How Apple's Agency Model for Publishers Fails to Merit Collusion Charges

[EbookReader]

Look like the DOJ antitrust chief feels the same way:

http://www.justice.gov/iso/opa/atr/speeches/2012/at-speech-120423.html
Department of Justice antitrust chief, Sharis A. Pozen

As outlined in our complaint, these companies conspired to end e-book retailers’ freedom to compete on price.

At the same time we filed our complaint, we reached a settlement that, if approved by the court, would resolve our challenge against Hachette, HarperCollins and Simon & Schuster, and would require those companies to grant retailers—such as Amazon and Barnes & Noble—the freedom to reduce prices on their e-book titles. At its heart, this case is about protecting competition, not competitors.



if each store gets 30% mark up, there is no competition among them (to lower the mark up in the form of lower prices).

 

[Rocketman]

In capitalism, retailers want the biggest mark up possible. Competition forces the mark up down. By setting a fixed percentage of mark up (30%), competition is eliminated.

A couple of nits.

The ebook market itself is "new". Competition as you define it or ecpect to see needs to "evolve". If the government interferes with the market and prevents it from developing that competition among models, the time of actual organic growth and competition will be delayed or perhaps fully crippled.

What I as a marketer and economist would expect to see is a year or two of the various ebook marketplaces to attract content which takes time since they all have competing formats as well as models and distribution schemes.

Once a few rise to the top in terms of users and downloads, they will then be in a position to do whatever "retailer" price adjustments they choose. Remember a "take it or leave it" TOS can change from time to time if they choose.

Taking a snapshot of the start-up phase of the ebook market and starting anti-trust action now is unjustifiable.

We're talking about an oligopsony with perhaps 5-7 ebook distributors at this point.

I would ask the government to defer their action and see how the market evolves. This administration is too involved in the economy generally for my taste, but it's not just me. This morning's GDP figure was 2.2% (annualized rate based on the last quarter of activity). But check this. Private investment is DOWN 1.5%. That means we are getting closer to double dip due to "financial repression" and "hoovering up the demand in the debt market" with 1.4T annualized in bond offerings. When was that stimulus supposed to end again? 10-10.

"The Witness" will sell more copies at $10.49 than at $14.99.

To a degree, but definitely not linearly. In actuality, there will be a forward bias for marginal income buyers to buy sooner rather than later. Some buyers on the margin will be able to afford the price differential, but most economic models find a much higher degree of product substitution than added demand as a result of a marginally lower price.

Another factor is folks are only subscribers to one or two of the services so the choice becomes one of which ecosystem best suits the particular book you are buying.

There are several larger factors than price. Also as for MFN, if they simply adjust that to mean wholesale the problem goes away.

Rocketman

 

[BaldiMac]

In capitalism, retailers want the biggest mark up possible. Competition forces the mark up down. By setting a fixed percentage of mark up (30%), competition is eliminated.

Again, price competition is eliminated among retailers. The publishers still compete on price between publishers. There is no law saying retailers are the only acceptable competitors. The problem is that the publishers are accused of colluding on pricing. That's the part that is illegal.

It's telling that the DOJ settlements with the three publishers only ban agency pricing for 2 years. Agency pricing is not the problem.

Competition works. Consumers benefit from lower prices.

Yep. Unless there is a competitor or competitors with significant market power that engage in price fixing or predatory pricing. (In other words, I don't think the market was working before Apple either.)

Kindle dominate ebooks (selling at 30% mark up). Apple want to challenge Amazon and only charge 8% mark up. Kindle doesn't like this because prices are lower at ibookstore. They forced the publishers to force Apple to raise its mark up from 8% to 30%. Is that a legal?

1. Apple didn't force publishers to raise prices.
2. Amazon had 90% of the ebook market and dominant market power in the overall book market. What's legal changes when you monopolize a market.

The publishers could set the price at $14.99 (and they would get 70% from it, or $10.49). Amazon gets to keep 30%.

But without that MFN clause, Amazon can discount their 30%.

Again, this seems to be the fundamental concept that you keep misstating. Under the agency model, publishers set the retail price. Amazon cannot discount the price, because it is set by the publishers. The MFN clause has nothing to do with it.

