U.S. Department of Justice Sues Apple and Publishers over E-Book Pricing

[bsolar]

But its fundamentally different with e-books. A price-cut at one retailer is instantly available everywhere. And so book retailing becomes a virtual "race to the bottom" - where everyone is forced to accept the margins of the craziest guy in the room.

And that's wrong in which way exactly? That's how competition in a free market works. Setting a minimal prices so that the best competitor cannot leverage his better margins is exactly the opposite and is the reason publishers decided to go that way. They realized they were doomed in a free market and decided to make the market not free.

Apple has all the resource to compete in the free market. Microsoft did just that with the Xbox, gaining market share for years against Nintendo and Sony until it became profitable. They invested a lot, starting from zero market share, and now they are a key player in the market.

Apple doesn't need any price protection, and neither need the traditional publishers. They need to realize that either you adapt to the new rules of the game, or you go out of business. Trying to keep the old rules relevant is a losing proposition, just like trying to keep the music CD relevant in the age of iTunes is a losing proposition.

The problem is, publishers are not willing to adapt. They still want to milk a dying cash cow, and trying to keep it relevant when the market is headed another direction. The return of the wholesale mode is not going to change that, and neither is them keeping the Agency model. With the Agency model they are only delaying the inevitable.

 

[IJ Reilly]

Ah, the argument form of the losing side of a debate. In other words, you have no argument to counter with so you just opt-out and label it ridiculous. From where I sit, you appear to be another shill for the right-wing agenda in this country, namely to put us back in the Dark Ages where the ultra-rich control everything. Things like anti-trust laws stand in your way since they seek to promote competition rather than collusion. I'm sure you're against anti-lobbying efforts or any measure designed to return power to the people of this country rather than the minority ruling oligarchy.

You have to understand the market force mystics, or at least where they are coming from. To their utterly inflexible way of thinking, free market economics (and only as they define it, others need not apply), is sacred. Anything that alters the results of their very narrowly-defined model of how things should work is, by definition, unholy. They argue that if government simply butted out of any and all controls or influences over the economy, then all the problems that needed to be solved would be solved, magically. And by inference, any problem that wasn't solved wasn't really a problem in the first place. You are concerned about air pollution? Then privatize the air. Seriously, I have heard this argued many times. It's a hermetically sealed theory, which neither accepts nor requires any outside inputs, and automatically rejects all contrary evidence or information.

It's utter nonsense, if only because no system of economics has ever worked this way, not even in theory. No nation has ever placed economic goals ahead of every other goal, and even if one did, they'd be conducting their business in a world that did not follow the sacred text. Nothing short of Planet Objectivism would make this experiment real -- anything less is impure. In short, it's a belief system. You have to buy it 100% or not at all. Since this is the bargain, I will go for not at all.

 

[IJ Reilly]

If e-books were an economically vital good (like bread, milk, or electric power) it would be one thing for the Government to get involved. But they aren't. They are a luxury impulse purchase for affluent consumers. Quite literally the most privileged people in the world. And by filing this silly lawsuit, the DoJ is looking out for their interests, over those of the majority of consumers who still get their books the old fashioned way - at a bookstore or off the shelf at a discount store.

This "vital goods" argument is silly. It has nothing to do with anything, let alone with antitrust law. I can't imagine what "interests" you think the DoJ is looking after other than the law of the land.

So it's time for the big irony moment. A lot of what I am hearing in defense of Apple over the last few days sounds eerily like the defenses I heard for Microsoft when they were up against antitrust charges. Those of us who followed U.S. v. Microsoft knew that the company was a guilty as sin. It was clear that they'd done everything they were accused of doing, and a whole lot more.

But Microsoft was of the mindset that they could not lose any battle, so they decided to hunker down and fight. The bad news trickled out over a period of years, and people found out just how nastily they'd behaved, whether they wanted to know or not. They lost, but more than just the case the government filed against them, but worse still they sacrificed their public reputation. Their legal defense looked shiftless and dishonest -- because it was. The image of the company changed, and not for the better.

Who'd wish this on Apple, except for the people who already hate Apple? Face facts: Apple cannot win the price fixing part of this case and if they allow this to go to trial, they will pay a much larger price than anyone can imagine. Settle and move on. That's the wise course of action.

 

[bsolar]

Honestly, I'd rather pay higher prices honestly for my book (and I'm poor) rather than end up with a book industry that's in the same situation as the movie industry, where creativity is stifled cause it won't get enough "viewers" to make enough profit or to break even.

