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back to article US sues Apple, publishers over ebook pricing strategy

The US Department of Justice has filed a lawsuit against Apple and five major publishers, alleging a conspiracy to fix the prices of ebooks. The DoJ had been investigating Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster to see whether they had conspired together to stop competition in the price of ebooks …

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Anonymous Coward

And here we see Apples weakness. They can make nice hardware, but need the content which no one wants to provide exclusively through them. Apple TV, but no shows. iPad, but no e-books.

Forcing people to use only one provider is not only a bad idea, it is bad business. I have access to at least three book and e-publishers on my Android today. I am sure I could find a half dozen in short order. Apple wants to remove the choice of vendors, corner the market and then they will jack up the price. Any counter arguments I point to the history of MS Office. Same thing.

Easy solution. Don't buy Apple products and maintain a freedom of choice.

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Stop

Nope..

Not sure what you mean by no content - both Apple TV and iBooks have plenty of content.

I also have several e-book providers on the iPad (iBooks, Kindle, Inkling come to mind) plus about half a dozen magazine publishers all supplying content direct.

Maybe you should try finding out more about content on the iPad...

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Facepalm

Re: Nope..

Downvoters need to research more.. probing analyst is right..

I purchase ebooks from Amazon, Kobo, ex-WHSmith, Watersmiths (depending on where it is cheapest) and read them all on my iPad and Android phone. Strangely Apple's store has never been the cheapest (at least in GBP).

However, the DOJ is correct. Banning the Amazon app would have immediately brought in charges of abuse of its tablet monopoly, given Amazon's size. So that is a pretty lame defense, they did not really have any other choice.

The most favoured nation clause has caused prices to artificially rise, and price fixing or buffering is cartel behaviour. I saw the prices rise after this 30% commission and most favoured nation clause was added, notably the Zinio mags and The Times in-app subscriptions.

Apple needs to defend the most favoured nation clause they demand. They are free to ask for 30% but not to demand that, even with that cut, the price is also the lowest. The only way to achieve that is to increase prices elsewhere, given the margins involved for the content makers. Remember that it is 30% of sale price and not 30% of the profit made on the sale.

If some competitor, say Kobo, wants to offer a 2% cut, then the price should be allowed to go down by 28% in the Kobo store.

Apple certainly enjoys capitalism, well free markets are part of that, and abuse of monopoly positions isn't.

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Bronze badge

Re: Nope..

"Banning the Amazon app would have immediately brought in charges of abuse of its tablet monopoly,"

Except that's what Apple did.

They couldn't make it that obvious so what they actually did was change the rules for everyone so that Amazon would have had to give them 30% of book revenue when read on the kindle app, all of Amazon's margin.

They probably weren't expecting Amazon to create their kindle cloud reader, so they could bypass Apple's app store.

Funny how Apple's lawyers didn't mention that in their filing.

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Anonymous Coward

Fines

To impose significant fines, they'll need hard evidence. It will be difficult to get this unless one of them caves in (assuming, of course, they are guilty).

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Re: Fines

The statement appears to make very specific allegations that it would be hard to make without proof.

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Silver badge

so-called "most favoured nation" clause

Is the real kicker here, it guarantees that prices are prices are at least 30%- a whisker higher than they would otherwise be.

If someone else was happy to carry ebooks as a loss leader, then the clause ensures that the public can not benefit.

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Re: so-called "most favoured nation" clause

Yes, MFN is the real anti-trust issue here...and in Macmillan CEO John Sargent's statement, he dodges it. http://www.tor.com/blogs/2012/04/a-message-from-john-sargent

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Anonymous Coward

On the other hand...

Loss leader and below costs sales are banned by law at least in the state of California, under the Unfair Practices Act Section 17000.

"17030. "Loss leader" means any article or product sold at less than cost:

(a) Where the purpose is to induce, promote or encourage the purchase of other merchandise; or

(b) Where the effect is a tendency or capacity to mislead or deceive purchasers or prospective purchasers; or

(c) Where the effect is to divert trade from or otherwise injure competitors.

[...]

17043. It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.

17044. It is unlawful for any person engaged in business within this State to sell or use any article or product as a "loss leader" as defined in Section 17030 of this chapter."

Now where was Apple located again?

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Silver badge
FAIL

Re: On the other hand...

"Now where was Apple located again?"

There's one in Grand Central Station and, as the US Government would have people believe given their stance on internet gambling, it is located at the point of presence where the consumer makes the transaction. Uncle Sam gets to reach across the world on that little gem.

Besides, what California wants is only relevant to what is in California, they don't have the ability to regulate interstate commerce and neither does Apple. Also note the Apple policy doesn't prevent loss leaders, it mandates a minimum margin of 30%. I don't think even Cali-fuckin'-ya would consider a 29.5% margin a loss leader, do you?

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Silver badge

Re: Re: On the other hand...

My bad, it doesn't mandate a 30% margin. Theoretically a retailer could have any margin they want so long as the retail price is fixed equal to or higher than Apple's price but that would just increase the retailer's cost with the increase going to Simon, Shyster, et al.

