
US sues Apple and publishers over e-book prices - marklabedz
http://www.bbc.co.uk/news/business-17681137
======
cletus
I for one applaud this effort and always viewed the agency model as
anticompetitive, anticonsumer and arguably outright price fixing.

Ebooks have essentially zero printing and distribution costs and, from the
publisher's point of view, can't be resold like paper books can. For both of
these reasons they should be cheaper. On this point, Jeff Atwood actually
makes sense [1].

I know the spiel about pricing having nothing to do with the cost of
production, blah blah blah. I don't care. The present situation is stupid and
ultimately shortsighted. Only Amazon seems to be interested in creating an
ebook market rather than just gouging consumers.

[1]: [http://www.codinghorror.com/blog/2012/04/books-bits-vs-
atoms...](http://www.codinghorror.com/blog/2012/04/books-bits-vs-atoms.html)

~~~
aiscott
I am at a loss to understand how the "agency" model is anti-competitive or
price-fixing.

I am hoping someone can just explain it rather than saying that it simply
"is."

The agency model is what keeps the price of apps on the app store low.
Developers (agents) can charge whatever they want, but clearly that doesn't
equate to automatic sales at whatever price. It is in fact a very competitive
market.

Nothing about the agency model, as I see it, in the example of the App Store
has even a hint of being anti-competitive.

How is this different for books? I just don't see it. But I am open to
explanations.

If anything is anti-competitive, it is selling at a loss so that nobody else
can enter the market. That is what Amazon was doing.

Price fixing requires collusion between the producers to all sell at the same
price point. It's certainly possible this is going on with the big publishers
in Apple's store, but that doesn't require Apple's participation in the
collusion. It doesn't exonerate Apple either, it's orthogonal.

In the wholesale model that traditional booksellers and Amazon use, it's still
possible for publishers to price fix. It's possible for book sellers to price
fix.

It seems to me that Agency vs Wholesale doesn't really have much to do with
the concept for price fixing.

What am I missing?

~~~
gvb
This link makes some sense of it:
[http://blog.nathanbransford.com/2012/03/why-dojs-
potential-l...](http://blog.nathanbransford.com/2012/03/why-dojs-potential-
lawsuit-over-agency.html)

It isn't the agency model that is the problem, it is how the Apple et al.
coerced/enabled the publishers to price-fix and then allowed/enabled the
publishers to impose that price fixing on Amazon. I still don't exactly
understand why Apple and Google are being sued and not the publishers.

[edit] It is Apple and five publishers according to the WSJ: "Three of the
publishers have agreed to settle, according to court documents. Those are
Hachette Book Group, Simon & Schuster and HarperCollins Publishers Inc. Under
the settlement, those publishers will terminate any agreement they have with
Apple regarding electronic books."
[http://online.wsj.com/article/SB1000142405270230444460457733...](http://online.wsj.com/article/SB10001424052702304444604577337573054615152.html)
[/edit]

Money quote:

Along comes Apple and the iPad. Steve Jobs talked the publishers into the
agency model - publishers set their own prices and they get 70% of the
proceeds.

[...]

Publishers then turned around and imposed that agency deal on Amazon, which is
the subject of the DOJ investigation [the agency model, not Amazon - gvb]. The
end result: There really is more competition in the e-book world, but prices
are higher than they likely would be if Amazon and others were able to
discount as they saw fit.

~~~
rbarooah
Right - basically the argument is that publishers cooperated with Apple to
raise prices, and prices actually did go up. Which raises a red-flag of anti-
competitiveness.

The counterargument is that this took place at a time when prices were
artificially lowered because of Amazon's leverage over the publishers. When
competition was restored, prices returned to a level set by the market.

~~~
fpgeek
Prices weren't lower because of Amazon's leverage over publishers. They were
lower because Amazon was willing to lose money to build a platform and a
market. Remember, pre-agency publishers made more money along two dimensions:

1\. Wholesale prices were often higher than their share of an agency price.

2\. Since the prices to end-users were lower sales were higher than they
otherwise would have been.