You're still thinking with the old, obsolete game rules in mind. In the old game, the publisher selects who gets published and who does not. You are not promising enough? Tough luck, shell out thousands of dollars and do-it-yourself or just hope we change idea in the future. Otherwise, you won't get published at all. Either you had a publisher investing on you, or you were not part of the game.

In the new game, you can get published at zero cost. Granted, you won't get any editing or fancy help from a designer with your cover, but you are Mr. Nobody. Why somebody should invest thousands of dollars on you? In any field you first need to prove yourself before people start invest money on you. You should be thankful that you even have the possibility of getting your work published at all, something that would most likely never have happened with a traditional publisher dictating what is promising enough and what is not.

The new game has basically non-existant barriers of entry which make it a wonderful environment to encourage creativity. And given the very marginal costs involved in the publishing of an ebook there is basically no issue in breaking even.

 

[MrWillie]

Amazon MP3 tracks are at 256kbs. Most people can't distinguish the sound quality between Amazon MP3 256kbs and Itunes's ACC.

I know I couldn't.

Why would customers lose out by paying $0.99 instead of $1.29 for a MP3/ACC? Shouldn't it be the other way around? Customers save money because AmazonMP3 sold music at a discount?

Because it's a lower quality rip. Buying the cheapest of anything is not always the best. Of course the same applies to the most expensive. But yes most people can't tell the difference or just don't care.

said that you only buy CDs, how would you know that Itunes ACC is superior in sound compare to 256kbs MP3?

I have social skills, I also live in the real world.

 

[Wondercow]

I can't believe how much ******** is in this post. Learn to use lose/loose proper PLEASE.

PLEASE learn to use adverbs properLY.

The hypocrisy in your post is truly astounding.

Indeed.

 

[laurim]

PLEASE learn to use adverbs properLY.

Indeed.

See why the world needs editors? If I had to try to read an entire book filled with bad grammar, I might never read again. Even WITH publishers/editors, I find typos now and then.

 

[EbookReader]

For those that think Amazon sold all ebooks at a loss, please read this.
It's perfectly legal to sell 2-3 ebooks as loss leaders and make profits on the other 97-98 ebooks.

http://assets.sbnation.com/assets/1053857/e-books_complaint.pdf

When Amazon launched its Kindle device, it offered newly released and bestselling e-books to consumers for $9.99. At that time, Publisher Defendants routinely wholesaled those e-books for about that same price, which typically was less than the wholesale price of the hardcover versionsof the same titles, reflecting publisher cost savings associated wi th the e l e c t roni c format. From the time of its launch, Amazon' s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.

Apple can do the same thing. Its profit margin on ebook won't be 30% (probably 5-10%). But the saving will be passed on to consumers. But as a business, 30% profit margin is much better than 5% profit margin no?

Amazon is a different beast. They thrive on low margin.

 

[hkaur001]

Sargent notes that Macmillan makes less money under the agency model than it did under the previous wholesale model, but that it made the change to support competitiveness in the market, not stifle

 

[EbookReader]

Sargent notes that Macmillan makes less money under the agency model than it did under the previous wholesale model, but that it made the change to support competitiveness in the market, not stifle

That's because it is in his company best interest if ebooks adoption slow.

Best way for ebook to slow down is to price it really high.

Would Itunes be popular if track were priced at $1.99 instead of $0.99 originally?






Look at music.

CDs were priced at $20 back in 2000. Now it is around $12.
He doesn't want the same thing to happen to physical books. It will mean a lot less profits for his company if the price of hardcover reduce from $26 to $15.

You have to understand his motives in order to understand his actions.



His other fear is that when ebooks are widely bought (say 50% of all books), a lot of authors will ditch publishers and do it on their own.

Self-published authors get 70% royalties.
Authors with publishers get 17.5% royalties.

Why would authors give the publishers 52.5% of the book revenue? Would you?

1) Write a book
2) Edit the book (hire a free agent editor)
3) Make a cover or buy a cover (for around $300)
4) Upload the book

Get 70% of each sale.

A lot of authors are already doing this. More than 120 of them already sold more than 50,000 self-published ebooks.

 

[rammorris]

This "vital goods" argument is silly. It has nothing to do with anything, let alone with antitrust law. I can't imagine what "interests" you think the DoJ is looking after other than the law of the land.

So it's time for the big irony moment. A lot of what I am hearing in defense of Apple over the last few days sounds eerily like the defenses I heard for Microsoft when they were up against antitrust charges. Those of us who followed U.S. v. Microsoft knew that the company was a guilty as sin. It was clear that they'd done everything they were accused of doing, and a whole lot more.

