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Apple gets slammed by US federal judge for antitrust regarding ebook prices (Page 2)
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Jul 15, 2013, 12:55 PM
 
Originally Posted by ghporter View Post
So Apple "manipulating" the market by signing publishers who didn't want to undercut themselves by signing with Amazon is "bad," but Amazon manipulating the market by forcing those publishers they sign to accept Amazon's arbitrarily low prices even if it is economically damaging to the publishers is "good?"
Amazon didn't force low prices on anyone. You both agreed to a wholesale price per unit. And Amazon didn't try and control what you did with other retailers like Apple did.

Basically, Amazon is Walmart. Big box, big volume. They can sell for less than most because of volume. Apple didn't want to compete with this.
     
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Jul 15, 2013, 01:46 PM
 
Originally Posted by Spheric Harlot View Post
From what I've read, this was NOT the case before Apple broke open the market and forced Amazon to renegotiate.
I think you're confused. I was talking about KDP, NOT the relationship and contracts between Amazon and the large publishers in question. And I pointed this out to show that Amazon isn't "the bad guy" like the media and fanboys try to paint them as.
     
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Jul 16, 2013, 03:08 AM
 
Originally Posted by shifuimam View Post
Was Amazon actually selling ebooks "below cost" though?

A copy of an ebook costs nearly nothing. It's not remotely the same thing as physically manufacturing a printed volume, distributing it, making little cardboard display units to put in retail outlets, etc.

I find it hard to believe that it actually COSTS publishers $10 a pop to make a digital copy of an ebook.
shif, that's a very naive argument: yes, the cost of digital duplication is next to zero. The same holds for software, music, books, photos, movies, scientific articles and other forms of work that take months, years to prepare and seconds to copy.

The costs are incurred trying to sustain creative endeavors. You're right that digitalization should make things cheaper, after all, companies don't have to print, store, inventory or perhaps dispose of physical objects. But that doesn't mean the costs for digital media should be proportional to the cost of copying and transmitting data.
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Jul 16, 2013, 03:53 AM
 
Originally Posted by OreoCookie View Post
shif, that's a very naive argument: yes, the cost of digital duplication is next to zero. The same holds for software, music, books, photos, movies, scientific articles and other forms of work that take months, years to prepare and seconds to copy.

The costs are incurred trying to sustain creative endeavors. You're right that digitalization should make things cheaper, after all, companies don't have to print, store, inventory or perhaps dispose of physical objects. But that doesn't mean the costs for digital media should be proportional to the cost of copying and transmitting data.
Right, which is what I was saying: you're paying for IP. But to be honest, the costs of running servers and developing and maintaining eBook technology is sky high. It's not as cheap and easy as everyone thinks.

I'll give a quick and dumbed down example. What would you say, as a retailer, if someone came in and said they lost their paper book and needed another one? You'd ring in a the full price of a replacement.

With digital stuff, consumers might end up downloading the same purchase several times. They might have lost a device. They may have accidentally deleted the file. Etc. All that bandwidth cost money and server time and support time. And everyone expects it.

Just read the tech news and see just how many tech companies lose money. Tons of them do. Consumers' expectations in the digital realm can be somewhat unrealistic. The bottom line is, eBooks are just another medium compared to paper. This new medium has several costs, just like the old medium.

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Jul 17, 2013, 05:31 PM
 
Except in this case we know exactly how much the digital distribution costs - see the link from Amazon that I posted earlier. TL;DR: $0.15/MB. Not exactly breaking the bank, given how small ebooks are.
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Jul 18, 2013, 01:39 AM
 
Originally Posted by P View Post
Except in this case we know exactly how much the digital distribution costs - see the link from Amazon that I posted earlier. TL;DR: $0.15/MB. Not exactly breaking the bank, given how small ebooks are.
Really? Actually, most average sizes are above 5 MB. With color tablets and high res screens, it's impossible to keep them under this. So at a minimum the average person is paying $.75 bandwidth on every sale, in addition to 30%+ to the retailer.

The costs for eBook infrastructure are huge. Our platform is large with multiple components that are themselves very complex. Metadata. Analytics. eBook files. You have to host the cover images separate. You have to work with all the publishers and other retailers. It's a mish mash of half standards and roll your own.

The server and engineering costs are high, not just bandwidth. There are real, direct costs. Just like Apple has a ton of expenses to maintain and develop iTunes. This is no different.
     
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Jul 18, 2013, 11:45 AM
 
@theothersteve
I've read your posts and thought about them for awhile. You do have vested interests in this case as per your disclaimer.

My question to you is this: Is anyone forcing you (or any other publisher for that matter) to sign up with Apple's model? If the terms of the agreement are not mutually beneficial, there doesn't need to be any agreement. If you, for example, are of the persuasion that Apple's model does not serve your interests, there is no obligation for you to enter into an agreement, and with Amazon's marketshare(prior to iBooks having ~90% and now still the majority), you and the other publishers could have freely chosen to stick with Amazon and their model without making your content available to Apple's eco system.

If Apple's terms were as bad as you make them out to be for publishers, none of them would have signed. They and you and other publishers are free to walk away from negotiations without entering into any agreement (with Apple, Amazon, or any other entity).
     
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Jul 18, 2013, 01:05 PM
 
Originally Posted by Hawkeye_a View Post
@theothersteve
I've read your posts and thought about them for awhile. You do have vested interests in this case as per your disclaimer.

My question to you is this: Is anyone forcing you (or any other publisher for that matter) to sign up with Apple's model? If the terms of the agreement are not mutually beneficial, there doesn't need to be any agreement. If you, for example, are of the persuasion that Apple's model does not serve your interests, there is no obligation for you to enter into an agreement, and with Amazon's marketshare(prior to iBooks having ~90% and now still the majority), you and the other publishers could have freely chosen to stick with Amazon and their model without making your content available to Apple's eco system.

If Apple's terms were as bad as you make them out to be for publishers, none of them would have signed. They and you and other publishers are free to walk away from negotiations without entering into any agreement (with Apple, Amazon, or any other entity).
What you've said... that publishers are free to walk away from Apple's contract, is a perverse oversimplification of the matter and a misunderstanding of the facts. I respectfully point this out to you. It was mutually beneficial for Apple and the publishers. But it was more beneficial to Apple and more damaging to the industry as a whole.

One way to look at it is, you get the most powerful people in a room, one side benefits more than the other... but at the same time they both benefit... and after their meeting is concluded, the industry in which they're in suffers because the net result is the elimination of competition and the inflation of prices.

We're not the most powerful, and we're not in that room. We're in the industry and this negatively affects us. With an eBookstore, we too are trying to sign on publishers. The way Apple had it, we COULD NOT, in anyway, realize our innovative business model with publishers because of how much legal crap is involved to dance around Apple's contract. Did Apple see us coming? No. Did the publishers? No. But they got into bed with Apple and that is the problem: signing with Apple severely limited what these publishers could do with other retailers. This right here is a real live example of how shitty this is in the real world and the crux of the case that the DOJ was going after.

Amazon never had contracts that limited, to such a large extent, what publishers could do outside their store. Apple "severely punished financially" publishers whose books weren't being sold under the agency model elsewhere. This is a quote directly from the trial and formed part of the contract. This is the problem in that Apple was effectively forcing the agency model on the industry because they didn't want to compete with the wholesale model.