And don't forget, publishers had a much simpler, pro-competitive response if
they were afraid of Amazon's dominance: drop the DRM. Then they could have
sold ebooks to all of Amazon's customers (including Kindle device owners)
without Amazon.

~~~
rbarooah
You might be in favor of dropping DRM, but that would in no way provide
publishers with comparable access to the Kindle customers.

Kindle customers buy titles using 1-click from their devices or from the
Amazon website. How does just 'dropping the DRM' compete with that
distribution channel?

------
jusben1369
I think the process is like this:

\- Publisher says "I want $10 for this e-book. You distributors can decide the
actual 'list price'" \- Amazon starts selling at $9 as losses $1 per book - to
help drive Kindle sales \- Publishers freak out, not about the now, but the
future as Amazon has 90% market share of e-books \- Enter Jobs and Apple who
says "Oh here's what you do. You tell them the street price has to be $x and
we'll keep 70% and you get 30%" \- How do we make Amazon comply? Well, Apple
insert the most favored nation clause saying that a price offered to anyone is
the same price that they must Apple is selling at. \- The book publishing
executives also make the mistake of getting together every few months to
discuss strategy and how the whole pricing thing was going (Dumb!)

So Apple, getting ready to launch the iPad, saw the stress with the publishers
and a way to reign in Amazon and used their business savvy to help the
publishers connect the dots.

------
te_platt
The important question to me is will this lawsuit do more good than harm.
Having the government establish when prices are too high (price fixing, Apple
in this case) or too low (unfair competition, Google maps in France) is a
risky situation.

Consider this quote from Milton Friedman talking about the antitrust suit
against Microsoft in the 90s:

"Under the circumstances, given that we do have antitrust laws, is it really
in the self-interest of Silicon Valley to set the government on Microsoft?
Your industry, the computer industry, moves so much more rapidly than the
legal process, that by the time this suit is over, who knows what the shape of
the industry will be. Never mind the fact that the human energy and the money
that will be spent in hiring my fellow economists, as well as in other ways,
would be much more productively employed in improving your products. It’s a
waste! But beyond that, you will rue the day when you called in the
government. From now on the computer industry, which has been very fortunate
in that it has been relatively free of government intrusion, will experience a
continuous increase in government regulation. Antitrust very quickly becomes
regulation." Full article at:
<http://www.cato.org/pubs/policy_report/v21n2/friedman.html>

~~~
jusben1369
I'm not sure of your point here. Your opening sentence appears to question
antitrust laws? Yet your Friedman quote seems to support antitrust laws and
just argue that the Valley really shouldn't get too spun up about MSFT because
by the time a conclusion is reached by the processes set in place it will
likely be moot. This was a pretty cut and dried case that moved rapidly (2
years) against a group of executives who were colluding to raise prices to
thwart a competitor?

~~~
te_platt
Yes, I do question the value of antitrust laws. The Friedman quote was meant
to show that given the existence of antitrust laws, it is still not in your
long term interest to seek to have them enforced in your industry. Arguing
that the government should have power to punish your competition is also an
invitation for the government to regulate you.

------
rbarooah
If they lose, it's not obvious how this would hurt Apple aside from the fine.
Wouldn't they just adopt the wholesale model for books leaving the publishers
high and dry?

Presumably the only way Amazon was able to force the wholesale model in the
first place was to threaten to stop selling paper books from those who
wouldn't accept it.

~~~
fpgeek
In losing, Apple is likely to wind up under significant antitrust oversight.
Given some of their other business practices (like the app stores), that could
be a big issue for them.

~~~
rbarooah
The app store is clearly nothing to do with any kind of monopoly, however much
people would like the government to force Apple to make it what they want.

However, I agree that antitrust oversight would be harmful for the Apple, and
indirectly for the industry as a whole.

------
iscrewyou
The question I have is what would be the consequence if the DOJ wins. Does
Apple and others involved pay up to the government or compensate the people?

What does usually happen when the government wins in a lawsuit against a
private firm?

~~~
pagekalisedown
"To collect your $2.35 share of the settlement payment, please fill out this
form and mail it within 10 days."

~~~
grecy
"Be sure to include a certified bank cheque for a $4.99 processing fee."

------
podperson
Speaking as someone publishing an ebook through BN, Amazon, and Apple, there's
some competition in distribution. Basically Apple and BN are competitive and
Amazon isn't (which is, I guess, what you'd expect given that Amazon is
dominant). Apple offers 70%, as does BN. Amazon offers 70% if you sell your
book for under $10, and only in some markets, and it charges you for downloads
(from your 70%). If you want to price a book over $20 you get 35% royalties.

