The judge was absolutely correct to rule this way. Some people cry "miscarriage of justice", but you need to look back on what happened when the iPad and iBooks came out.
Amazon ruled the ereader/ebook marketplace, because it was the first company to offer both a reader and electronic books together, so you could order books right of the reader. A page from Apple's playbook, a la the iPod.
At the time, ebooks were sold like print books, where the retailer set the price. This is how most retail works, and let Amazon drastically discount their ebooks so they weren't taking any profit, just to move Kindles. The publisher had no say over the price of the book, so a Kindle owner could get ebooks cheaper than print (which, if you think about it, makes perfect sense). The publisher didn't make any less, so the only one paying the price was Amazon (and they took a hit on their stock for it, if I recall). The publishers were forced into this model by Amazon because there was no other resource for ebooks, and everybody loved their Kindles so to deny that market meant your competition would kill you if you didn't play along.
Apple came along with the iPad and that gave publishers an out. If you go back to that time and read the articles on this, Apple actively worked with publishers to change the model to one that was better for publishers and Apple, but worse for consumers. They created a new kind of contract that let the publisher set the price of the ebook, which is really unheard of in retail, except for maybe video game sales. At its heart, it's really an anti-competitive practice, though that may seem counterintuitive. Look at it this way: it's a great way to break into a marketplace controlled by a stronger competitor without really competing. You force your competitor to raise their prices and thus reduce the attractiveness of what they offer, and suddenly you have a share in the market without having to compete with better products or prices.
I also don't understand pro-Apple stance on this issue. I'm a huge fan of Apple products, but I was not a fan of this change in the ebook market. My guess is this opposition is coming from people that don't buy a lot of ebooks on either the iBook store or Amazon, or ever experienced the Kindle store prior to this change in the market. It used to be that ebooks on Amazon were priced around or less than the price of a paperback. Now they tend to cost the same or more than the hardbound edition. How is this a good thing for consumers? You now have publishers in control of the ebook market the same way they're in control of the video game market, through price fixing and predatory pricing models, and retailers have no say in the matter.
Maybe I'm daft, but it doesn't add up to me. Perhaps you can point out the flaw in my thinking? Apple already had a marketplace, the App Store, that let sellers set their own prices — Apple just wanted their hefty 30%, regardless of consumer price. It seems that was and is acceptable to the law and the world at large. In fact, before iBooks, publishers were already selling their books as stand alone apps under this model. When Apple created iBooks, they continued this existing model in their newly created ebook marketplace — that seems entirely natural and unprovocative. It can't be that the agency model is only illegal for books.
It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model. How is Apple implicated?
> It can't be that the agency model is only illegal for books.
The agency model wasn't the illegal thing, it was just the one part of the mechanism of the used for the illegal price fixing conspiracy.
> It seems to me if an offense was committed, it was committed by publishers in renegotiating their Amazon contracts, in unison, towards the agency model.
The publishers were, indeed, charged with conspiring in the price fixing scheme. All of the charged publishers settled with the DoJ rather than going to trial. Apple wasn't singled out, it just seemed that way because they were the only defendant left when the trial started.
> How is Apple implicated?
Apple is implicated as a member of the publishers' horizontal price-fixing conspiracy who sought to advance, encourage, and profit from that conspiracy.
Well, why did all the publisher renegotiate their contracts in unison? Because they were all working together with Apple. You aren't allowed to fix prices amongst competitors, and you also aren't allowed to help competitors to fix prices as a third-party.
>There was one other important aspect to the agency model that Apple established with the publishers — it included a most-favored-nation (MFN) clause. An MFN provision will frequently appear in contracts between wholesalers and retailers and it ensures that the wholesaler will provide the retailer with the best wholesale price. But Apple adopted it in the agency model to require that the publishers adjust e-book prices in the iBookstore to match the lowest price offered by any other retailer — regardless of whether the publisher controlled the pricing in that retailer.
>This meant that the iBookstore would always have the e-book at the cheapest price. It also meant that if a retailer was offering the book for a cheaper price, the publisher would have to lower the retail price to match it. If that meant the price was below what it cost to produce, the publisher would take the loss, not Apple — they would still get their 30% cut.
>The traditional purpose of MFNs are used to protect a retailer’s ability to compete, ensuring that they aren’t disadvantaged by the wholesaler giving their competitors a better deal. The DOJ contends that the way this MFN works, it was designed to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.” Those are strong words, but there is certainly a kernel of truth to that.
Speaking as someone who used to buy a bunch of books on Amazon, and now buy them on iBooks, I don't understand the "bad for consumer" angle. I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books. However, and this is something that everybody seems to be ignoring, I'd much rather pay $12.99 for a new book than not be able to buy the book at all because the publisher is holding it back to promote hardcover sales (i.e. "windowing"). Also, what hardcovers are you buying that cost $12.99 or $14.99? I just looked up Amazon's prices for a book that came out 3 months ago that I pre-ordered (Blood of Dragons by Robin Hobb). I paid $12.99 for it in iBooks. Amazon's selling the hardcover for $20.86. I am much happier to pay $12.99 to read it in iBooks than to pay over $20 for a physical copy. And I wouldn't be surprised if the only reason I could do this at all is the anti-windowing agreement. In fact, another recent book by the same author, The Willful Princess and the Piebald Prince, is not even available in eBook format (I don't know who published that book but they must not be subject to the anti-windowing agreement). I'd love to read it, but I'm not paying $28.05 for Hardcover.
It's also worth pointing out that the publishers didn't change their prices. Amazon artificially lowered what the consumer was paying, but the publisher still got their $12.99 (or whatever they charged). It would not surprise me in the least if Amazon's long-term plan was to stop discounting books once they cemented their hold over the market.