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You talk like Apple aren't above the law, they are guilty of price fixing and ripping off consumers in loads of different arenas.

They will never face punishment in line with their crimes.

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Anonymous Coward

@ Jeebus -

You're not entirely wrong unless apple has a 'master plan' we can't yet know, form the DOJ's 'evidence' - yet to be proven in court

"In late 2009 the publishers decided upon the agency model as their preferred tactic against Amazon. The emails about it were pretty blunt: "Our goal is to force Amazon to return to acceptable sales prices through the establishment of agency contracts in the USA."

That's the flip side of the coin. It may be that the publishers that haven't already settled and apple are trying to turn the spotlight on Amazon and this is a way to do it.

I'm not convinced myself, but there is definitely something bigger happening.

(Previous comment withdrawn to make it clear i was replying to Jeebus)

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Anonymous Coward

Optional

Name one.

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Unhappy

On the other other hand...

Metavisor: while California does indeed ban below cost sales, the cost in question is the cost the article being sold, i.e. an eBook (or a video or music track or whatever). So if a publisher prices an eBook at $10, Apple could sell it at $7 by simply waiving their 30% commission and would not trigger the Unfair Practices definitions.... but no other vendor could buy the thing at less than $10 because of the MFN clause, and so could not match Apple's price without falling foul of the below-cost sales laws. The only way another vendor could match Apple's price is by negotiating their own agency agreement (a tall order without Apple's breadth), and even then Apple's MFN clause guarantees that no other vendor could do better than match Apple's 30% commission.

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WTF?

"Double delete"?

I'd sure like to know what this magic wand they thought they had to make e-mails completely vanish was. Even though it clearly didn't work, since the feds still found the evidence.

Once again, it's not the crime so much as the coverup...

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FAIL

Re: "Double delete"?

Delete it from your inbox and empty the trash can immediately, before anything gets backed up.

Even as a non-techie in this field, I guess "undeleting" files on a suspects PC or mailserver would provide proof from the content of emails, if the logs showing communications between top execs at rival companies wasn't enough.

FAIL - because they did.

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Anonymous Coward

Re: "Double delete"?

And even then mail servers may have retention for deleted emails (in case they realised they didn't really want to delete the email) , anti-spam solutions have message logs, and some companies have archiving for email as it enters the mail system.

And if the message was cc'd and one of the recipients didn't delete it....

Deleting a message before the nightly backup runs is no guarantee.

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It's like they just want everyone to go and download 5000 ebooks off the internet for 'free'

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Anonymous Coward

economics

Do any of them not understand the relationship between price and sales? I assume what they mean is revenune (units sold x price) and have made an asusmption that they can make more money from selling a few higher priced books than many lower priced books. Would be interested to see the numbers behind that one.

Not hard evidence I know, but I've seen the prices of ebooks go up the last year and the number of offers decreasing steadily...and yes I've bought less books.

Ebooks priced appropriately beocme impulse buys, and unlike books on a shelf you don't always release how many unread books you've suddenly accumulated

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Anonymous Coward

Re: economics

If you've sold ten things at full price, then that's what you've done.

If you sell one item or a million items at a loss, you've made a loss.

It isn't possible to make up the loss in volume, you're always at a loss. If you can attract repeat customers, there may be a win, but not if they're only turning up for the next loss leader

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Raz

Re: economics @ AC posted Wednesday 11th April 2012 21:20 GMT

Theoretically you are right, but there is no way in hell the publishers are losing money when they sell an ebook at $9.99, or even $6.99. AFAIK, on a paperback costing $10, the author makes $1, the rest covers the publisher's costs (and profit).

Printing and shipping and storage costs must be at least $2-3 per copy, if not a lot more. That is the amount that ebooks should be cheaper than paper, but no, they aren't.

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Angel

Re: economics @ AC posted Wednesday 11th April 2012 21:20 GMT

I remember reading a cost breakdown of an ebook conversion from some pretty well off author's blog. The problem is I think the typesetting and format conversion work, which is not ebook friendly and the process is inefficient for ebook publishing.

Separate license agreements are also required, meaning that some of the publishing costs of paper books are not a one off.

Also because of the lower volumes in ebook sales, I think many of them are going for part profit payment deals. I know for magazines this is definitely the case.

So ebooks seem to have separate costs related to generation of the epub/mobi/amz.

This is MPAA/RIAA part 2 in the making IMHO. The middlemen want their cut, but they are not the publishers themselves.

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Anonymous Coward

Re: economics

The problem is with your theory, the publishers were not selling direct. if Amazon decided to sell them at a loss, the publisher still received their money. Under the Apple terms, the publishers were making more money per book and that price was fixed. The publishers were making less money on every book that Apple sold compared to Amazon as Amazon was paying more per ebook than Apple.

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Silver badge

@LOL123 Re: economics .....

"The problem is I think the typesetting and format conversion work, which is not ebook friendly..."

When an author has finished slaving away on his/her manuscript and dealt with all the spelling mistakes and grammatical errors and sentence structure, etc; it will (hopefully) be in the form of a Word document (or similar). If I was given that, I could knock out an e-book in a few minutes and send copies to thousands of people at zero marginal cost, (I'm on the intertubes).

