Slashdot Mirror
Apple E-book Price-Fixing Trial Begins
An anonymous reader writes "Technology giant Apple is to begin its defence against charges by the US government that it tried to fix the prices of e-books. The iPad-maker is accused of working with publishers in 2009 to set prices in an effort to compete in the e-book market dominated by Amazon. Quotes from Steve Jobs' official biography have been cited as evidence in the case."
Yes please.
Ah In Jobs we trust :)
Build a Man a Fire, and He'll Be Warm for a Day. Set a Man on Fire, and He'll Be Warm for the Rest of His Life.
Fascinating comment at the end of one of the stories linked to here. The writer claims that Amazon's model is unsustainable and equivalent to the Standard Oil play of selling at a loss to drive competitors out of business. In his opinion, Apple should be commended for raising prices by a few dollars per book? What say you Slashdot? What I have trouble determining in this shift from physical media to digital is how the artists are making out in this brave new world.
They set an artificial floor price through contracts that ensured they can't be undercut by the competition. Price fixing doesn't just refer to the actual price, it refers to setting/fixing of minimum or maximum prices in an industry as well.
That Amazon's business model is anti-publisher does not excuse an alternative business model that is rabidly anti-consumer. They're both garbage.
No kidding!!! What do you say at this point?
Apple's iBook publishing deals included a clause that no other eBook outlet could get a better price than Apple. So, yes, they were engaged in price-fixing that directly favoured them as a seller. In a wholesale bookselling model that's not quite so terrible - you can compete by eating into your margins - but in an agency model where the selling price is set by the publisher isn't allowed to be any lower than on iBooks, you're fucked.
No kidding!!! What do you say at this point?
If it's anything like Europe, Apple will be required to end their most-favoured clause immediately, and publishers will be required to offer Amazon discounted prices on their books for a few years to offset the elevated prices that they'd been forced to accept under the anticompetitive regime that existed.
No kidding!!! What do you say at this point?
Except that's not what's happening here. It's "I'll sell quantities at a higher price you choose at a fixed margin, but you can't sell via anyone else at a lower price or better margin". That's why it's anti-competitive; the new system they put in place prevents their retail competitors from ever competing on price. To me, that seems entirely unreasonable.
Actually yes it is illegal and unreasonable. You can't set contract terms that prevent your competition from undercutting you with a better deal or from them being willing to make less money than you. You are in effect by establishing such a contract engaging in price fixing as you are setting a minimum price.
The case has nothing to do with that. Do you really think that going to a supplier and saying "I'll buy huge quantities at a reasonable price, but if you sell to someone else for less then I instead get that price" is in any way illegal or even unreasonable?
Apple didnt organize fixed wholesale pricing with publishers. They organized fixed retail pricing via publishers.
Not just illegal.. obviously illegal. The fact that you dont see that tells us something about you...
"His name was James Damore."
Wrong choir, son.
Don't forget that Apple controls the apps through their app store and competing book reading apps can't purchase e-books through their app like Apple's, you have to open a web browser and go to their webstore to make a purchase.
You won't get any argument from me that Amazon isn't just as bad, but this isn't kindergarten and hence a valid excuse isn't "but muuuuum he did it first". Apple are guilty as hell here and need a huge kick in the arse, Amazon most likely need the same.
You can, in principle, sell content through your app using the in-app-purchasing API*, but Apple has to get a 30% cut. Under most "agency model" ebook deals, the publisher gets 70% of the purchase price, leaving the retailer with zero. (This is why the only thirdparty content stores you'll find on the App Store are publisher outlets like Dark Horse, and not retailers/resellers.)
*The IAP API is horribly unsuitable for that purpose, but that seems rather moot.
No kidding!!! What do you say at this point?
Would you leave it to companies like Apple or Google they could, like in this example, brute force their ways on smaller business partners.
When you don't trust your politicians, don't complain here but go voting.
"The likes of Facebook and WhatsApp are free to those whose privacy is of zero value."
First off, Amazon built the e-book market. When e-books started they were just niche amusements people got for their Palm Pilots and Windows PDA's. Publishers didn't care about them at all and made zero effort to establish them.
Amazon laid the groundwork, connected their store to a decent e-book reader and made e-books into the market it is today.