 

[sha4000]

Again, this seems to be the fundamental concept that you keep misstating. Under the agency model, publishers set the retail price. Amazon cannot discount the price, because it is set by the publishers. The MFN clause has nothing to do with it.

Yeah the publishers colluded to set the price which was higher bcuz they had the maker of the most popular tablet in their corner bringing everyone together. He's basically telling them you know how we are crushing the competition with the iPhone so you know its going to be the same thing with the iPad..We are Apple and we can't be stopped lol. You help us break into the ebook market and we'll help you get more money for your ebooks.Add in the MFN AND Amazon will have no choice but to go along. Capisce! Does that make it a Lil clearer about what he's talking about?

 

[BaldiMac]

Yeah the publishers colluded to set the price which was higher bcuz they had the maker of the most popular tablet in their corner bringing everyone together. He's basically telling them you know the how we are crushing the competition with the iPhone so you know its going to be the same thing with the iPad..We are Apple and we can't be stopped lol. You hello us break into the ebook market and we'll help you get more money for your ebooks.Add in the MFN AND Amazon will have no choice but to go along. Capiche! Does that make it a Lil clearer about what he's talking about?

I understand all of that. It's a good description of the situation. (Although I'd throw in an "allegedly" here or there. )

However, EbookReader was misstating the role of the MFN clause in the retail pricing. The MFN clause did not prevent Amazon and others from lowering the retail price. The agency model prevents them from lowering the price.

The publishers set the price. They are free to lower the price on Amazon or set a higher price at B&N. Amazon has no say in the price with the agency model. The MFN clause that Apple negotiated just guarantees that the publishers won't set prices on the iBookstore higher than anywhere else. Heck, Amazon also has an MFN clause in their self-publishing terms. They even have an MFN clause in their app pricing.

 

[drorpheus]

Again, price competition is eliminated among retailers. The publishers still compete on price between publishers. There is no law saying retailers are the only acceptable competitors. The problem is that the publishers are accused of colluding on pricing. That's the part that is illegal.

Those horse blinders welded on or what. So they will compete with thereselves to do what, sell there books to each other? Do you even read anything that you actually write? Do you even understand the concept of retail outside of the all glass Apple cubes?

1. Apple didn't force publishers to raise prices.

Yeah no, they are actually trying to lower the price by liberating the publishers from their own self imposed price points that they set on their own and have done so for the last 50 yrs.

Again, this seems to be the fundamental concept that you keep misstating. Under the agency model, publishers set the retail price. Amazon cannot discount the price, because it is set by the publishers. The MFN clause has nothing to do with it.

And how does your brain not comprehend that Apple is the only one who uses the model. It only applys in Appleland, where the rest of the world currently operates with a wholesale model.

 

[lilo777]

I can't understand why anybody would doubt that there was a crime committed by Apple and the publishers here. Just look st the timeline. Publishers were unhappy about prices. They met secretly to discuss the situation and then got Apple involved. They cooked up a new model and three months later e-book prices went up 30% (or whatever). What do you think happened? People started reading more? The books got better? The authors died? Can anyone explain? I can.

 

[sha4000]

I understand all of that. It's a good description of the situation. (Although I'd throw in an "allegedly" here or there. )

However, EbookReader was misstating the role of the MFN clause in the retail pricing. The MFN clause did not prevent Amazon and others from lowering the retail price. The agency model prevents them from lowering the price.

The publishers set the price. They are free to lower the price on Amazon or set a higher price at B&N. Amazon has no say in the price with the agency model. The MFN clause that Apple negotiated just guarantees that the publishers won't set prices on the iBookstore higher than anywhere else. Heck, Amazon also has an MFN clause in their self-publishing terms. They even have an MFN clause in their app pricing.

But we all know by now that the publishers were NOT going to lower prices ANYWHERE else forcing Apple to compete. That's what all the negotiations were about. Am i correct or just delusional???? I never had a beef with apple up until this bcuz in my mind Apple is no better than any of the other large corporations that ppl in here like to complain about that use their muscle to benefit THEMSELVES.(Amazon, Google,Microsoft............)

 

[BaldiMac]

So they will compete with thereselves to do what, sell there books to each other?

No, they compete with each other to sell books to consumers.

Yeah no, they are actually trying to lower the price by liberating the publishers from their own self imposed price points that they set on their own and have done so for the last 50 yrs.