I guess the reason I'm on here is to kinda vent anonymously and it feels good to connect with Apple people. I'm into Apple products myself but they really leave a bad taste in the mouth with their greed and arrogance.

And by the way, as much as the agency model looked good in the beginning, the publishers were actually aware that they may make less money compared to the wholesale model. In fact, the analysis in the courts showed this to be the case, including Emails from publishers running the numbers. What romanced them was the higher prices and Apple's iPad... and the promise of something new and better. But at the end of the day, it was simply Apple trying to enter and completely control and dominate an established market. And no company should ever be able to monopolize something in the way Apple tried to.

It should be clear now that all the fanboy articles and people attacking the DOJ and the BS in the media is just that: BS. You should be thankful the DOJ got involved here because if not, it would have stymied innovation and price competition in the eBook market. Now Apple is just like us: they have to earn their position and innovate.
     
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Jul 18, 2013, 02:00 PM
 
Originally Posted by theothersteve View Post
Amazon never had contracts that limited, to such a large extent, what publishers could do outside their store. Apple "severely punished financially" publishers whose books weren't being sold under the agency model elsewhere. This is a quote directly from the trial and formed part of the contract. This is the problem in that Apple was effectively forcing the agency model on the industry because they didn't want to compete with the wholesale model.
Very very very well put.

I don't think that even the most die-hard fanboy can legitimately and honestly twist this to be something positive.

Apple was iron-fisted in their demands that publishers force their pricing model on every other retailer. This is the opposite of free market - it's completely monopolistic.

Apple's been able to behave in a monopolistic manner for a very long time, ever since they decided to be the only suppliers of the hardware their software would run on. They've gotten away with it, in part because of the small market share they held in both the hardware and OS segments of the technology industry.

That is no longer the case, and instead of sharing the playground with everyone else, they keep wanting to try and be king without working for it.
     
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Jul 18, 2013, 05:44 PM
 
I have to disagree (this is beyond fanboyism). None of the publishers were coerced to sign with Apple.

If Apple didn't want to compete with the wholesale model of Amazon, they are within their rights to draw up contracts which reflect that(as they did), and the publishers of the content are completely within their rights to agree or disagree with it.

If a consequence of them signing would have required them to renegotiate their contracts with their other customer(singular) then they were fully aware of the terms of the contract. And in their renegotiation, they are within their rights to draw up the terms based on their requirements, and Amazon would have been within their right to agree or disagree with them.

I don't see it as Apple forcing publishers to adhere to the agency model at all. All i have read so far is regarding the individual prices of eBooks.(ie they cannot be sold for a cheaper price to consumers through other retailers (ie price matching) so Amazon would be free to set the price higher than Apple's).

In the past Amazon used its muscle to strong arm publishers to prop up its eReader business, the publishers had no choice but to go along due to their monopoly in online "real book"(both new and used) market. With the advent of iBooks, the publishers suddenly have two customers one bidding with better terms for their product.

@theothersteve if you have a problem with the agency model (i'm assuming because your model is based on subsidizing the price of eBooks and making up the difference through ads/hardware/something else), then you are not obligated to sign with Apple, and so nothing would(i assume) prevent you from selling to Amazon or other eBooks stores via the wholesale model (or any other model).

Lets not forget when these deals were hammered out, Apple had 0% of the eReader market and 0% of the eBook market. And today they are nowhere close to having the majority of the eReader market (i don't know about the eBook market). So to call them a "monopoly" in these markets is technically and factually incorrect. IMHO
     
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Jul 18, 2013, 05:51 PM
 
Originally Posted by Hawkeye_a View Post
I have to disagree (this is beyond fanboyism). None of the publishers were coerced to sign with Apple.
Exactly, the publishers wanted to switch from a wholesale model to the agency model so they could control the prices. The agreement of the publishers with Apple gave the publishers the leverage they needed to change their agreements with Amazon.
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Jul 18, 2013, 08:02 PM
 
Originally Posted by Hawkeye_a View Post
I have to disagree (this is beyond fanboyism). None of the publishers were coerced to sign with Apple.

If Apple didn't want to compete with the wholesale model of Amazon, they are within their rights to draw up contracts which reflect that(as they did), and the publishers of the content are completely within their rights to agree or disagree with it.

If a consequence of them signing would have required them to renegotiate their contracts with their other customer(singular) then they were fully aware of the terms of the contract. And in their renegotiation, they are within their rights to draw up the terms based on their requirements, and Amazon would have been within their right to agree or disagree with them.

I don't see it as Apple forcing publishers to adhere to the agency model at all. All i have read so far is regarding the individual prices of eBooks.(ie they cannot be sold for a cheaper price to consumers through other retailers (ie price matching) so Amazon would be free to set the price higher than Apple's).

In the past Amazon used its muscle to strong arm publishers to prop up its eReader business, the publishers had no choice but to go along due to their monopoly in online "real book"(both new and used) market. With the advent of iBooks, the publishers suddenly have two customers one bidding with better terms for their product.

@theothersteve if you have a problem with the agency model (i'm assuming because your model is based on subsidizing the price of eBooks and making up the difference through ads/hardware/something else), then you are not obligated to sign with Apple, and so nothing would(i assume) prevent you from selling to Amazon or other eBooks stores via the wholesale model (or any other model).

Lets not forget when these deals were hammered out, Apple had 0% of the eReader market and 0% of the eBook market. And today they are nowhere close to having the majority of the eReader market (i don't know about the eBook market). So to call them a "monopoly" in these markets is technically and factually incorrect. IMHO
You seem to be confused. This case was not about whether the publishers were coerced to sign a contract with Apple (e.g., Blackmail). This case was about whether Apple and the world's largest publishers colluded together to achieve some illegal thing.

The courts found that there was an overwhelming amount of evidence that showed that Apple and the publishers did engage in collusion, and that collusion was for illegal things.

Namely, to eliminate price competition and to inflate prices.

As for your understanding of our business, it couldn't be further from reality. We're competing with Apple with an eBookstore and trying to sign on large publishers. We would not be able to sign these publishers with Apple's old agreement in place because our business model is incompatible with the terms of that agreement. Namely, that Apple "severely" financially punishes publishers whose books are being sold elsewhere under non-agency models. We do have an agency model, but we also have another innovative opt in model. Thus, the publishers did not and would not be able nor want to engage in non-agency model agreements in that world because of the financial and other problems they'd have from Apple.

As for Apple being a monopoly in the eBook business, nobody ever said that, including me. But what they tried to do is eliminate business models they didn't like and force the agency model onto the industry via collusion. The publishers are guilty too. They admitted in court and there's a ton of written communications between all parties that they didn't want to compete on price with each other.

They all got into bed with one another, Apple the ring leader, and tried to eliminate competition by blanketing the industry with an agency model as well as inflating prices. If we're going to use the word coercion in this case, it can be synonymous with collusion, because that's what collusion effectively is: a group in an industry getting together and coercing the rest of the industry into whatever they're trying achieve. The way groups can do this is through the power they have. In this case, we're talking about the world's largest publishers aligned with the most power tech company in the world. It's precisely why they all got together because they wanted to strong-arm Amazon out of the wholesale model. The evidence shows all of the publishers believed that unless they were all onboard with this new model, they wouldn't be able to break Amazon's wholesale model. And Apple's interests were in eliminating price competition so they could enter the market.