They were also not bankrupting any publishers. They paid the wholesale price for the books that the publishers asked for and then CUT THEIR OWN PROFIT MARGIN by selling lower than what they paid. The publishers already made a profit off the hardcover, the paperback and the e-books.
The problem wasn't that publishers were getting paid, in fact e-book sales were keeping alive books that were decades out of print and creating new profit where none had existed before. It was that they didn't feel they were getting enough. These are the same publishers that have said publicly that Libraries are stealing profits from them, btw. They are the reason an e-book now retails the same price as the hardcover even when the paperback is being sold simultaneously. Publishers are the reason an e-book can retail for $9.99 when the paperback sells for $7, if it's still even in print.
The publishers jumped into Apple's arms when they proposed their deal because it gave them a way to increase their profits and if it wasn't shady they wouldn't have all settled with the government rather than stand with Apple in their defense.
Smaller competitors who want to get into the market. Effectively, price controls like this will freeze out the competition. How? Well, say Apple are making 200% profit on everything they sell because they have price-fixed. You now can sell at 200% profit and compete with them (and thus become part of the cartel yourself), or you can try to undercut them. But they have a huge market, to themselves, with huge profit margins, complete control of the market (because they are all agreeing to price at whatever they want) and lots and lots and lots of spare cash to keep you out / buy you up.
Because of this, you also get a lack of competition (what's the point of competing if you can all agree to just set prices to X and no-one "wins" the market for having a better product?), the market stagnates and the customer gets screwed - not by the raised prices (as you say, that's up to the customer) but because the market is so closed that they either pay lots or DON'T get the products at all. It's also a pretty good way to kill off the technology and (thus) competitors who rely on book sales to sell reading devices, etc.
A company sets its own prices. That much is certain. But they should not be getting into groups and DECIDING how much the customer pays between them collectively, with no reference to how much it costs to supply the product itself, and no consumer interest. It's illegal for a reason. It destroy markets, stifles innovation, removes competition, and makes everything a big game to make money with no regard to consumers at all. And, at the end of the day, it becomes "pay lots, or get nothing", which isn't a technique that benefits taxpayers either. Yes, you get greater tax revenue from profits (you hope!), but you also get less people spending money and less money available to spend on other things for those that do.
The point is that the market is bigger than a company, even a government. Harming the market DIRECTLY harms the stability of the economies of world governments. Thus it is illegal.
There's nothing stopping a company with a patent licensing its patent ONLY for 10 bajillion dollars even though it costs next to nothing to manufacture. That's just business. Nobody's stopping that. But colluding with competitors to price other competitors and your own customers out of the market is in nobody's interest - not even the companies that do it, or their shareholders!
The difference is, there is no evidence Amazon was telling the publishers they couldn't sell their books cheaper elsewhere - that's the crux of the issue with the way Apple was doing it here.
I think the word you're looking for is "condone". Condoming an island country could prove to be extraordinarily difficult.
Prior to e-books, when a publisher stopped printing a book, their profit from that book was done. If it was a very popular book they might order more printings, but again, when the printing stopped so did that books revenue stream. This was a problem for the publisher, the author and the reader. The publisher and author's side is easy to understand; no new income, but consider also the reader that didn't know about that author at the time, it's been 20 years and they just read an author's newest novel which is part of a series and they feel a desire to read their older books. If they are lucky they might be able to track down a copy from a library or hunt through a few used book stores for one, neither of which gets any profits back to the author. Or conversely they found a dog eared used copy in a flea market and want to read more of that author's works, but the author died and all their books are out of print.
E-books, and Amazon created a new revenue stream for publishers, buying up books at wholesale (for which they paid what the publishers asked! how is that anti-publisher??) and selling those e-books below their own costs to expand a market from a niche curiosity into every day ubiquity. E-books continue to generate revenue long after the printing presses shut down, unlike paper books. So these poor, taken advantage of publishers went from zero profits after print to "some" profits. Oooo, evil Amazon, how could you mistreat them so???
It was the publishers with Apple's help that decided "some" profit wasn't enough, they wanted moar! So now you get numerous cases where the e-book's price is HIGHER than the paperback!! I've seen e-books listed for the hardcover price years after the book was released and used paperback copies were selling for $1 right beside it.
