frustrated Apple. So they were on a mission to change the game to benefit themselves. Does anyone really think they wanted the publishers to make more money? Please. Side benefit. They wanted to make as much as they could off of ebooks and steal marketshare from Amazon. And if they stuck to their 70/30 split (which was only an internal "rule") they would not be profitable by selling books at 9.99. Nothing stopped Apple from doing a different split and/or pricing their books slightly higher to make up the difference. Many people in the ecosystem would have paid. They also could have offered extras with iBooks that weren't in the Kindle versions.

But they didn't. Did they?

I haven't seen anyone mention that before (I don't think). The 70/30 split. Apple could have done 80/20 or 90/10. Whatever. But that wasn't what they wanted. I'm not saying they were greedy. And obviously every company wants to make as much profit as possible. But let's not pretend there was NO way for Apple to make money...

What part of Amazon selling Bestsellers below cost do you not understand? If anything, the counter argument should be: what was the benefit to Amazon of pricing below cost, and what damage would it do to the publishing industry.

 

[samcraig]

What's going to happen? First, nothings going to stop Amazon from pricing everyone else out of the market, and at some point they're going to use that market price to either force reduced wholesale prices (and as the only viable market, the publishers will have no choice) or raise the prices (and any company will be very leery about re-entering this market).

I think it's likely the Most Favored Nation clause is gone. It really pretty much is already, as part of the publisher agreements they've cancelled that part of the contract. That doesn't bother me too much.

The big concern is that the DoJ is trying to make the argument that the Agency model is inherently anti-competitive. And that's something that scares me if they manage to pull it off. Because the wholesale model really doesn't work for digital goods.

The wholesale model is based on physical transfer of goods. I buy a whole bunch of your goods and store them in my warehouses, and because I'm buying a lot, I get a really good price. I sell out of my warehouse, and when empty, re-order. That's not how digital goods are sold. There is no "I am buying a bunch of them now", you create them and sell them and pay the owner of the IP a percentage of what you collected.

Understood - but your theory is just that. (The first part of your post).

Is the DOJ really trying to end the Agency model? I've been to focused on reading up on the aspects of collusion and that evidence. I will admit ignorance to whether or not the agency model is being attacked with the intention of being killed off.

I never stated (that that you're accusing me) that he agency model is bad. My only "concern" is whether or not there was collusion. If there was illegal activity - even if it was for "good" - and would ultimately benefit - I am still in favor of due process.

 

[TMay]

Well 1) there were other eBook markets. Did they have a big portion of the lionshare - no - but then again - their eReaders weren't as popular. And yes - obviously that was in due to Amazon's pricing. But Kindles at the time were also more expensive. Amazon really did built a successful ebook business. Sony had an OK one - but just like Apple and the iPod - Amazon made eBooks "cool"

2) What are you expecting to happen to Apple even after this inquiry? And the eBook market. Not too much. The collateral "damage" so to speak is already done in the marketplace. It would be hard to undo. A reason why I also find Apple and Samsung/etcs lawsuits "silly" (personally) - while I respect patents - the damage has already been "done" if there was any damage (Apple isn't selling less but MORE phones than they have ever). Nothing will really ever be gained by a "win."

I do see where you're coming from. At the end of the day - I believe in the process. Regardless of outcome.

Apple hasn't stopped patenting innovations, and a win would send a message to the smartphone market that stealing IP has severe consequences. That's what all this fuss is about.

 

[samcraig]

Apple hasn't stopped patenting innovations, and a win would send a message to the smartphone market that stealing IP has severe consequences. That's what all this fuss is about.

Yes - years of litigation which so far hasn't awarded any money. One of the reasons HTC settled. They knew they couldn't afford the lawsuit. Their pockets aren't as deep.

 

[TMay]

Yes - years of litigation which so far hasn't awarded any money. One of the reasons HTC settled. They knew they couldn't afford the lawsuit. Their pockets aren't as deep.

Funny. When the Publishers pay, they are guilty. When HTC pays, it's because they can't afford to fight.

That thesis is unsound. Apple and Microsoft both hold many, many solid patents and have long experience with operating systems and UI. Google and Motorola are both losing big because they have little in the way of IP that isn't FRANDed. Motorola has had the single patent award against Apple in Germany rolled back. Google is fighting a rear guard action for Android while avoiding "official" involvement.

HTC, not so much success. They lost for multiple reasons, and they paid damages, and they licensed some IP from Apple under strict conditions of use. Simple.

 

[GadgetDon]

Apple hasn't stopped patenting innovations, and a win would send a message to the smartphone market that stealing IP has severe consequences. That's what all this fuss is about.

I think you've got your lawsuits confused. This isn't about patents, it's about alleged price fixing with iBooks.

Understood - but your theory is just that. (The first part of your post).

Is the DOJ really trying to end the Agency model? I've been to focused on reading up on the aspects of collusion and that evidence. I will admit ignorance to whether or not the agency model is being attacked with the intention of being killed off.