Apple simply went too far here. The courts rightfully found them guilty and the industry can breathe easy knowing that it isn't controlled by one company and 6 of the world's largest publishers.

When it comes to straight up coercion, this adjective could definitely describe what Apple did to Random House. It's a matter of evidence that Apple blocked Apps from Random House to get them to sign onto iBooks. This is coercion.
( Last edited by theothersteve; Jul 18, 2013 at 08:37 PM. )
     
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Jul 18, 2013, 08:10 PM
 
Originally Posted by OreoCookie View Post
Exactly, the publishers wanted to switch from a wholesale model to the agency model so they could control the prices. The agreement of the publishers with Apple gave the publishers the leverage they needed to change their agreements with Amazon.
And there you have the problem right there. That leverage is what got them into trouble because it's called collusion, and the courts rightfully found them all guilty. And it wasn't just Amazon, this affected EVERYONE.

This stuff should piss you guys off. This is how consumers get screwed and a select few dominate and control markets.
( Last edited by theothersteve; Jul 18, 2013 at 08:41 PM. )
     
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Jul 19, 2013, 05:01 AM
 
@theothersteve
I wanted to take my time preparing a reply to your post.

You raise a few very interesting points and your background as a smaller ebook publishing startup is interesting. I'm an author myself, in fact, my career as a scientist hinges on me preparing articles and publishing them in reputable journals.

I did research and it turns out that amazon did not make a loss overall, just losses on a few individual books. You were right that on a sum total, amazon did make a profit (although at least I wasn't claiming that amazon wasn't making a profit on the whole, I was focussing more on individual books). I also do grant you that amazon selling under price happened far more infrequently than I believed.

Nevertheless, I have a few comments on your posts:


1. Apple vs. publishers?

One of the key tenets of your posts is that Apple forced the agency model and other things on the publishers. In reality, it was the other way around, the big publishers suggested the agency model to Apple. The big publishing houses wanted to take control over the pricing of ebooks: under the wholesale model, that was amazon's prerogative while under the agency model, it's the publishers. They did not want amazon to set the prices of their books, they did not want that customers expect ebooks to cost $9.99.

The only way to force amazon into compliance was by signing an agency model deal with a big player. Apple was that big player. Things like MFN were the price the big publishers were willing to pay. Of course, the big players (= the incumbents) have had little regard for smaller, new, innovative start-ups like the one you work for.

So no, the basic conflict here was big publishers vs. amazon. The big publishers settled which is why Apple was the only one left standing.


2. Apple: the budding monopolist?

You write several times that Apple did this to become a monopoly in the field of ebooks (e. g. »Meaning Apple would become a monopoly that they hoped in the eBook industry like they were with MP3 players and music.«): Apple does not have a monopoly on ebooks, not even close.


3. Is this verdict good for the business?

You wrote very enthusiastically that the verdict was the best thing that has happened for the industry in a long time. As far as I understand, the ebook industry returned to the wholesale model again, and amazon is starting to raise prices for ebooks in some areas. If Apple has to pay a fine, it will be peanuts for them.


4. What's the real problem?

Quite independently of the minutiae of the current case, I am very skeptical we are one step closer to overcoming the real obstacles: it is quite clear that the terms of the ebook industry are settled by a select few. On the retail end, before Apple entered, amazon with its 90+ % marketshare could dictate the terms of the agreement. Similarly, on the publishing end, it was mostly the big publishers who sought to preserve their ancient pricing tiers (a distinction between soft- and hardcover ebooks does not make sense).

What is missing is the democratization of the market, and one of the necessary conditions is that smaller and bigger publishers are treated exactly the same. The easiest way to achieve that is in my opinion the adoption of the agency model. That's why I think the big publishers and Apple went a step in the right direction. This has worked wonders for small app developers.

Friends of mine have a software company. They started a music app as a project at university which grew into a business in the mid-2000s. They started selling shrink-wrapped boxes of their software internationally (e. g. in the Apple stores around the world). They did quite well. But their sales have exploded with the app stores. And they are now doing very, very well. To them, the new model is a gods end: they no longer have to print localized boxes, pay for that in advance, store them, ship them, deal with leftovers and, worst of all, taxes. This is all included in the 30 % fee they are happy to pay. That means you can, as a small developer, compete on equal terms with the biggest of software companies.

Another step in the right direction for me was weakening amazon's ebook monopoly. You mention things like $0.15 per MB in fees, this definitely sounds way too expensive for me. If you think of people distributing podcasts and the like, one episode weighs ~tens (audio) or ~hundreds (video) of ebooks at a time.

The real disruption of the ebook market will not come from incumbents, but smaller companies, perhaps start-ups like yours. But I think a necessary condition to succeed is to weaken monopolies sufficiently so that you don't have to swallow the terms of the old market.
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Jul 19, 2013, 05:07 AM
 
Originally Posted by theothersteve View Post
And there you have the problem right there. That leverage is what got them into trouble because it's called collusion, and the courts rightfully found them all guilty. And it wasn't just Amazon, this affected EVERYONE.
You conflate several entities here: who is them?
It's the publishers, right? The publishers have colluded in this case, because they wanted Amazon to accept fundamental changes to their contractual terms and how ebooks are sold.
Originally Posted by theothersteve View Post
This stuff should piss you guys off. This is how consumers get screwed and a select few dominate and control markets.
That's exactly why some people here, myself included, are not as pissed off as you are. I think the real monopoly and problem is Amazon and not Apple. Apple's move into the market was a step to add another player to the game. It's still too few, but at least now there is one more than before.
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Jul 19, 2013, 11:31 AM
 
Originally Posted by OreoCookie View Post
That's exactly why some people here, myself included, are not as pissed off as you are. I think the real monopoly and problem is Amazon and not Apple. Apple's move into the market was a step to add another player to the game. It's still too few, but at least now there is one more than before.
That's just it. Apple wanted to enter the market, but they only wanted to play by their own rules. In fact, they were so intent on making new rules that they forced publishers to prod Amazon into playing by Apple's rules.

That is a problem. Period. It doesn't matter what the industry is. It is anti-competitive and anti-free market any time one business makes all the rules and forces their competition to play by those same rules.

This wasn't like Barnes & Noble building a store in the same shopping center as a local book shop, and the local shop's owner saying "Oh no! B&N has cheaper prices, and we're going to have to look at lowering our prices to compete!" This would be like Barnes & Noble colluding with the owner of the shopping center on a little deal, and the owner going to the local shop and saying "you must operate like Barnes & Noble or we're terminating your lease".

That is the focal point of this case. Amazon found a way to sell ebooks to customers at a price that customers were happy with. Apple didn't like that and decided to write a new playbook for the ebook market. Once they got the biggest, most influential publishers to agree with that playbook, Apple had control.

I don't know if you've noticed this, but Apple doesn't like losing control or not having control in the first place. Their entire operations and business model is based on that.
     