No, they have used a wholesale model for decades. The retailer sets the retail price.

And how does your brain not comprehend that Apple is the only one who uses the model. It only applys in Appleland, where the rest of the world currently operates with a wholesale model.

Because that statement is wrong. The publishers involved in this situation switched to an agency model with Amazon and all the other retailers two years ago, shortly after they signed their agreement with Apple.

----------

But we all know by now that the publishers were NOT going to lower prices ANYWHERE else forcing Apple to compete. That's what all the negotiations were about. Am i correct or just delusional????

I think that's pretty likely. Under the agency model, there isn't much reason to favor one retailer over another. The MFN clause is superficially just to protect Apple from publishers playing favorites.

The problem with the MFN clause for the DOJ is that it was basically leverage for the publishers to force the other retailers to an agency model. The publishers couldn't allow Amazon to set its own prices under the wholesale model and then be forced to match those prices on the iBookstore and still give up a 30% commission.

----------

I can't understand why anybody would doubt that there was a crime committed by Apple and the publishers here. Just look st the timeline. Publishers were unhappy about prices. They met secretly to discuss the situation and then got Apple involved. They cooked up a new model and three months later e-book prices went up 30% (or whatever). What do you think happened? People started reading more? The books got better? The authors died? Can anyone explain? I can.

I'm not saying this is what happened, but the hypothetical explanation is simple.

Apple knew the publishers were unhappy with Amazon. The presented each publisher with the same offer independently to move to an agency model with MFN clause. They negotiated with each publisher independently with the same deadline. Each publisher agreed to the terms independently. Then the publishers forced Amazon and everyone else to switch to the agency model independently. At that point, they were free to price their books as they see fit.

If that happened without collusion between the publishers, it was probably legal. Again, I think it's likely that at least some of the publishers colluded based on the DOJ's statements.

 

[blow45]

Currently even hardback titles (with paper, printing, shipping, handling fees included) cost considerably less than their ebook counterpart at Amazon, thanks to apple wanting to sit on their behind on the app store infrastructure, push an ebook and data in their database and push it out to customers at a 30% cut per click. In the process they also wanted to destroy and chance a competitor had to enter the tablet market using their continent selling expertise such as b&n and amazon. What audacity. If they wanted to be an ebooks seller they should have played along with the competition, bought books wholesale and managed prices and strategies for sale on a per book basis, not manipulate the whole market so they can get ther ludicrously high cut for doing close to nothing for the "store".

I hope the Doj and eu legislature teams succeed at restoring the competition and apple's damage to the consumer.

http://www.dailytech.com/Apple+Sued...fy+it+With+a+Public+Response/article24447.htm

Sharis Pozen, head of the DOJ's antitrust division, told reporters, "This took place at the highest levels of these companies.* Executives knew full-well what they were doing.This action drove up e-book prices virtually overnight.* Let me be clear: When companies enter agreements that prevent price competition, that is illegal."

Similar litigation is expected to drop shortly in the EU.

IV. Publishers Rush to Settle, Apple and UK Publisher Alone Vow to Fight

While the EU tends to seek punitive damages, the primary goal of the DOJ appears to be to enable a market "reset" scrapping the price-fixing provisions of Apple's deal and forcing e-book makers to cooperate with Amazon on lower priced options.

The deal could be a big boost to Amazon's increasingly promising tablet efforts. *It could also boost Barnes & Noble, Inc. (BKS) whose budget e-readers and e-book market have proven a solid challenger to larger players like Amazon or Apple.

The settlement and reduced e-book pricing could add extra fuel to Amazon's Kindle Fire.

Ms. Pozen discusses the potential of settlement, stating, "The settlement will begin to undo harm and restore price-competition.* It will result in lower e-book prices and provide a more open and fair marketplace."

So far, HarperCollins [source], the Hatchette Group [source], and Simon & Schuster [source] -- also the target of lawsuits from state attorney generals -- agreed to settle.

Apple and the Pearson plc subsidiaries refused to settle. *This could put them in a pretty bad spot. *While the other publishers refused to admit guilt in their settlements (as is typically the case), their decision to opt to quickly settle looks rather damning.

The Cupertino gadgetmaker did not even dignify the U.S. government with a public response, yet. *But soon it may have to respond in court.
Sources: DOJ [press release], [case], CNN

 

[EbookReader]

No, they compete with each other to sell books to consumers.

