You're right. 30% is their cut - not profit. Was typing faster than I was thinking. However - comfortable or not - if they were going to enter into the market, they had more than one option. In my opinion, they chose poorly on which option to take.
Got a tip for us?
Let us know
Become a MacRumors Supporter for $50/year with no ads, ability to filter front page stories, and private forums.
Authors Believe Apple's Entry Into E-Book Market Wasn't Anti-Competitive
- Thread starter MacRumors
- Start date
- Sort by reaction score
You're right. 30% is their cut - not profit. Was typing faster than I was thinking. However - comfortable or not - if they were going to enter into the market, they had more than one option. In my opinion, they chose poorly on which option to take.
I don't think that there was another reasonable option for them to enter the eBook market.
Sorry? I'd prefer a discussion.
Perhaps an idea of how you think they could reasonably enter the market. Personally, I don't consider any entry in which they would lose money on eBooks indefinitely to be reasonable. And I don't think they could make money without raising consumer pricing.
That's absolutely true and the reason is that in this case the main accusation is of horizontal price fixing. According to case law horizontal price-fixing is per se an antitrust violation, no matter the intentions or the effects on the market. Apple's conduct is actually secondary from this point of view and it's even acknowledged with the term "facilitator" used to describe their role: the main issue has always been the collusion between publishers.
What is "artificially high" or "artificially low?" There was no "natural price" (such as an auction). Amazon unilaterally set the price for ebooks at one they thought the consumer would like sufficiently that the consumer would also buy a $399 Kindle. They set a no-brainer price (from the standpoint of the consumer). Of course consumers are going to prefer a low price over a higher price. That doesn't make the price natural.
The producer of non-essential goods is always in a "negotiation" with buyers, and the goal is to come up with a price that the market will bear. From the producers' standpoint, they want to get the highest price the consumer is willing to pay. Consumers want the lowest price they can get.
Publishers knew how much consumers were willing to pay for a hardcover bestseller, a trade paperback of the same work (5.5" x 8.5"), or a mass market paperback of the same work (4.25" x 6.75"). Those were not "artificially high" prices - those were prices long-tested in the marketplace. Amazon gave publishers no say over ebook prices, so there was no way for publishers to find out just what the consumer was willing to pay.
"What price do we think people will pay for this product?" is a standard part of any producer's product planning process - they know they can sell a book by a popular author at a higher price than one by an unknown (and the author knows that when it's time to negotiate the royalty and advance). They know they can vary the production values (color illustrations on glossy paper vs. black and white on cheap paper, more information vs. less information, etc.) in order to justify a different price. "We'll sell it at $9.99, regardless," is not natural. If you go into the store to buy canned tomatoes, there may be a half-dozen different brands, each selling at a different price (for the same-size can). Why pay more for one than another? It's up to the producer to justify that price.
As far as what is more or less profitable... Publishers had to look at short-term profitability vs. long-term profitability. They had to look at the possibility of a world where there was only ebooks. "How many copies would we have to sell at $9.99 to make the same amount of money we do today, selling books at $24.99?" They had to look at the (strong) possibility that Amazon would stop paying them based on the the hardcover price, and demand that the price they pay the publishers be a percentage of the ebook price. If the SRP was $9.99, then publishers had to consider a world where they got $4.98 from Amazon, rather than the $12.48 Amazon was currently paying.
It was never anti-competitive, they were just trying to protect Amazon as they sold ebooks at a loss to maintain their dominance.
What you and many don't get is that it's not about prices. It's about fostering or inhibiting competition in the marketplace.
So, as far as this theoretical anticonpetitive behavior goes, we've heard from the authors and we've heard from the booksellers. Neither thinks so. Who's left? Oh yes, us. The consumers. Raise your hand if you feel harmed by the addition of Apple to the choice of e-book retailers (which used to be Amazon 90% of the time).
Anyone?
You do know that when Apple entered the market, prices went up right?
Kindles are widely considered to be sold at or below cost with the money maker being digital sales.
About the "natural price", I never implied the previous price was "natural": what the previous price was is irrelevant. The point is that the price (whatever it was) was increased through horizontal price fixing, which is illegal no matter what. In this sense the increase was "artificial": it was not obtained through the rules of the free market but by engaging in illegal anti-competitive practices.