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Jul 19, 2013, 12:10 PM
 
Originally Posted by shifuimam View Post
That's just it. Apple wanted to enter the market, but they only wanted to play by their own rules. In fact, they were so intent on making new rules that they forced publishers to prod Amazon into playing by Apple's rules.
Again, it was the big publishers who suggested the agency model to Apple, so if anything, they forced it on the industry, not Apple. Why do you keep on misattributing this to Apple? Apple did not force the publishers to change their contracts with Amazon, it's what the publishers wanted from the beginning, they wanted control over prices back from a monopolist.

Apple wanted in the game and for them, it was a strategic alignment of interests: Apple wanted to get the publishers on board for their own ebook service, the publishers wanted price control back and the MFN clause was Apple's price (and for reasons that are IMO understandable from Apple's position).
Originally Posted by shifuimam View Post
That is the focal point of this case. Amazon found a way to sell ebooks to customers at a price that customers were happy with. Apple didn't like that and decided to write a new playbook for the ebook market.
Prices customers were happy with, although I reckon they'd be even happier with $1.99 for a novel rather than $9.99. But the publishers weren't happy with prices and with Amazon discounting hot selling items at Amazon's whim, for instance. But in the end, monopolies are not good for customers.

I'm not sure why you're so focussed on Apple here, to be honest, it's a bit bizarre to me. It's really a story about big publishers vs. Amazon, not about Apple vs. publishers or Apple vs. Amazon.

theothersteve has made some good and interesting points about unintended consequences, and I am sure it's true that in this story, the big publishers, Apple and Amazon did not care about a small ebook start-up. Perhaps in this sense, the verdict may be good news for the smaller players, because all of those contracts have had to be re-negotiated.
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Jul 19, 2013, 01:36 PM
 
Originally Posted by OreoCookie View Post

1. Apple vs. publishers?

One of the key tenets of your posts is that Apple forced the agency model and other things on the publishers. In reality, it was the other way around, the big publishers suggested the agency model to Apple. The big publishing houses wanted to take control over the pricing of ebooks: under the wholesale model, that was amazon's prerogative while under the agency model, it's the publishers. They did not want amazon to set the prices of their books, they did not want that customers expect ebooks to cost $9.99.
I'm not sure where you're getting your information from but this is wrong. It was Apple, not the publishers who proposed the agency model. In the beginning, Apple was exploring different versions of the wholesale model, like a 25% discount scheme off hardcover books. It was Eddie Cue who, as the courts laid out, "switched gears" after they returned to Apple from New York and put together an agency proposition.

Cue decided, however, to go a different route.
Originally Posted by OreoCookie View Post
The only way to force amazon into compliance was by signing an agency model deal with a big player. Apple was that big player. Things like MFN were the price the big publishers were willing to pay. Of course, the big players (= the incumbents) have had little regard for smaller, new, innovative start-ups like the one you work for.

So no, the basic conflict here was big publishers vs. amazon. The big publishers settled which is why Apple was the only one left standing.
Ok, I'm not sure what specifically you're trying to say here. But Apple, quoting the court, "severely punished financially" anyone selling books under non-agency terms. This is part of how they forced the agency model on the industry. The other part is that they colluded with the world's largest publishers to impose it on the entire industry and they achieved this through collusion. Which the courts found to be illegal and which I completely agree with the verdict for many reasons.

Originally Posted by OreoCookie View Post
2. Apple: the budding monopolist?

You write several times that Apple did this to become a monopoly in the field of ebooks (e. g. »Meaning Apple would become a monopoly that they hoped in the eBook industry like they were with MP3 players and music.«): Apple does not have a monopoly on ebooks, not even close.
Nobody ever said Apple had a monopoly in the eBook market. But there goal seemed to be that they wanted to be a monopoly. Makes sense. They want to dominant any market they enter, like music and MP3 players. With comments from Eddie Cue like, "As soon as Random signs, it's over for everyone." You get a sense for how aggressive and domineering Apple really is.

Originally Posted by OreoCookie View Post
3. Is this verdict good for the business?

You wrote very enthusiastically that the verdict was the best thing that has happened for the industry in a long time. As far as I understand, the ebook industry returned to the wholesale model again, and amazon is starting to raise prices for ebooks in some areas. If Apple has to pay a fine, it will be peanuts for them.
No, the eBook market isn't in a wholesale model. That would be a mischaractization of what's happening. Sure, the wholesale model is now alive and well, but it's becoming one of mixed business models very quickly, now that this Apple contracting business is over. The fine isn't the important thing, it's that the DOJ busted up the illegal contracts and opened the door to more open, friendly business industry wide. That's what matters not the fines.

Originally Posted by OreoCookie View Post
4. What's the real problem?

Quite independently of the minutiae of the current case, I am very skeptical we are one step closer to overcoming the real obstacles: it is quite clear that the terms of the ebook industry are settled by a select few. On the retail end, before Apple entered, amazon with its 90+ % marketshare could dictate the terms of the agreement. Similarly, on the publishing end, it was mostly the big publishers who sought to preserve their ancient pricing tiers (a distinction between soft- and hardcover ebooks does not make sense).

What is missing is the democratization of the market, and one of the necessary conditions is that smaller and bigger publishers are treated exactly the same. The easiest way to achieve that is in my opinion the adoption of the agency model. That's why I think the big publishers and Apple went a step in the right direction. This has worked wonders for small app developers.

Friends of mine have a software company. They started a music app as a project at university which grew into a business in the mid-2000s. They started selling shrink-wrapped boxes of their software internationally (e. g. in the Apple stores around the world). They did quite well. But their sales have exploded with the app stores. And they are now doing very, very well. To them, the new model is a gods end: they no longer have to print localized boxes, pay for that in advance, store them, ship them, deal with leftovers and, worst of all, taxes. This is all included in the 30 % fee they are happy to pay. That means you can, as a small developer, compete on equal terms with the biggest of software companies.

Another step in the right direction for me was weakening amazon's ebook monopoly. You mention things like $0.15 per MB in fees, this definitely sounds way too expensive for me. If you think of people distributing podcasts and the like, one episode weighs ~tens (audio) or ~hundreds (video) of ebooks at a time.

The real disruption of the ebook market will not come from incumbents, but smaller companies, perhaps start-ups like yours. But I think a necessary condition to succeed is to weaken monopolies sufficiently so that you don't have to swallow the terms of the old market.
What you've said... is what some others have said... but just because one company has a major, dominant position in a market is no excuse to break the law yourself to break that dominance. Amazon earned its placed in the book industry because they innovated first.

These are pieces I've taken quoting from the case. This sums up nicely the reality of this case on the market itself:

Quotes from court case: The Plaintiffs have shown through compelling evidence that Apple violated Section 1 of the Sherman Act by conspiring with the Publisher Defendants to eliminate retail price competition and to raise e-book prices. There is overwhelming evidence that the Publisher Defendants joined with each other in a horizontal price-fixing conspiracy. Through that conspiracy, the Publisher Defendants raised the prices of many of their New Releases and NYT Bestsellers above the $9.99 price at which they had previously been sold through Amazon. They also raised the prices of many of their backlist e-books. The Plaintiffs have also shown that Apple was a knowing and active member of that conspiracy. Apple not only willingly joined the conspiracy, but also forcefully facilitated it.