~~~
jusben1369
Fascinating. I assume this is self publishing (vs this article which is about
the large publishers?) When you mention 35% royalties are you saying that
Amazon gives you 70% of the street price you set to them? However, if your
street price is more than $20 they drop that to 35% to you? Also, do any of
the agreements require you, if you sell in other locations, that the price
listed must match the price you told them? Ie - are they using a MFN clause
like that listed in the article above?

~~~
podperson
AFAIK Amazon doesn't have an MFN clause. (Does Apple still w.r.t. books? I
thought that's past tense.)

If I am willing to sell for under $10 Amazon offers a 70% royalty (less
various charges -- effectively 60%) in some regions, 35% in others, and if the
price is over $10 then it's 35% (with no deductions).

Oh my original post is confused -- books over __$10__ are limited to a 35%
royalty (which is a huge poverty trap)

In all cases I'm talking percentage of my set selling price. (Perhaps Amazon
wants to discount my books and still have enough margin to pay my royalty --
that's a lot of wiggle room -- they can sell my $20 book for $10 and make just
as much money off it as if I'd set the cover price at $10.

From Apple, Barnes & Noble, etc. it's 70% minus some admin charge --
effectively 65% or so -- across the board.

Note that Apple does cap prices for "textbooks" created with iBookauthor at
$14.99.

I guess in the end this doesn't matter much since we can always split books
into parts, but the fact is that Amazon's business model currently involves:

* paying less to writers than anyone else

* evading state sales taxes by fair means and foul

* being the only vendor of ebook readers that can't read DRM-free ePubs out-of-the-box

------
delinka
This whole thing is pretty complex. I'd say the crux of the issue is Apple's
non-compete clause on price. You can't list your ebook cheaper on Amazon than
the price with Apple. But what if you don't have control over pricing at
Amazon? That's where we'd be if Amazon was still using the wholesale model.

For this lawsuit, the problem is still the publishers since they insisted on
the agency model with Amazon. The publishers are "price fixing," not Apple and
not Amazon.

~~~
MatthewPhillips
I am not a lawyer but I think the issue with Apple is that they coordinated
the change. 1 publisher making demands of Amazon has no leverage, but
collectively they do, and Apple is who told the publishers that they would
have that support. Allegedly.

------
crazy1van
I fail to see the problem being solved by this lawsuit.

I'm sure there's some anti-competitive laws somewhere that have been violated,
but I still disagree with the philosophy behind this action.

Consumers are buying ebooks and ebook readers like never before -- free
individuals making a choice of their own free will to pay a certain amount of
money for the product.

It is also hard to see how anything could be "anti-competitive" in a market
where a lone person could compete by writing a book at home and selling it on
their own website with paypal. Think that's an unrealistic example? You
probably also thought that about the video games industry 5 years ago with big
box stores, gamestops, and steam seemingly controlling all access to the
market. Despite all that, a game involving digging blocks out of the ground
made millions of dollars and completely side stepped the all the dominating
distributors.

Don't under estimate the choices of the consumer and the power of innovative
individuals. They will shake things up orders of magnitudes more than a small
army of government lawyers.

~~~
jusben1369
The problem is that industry executives got together to fix prices and raise
them by 20 - 30%. I'm all for innovative people but struggle with the logic of
"We're ok with crony capitalism because it drives innovation!" Surely free,
transparent markets are better for innovation than manipulated ones?

------
azernik
For a much longer and more involved write-up, see [1]

[1]: [http://mediadecoder.blogs.nytimes.com/2012/04/11/justice-
fil...](http://mediadecoder.blogs.nytimes.com/2012/04/11/justice-files-suit-
against-apple-and-publishers-over-e-book-pricing/)

------
elliotanderson
Where does Amazon's market influence fit into this picture?

A poster below offered two valid scenarios from opposite angles: 1) Prices
were illegally raised by Apple and publishers colluding in an anti-competive
way 2) Prices were artificially lowered by Amazon's pricing scheme, and
competition was restored by returning to price levels originally set by the
market

It wasn't a stretch of the imagination to think that Apple would move into the
ebooks market at some point, building on their success with music and apps.
Does a competitor running a loss to preemptively lock out new market entrants
count as anti-competitive behaviour?

------
flocial
To me the bigger problem is Apple's arbitrary standards regarding the App
Store. They can effectively shut out what are legitimate apps for whatever
agenda they want to push (anti-competitive or otherwise) and back it up with
any bogus citation of their restrictive ToS. The idea of Dell or Apple able to
dictate what we can or cannot install on our computers would be absurd yet
we're paving the way for such a future as smartphones get smarter while such
policies remain in place.

At least book/content publishers have other avenues to disseminate their
content.

------
mhaus
Does anyone have the complaint?