How likely that they will compete with each others, when it is in their best interest to keep EBOOKS PRICES HIGH in order to protect their print books business (aka, selling bestseller hardcover for $26)?


1) What is the publisher motive? (high ebook prices to protect print books)
2) What is Apple motive? (don't want to compete with Amazon on prices because that would result in very low margin)

Agency pricing with MFN clause will

1) increase ebook prices (big plus for publishers)
2) eliminate price competition (big plus for Apple)

How to make Amazon agree to this?

- Team up and tell Amazon if they don't accept, they won't be able to sell books from 5 of the 6 Big Publishers. Amazon can fight against 1 of 6 (it did fought back for 2 days against Macmillian before caving). But when the other 4 also told them if you don't switch to agency, we won't give you book to sell......Amazon caved.

 

[sha4000]

How likely that they will compete with each others, when it is in their best interest to keep EBOOKS PRICES HIGH in order to protect their print books business (aka, selling bestseller hardcover for $26)?


1) What is the publisher motive? (high ebook prices to protect print books)
2) What is Apple motive? (don't want to compete with Amazon on prices because that would result in very low margin)

Agency pricing with MFN clause will

1) increase ebook prices (big plus for publishers)
2) eliminate price competition (big plus for Apple)

How to make Amazon agree to this?

- Team up and tell Amazon if they don't accept, they won't be able to sell books from 5 of the 6 Big Publishers. Amazon can fight against 1 of 6 (it did fought back for 2 days against Macmillian before caving). But when the other 4 also told them if you don't switch to agency, we won't give you book to sell......Amazon caved.

This is exactly what I was getting at.

 

[tbrinkma]

using 2 bestsellers as an example with current data:

The Witness by Nora Roberts
Penguin Publishing

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)

The Innocent by David Baldacci
Hachette Book Group

Kindle: $14.99 (forced to keep 30%)
ibookstore: $14.99 (forced to keep 30%)
Nook: $14.99 (forced to keep 30%)
GooglePlay: $14.99 (forced to keep 30%)


If Kindle, Nook, GooglePlay don't want to keep the whole 30%, they instead want to offer part of this 30% to consumers in a form of LOWER PRICES.

But they CAN'T because of agency pricing + MFN clause



Isn't there something wrong with that picture? (if amazon, google want to pass the whole 30% to consumers and price the book at $10.49, why can't they?)

Ok, here's the thing though. Assuming the bookseller doesn't go with the agency model (they stick with wholesale), they *can* reduce their prices by cutting into their profit margin. Absolutely nothing stops that, except that the publishers seem to have bought into the stability the agency model offers. However, if someone *does* still have a wholesale agreement, this is what happens.

1. The book is priced such that $14.99 gives the seller a 30% profit margin.
2. The wholesale seller reduces their price to $12.99 to attract buyers through the reduced price, and only earns a 19% profit.
3. Apple, with their MFN clause sees that $12.99 price, and can now offer that book at $12.99, but due to the agency model *still* gets to keep 30%.

That's what happens when someone takes a margin cut to underprice their competitors when an agency model + MFN is in place. It doesn't force anyone to have a higher price. It doesn't mean that nobody can offer a lower price (unless they're *all* using the agency model, in which case the MFN doesn't come into the picture except by way of a publisher playing pricing games across their sellers). It means that the agent with the MFN ends up with a better deal in the end because the other guy cut into his profits to reach the better retail price, but the guy with the MFN clause doesn't have to reduce his profit margin to match the price.

 

[Krevnik]

The publishers could set the price at $14.99 (and they would get 70% from it, or $10.49). Amazon gets to keep 30%.

But without that MFN clause, Amazon can discount their 30%.

The problem is what you describe is not the agency model. In the agency model, the split is setup based on the selling price. So the 30/70 split is based on revenue collected by the agent. If the agent collects 100 dollars, then their cut is 30$. The correct way around this would likely be rebates where the agent still collects the full 100$, but then rebates their cut back to the buyer later. Depends on the contracts.

The reason why the agency model is based on revenue collected is because it is based on the model used to split up the revenue collected by the publisher. If you base it on "profit", then you will find your agent magically makes no profit. But as a book writer, getting a % of revenue is safer and simpler in legal terms. The publishing house is the writer's agent in this case.