I never stated (that that you're accusing me) that he agency model is bad. My only "concern" is whether or not there was collusion. If there was illegal activity - even if it was for "good" - and would ultimately benefit - I am still in favor of due process.

As I read their arguments, it all seems to come down to the view that the agency model is inherently abusive and so the only "fix" will be to ban the agency model in books - and not a hard jump from that to say it's also abusive in music, video, apps, and magazines.

And you keep saying you're in favor of due process - but if the cop and the judge are turning a blind eye to one guy and instead only dealing with the competition for that guy, it looks less like due process and more like selective prosecution.

 

[samcraig]

Funny. When the Publishers pay, they are guilty. When HTC pays, it's because they can't afford to fight.

That thesis is unsound. Apple and Microsoft both hold many, many solid patents and have long experience with operating systems and UI. Google and Motorola are both losing big because they have little in the way of IP that isn't FRANDed. Motorola has had the single patent award against Apple in Germany rolled back. Google is fighting a rear guard action for Android while avoiding "official" involvement.

HTC, not so much success. They lost for multiple reasons, and they paid damages, and they licensed some IP from Apple under strict conditions of use. Simple.

I never said the publishers were guilty. I think it doesn't look good. And HTC settled most of the dispute out of court. Let's not compare Apples to Oranges though.

I still stand by the statement that HTC settled because it was more equitable for them to so do. Samsung will keep fighting because they believe they are right (whether or not we believe they are) and because they can afford to take it all the way.

I think you've got your lawsuits confused. This isn't about patents, it's about alleged price fixing with iBooks.

To be fair - I brought up the patent lawsuit when I offhandedly said "A reason why I also find Apple and Samsung/etcs lawsuits "silly" (personally) - while I respect patents - the damage has already been "done" if there was any damage (Apple isn't selling less but MORE phones than they have ever). Nothing will really ever be gained by a "win.""

----------

I think you've got your lawsuits confused. This isn't about patents, it's about alleged price fixing with iBooks.




As I read their arguments, it all seems to come down to the view that the agency model is inherently abusive and so the only "fix" will be to ban the agency model in books - and not a hard jump from that to say it's also abusive in music, video, apps, and magazines.

And you keep saying you're in favor of due process - but if the cop and the judge are turning a blind eye to one guy and instead only dealing with the competition for that guy, it looks less like due process and more like selective prosecution.

Devil's advocate. Do two wrongs make a right? If I speed and you speed - but you get pulled over - does that make you any less guilty?

Do I think it's "fair" - I don't know. I don't have all the facts. And we can spend forever conjecturing what Amazon did/does/plans to do/etc and whether or not this was a "witch hunt" or whatnot.

I'm simply (or trying to) just discuss the issue of collusion - nothing else.

 

[TMay]

I think you've got your lawsuits confused. This isn't about patents, it's about alleged price fixing with iBooks.




As I read their arguments, it all seems to come down to the view that the agency model is inherently abusive and so the only "fix" will be to ban the agency model in books - and not a hard jump from that to say it's also abusive in music, video, apps, and magazines.

And you keep saying you're in favor of due process - but if the cop and the judge are turning a blind eye to one guy and instead only dealing with the competition for that guy, it looks less like due process and more like selective prosecution.

Read samcraig #31 above for his take on Apple's Patent suit(s) which was what I was responding to.

 

[samcraig]

Read samcraig #31 above for his take on Apple's Patent suit(s) which was what I was responding to.

I defended you

Just FYI - I'm not "naive" - clearly setting precedent is important. But ultimate - for Samsung (as an example) it's not really going to stop them from taking their chances. It's almost impossible these days to produce any product and not step on someone's patents. Purposely or not. And a patent is only really valid if tested. As we've seen in these cases. It's not just enough to have a patent - it has to be analyzed and debated in court to determine if it can hold up and offending parties be liable.

So my comment was a little bit of hyperbole. And I recognize that.

 

[TMay]

I defended you

Just FYI - I'm not "naive" - clearly setting precedent is important. But ultimate - for Samsung (as an example) it's not really going to stop them from taking their chances. It's almost impossible these days to produce any product and not step on someone's patents. Purposely or not. And a patent is only really valid if tested. As we've seen in these cases. It's not just enough to have a patent - it has to be analyzed and debated in court to determine if it can hold up and offending parties be liable.

So my comment was a little bit of hyperbole. And I recognize that.

Yes! and thank you.

The problem the Apple sees is that Samsung appears not to have even slowed down its infringement to that which is being adjudicated; Samsung is sending new products in to the U.S. that are very likely to also infringe. At some point, Congress is going to get tired of hearing from MS, Apple, et al, and do something about allowing fast tracks and injunctions. Then it will be zero tolerance for IP abusers.

Google (Motorola) is still attempting to gain injunctions for FRANDed IP; the ITC is pretty much done with any of that here in the U.S., as are most IP jurisdictions worldwide.