You can argue that the previous price itself was also not obtained through the rules of the free market, but first of all Amazon itself was never sued nor found guilty of any anti-competitive behaviour and on top of that it would in any case not excuse the publishers for their price fixing.
I never said whether, in 2010, Kindle was being sold at a profit, or not. It is simply a factor in total cost of ownership. Instead of paying for contents, paper, and ink in a single transaction, the ebook customer is expected to pay separately for media and "paper and ink." How many books will you read on that $399 (or $199) Kindle before it hits the recycle bin? When you know that, you know whether the lower cost of media has offset the separate cost of "paper and ink." And at that time, the only media being consumed on a Kindle was books, in 16-shades-of-gray. Photos looked awful, and color illustrations... forget about it!
At the time this was taking place, Amazon was selling the media below cost. They were also paying the cellular data providers (no wifi in early Kindles). If they were also selling the Kindles below cost (which, at $399 with no middleman, isn't likely, but possible...)... The near-term goal was not "sales of digital media." The goal would have had to be "to create a hardware-specific, proprietary market for ebooks."
If media sales was the goal (and long term, that's a logical goal), Amazon had to envision a future where they were no longer selling that media below cost. How, exactly, would they do that? They could either pay less for the media (which is what the publishers expected), or raise prices to the consumer.
The success of iPad (and phablets) killed that original vision for Kindle. Multi-purpose computing devices have clearly won, and Amazon can't afford to limit their customers to a particular hardware platform. They could well be selling Kindles at a loss in this environment - it's not just about selling media, it's about selling groceries, appliances, jewelry... Do you see Google when you power up, or Amazon?
My point has nothing to do with the merits of the price-fixing case. The verdict is what it is, the plea deals are what they are. Your original comment was specifically, "...so that the perceived value of books would remain artificially high." I took that to mean all books, including print books. How could it be otherwise? (That was one of the publishers' concerns - grossly undervaluing content, grossly over-valuing the contribution paper and ink make to the cost of a book.) So... how do publishers keep the value of all books "artificially" high? (You needn't respond - since the publishers weren't accused or found guilty of fixing the prices of print books, it's "irrelevant.")
You seem to imply that they were incurring losses with the original prices but as far as I know this was not actually the case: they were not selling everything below cost, they were selling hardware and selected titles below cost to act as loss-leaders with the margins from other titles sold above cost able to make up for it.
Except they still do sell them at loss? Kindle ebook readers are ebook readers, they were never meant to compete against multi-purpose devices. On top of that if I buy a device with the specific function to read ebooks, it's pretty likely that I'm interested in reading ebooks and that I will buy many ebooks: this makes the hardware as loss-leader strategy even more reasonable.
They increased (illegally) the price of ebooks: this means that ebooks were weakened as competitors of physical books: as example if I might have chosen an ebook instead of a physical book, now that the ebook costs 2$ more I might reconsider. The end result is that with artificially high ebook prices there is less competitive pressure on physical books from them, so there is less a need to reduce the physical book prices to keep demand up.
Regardless of what Apple did or did not do, the impression that I've got from the commentators in the post is that they'd rather have Amazon have a monopoly over the e-book market than have Apple as another competitor to Amazon. That must be awesome to authors and consumers! Clap clap
I'm not getting that impression. I get the impression that some consumers were not happy that agreements were made with the book publishers that resulted in them facing an increase in the price of many e-books just so that Apple could justify entering the market.
And yet Apple's conduct is vertical. As Apple argues in their petition, the supreme court has ruled in the past that vertical conduct must be analyzed using the rule of reason even if it allegedly facilitated horizontal collusion.
Amazon was incurring losses with each sale. The fact that they made it up through the sale of different products doesn't change that. Especially considering that the only significant increase in eBook prices that this case is concerned with were those eBooks that Amazon was selling at a loss!
Last edited:
Amazon was only losing money on their loss leaders. They were profitable in their eBook department. And prices went up across the board, not just for books that Amazon had on sale. Publishers wanted eBook prices higher than physical books, and that's what happened when Apple entered the market.
So? I didn't claim otherwise (even though there is no proof of your claim).
As I said, i was referring to a "significant increase in eBook prices that this case is concerned with". There is nothing in the record that Apple sought to increase the price of backlist titles.