~~~
smackfu
[http://online.wsj.com/public/resources/documents/ebooks04112...](http://online.wsj.com/public/resources/documents/ebooks04112012b.pdf)

~~~
peteri
Wow, that reads like a pretty good slam dunk for the govt.

~~~
rbarooah
It does look strong. I wonder what Apple is holding out for, or whether there
is actually a defense.

~~~
fpgeek
Apple, like Microsoft before them, might be holding out for a change in the
people who oversee the DoJ.

~~~
rbarooah
If so, that seems like just as unwise strategy now as it was for Microsoft. I
think it's pretty unlikely.

------
brown9-2
The government complaint is actually pretty easy-to-understand and read, for
anyone who wants to understand the real issues here:

[http://online.wsj.com/public/resources/documents/ebooks04112...](http://online.wsj.com/public/resources/documents/ebooks04112012.pdf)
(pages 5-9)

------
rbarooah
Isn't the agency model exactly what enables _new entrants_ to publishing
(whether publishing houses or self-publishers) to operate on a level playing
field with established publishers?

It seems to me to be the best thing that's happened to the book industry for
decades.

~~~
aidenn0
Not really; anyone could sell an ebook to amazon under the wholesale rules as
well. It probably makes things easier for self-publishers in that amazon can't
sell big-name titles for as cheap, which might increase demand for small name
titles at lower prices, but is that a good thing?

~~~
rbarooah
I'd say it could a good thing because it facilitates price competition between
actual producers, where the feedback from the market can more directly affect
the quality of actual books rather than just who gets to sell them.

------
warpspeed
It's a little hard to be up in arms about this alleged price fixing. Yes, it's
anti-consumer and might end up costing us a few dollars, but if the DOJ is
looking to make some real change, I'd argue that this isn't the best use of
their time. Let's remember that we still have too-big-to-fail banks and an
associated industry that the Dallas Federal Reserve says is on the brink of
putting us into another bailout situation.

To make a comparison, it's like candidates arguing over birth control issues
and glossing over the 3 wars and financial crisis we're in. Yes, very
important, but there are some more pressing matters that are being largely
ignored.

~~~
jusben1369
Parallel processing? To make a comparison, just because the siding on your
house is badly in need of repair doesn't mean you stop doing the dishes for
two weeks until you've replaced all your siding.

~~~
warpspeed
Maybe they just need a better PR department. From my point of view, I'd like
to hear a few more headlines about how they're working to avoid the next
economic meltdown before I care about being charged an extra 50 cents for an
ebook.

To use your comparison, if there were reports of a hurricane coming I'd use
every available resource to fix that siding, because the dishes won't matter
if the house is blown apart.

------
j_baker
I'm curious why Google Books isn't involved one way or another in this. I
suppose they may be tired of lawsuits involving publishers.

~~~
Karunamon
I'm guessing due to lack of popularity and possibly inclusion in whatever
collusion is going on. For most, if you think "eBooks", you think Amazon or
iBooks.

~~~
viraptor
Not necessarily. If you have iWhatever you may think that. If you're running
android you're thinking Amazon or Play books.

~~~
r00fus
Considering the Play Books has only been around for a few months, you sound a
bit hard to believe.

I'd say it's more likely the average Joe and Jane think about the Kindle and
the Nook (and maybe the iPad - oh, but that's mainly for playing games +
browsing) and their respective bookstores.

~~~
viraptor
Well - when you open android market, you see ebooks advertised. That's Play
books. If you browse popular applications, you'll see Kindle.

I'm saying this from the point of view of possibilities / easy accessibility.
No, iBooks is not an option for Android users, because they have no access to
it. They don't care about it unless they have an iDevice - that's all I tried
to say.

If you go for a Kindle device, your first option is Amazon of course. Actually
a common user will probably know something about Kindle and that he can buy
books on his mobile. The details about who they come from and how they work
are not that important.

------
stretchwithme
Dopiest thing I've seen about this is the statement that Apple "considered"
fixing prices.

God forbid someone should think about doing something.

------
runeks
Governments hand out monopolies with one hand (copyright, patents) and then
sue companies for making use of these monopolies with the other hand. What a
great waste of time and money!