The Plaintiffs do not argue, and this Court has not found, that the agency model for distribution of content, or any one of the clauses included in the Agreements, or any of the identified negotiation tactics is inherently illegal. Indeed, entirely lawful contracts may include an MFN, price caps, or pricing tiers. Lawful distribution arrangements between suppliers and distributors certainly include agency arrangements. It is also not illegal for a company to adopt a form “click-through” contract, negotiate with all suppliers at the same time, or share certain information with them. Indeed, as Apple indicates, many common business practices have been found necessary for the efficient distribution of goods and services. See Monsanto, 465 U.S. at 763-64. That does not, however, make it lawful for a company to use those business practices to effect an unreasonable restraint of trade. And here, the evidence taken as a whole paints quite a different picture -- a
clear portrait of a conscious commitment to cross a line and engage in illegal behavior with the Publisher Defendants to eliminate retail price competition in order to raise retail prices.

Apple also argues that it is particularly unfair to find that it engaged in illegal conduct since Amazon and Google, among others, used similar negotiating tactics and included nearly identical terms, including MFNs, when they subsequently executed their own agency agreements with the Publishers. There are several reasons that this is not a persuasive argument.

First, it is no defense to participation in an illegal price fixing conspiracy to suggest that others did it too. Second, focusing on the precise terms of agency agreements and the extent to which they may have been similar is far too narrow a focus. The issue is not whether an entity executed an agency agreement or used an MFN, but whether it conspired to raise prices. Apple has pointed to no evidence that either Amazon or Google desired either to eliminate retail price competition or
to raise retail prices. Quite the contrary. Amazon was adamant in its support of retail price competition and lower prices. It did not relinquish its control over retail pricing easily. As Penguin’s Shanks described at trial, when Penguin demanded that Amazon yield its discretion over retail pricing, Amazon “yelled and screamed and threatened. It was a very unpleasant meeting.”
For its part, Google had been negotiating wholesale distribution agreements with Publishers and only switched to agency agreements at their insistence. Amazon was so hopeful that the Publisher Defendants would relent and revert to a wholesale model once they saw how much money they were losing with the agency model that it added a “model-parity” clause in its agreements.

In sum, Apple’s independent business reasons for creating an e-bookstore and for adopting an agency model to do so have not created any ambiguity in the evidentiary record that should
require hesitation before finding Apple liable. The totality of the evidence leads inextricably to the finding that Apple chose to join forces with the Publisher Defendants to raise e-book prices and equipped them with the means to do so.
     
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Jul 19, 2013, 01:41 PM
 
Originally Posted by OreoCookie View Post
Again, it was the big publishers who suggested the agency model to Apple, so if anything, they forced it on the industry, not Apple. Why do you keep on misattributing this to Apple? Apple did not force the publishers to change their contracts with Amazon, it's what the publishers wanted from the beginning, they wanted control over prices back from a monopolist.

Apple wanted in the game and for them, it was a strategic alignment of interests: Apple wanted to get the publishers on board for their own ebook service, the publishers wanted price control back and the MFN clause was Apple's price (and for reasons that are IMO understandable from Apple's position).

Prices customers were happy with, although I reckon they'd be even happier with $1.99 for a novel rather than $9.99. But the publishers weren't happy with prices and with Amazon discounting hot selling items at Amazon's whim, for instance. But in the end, monopolies are not good for customers.

I'm not sure why you're so focussed on Apple here, to be honest, it's a bit bizarre to me. It's really a story about big publishers vs. Amazon, not about Apple vs. publishers or Apple vs. Amazon.

theothersteve has made some good and interesting points about unintended consequences, and I am sure it's true that in this story, the big publishers, Apple and Amazon did not care about a small ebook start-up. Perhaps in this sense, the verdict may be good news for the smaller players, because all of those contracts have had to be re-negotiated.
It should be clear to you now that it was not the publishers who proposed the agency model, it was Apple when Eddie Cue switched gears well into the negotiations. And Apple went back to the publishers with price caps to control upward pricing.
     
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Jul 19, 2013, 01:45 PM
 
Originally Posted by shifuimam View Post
That's just it. Apple wanted to enter the market, but they only wanted to play by their own rules. In fact, they were so intent on making new rules that they forced publishers to prod Amazon into playing by Apple's rules.

That is a problem. Period. It doesn't matter what the industry is. It is anti-competitive and anti-free market any time one business makes all the rules and forces their competition to play by those same rules.

This wasn't like Barnes & Noble building a store in the same shopping center as a local book shop, and the local shop's owner saying "Oh no! B&N has cheaper prices, and we're going to have to look at lowering our prices to compete!" This would be like Barnes & Noble colluding with the owner of the shopping center on a little deal, and the owner going to the local shop and saying "you must operate like Barnes & Noble or we're terminating your lease".

That is the focal point of this case. Amazon found a way to sell ebooks to customers at a price that customers were happy with. Apple didn't like that and decided to write a new playbook for the ebook market. Once they got the biggest, most influential publishers to agree with that playbook, Apple had control.

I don't know if you've noticed this, but Apple doesn't like losing control or not having control in the first place. Their entire operations and business model is based on that.
This is a very good summary of the reality.

One way for people to look at this is, imagine if it were Amazon that did this? Imagine Amazon got together with the world's largest publishers, told them they couldn't be in the eBook market if everyone else wasn't on the wholesale model, and had a contract that severely financially punished anyone who sold books under non-wholesale models. And the publishers all got together, agreed with each other do all do this, and Amazon was used as the framework to make it happen.

Then, Apple wouldn't be able to enter the market with an agency model, or anyone else for that matter. Or basically any other innovative business model is toast.

This is an open and shut case of anti-competitive business practices achieved via collusion.
     
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Jul 19, 2013, 03:33 PM
 
Originally Posted by theothersteve View Post
......and had a contract that severely financially punished anyone who sold books under non-wholesale models...........
You keep saying that. Could you please provide some proof as to how they would "severely financially punish..."?

I dont remember seeing any mention that they were forcing the publishers to have agency model contracts with other retailers. All that I saw was price matching via the MFN clause. (The publishers could sell using the whole sale model, but the price to end users had to be the same as if not higher than what the publishers set the price to on iBooks).
     
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Jul 19, 2013, 04:12 PM
 
Originally Posted by Hawkeye_a View Post
You keep saying that. Could you please provide some proof as to how they would "severely financially punish..."?

I dont remember seeing any mention that they were forcing the publishers to have agency model contracts with other retailers. All that I saw was price matching via the MFN clause. (The publishers could sell using the whole sale model, but the price to end users had to be the same as if not higher than what the publishers set the price to on iBooks).
Here you go a direct quote from the courts:

The agreements also included a price parity provision, or Most-Favored-Nation clause ("MFN"), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor's e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not FORCE Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers.
I've seen the contract. It's incredibly complex and basically makes it impossible to sell your titles with Apple when you want to sell elsewhere under a non-agency business model. It's loaded with a bunch of clauses that completely restrict your movements outside the Apple world. If I can say this anonymously on here that contract was a piece of crap for everyone but Apple. I mean, I've seen some pretty bad contracts like from government RFPs where you essentially have no rights and become a slave or else you don't get paid... but this one is somehow worse.