What you describe is the wholesale model. Where the publisher sets the suggested/list price, and then collects a cut that they think gives enough to the retailer. They can agree to a standard model where wholesale is some % of the list price for a simpler contract, or they can set a fixed wholesale price per item so that some items have thinner margins for the retailer than others. For book sellers, I imagine it is simpler to set it as a % of list.

To sum up, the key difference between the two models is:
- Wholesale: Fixed cut, or % of list price. That cut (in $) doesn't change as the retailer adjusts the price.
- Agency: % of revenue. The cut (in $) does change as the price adjusts.

And that little detail is why publishers "force" the 30% cut on retailers under the agency model. Without price control from the publisher, the retailer could discount the book simply to shrink the publisher's cut to the point where they fail to break even on the book. Not something the publisher would be willing to do.

Do I think one is better than the other? Not really. They both have flaws that can be exploited. The agency model tends to put more power in the hands of the publisher, who can abuse it through price fixing and make retailers a useless cog in the machine. The wholesale model puts power in the hands of the retailer who can use it as a club against other retailers and as a result, the publishers themselves further down the road (see Wal-mart's fun escapades on that front). Both downsides in my mind are equally as bad.

With that in mind, the MFN clause really does act as a means to prevent the publishers from playing favorites with the agency model if Apple winds up dominating. Something Apple has been burned by in the past with iTunes which is also an agency model, but without a MFN clause in Apple's favor.

 

[macUser2007]

Again, price competition is eliminated among retailers. The publishers still compete on price between publishers....

Hm, you do realize that books (or movies, or music) and not the same as milk, right?

Consumers do not go to a book store and chose between Game of Thrones or Harry Potter based on price....

But consumers should be able chose to buy a specific title from different stores based on price. So if Game of Thrones is sold wholesale for $x, sellers such as Amazon should be able to compete by selling the same title for $x plus whatever mark up they feel provides the best balance between profitability and competitiveness.

But the way Apple pushed it, if Apple sells Game of Thrones for $x plus 30%, nobody is allowed to sell the same title for less.

BaldiMac, you are certainly not a stupid guy, so while I assume that you have a vested interest in defending Apple, I would also assume that you fully understand why Apple should get smacked for doing this.

 

[Krevnik]

Hm, you do realize that books (or movies, or music) and not the same as milk, right?

Consumers do not go to a book store and chose between Game of Thrones or Harry Potter based on price....

But consumers should be able chose to buy a specific title from different stores based on price. So if Game of Thrones is sold wholesale for $x, sellers such as Amazon should be able to compete by selling the same title for $x plus whatever mark up they feel provides the best balance between profitability and competitiveness.

Exactly. In the case of entertainment, people tend to want a specific item, and because what each retailer provides is interchangeable, price is the primary concern. This drives prices as close to the wholesale price as the retailers can handle. And a strong retailer can sometimes get the wholesale price adjusted in their favor as well.

But the way Apple pushed it, if Apple sells Game of Thrones for $x plus 30%, nobody is allowed to sell the same title for less.

BaldiMac, you are certainly not a stupid guy, so while I assume that you have a vested interest in defending Apple, I would also assume that you fully understand why Apple should get smacked for doing this.

There is where people argue with you, since this isn't the agency model. You describe a wholesale model with a fixed markup (this can be described as a Minimum Selling Price scheme). The agency model is a revenue split scheme which behaves differently in accounting, where the actual money going to both parties change as the price the customer pays changes.

The MFN clause is with publishers, which stipulates what the publishers must do. The clause specifically says that if the book is being sold for less elsewhere, the publishers must adjust the selling price on Apple's store to meet or beat the price at the other stores. And to protect themselves, the publishers then turned around and enforced the agency model on everyone else so they could get the price control and ensure that they never let Apple enforce that clause. Because, Amazon's pricing would mean that Apple would pay less per book to the publisher than Amazon did, if they didn't enforce the agency model everywhere. Example: Amazon pays 8$ wholesale, sells for 10$. Publisher lists for 11.42$ on Apple's store to get the same 8$ cut. MFN comes in, forces the Apple price to 10$, where the publisher now gets 7$ in their cut. That's not exactly something a publisher will allow, so it had to be all or none under the agency model with that MFN clause in the deal.