> I don't tend to buy bestsellers, so maybe I'm not hurt as much by the higher prices for that category, but I do still see $12.99 prices on new books.
Interesting reason for the $12.99 books: the ones I see are from Random House and are being sold under the agency model still. You can tell because it says "price set by publisher". Random House was not part of the price fixing suit.
And yeah, generally speaking, this whole case was about bestsellers. No one cares about downlist stuff, they care about hurting the value of their NY Times bestselling hardcovers.
I'm honestly scared of Apple after learning of the abusive(?) manner by which they got Random House to adopt agency pricing for ebooks:
Random House, the largest publisher, resisted Apple's call to adopt the agency model in 2010. But the company capitulated a year later in order to get its books on the iPad.
"Apple decided to pressure Random House to join the iBookstore," Cote wrote. "As Cue wrote to Apple CEO Tim Cook, 'When we get Random House, it will be over for everyone.' Apple had its opportunity in the Fall of 2010, when Random House submitted some e-book apps to Apple’s App Store. Cue advised Random House that Apple was only interested in doing 'an overall deal' with Random House. By December, they had begun negotiations, and Random House executed an agency agreement with Apple in mid-January 2011. In an e-mail to [Steve] Jobs, Cue attributed Random House’s capitulation in part to 'the fact that I prevented an app from Random House from going live in the app store this week.'"
If you read the Steve Jobs mails, it's clear that Apple was trying to create a sustainable marketplace, while Amazon was, as you oddly imply at the end of your thought, controlling the marketplace by artificially setting prices lower than the cost. Of COURSE they would stop doing this after some time. This practice kept small players out of the game and while Apple could afford to play along, they knew it was a foolish game.
It's a dangerous precedent that a new player bringing new customers to a market, refusing to engage in monopolistic tactics, and refusing to sell above a certain price, is price fixing.
Price fixing hurts consumers by many sellers agreeing to artificially raise the price of something such as to avoid the pain of competing on price.
Apple convinced publishers to accept a lower price - nominally - and to sell at a reasonable market price, or they couldn't be stocked in their store. A brick and mortar retailer could never be faulted for refusing to sell products at a loss!!!
I'm not saying Apple is perfect, but in this case they behaved more responsibly and in the interests of content creators and consumers, in the long run, than all other parties involved.
The true price fixing was Amazon and the publishers, pre-iBooks, agreeing to sell some items as high as 24.99 for eBooks - something Steve Jobs refused to do. Average price higher, highest price lower.
I still buy books on Amazon instead of iBooks because my Kindle is handy as a dedicated reader and hey, I want to pay less out of self interest. I also got my Kindle for free.
But it must be clear this is surely fucking the authors.
Also, to those who think eBooks should be far cheaper than print, what do you think it costs to print a thousand page novel? You think the hardcover costs $10-15 more, or that it's a premium sell?
Apple wasn't trying to create any old sustainable marketplace. They were trying to create a marketplace where they didn't have to compete on price so they could win on a more favorable dimension (like platform integration). Therein lies the problem.
Can you give some examples of hardcovers being cheaper than kindle or ibooks versions? I can see isolated examples but when I look for hardcovers on the nytimes bestseller list on Amazon, kindle versions are uniformly cheaper than hardcovers.
I very seldom encounter books that are cheaper to buy (new) physically than electronically. I agree that the electronic versions should be even cheaper, but that's a separate story. The first order reason that ebook prices rose in response to Apple's entry into the market is simple -- competition. In this case, Amazon had a monopsony and dictated prices to publishers. Apple broke or offered the whiff of a break in the monopsony and the rest is history. What does this competition look like up close? A bunch of contract negotiations.
Did Apple "orchestrate a conspiracy" to raise ebook prices? That's another question altogether. The video of Jobs saying prices won't be higher simply indicates he knew about the "most favored nation" contracts. I couldn't be bothered reading through the entire judgment, but certainly followed coverage pretty closely and I just don't see a case.
Amazon ruled the ereader/ebook marketplace, because it was the first company to offer both a reader and electronic books together, so you could order books right of the reader. A page from Apple's playbook, a la the iPod.
At the time, ebooks were sold like print books, where the retailer set the price. This is how most retail works, and let Amazon drastically discount their ebooks so they weren't taking any profit, just to move Kindles. The publisher had no say over the price of the book, so a Kindle owner could get ebooks cheaper than print (which, if you think about it, makes perfect sense). The publisher didn't make any less, so the only one paying the price was Amazon (and they took a hit on their stock for it, if I recall). The publishers were forced into this model by Amazon because there was no other resource for ebooks, and everybody loved their Kindles so to deny that market meant your competition would kill you if you didn't play along.
Apple came along with the iPad and that gave publishers an out. If you go back to that time and read the articles on this, Apple actively worked with publishers to change the model to one that was better for publishers and Apple, but worse for consumers. They created a new kind of contract that let the publisher set the price of the ebook, which is really unheard of in retail, except for maybe video game sales. At its heart, it's really an anti-competitive practice, though that may seem counterintuitive. Look at it this way: it's a great way to break into a marketplace controlled by a stronger competitor without really competing. You force your competitor to raise their prices and thus reduce the attractiveness of what they offer, and suddenly you have a share in the market without having to compete with better products or prices.
I also don't understand pro-Apple stance on this issue. I'm a huge fan of Apple products, but I was not a fan of this change in the ebook market. My guess is this opposition is coming from people that don't buy a lot of ebooks on either the iBook store or Amazon, or ever experienced the Kindle store prior to this change in the market. It used to be that ebooks on Amazon were priced around or less than the price of a paperback. Now they tend to cost the same or more than the hardbound edition. How is this a good thing for consumers? You now have publishers in control of the ebook market the same way they're in control of the video game market, through price fixing and predatory pricing models, and retailers have no say in the matter.