So much for "Don't Be Evil", but for the $ they paid Motorola, a white elephant, what else can they do?

 

[samcraig]

Yes! and thank you.

The problem the Apple sees is that Samsung appears not to have even slowed down its infringement to that which is being adjudicated; Samsung is sending new products in to the U.S. that are very likely to also infringe. At some point, Congress is going to get tired of hearing from MS, Apple, et al, and do something about allowing fast tracks and injunctions. Then it will be zero tolerance for IP abusers.

Google (Motorola) is still attempting to gain injunctions for FRANDed IP; the ITC is pretty much done with any of that here in the U.S., as are most IP jurisdictions worldwide.

So much for "Don't Be Evil", but for the $ they paid Motorola, a white elephant, what else can they do?

Well - color me rose colored - but I don't think Google's acquisition was JUST about buying Motorola patents. Although I would say that was the majority. I also do think Google wants to create its own hardware. And they could either start from 'scratch' - or buy a company that was already making phones. For that reason - it was a "smart" acquisition for both levels of desire.

 

[FakeWozniak]

So if Apple approached the 5 big publishers of Books and suggests they change to an agency model, it's collusion. What about when they approached the 5 big publishers of Music and suggested they change to an agency model? Didn't the exact same thing happen back in the iPod days???

 

[Tigger11]

Is the DOJ really trying to end the Agency model? I've been to focused on reading up on the aspects of collusion and that evidence. I will admit ignorance to whether or not the agency model is being attacked with the intention of being killed off.

Yes the DOJ is ending the agency model. Read the settlement agreements with all the publishers, they allow Amazon to sell books at whatever price they want with regards to ebooks, which is bad for the publishers, the creators, the economy and the eventually all of us.
-Tig

 

[jimboutilier]

All I know is that e-book pricing from the accused publishers all took a significant jump as part of Apple getting into their market. Higher revenue was the carrot Apple dangled in front of the publishers to get into the market at the expense of consumers. They all worked together to make it happen.

I'd call it collusion. And I'd call it illegal. But thats up to the courts. I'd call it bad for consumers and thats up to me. As a result I never have and never will by an iBook from Apple thats available anywhere else.

 

[nevir]

I still don't understand what Apple allegedly did wrong. They set up shop a charged a higher price?

They set up a shop that charged higher prices ...and forced every other shop to charge identical prices. No sales allowed, exact same cut, etc.

----------

Yes the DOJ is ending the agency model. Read the settlement agreements with all the publishers, they allow Amazon to sell books at whatever price they want with regards to ebooks, which is bad for the publishers, the creators, the economy and the eventually all of us.
-Tig

Not sure I agree. Without breaking the agency model, it would be extremely unlikely that Apple lowers the 30% cut; and every other distributor is locked into that same split.

Zero competition on price and margins allowed under the agency model.

 

[2bikes]

Yes the DOJ is ending the agency model. Read the settlement agreements with all the publishers, they allow Amazon to sell books at whatever price they want with regards to ebooks, which is bad for the publishers, the creators, the economy and the eventually all of us.
-Tig

Wouldn`t this push authors towards publishing their own books with software such as ibooks author and others? Is this option not profitable for the authors?

 

[TMay]

Well - color me rose colored - but I don't think Google's acquisition was JUST about buying Motorola patents. Although I would say that was the majority. I also do think Google wants to create its own hardware. And they could either start from 'scratch' - or buy a company that was already making phones. For that reason - it was a "smart" acquisition for both levels of desire.

Not smart as much as forced. Motorola CEO and financial backer Carl Icahn threatening to go after Android OEM's for IP. That would have wreaked havoc at the time.

That's what got Google's intention. The IP is basically FRAND so not worth all that much in negotiating terms with Apple, Nokia, Microsoft, et al, and Motorola as a hardware company hasn't found any stickiness to its products, certainly not a Samsung. Some steep tax writeoffs benefit Google, but that isn't generally why corporations buy other corporations in the tech community.

Seems to me that this might been part of the reason that Andy Reuben was transferred out of the Android group, based on stories and rumors at the time he was transferred.

 

[samcraig]

Not smart as much as forced. Motorola CEO and financial backer Carl Icahn threatening to go after Android OEM's for IP. That would have wreaked havoc at the time.

That's what got Google's attention. The IP is basically FRAND so not worth all that much in negotiating terms with Apple, Nokia, Microsoft, et al, and Motorola as a hardware company hasn't found any stickiness to its products, certainly not a Samsung. Some steep tax writeoffs benefit Google, but that isn't generally why corporations buy other corporations in the tech community.

Seems to me that this might been part of the reason that Andy Reuben was transferred out of the Android group, based on stories and rumors at the time he was transferred.

The amount of patents Motorola has that are not FRAND are astronomical. Google now has a huge arsenal for decades on things that have never been implemented yet.