I swear, the only publisher that ever really understood e-books was Baen. Give the old books away for free as advertising for the new books, it's not like they were making money sitting on a hard drive waiting for a new print run!
It would be easier if it was hard!
For non-agency titles (in other words, titles that Amazon purchases to sell under the wholesale model,) Amazon reserves the right to set and change the price as it sees fit, although it will still remit the same wholesale amount back to the publisher or author. If Amazon drops its price for a title below that of Apple or Barnes & Noble, even without the knowledge of the publisher or author, Apple and Barnes & Noble have the right to match Amazon's price.
Read that through again. The blogger you are sourcing is misrepresenting what a "Most Favored Nation" agreement is. When a retailer, such as Amazon, buys a product at wholesale, either a book or a pipe fitting, they have the right to set whatever price they wish for that item. If they're cutting into their own profit that doesn't matter and is not illegal, the manufacturer/distributor/publisher was paid their asking price. This is not a MFN clause, it's standard retail practice. Apple's deal changed that. Retailers could no longer set their own prices. If they didn't charge the price the publishers demanded then they would not be sold any books, and several publishers did withhold books from Amazon until they agreed to their scheme. They could no longer use pricing as a competitive tool against Apple, which is why Apple is in court and not Amazon.
I can't believe I need to integrate these ideas for you, but here we go: because the publishers set the price in the agency model, and because all of the major publishers colluded to switch to an agency model simultaneously, and because Apple's deals mandated that Apple always receive the best available price, it was no longer possible for Amazon to ever sell an eBook at a price lower than that offered by Apple.
That is an illegal anticompetitive action that reduces competition.
No kidding!!! What do you say at this point?
Wrong. You can't make the deal because APPLE has a contract with the publishers that prevents YOU from setting your prices.
You: Mr Publisher, I would like to lower the prices to my customers. To do this, I will take only a 20% cut, you will still make the same money.
Publisher: No can do. We have this deal with Apple that says nobody gets a lower price than their customers. However, since you offered to take only 20%, you will get only 20%, but your customers will pay the same. We will keep the difference.
Apple has an agreement with the publishers that says "No one is permitted to sell for less than this."
In other words, they tell potential ebook sellers "Sure you can try to compete, but don't think you can sell more / establish yourself / give consumers a better deal by selling at a lower price."
Now, here's the purpose of the Sherman Antitrust Act:
"To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer."
Sounds pretty obvious that what Apple is doing is an example of what the Sherman Antitrust Act is about, doesn't it?
And here's how the law starts:
http://books.google.com/books?id=biU3AAAAIAAJ&pg=PA209
If you can't see what's bad about having one retailer decide the minimum selling price for every other retailer in the market, you are beyond help in an economics discussion.
No kidding!!! What do you say at this point?
I know it's trendy to hate apple, but the fault lies at the feet of the extremely greedy publishers.
An e-book should be MAX 50% the price of the paper book.
A lot of the troubles of the modern-day world can be credited to "should be". A lot of things "should be", but actual fact makes them impossible.
Before saying an e-book "should be" max 50% of a paper book, I'd want to see an honest breakdown of the true costs of producing the book in the abstract - paper, electronic - or whatever, totalling up the costs of creating the book, making it fit for human consumption, typesetting, marketing and so forth, all while paying all those involved a decent living wage and supplying them with the capital equipment they require. Plus enough profit to make them want to go through it all over again for the next book. If that can be done for half than the approximately $7USD/copy that seems to be about average for USA paperbacks, well and good. but leave the "should be"s out of it. A fair price for a fair product is all that I ask. There are books I haven't bought because I considered them overpriced, and no few of them are ebooks at hardback prices, and there are books that I bought because they were so cheap I didn't care if they were immortal literature or not. Very little of my purchase decision was based on what "should be" the cost of producing them.
Books are not commodities. A work by Terry Pratchett probably costs no more to produce than a bodice-ripper from Harvey Snorkwacker. Less, once purchase volumes start kicking in. However, Pratchett's work has more intrinsic value, and that's something worth paying a premium for. At least as long as it's not too high a premium. The old-fashioned "sell it hardback for a year at a high price first" model doesn't work for me. Even when it was the only game in town, I waited for the lower-cost paperback edition.