Now, you have to understand. We have in writing Steve Jobs saying, AFTER they had the publishers going and getting them to sign, he scaled up his pressure and dropped the following bomb: He said Apple wouldn't enter the eBook market if the industry didn't move over to agency. He didn't think they could compete at higher prices with folks like Amazon selling for less.

The courts uncovered a very solid timeline of events from everyone involved... like a clock. After the publishers signed with Apple, they immediately went to Amazon and gave them the ultimatum. I believe it was HarperCollins who Amazon retaliated against by removing their buy buttons from their books within 24 hours after they gave Amazon the agency model ultimatum.

All of this is a matter of record and evidence. The evidence is overwhelming. There's so much that you could write a book on it.
     
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Jul 19, 2013, 05:13 PM
 
The agreements also included a price parity provision, or Most-Favored-Nation clause ("MFN"), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor's e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not FORCE Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers.
This also points the finger at Apple being part of the problem. Why would publishers ask Apple to enforce financial penalties if they went to competitors with a different business model?

No, that was Apple forcing the publishers' hands in order to become the biggest and best and king of the playground.
     
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Jul 19, 2013, 05:15 PM
 
Originally Posted by theothersteve View Post
...but also imposed a severe financial penalty upon the Publisher Defendants if they did not FORCE Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers....
If indeed that is the case, I stand corrected.

Price matching is one thing, but that is clearly overreaching.
     
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Jul 19, 2013, 05:26 PM
 
Originally Posted by Hawkeye_a View Post
If indeed that is the case, I stand corrected.

Price matching is one thing, but that is clearly overreaching.
No problem. It's hard to believe a company we love is sort of greedy and corrupt. I'm not blackballing Apple but after all this eBook business and their tax havens, it's a different company to me now. I can't say I love them anymore. They make great products, but they're just another company.

Here, you can see why Apple's labeled the ring leader. They put in these "punishment" clauses to make sure that, after the contract was signed, everyone would play along. Those who tried to "screw" the group by undercutting (selling under say a wholesale model somewhere else), would be punished. It was all or nothing. They all wanted assurances that each publisher would play along or the deal was off. This is how Apple facilitated and lead this illegal operation. All of this came out as hard evidence clear as day in court.
( Last edited by theothersteve; Jul 19, 2013 at 06:17 PM. )
     
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Jul 19, 2013, 07:01 PM
 
This thread is proving very interesting.

Thanks for weighing in!
     
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Jul 19, 2013, 08:56 PM
 
Originally Posted by Spheric Harlot View Post
This thread is proving very interesting.

Thanks for weighing in!
Thanks for listening! I feel like it's therapy to come on here and just vomit up stuff I can't talk to anyone about.
     
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Jul 20, 2013, 03:55 AM
 
Originally Posted by theothersteve View Post
I'm not sure where you're getting your information from but this is wrong.
I initially got my information from the TidBits article I've linked to. The TidBits article also contained a direct link to Judge Cote's verdict. The article is just a mere explanation of the verdict, not an opinion piece, so you can go straight to the source for the claim:
Originally Posted by Judge Coates (p. 34)
Hachette and later HarperCollins surprised Apple with their suggestion that, instead of a wholesale model, Apple adopt an agency model for the distribution of e-books.
Later on p. 37, in Section F titled »F. Apple Switches Gears and Presents An Agency Model with 30% Commission« the judge explains that Apple adopts the suggestion by Hachette and Harper/Collins.
Originally Posted by Judge Coates (p. 37)
Having received an enthusiastic reception from the Publishers, the Apple team returned to Apple’s headquarters in Cupertino, California and quickly absorbed what it had heard.
So yes, according to the verdict two publishers (Hachette and Harper/Collins) suggested the agency model to Apple which then adopted it.
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Jul 20, 2013, 03:59 AM
 
Originally Posted by theothersteve View Post
Ok, I'm not sure what specifically you're trying to say here. But Apple, quoting the court, "severely punished financially" anyone selling books under non-agency terms. This is part of how they forced the agency model on the industry. The other part is that they colluded with the world's largest publishers to impose it on the entire industry and they achieved this through collusion. Which the courts found to be illegal and which I completely agree with the verdict for many reasons.
You're correct, this has been found illegal and after your explanations, it looks like it has had a detrimental effect on smaller ebook vendors like your start-up.
Originally Posted by theothersteve View Post
Nobody ever said Apple had a monopoly in the eBook market. But there goal seemed to be that they wanted to be a monopoly. Makes sense. They want to dominant any market they enter, like music and MP3 players. With comments from Eddie Cue like, "As soon as Random signs, it's over for everyone." You get a sense for how aggressive and domineering Apple really is.
I don't think Apple has any intention of being the dominant player in the ebook market, Apple does not want to be a monopoly.
Originally Posted by theothersteve View Post
No, the eBook market isn't in a wholesale model. That would be a mischaractization of what's happening. Sure, the wholesale model is now alive and well, but it's becoming one of mixed business models very quickly, now that this Apple contracting business is over. The fine isn't the important thing, it's that the DOJ busted up the illegal contracts and opened the door to more open, friendly business industry wide. That's what matters not the fines.
What is the business model here then? To my understanding the old contracts between the publishers and Amazon came back into effect, i. e. Amazon sells ebooks on a wholesale basis again. If I'm mistaken here, please explain how, I'm curious.
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Jul 20, 2013, 03:59 PM
 
Originally Posted by OreoCookie View Post
I don't think Apple has any intention of being the dominant player in the ebook market, Apple does not want to be a monopoly.
These are the kind of statements that cause outsiders to use the label "mactard".

Apple absolutely wants to be a monopoly. Before Android was a viable competitor to iOS, Apple enjoyed a practical monopoly in the consumer smartphone market. Before there were decent large-capacity MP3 players as competitors to the iPod, Apple enjoyed a practical monopoly in the mobile music market with the marriage of iTunes and iPod as mandatory partners. Apple enjoys a hardware/software monopoly between Mac and OS X by making it illegal (via the EULA) to install their OS on any hardware other than their own.

And, when anyone threatens their monopoly, they either go behind closed doors to manipulate the market, or try to sue the shit out of anyone legitimately taking away from their customer base.

Apple's business model is based on being a monopolistic sandbox-hogging playground bully.
     
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Jul 20, 2013, 04:04 PM
 
Originally Posted by OreoCookie View Post
I initially got my information from the TidBits article I've linked to. The TidBits article also contained a direct link to Judge Cote's verdict. The article is just a mere explanation of the verdict, not an opinion piece, so you can go straight to the source for the claim:

Later on p. 37, in Section F titled »F. Apple Switches Gears and Presents An Agency Model with 30% Commission« the judge explains that Apple adopts the suggestion by Hachette and Harper/Collins.