So, I'm wondering why e-books should be so expensive. Do authors still submit manuscripts to publishers in the form of ink on parchment? Even if they do, how expensive is a copy-typist with document layout skills?

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Thumb Up

Re: @LOL123 economics .....

I seriously hope its something better than "a Word document (or similar)" ;) Agree with your point though!

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Re: @LOL123 economics .....

@ David Ward. Whenever I've submitted books and articles for publishing (around a dozen times in the last decade), the stated format has always been .doc or .rtf, so basically a Word document.

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Bronze badge

Re: @LOL123 economics .....

> Whenever I've submitted books and articles for publishing (around a dozen times in the last

> decade), the stated format has always been .doc or .rtf, so basically a Word document.

Yes, this is all too common, aside from some specialized areas (eg scientific publishing, where LaTeX is the norm). That's why I no longer submit work or even proposals except when I know the publisher will take LaTeX, HTML, or some other reasonable format. I refuse to work in MS Office (and OpenOffice, etc) if I don't absolutely have to.

I'm in discussions now about starting an online academic journal, and if I go forward with it, I'm seriously considering "no Word or RTF submissions" as part of the editorial policy.

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Linux

Production costs eBook vs Print book?

I think your'e being had if you pay more than a couple of bucks for an eBook or any other electronic medium you buy over the net When a DVD costs more than an VHS tape, we're being had. Face up to it, they are screwing us madly and no one is rioting.

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Re: Production costs eBook vs Print book?

Assuming of course that the major cost was never the delivery medium but the production of course..

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Anonymous Coward

Re: Production costs eBook vs Print book?

Are you thinking of some huge advances given in the past by publishers for books that turned out to be pretty poor and the only good bits were serialized in newspapers...

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Anonymous Coward

Internet delivered, ebook prices are crazy

No material costs

No packaging

No postage/delivery costs (apart from maintaining a web site)

Why not sell them at Licensing fee + a reasonable profit?

Why do they cost as much as the dead-tree versions?

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Bronze badge

Re: Internet delivered, ebook prices are crazy

You missed marketing but still the price could be lower.

Another thing that publishers don't have to worry about is "remaindering" unsold copies (eg in the case of unloved politicans memoirs) into discount shops or pulping unsold stock.

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g e
Silver badge

Cos while people are daft enough to pay it

They'll charge it

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Bronze badge

Re: Internet delivered, ebook prices are crazy

"Why do they cost as much as the dead-tree versions?"

Mostly they don't, yes I know, there are exceptions, but 'mostly' ebooks are cheaper. Some of them, specially if the are only published as ebooks, are much cheaper.

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Silver badge

Re: Cos while people are daft enough to pay it

The problem, however, is exactly what the music and film industry have faced (although probably to a lesser degree): If people feel like they are getting ripped off, they will look for alternative methods of aquiring the content.

Films are now getting towards an acceptable model with Ultraviolet and physical-to-"digital" availability. I think we need this with books.

For myself, I have a fair collection of paperbacks which I read over and over again. Then I got a Kindle, and I am expected to purchase these books all over again, at a higher price, if I want them on my eReader. Now this is not going to happen.

I take a more moral than legal view on this. I own the book, and have paid for it. I therefore do not consider it wrong for me to find a torrent of this book and download it for my own use.

The problem is that this becomes a slippery slope. I started with this. Then, when I wanted a new book I found the paperback was cheaper than the Kindle version. So I bought the paperback and downloaded a torrent of the eBook. But then it gets you used to downloading the books for free, and I have had to use willpower to hold off just dling it all for free.

I really do think eBooks need to nip this in the bud now and start an ultraviolet-like system, with a paper-to-ebook sceme and automatic licenses, or else they will find everyone just pirates their content and they loose out.

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Paris Hilton

Publishers...

"...were afraid that the new "normal" price for any book would become $9.99, the common Amazon price, and that both ebook and paper book sales would suffer because of it."

If the "normal" cost to the consumer comes down, people won't buy as many?

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Facepalm

Why would Apple offer Amazon’s Kindle app on the iPad?

Apple ask the question "why would Apple offer Amazon’s Kindle app on the iPad?"

It's a simple question, and there is a simple answer:

Apple permit Kindle on the iPad because they know full well that the great majority of their user base will still favour their own iBook reader and take the easy life by purchasing stuff through the familiar iTunes route. To ban the Kindle, on the other hand, would be perceived immediately as an anti-competitive measure.

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Bronze badge

Is it me or ......

...... the obvious reason Apple allowed Kindle on iPad is that any in app Kindle purchases would have still given Apple 30%. The price fixing meant that on a £10 book bougtht through either iTunes or Kindle would have got Apple £3. To simplify, they wanted to win both ways.

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Anonymous Coward

Re: Is it me or ......

You can't make purchases via the kindle app only read previously purchased books.

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Bronze badge

10% is nothing

Just think, you could end war and poverty in Africa, cure cancer and put a man on Mars if you just liquidated Crapple and used the product of Bubble 2.0 for the good of mankind...

Fine them 1000% of revenue. Its only what they deserve.

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