Now, did Apple anticipate this behavior and use the MFN clause to entice the publishers to do this? Or were they just protecting their butt against favoritism like the RIAA showed against Apple when Apple got too powerful in the market? That's a very good question, and why the DOJ should be investigating this.

 

[EbookReader]

Something Apple has been burned by in the past with iTunes which is also an agency model, but without a MFN clause in Apple's favor.

Itunes is wholesale.

Many news articles have said that Itunes is wholesale.

Even Apple said so (by not saying that Itunes is agency).

The DOJ's accusation of collusion against Apple is simply not true. The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon's monopolistic grip on the publishing industry. Since then customers have benefited from eBooks that are more interactive and engaging. Just as we've allowed developers to set prices on the App Store, publishers set prices on the iBookstore.

If Itunes is wholesale, Apple press release would have said:

Just as we've allowed developers to set prices on the App Store and on Itunes, publishers set prices on the iBookstore.


Another piece of evidence.

Lady Gaga album was sold for $0.99 on AmazonMP3 but something like $11.99 on Itunes.
A lot of song bestsellers are $0.99 on AmazonMP3 but $1.29 on Itunes.

With agency pricing, these prices would be set by the music labels....and they would be the same on Itunes and Amazon MP3.

Oh, same with digital movies and digital movie rental.

 

[BaldiMac]

Consumers do not go to a book store and chose between Game of Thrones or Harry Potter based on price....

But consumers should be able chose to buy a specific title from different stores based on price. So if Game of Thrones is sold wholesale for $x, sellers such as Amazon should be able to compete by selling the same title for $x plus whatever mark up they feel provides the best balance between profitability and competitiveness.

But the way Apple pushed it, if Apple sells Game of Thrones for $x plus 30%, nobody is allowed to sell the same title for less.

Except that ignores the fact that the exact situation that you describe, the agency model, is legal. There is no requirement for retailers at all. Pretend all the publishers are selling direct. Because that is the point of the agency model.

If you look at the settlements with the three publishers so far, you'll notice that the agreement only bans agency pricing for two years. The DOJ describes it as a punitive measure to counteract the effects of the alleged collusion. Publishers are free to resume the agency model after two years.

BaldiMac, you are certainly not a stupid guy, so while I assume that you have a vested interest in defending Apple, I would also assume that you fully understand why Apple should get smacked for doing this.

Please don't make this personal. I have no vested interest. As I've said, Apple should be "smacked" if they were a significant party to the alleged collusion between the publishers. I simply don't choose to pre-judge them based on accusations. Many cases look open and shut if you only listen to the prosecution. I don't think throwing an "allegedly" in where it belongs wreaks of bias.

----------

There is where people argue with you, since this isn't the agency model. You describe a wholesale model with a fixed markup (this can be described as a Minimum Selling Price scheme). The agency model is a revenue split scheme which behaves differently in accounting, where the actual money going to both parties change as the price the customer pays changes.

The MFN clause is with publishers, which stipulates what the publishers must do. The clause specifically says that if the book is being sold for less elsewhere, the publishers must adjust the selling price on Apple's store to meet or beat the price at the other stores. And to protect themselves, the publishers then turned around and enforced the agency model on everyone else so they could get the price control and ensure that they never let Apple enforce that clause. Because, Amazon's pricing would mean that Apple would pay less per book to the publisher than Amazon did, if they didn't enforce the agency model everywhere. Example: Amazon pays 8$ wholesale, sells for 10$. Publisher lists for 11.42$ on Apple's store to get the same 8$ cut. MFN comes in, forces the Apple price to 10$, where the publisher now gets 7$ in their cut. That's not exactly something a publisher will allow, so it had to be all or none under the agency model with that MFN clause in the deal.

Now, did Apple anticipate this behavior and use the MFN clause to entice the publishers to do this? Or were they just protecting their butt against favoritism like the RIAA showed against Apple when Apple got too powerful in the market? That's a very good question, and why the DOJ should be investigating this.

That's a great description of the issues we've been discussing.

 

[Krevnik]

Itunes is wholesale.

Many news articles have said that Itunes is wholesale.

Even Apple said so (by not saying that Itunes is agency).