So yes, according to the verdict two publishers (Hachette and Harper/Collins) suggested the agency model to Apple which then adopted it.
Your oversimplifying it and skirting over numerous facts and timelines. I've read through several times the evidence and also attended a portion of the trial. Several business models were explored by the publishers and Apple while Apple was in New York. Cue was in New York for 9 straight full days. They sat around and discussed every option imaginable. It seemed like more fact finding and discovery than anything else. Yes, the publishers at this stage thought the agency model would "fix their Amazon problem" but this all came out during discussions and everyone contributed. And fixing the Amazon problem was getting off $9.99 to higher prices so a) publishers' hardcover books wouldn't seem to high a price and hurt their sales b) to increase eBook prices. It was a simple suggestion from everyone that it's one way to break pricing control from retailers and simply put it in the hands of publishers. But this was just the germ of the idea. As we'll find out in this post... an interesting progression happened toward a "jesus" moment from Apple, and that jesus moment was the requirement to move everyone, the whole industry, to an agency model.

But it was Apple that came back to the table after they returned from New York with their "jesus" moment. Remember, Apple was still figuring all of this business out as they were going along, learning from the publishers what was working and what wasn't. What the publishers liked and what they didn't. Apple had literally no idea about the publishing industry and what was happening.

In other words, the agency model may have been discussed but it wasn't something that one publisher invented neither were there any terms associated with it. In fact, Apple had its 30% agency model going with the App Store and this latter contributed to Apple going in this direction. In other words, the agency model during that initial trip was not a forgone conclusion. Apple and Jobs' jesus moment was realizing that the agency model could be their ticket to cracking the market open and swinging everything in their favour. And this ticket would come in the form of moving the industry over to agency. And they figured this out because they had to get eBook prices higher for publishers but at the same time look out for themselves. And this was eliminating competition because they couldn't compete with lower prices elsewhere. So they figured to force the agency model on the industry which would flatline all prices and eliminate competition. So they wouldn't have to compete on price anymore. How would agency flatline prices if publishers were setting the prices under agency at retail channels? Simple, because of Apple's MFN clause which basically makes the agency model not an agency model anymore. It swings pricing back to the retailer. And agency also meant that the publishers wouldn't really be underselling on some retail channels. They'd just set a price and go with it for all retail channels. And a plus was, as Cue said, they knew they could run a profitable business using an agency model at 30%.

It was Apple that came to the table with an agency model presented to the publishers.
It was Apple that set the agency model % in this proposal.
It was Apple that glued on the MFN clause.
It was Apple that infused the pricing tiers and pricing caps.
It was Apple that drafted and created the publisher agreement terms.
And it was Apple that had it that the entire industry must be moved to agency for their agreement to work with the higher price tiers.

DOJ:December 17-18, 2009:

Apple agrees to offer agency model.

December 18, 2009:

Mr. Cue emails three publishers a call to provide an update on "all my findings and thoughts."

December 21, 2009:

-Apple proposes agency model with $12.99 price point and requirement that all resellers be moved to agency.
-Apple tells publishers they can use threat of windowing to force Amazon to agency.
-Publishers understand "plus" of the Apple proposal: "solves Amazon issue".
In other words, Apple created the agency model and agency terms with the push to agency model industry wide, and presented it to the publishers after their initial fact finding trip to New York. For the most part, the publishers had no idea Apple was going to come to the table with the specific terms they did. Of course they were part of the formation of this contract. But some of the key specifics... this was Apple bargaining. So once Apple learned enough learned enough, they raced to get a contract together and it was every man for himself at this point. Some pushed back, some wanted less of a discount rate, like 20% instead of 30. Others outright rejected it like Random House and HarperCollins (in the beginning).

HarperCollins knew what Apple's agency model and industry wide agency push meant and were not happy with what it would do to the industry. In an Email by a HarperCollins exec to Steve Jobs, he said that him and his people "care" about the industry and that the pricing terms were too "inflexible" for them. That they couldn't sign the contract in its current form because of how much it would restrict their business on other retail channels. Apple used pressure tactics and got a Simon and Schuster exec (Reidy) to act for everyone else. Through this pressure, HarperCollins eventually signed.

DOJ:Reidy Testimony (Simon & Schuster exec)
"It is important to Apple that there be 'some level of reasonable pricing.' They feel the only way to get this is for the industry to go to the agency model...."
Q. And Apple told you that they feel the only way to get this is for the industry to go to the agency model; do you see that?
A: Yes.
Q. And by the "industry," they meant other publishers, correct?
A. Yes.
Q. And they meant other reatailers, correct?
A. Yes.
It was key to have someone from one of the publishers championing Apple's terms. They all, all of them, needed assurances that everyone would play along. And Apple ensured this. All of this came out as evidence in the trial.

All we're talking about here Oreo is a complete gathering of industry coming together. Where everyone is kept abreast of a new way of doing business. And where everyone is effectively given the same contract and where everyone knows what everyone is signing. All this evidence shows is that the publishers, like Apple, are guilty. The guilt is shared. It's not just Apple. But Apple is also included. They all are. They all formed part of combing and polishing a blanket agreement, with Apple as the ring leader.

There is a concisousness of commitment to price-fixing scheme when "[c]ircumstances[] reveal a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement."
Monsanto, 465 U.S. at 764
January 4-5
Mr. Cue expressly requires that "all resellers of new titles need to be in agency model"
January 9
Mr. Moerer explains agency model as way to "move the whole market off $9.99"
Penguin CEO David Shanks testimony.
"Q. 'As a way to enter the marketplace, Apple proposed moving the entire industry to an agency model.' Do you see that?
A. Yes.
Q. That's what happened right?
A. That's what happened."
In other words, Apple and the publishers had a common scheme to raise prices and eliminate competition through an industry wide agency model forced onto the industry.
( Last edited by theothersteve; Jul 20, 2013 at 04:30 PM. )
     
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Jul 20, 2013, 04:07 PM
 
Originally Posted by OreoCookie View Post
You're correct, this has been found illegal and after your explanations, it looks like it has had a detrimental effect on smaller ebook vendors like your start-up.

I don't think Apple has any intention of being the dominant player in the ebook market, Apple does not want to be a monopoly.

What is the business model here then? To my understanding the old contracts between the publishers and Amazon came back into effect, i. e. Amazon sells ebooks on a wholesale basis again. If I'm mistaken here, please explain how, I'm curious.
Um... the business models... well, I can't really reveal ours just yet. We're rolling things out soon. But let's just say it's not a wholesale model and it's not an agency model. But what I'll also say is that contracts in the industry have become more complex in such a way that they're hybrids and offshoots of agency and wholesale. Lots of different things are being explored now. But that's good because in Apple's world, this stuff would not happen.
     
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Jul 20, 2013, 04:16 PM
 
Originally Posted by shifuimam View Post
These are the kind of statements that cause outsiders to use the label "mactard".

Apple absolutely wants to be a monopoly. Before Android was a viable competitor to iOS, Apple enjoyed a practical monopoly in the consumer smartphone market. Before there were decent large-capacity MP3 players as competitors to the iPod, Apple enjoyed a practical monopoly in the mobile music market with the marriage of iTunes and iPod as mandatory partners. Apple enjoys a hardware/software monopoly between Mac and OS X by making it illegal (via the EULA) to install their OS on any hardware other than their own.

And, when anyone threatens their monopoly, they either go behind closed doors to manipulate the market, or try to sue the shit out of anyone legitimately taking away from their customer base.

Apple's business model is based on being a monopolistic sandbox-hogging playground bully.
Couldn't agree more with this.
     