To be fair and clear, publishers are scum and this seems to be consistent regardless of the material being published -- research/scholarly journals, books, music, movies/TV and video games.
They are in the business of selling someone else's work and occasionally giving some of that money back to the people who created the content. For the publishers, it's "Money forever" but for the creators, it's "work for hire" and so they don't get money forever unless they somehow managed to cheat the publishers out of it. This type of capitalist vampirism should be outlawed as they don't "represent" the content creators as they so often claim. What we need are agency type arrangements where the publishing agencies can only get like 10 to 15%.
Prior to Apple's arrangement with publishers, retailers like Amazon could buy e-books wholesale and offer whatever prices they chose. Apple colluded with the publishers to change from a wholesale to an agency model FORCING all other retailers to abide by agency terms and removing the wholesale option. Amazon tried to fight this and several publishers stopped selling books through Amazon until they caved, solely because of Apple's backing. If Apple hadn't supported the agency model and they hadn't colluded with the other publishers, none of them would have risked cutting off their largest customer, Amazon to strong-arm them into the new terms.
Condoming an island country could prove to be extraordinarily difficult.
It might be easier if it were a penisula.
-- This and all my posts are in the public domain. I am a lawyer. I am not your lawyer, and this is not legal advice.
If Apple truly charges 'too much', then it is nothing but an opportunity for an enterprising individual to start a competing business and provide better prices.
And that's exactly the problem here, Apple's exclusive contract forbids the publishers to get into a deal with anyone else.
At least not at a competitive price.
"The likes of Facebook and WhatsApp are free to those whose privacy is of zero value."
Oh, I'm sorry, because Apple only suggested their illegal anticompetitive scheme, and didn't dangle the book industry over smouldering cauldrons of acid until the they decided it was a good idea, clearly they're immune from prosecution for their part in an illegal anticompetitive business group that they greatly profited from.
No kidding!!! What do you say at this point?
The publishers were doing fine, and continue to do fine. They still continue to make most of their profits from physical books, btw, which they seem to have no problem selling through Amazon and allowing Amazon to set the price for. In the vast majority of e-book listings, in fact, the PHYSICAL PAPER BOOK COSTS LESS THAN THE E-BOOK, and yet e-book sales account for only 25%-30% of publisher profits.
How exactly, does that work btw? I can buy a CD for $15, but download the album in MP3 format for $9.99. A DVD costs $20, buying the download is $15. Yet only in books is the digital copy routinely priced higher than the physical copy. Yet you want to tell me the publishers are going bankrupt? The same publishers who would gleefully close down all public libraries and have openly accused them of theft? How do you defend these a-holes and feel good about yourself?
Printing Geek here: Paperback book would be roughly $0.01 or LESS per text page (depending on the run length of total copies) and $0.04 per cover. All of this includes binding and shipping. So, let's look at a 300 page paperback: about $3.10 per printed copy. Now, think of a large run book with text page cost at $0.005 or $0.0025 per page: ~$1.54 or ~$0.79 per copy. I think the lower range of prices is even more likely considering the junk paper stock and black ink only for paperbacks.
Keep in mind these cost are assuming domestic US production of books! I don't think I can pick up one of my kids books and not see "PRINTED IN CHINA" on the back.
Funny story, this is completely wrong. I've seen everyone saying that's how it works in comments, but if you actually look into what they're being accused of, this isn't it. You could still set your own prices to whatever you like, but after doing so Apple will lower their prices. The thing that apparently makes this non-competitive is that Apple still gets their 30% instead of taking the cut that you would have to in order to sell the book for less. From all of the actual facts I've been able to find, other retailers could still actually set whatever price they wanted. Of course, you could only find this out by actually reading whole articles, which apparently nobody does because at the end of articles explaining this, readers still claim it's what you describe. It's kind of scarey how many people think they fully understand the case but have no idea what an MFN clause actually is or how Apple included it in their contract. Most people even assume a MFN clause is illegal, which isn't true unless it violates other laws, same as any other clause of a contract. Apple just took it from the usual wholesale system and applied it to the agency system they wanted to use, and this supposedly makes it illegal. Mind you, the most important piece of evidence in the case I've been able to find is a quote from Jobs' biography that doesn't admit to any wrongdoing or collusion at all, it only shows how they felt about Amazon's price model and what they wanted to do themselves.