If Itunes is wholesale, Apple press release would have said:

Just as we've allowed developers to set prices on the App Store and on Itunes, publishers set prices on the iBookstore.

As said by someone else: The absence of evidence is not evidence of absence. The fact that Apple hasn't said what their contracts contain with the labels doesn't mean it isn't X. I can make the same argument the other way by saying that because Apple hasn't said they are wholesale, they must be agency.

Another piece of evidence.

Lady Gaga album was sold for $0.99 on AmazonMP3 but something like $11.99 on Itunes.
A lot of song bestsellers are $0.99 on AmazonMP3 but $1.29 on Itunes.

With agency pricing, these prices would be set by the music labels....and they would be the same on Itunes and Amazon MP3.

Oh, same with digital movies and digital movie rental.

That doesn't tell you that it is wholesale at all. Two key points:

- The content provider is not required to sell the same item at the same wholesale price to two different retailers. Hint: Bulk discounts, special deals for advertising/etc.
- The content provider is not required to set the same price for an item with two different agents.

So because there is price variance doesn't mean one thing one way or another. The variance need not come from the retailer. This is especially true when you have content owners who are unhappy with the market leader and the power that leader wields over them. The labels would be happy to play Amazon against Apple, and it is just as possible that the labels are giving Amazon a bit of a price break in order to let Amazon beat Apple on price. Other forms of favoritism can show up, especially when you talk about the Gaga Daily Deal (Billboard Article).

I'll concede the point that iTunes is wholesale due to other evidence, but it is much closer to a fixed markup scheme where Apple and the labels have agreed to specific wholesale price tiers (which allows for the .69, .99, and 1.29 price points). Under this model, Apple has given price control on iTunes over to the labels in exchange for the limited price range and price points.

However, the rest of my argument about the current situation still stands.

Hell, for all we know, the publishers could be playing Apple against Amazon (the current e-book leader) because of the power Amazon has been getting in the market. The labels did the the same thing (just the other way around) because of iTunes' position in music sales.

 

[EbookReader]

http://www.slate.com/articles/busin...he_new_nook_deal_could_actually_succeed_.html

It never made sense to think that discounting could somehow drive Apple—the world’s biggest and most profitable company—out of the e-book market. Any loss-leading prices Amazon wants to offer, Apple can easily afford to match. Even if Apple were to temporarily withdraw from selling e-books, its entire infrastructure of iPads, iPhones, and digital retail of movies, books, and apps would still be in place to swoop back in if Amazon jacked up prices. Now Microsoft, too, is in the same position. Like Apple, it has operating margins on its non-book businesses that absolutely dwarf anything in Amazon’s physical retailing operation. Most likely in this competitive playing field with relatively few barriers to entry, nobody is going to make much money retailing e-books. That’s good for consumers.

With no price competition, the consumers lose.

Now we have price competition again. Amazon, Nook/Microsoft, GooglePlay, Kobo and maybe Apple if it doesn't mind low margin.

 

[BaldiMac]

http://www.slate.com/articles/busin...he_new_nook_deal_could_actually_succeed_.html

Relatively few barriers to entry? Maybe if DRM is dropped. Not having access to the most popular line of ebook readers is a pretty big barrier to entry!

Not to mention having to compete with a market leader willing to lose money on best sellers and sign them to exclusive retail contracts. (And therefore negating the price competition this situation is supposed to be about.)

With no price competition, the consumers lose.

Now we have price competition again. Amazon, Nook/Microsoft, GooglePlay, Kobo and maybe Apple if it doesn't mind low margin.

Consumers "lose" in pricing. However, they may gain in quality and variety of content. It's never as simple as "lower price = better".

 

[EbookReader]

Relatively few barriers to entry? Maybe if DRM is dropped. Not having access to the most popular line of ebook readers is a pretty big barrier to entry!

Not to mention having to compete with a market leader willing to lose money on best sellers and sign them to exclusive retail contracts. (And therefore negating the price competition this situation is supposed to be about.)

Then it is in the publishers best interest to drop DRM no?

In fact, they are seriously thinking of doing it. And Tor just announced it will drop DRM. Tor belongs to one of the Big 6 Publishers. So expect more publishers to drop DRM in the near future.