But Microsoft was of the mindset that they could not lose any battle, so they decided to hunker down and fight. The bad news trickled out over a period of years, and people found out just how nastily they'd behaved, whether they wanted to know or not. They lost, but more than just the case the government filed against them, but worse still they sacrificed their public reputation. Their legal defense looked shiftless and dishonest -- because it was. The image of the company changed, and not for the better.

Who'd wish this on Apple, except for the people who already hate Apple? Face facts: Apple cannot win the price fixing part of this case and if they allow this to go to trial, they will pay a much larger price than anyone can imagine. Settle and move on. That's the wise course of action.

I have very much enjoyed reading your posts . . . very thoughtful. And, I agree with your observations about inherent problems with unrestrained capitalism. I support antitrust laws properly applied. But, I predict that Apple will be dismissed from the lawsuit for lack of evidence that it conspired with any of the codefendant publishers. I don't think that Apple declined to settle because it is getting too big for its britches or just because it disagrees with governing antitrust law. I don't believe that is Cook and company's style. I think the folks at Apple genuinely do not believe there is evidence that they colluded with the publishers to fix prices. I handle federal litigation in a different arena (civil rights) and often litigate conspiracy claims. In order to prove a conspiracy (absent compelling circumstantial evidence) you generally have to prove that there was an agreement to do an unlawful act. This would require proof of a meeting, phone call, or other form of communication, in which someone at Apple person actually agreed with a publisher representative to assist in price fixing. If all the publishers secretly agreed to fix prices and then came to Apple and said were in, we want to use your agency model, and then presented the same prices to Apple, that would not be enough to make Apple liable as Apple would not have been a participant in the agreement to fix prices.

Of course, I concede I am speculating to some degree. But, if the DOJ had evidence of Apple's actual participation in the price fixing that we would have seen the very specific allegation by now. Also, I allow for the possibility that my experience in handling conspiracy claims may not extend to antitrust cases, but I am hard pressed to understand why the analysis should be any different.

 

[IJ Reilly]

I have very much enjoyed reading your posts . . . very thoughtful. And, I agree with your observations about inherent problems with unrestrained capitalism. I support antitrust laws properly applied. But, I predict that Apple will be dismissed from the lawsuit for lack of evidence that it conspired with any of the codefendant publishers. I don't think that Apple declined to settle because it is getting too big for its britches or just because it disagrees with governing antitrust law. I don't believe that is Cook and company's style. I think the folks at Apple genuinely do not believe there is evidence that they colluded with the publishers to fix prices. I handle federal litigation in a different arena (civil rights) and often litigate conspiracy claims. In order to prove a conspiracy (absent compelling circumstantial evidence) you generally have to prove that there was an agreement to do an unlawful act. This would require proof of a meeting, phone call, or other form of communication, in which someone at Apple person actually agreed with a publisher representative to assist in price fixing. If all the publishers secretly agreed to fix prices and then came to Apple and said were in, we want to use your agency model, and then presented the same prices to Apple, that would not be enough to make Apple liable as Apple would not have been a participant in the agreement to fix prices.

Of course, I concede I am speculating to some degree. But, if the DOJ had evidence of Apple's actual participation in the price fixing that we would have seen the very specific allegation by now. Also, I allow for the possibility that my experience in handling conspiracy claims may not extend to antitrust cases, but I am hard pressed to understand why the analysis should be any different.

Thanks. I really don't know what to think at this point, but I do have an idea that the DoJ would not have included Apple in this suit if they didn't have something to go on. In U.S. v. Microsoft a lot more evidence against the company came out during the trial than anyone had seen beforehand. The court ordered depositions, they had a long phase of discovery, the judge appointed a "special master" to investigate technical issues. Some of the emails that were unearthed in that part of the trial were embarrassing at least and damning at worst. I can still picture Bill Gates in his smirking, evasive deposition video. He could barely remember his own name let alone anything of substance. He and others were called to testify at a congressional hearing. That was some spectacle. The company's hubris ended up being Exhibit A for the prosecution.

We can't honestly say that Apple has never displayed any prideful arrogance. So this worries me some. I see the possible parallels. I am hoping that Tim Cook is a more pragmatic CEO than Steve Jobs was and that he won't lead his company into the valley of death out of some misguided sense of principle. I am hoping they are simply maneuvering for a more favorable settlement.

 

[Huntn]

From what I've seen the difference in price between a new in-print book and an ebook is minimal.

My view is that the production costs of a book probably drop at least 50% over a physically printed book. By gosh, I expect a significant discount. I don't expect publishers to take a wind fall profit, does anyone?

I'm glad the goverment is jumping on this.