With no DRM, anyone can set up a website and sell ebook. If Amazon raises the price, Apple, Google, Nook, Sony etc...can undercut it. Low entry to barriers.

Consumers "lose" in pricing. However, they may gain in quality and variety of content. It's never as simple as "lower price = better".

Do you really believe that if publishers went out of business, there will be LESS content and less variety?

Without the middlemen that take 52.5% cut, authors will make MORE money.

“Publishing has only two indispensable participants: authors and readers…. any technology that brings these two groups closer makes the whole industry more efficient — but hurts those who benefit from the distance between them.” The Economist , 2008

Traditional Publishers: 17.5% royalties to authors
Self-publishing: 70% royalties to authors

More and more people are writing books than ever before. More than 1,000 authors are selling more than 1,000 ebooks a month on Amazon Self-Publishing platform. There is more variety/content not less.

And ebook is only about 25% of books sold. What happen when it is 40% or 50% or 60%?



Look at it this way: Are there more variety/content of music that you can buy TODAY compare to 10 years ago? More variety/content because any musicians can upload a song to sell on Itunes via a distributor like CdBaby or Tunecore.

Sell it for $0.99 on Itunes

Itunes take 30%
distributor (cdbaby) take 5%
Musician: 65%

Digital Revolution = more content and more variety, not less.

 

[BaldiMac]

Then it is in the publishers best interest to drop DRM no?

In fact, they are seriously thinking of doing it. And Tor just announced it will drop DRM. Tor belongs to one of the Big 6 Publishers. So expect more publishers to drop DRM in the near future.

We can hope.

With no DRM, anyone can set up a website and sell ebook. If Amazon raises the price, Apple, Google, Nook, Sony etc...can undercut it. Low entry to barriers.

Except for a market leader willing to lose money on best sellers and sign them to exclusive retail contracts. (And therefore negating the price competition this situation is supposed to be about.)

Do you really believe that if publishers went out of business, there will be LESS content and less variety?

Nice strawman. No. I said nothing of the sort.

Without the middlemen that take 52.5% cut, authors will make MORE money.

As opposed to Amazon that takes 65% if you want to make more than $7 per book. And doesn't provide most of the services that publishers do.

(I love how this 52.5% number is constantly quoted without any context and compared to a self publishing commission. Publishers do more than self-publishing retailers. Of course their commission is higher. They also take on risk. Which Amazon and Apple do not.)

“Publishing has only two indispensable participants: authors and readers…. any technology that brings these two groups closer makes the whole industry more efficient — but hurts those who benefit from the distance between them.” The Economist , 2008

Traditional Publishers: 17.5% royalties to authors
Self-publishing: 70% royalties to authors

More and more people are writing books than ever before. More than 1,000 authors are selling more than 1,000 ebooks a month on Amazon Self-Publishing platform. There is more variety/content not less.

And ebook is only about 25% of books sold. What happen when it is 40% or 50% or 60%?

Look at it this way: Are there more variety/content of music that you can buy TODAY compare to 10 years ago? More variety/content because any musicians can upload a song to sell on Itunes via a distributor like CdBaby or Tunecore.

Sell it for $0.99 on Itunes

Itunes take 30%
distributor (cdbaby) take 5%
Musician: 65%

Digital Revolution = more content and more variety, not less.

That would be a good argument if I was arguing against self-publishing. But I'm not.

 

[samcraig]

Here's something to consider in the timeline.

Prior to these negotiations - Apple was failing pretty badly in the eBook market with a huge deficit in titles vs its competition. What was the #? I think 10:1 in favor of Amazon? Maybe B&N as well?

iBooks were not - and I still think are not - nearly as successful at iTunes or the App Marketplace.

P.S. - one of the reasons is that you can buy a kindle book and read it on just about any device - but you can only read iBooks on an Apple device...

 

[BaldiMac]

Here's something to consider in the timeline.

Prior to these negotiations - Apple was failing pretty badly in the eBook market with a huge deficit in titles vs its competition. What was the #? I think 10:1 in favor of Amazon? Maybe B&N as well?

iBooks were not - and I still think are not - nearly as successful at iTunes or the App Marketplace.

P.S. - one of the reasons is that you can buy a kindle book and read it on just about any device - but you can only read iBooks on an Apple device...

Prior to these negotiations, Apple was not in the ebook market.