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Jul 20, 2013, 05:23 PM
 
@theothersteve
I think in the end, we're only arguing about nuances: you have convinced me that the agreement between Apple and the big publishers had really bad consequences for smaller publishers and that it's a good thing these contracts need to be re-negotiated. And I agree that Apple shares a part in this. (Just in case I wasn't clear enough in my last post.)

But I think you overestimate the pressure exerted by Apple on the big publishers, this picture of the events is not correct in my opinion. Many of the interests of the big publishers aligned with those of Apple which eventually led to the agreement. Apple was not set on the agency model from the start: as you write, they did not have much of a clue as to how the publishing industry works. And the fact that the idea initially came from publishers suggests to me quite clearly that at least two of them were not fundamentally posed to the idea. You're right that Apple worked out many of the details (e. g. the 70-30 split) and other things were the result of the negotiations (e. g. the MFN clause). And that Apple drove a hard bargain to finish negotiations in time, you're completely right about that.

It's not surprising that other publishers resisted the idea or that they wanted to change the 70-30 split in their favor. But isn't that normal during business negotiations?
Originally Posted by theothersteve View Post
Your oversimplifying it and skirting over numerous facts and timelines. I've read through several times the evidence and also attended a portion of the trial.
I've just read the relevant portion of the verdict in preparation of my previous posts, but not the evidence itself. Be that as it may, as far as I can tell your detailed explanation agrees with what I've written: publishers floated the idea of the agency model during discussions with Apple and Apple went and ran with it.
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Jul 20, 2013, 05:25 PM
 
Originally Posted by theothersteve View Post
Um... the business models... well, I can't really reveal ours just yet. We're rolling things out soon. But let's just say it's not a wholesale model and it's not an agency model. But what I'll also say is that contracts in the industry have become more complex in such a way that they're hybrids and offshoots of agency and wholesale. Lots of different things are being explored now. But that's good because in Apple's world, this stuff would not happen.
I don't expect and want you to reveal your own business secrets, but can you explain to me, for instance, how the contracts between the publishers and Amazon are a hybrid? (If you can.)
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Jul 20, 2013, 05:43 PM
 
Originally Posted by OreoCookie View Post
I don't expect and want you to reveal your own business secrets, but can you explain to me, for instance, how the contracts between the publishers and Amazon are a hybrid? (If you can.)
Oh, well... you shouldn't think I'm just referring to Amazon. I'm referring to the entire industry. All the eBookstores... all the major publishers. The contracts are peppered with tiered pricing and other innovative aspects that make them not quite wholesale contracts and not quite agency. Each contract from each eBookstore is unique on its own. Very similar to one another, but certainly unique to each specific retailer. I can't disclose anything because of confidentiality but this should be enough information for someone to know that it's a little more complex the contracting than just straight up agency or wholesale.

For self-publishers, it's all about the agency. Those are very simple terms. The agreements with larger publishers are much more complex.
     
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Jul 20, 2013, 06:00 PM
 
Originally Posted by OreoCookie View Post
@theothersteve
I think in the end, we're only arguing about nuances: you have convinced me that the agreement between Apple and the big publishers had really bad consequences for smaller publishers and that it's a good thing these contracts need to be re-negotiated. And I agree that Apple shares a part in this. (Just in case I wasn't clear enough in my last post.)

But I think you overestimate the pressure exerted by Apple on the big publishers, this picture of the events is not correct in my opinion. Many of the interests of the big publishers aligned with those of Apple which eventually led to the agreement. Apple was not set on the agency model from the start: as you write, they did not have much of a clue as to how the publishing industry works. And the fact that the idea initially came from publishers suggests to me quite clearly that at least two of them were not fundamentally posed to the idea. You're right that Apple worked out many of the details (e. g. the 70-30 split) and other things were the result of the negotiations (e. g. the MFN clause). And that Apple drove a hard bargain to finish negotiations in time, you're completely right about that.

It's not surprising that other publishers resisted the idea or that they wanted to change the 70-30 split in their favor. But isn't that normal during business negotiations?

I've just read the relevant portion of the verdict in preparation of my previous posts, but not the evidence itself. Be that as it may, as far as I can tell your detailed explanation agrees with what I've written: publishers floated the idea of the agency model during discussions with Apple and Apple went and ran with it.
As you said,

Many of the interests of the big publishers aligned with those of Apple which eventually led to the agreement.
This is somewhat true. I think you're doing a good job in understanding this case so far. It's incredibly complex the issues in this case and so many people, namely the media, get things wrong and mixed up.

What you're doing is focusing too much on the concept of an agency model itself and the MFN clause on its own. Remember, this case is about proving collusion between a group in an industry. The courts addressed this:

The Plaintiffs do not argue, and this Court has not found, that the agency model for distribution of content, or any one of the clauses included in the Agreements, or any of the identified negotiation tactics is inherently illegal. Indeed, entirely lawful contracts may include an MFN, price caps, or pricing tiers. Lawful distribution arrangements between suppliers and distributors certainly include agency arrangements. It is also not illegal for a company to adopt a form “click-through” contract, negotiate with all suppliers at the same time, or share certain information with them. Indeed, as Apple indicates, many common business practices have been found necessary for the efficient distribution of goods and services. See Monsanto, 465 U.S. at 763-64.

That does not, however, make it lawful for a company to use those business practices to effect an unreasonable restraint of trade. And here, the evidence taken as a whole paints quite a different picture -- a clear portrait of a conscious commitment to cross a line and engage in illegal behavior with the Publisher Defendants to eliminate retail price competition in order to raise retail prices.
You should stop focusing on this idea of the case being about Apple pressuring the publishers. It's about all of them, together, pressuring the industry. Yes, it's important to talk about Apple pressuring and coercing the publishers, because we have to discuss their role in this. But the case is about whether the publishers and Apple colluded together to restrain trade. And in this case, the evidence shows that they tried to eliminate price competition and inflate prices. You've got Apple telling the publishers to window their eBooks to force Amazon into agency. You've got Apple telling the publishers either they get all their resellers over to agency or there's no deal. You've got the publishers going to the resellers giving them ultimatums. You've got the publishers in writing saying they want to eliminate price competition in the industry. You've got Apple saying they don't want to compete on price.

This was a concerted effort by Apple and the publishers to eliminate price competition and inflate prices. The motive was there. The evidence is there. And it's all, in the end, bad for consumers. Apple and the publishers simply went too far.

But if you want to look at how Apple pressured the publishers to sign into this, it's an interesting discussion and could result in some lawsuit in its own right. Like how Eddie Cue blocked Apps from Random House to pressure them into signing the iBooks agreement.
     
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Jul 20, 2013, 06:07 PM
 
Originally Posted by shifuimam View Post
These are the kind of statements that cause outsiders to use the label "mactard".
Which makes them idiotic fanboys in most cases. Plenty of rabid anti-Apple fanboys out there.
Originally Posted by shifuimam View Post
Apple absolutely wants to be a monopoly. Before Android was a viable competitor to iOS, Apple enjoyed a practical monopoly in the consumer smartphone market.
I cannot think of a single category where Apple set out to be a monopolist. To claim Apple wants to be a monopolist in the markets it enters stems from a fundamental misunderstanding of the company. To me, your misunderstanding is encapsulated in the following bit of your post:
Originally Posted by shifuimam View Post
Apple's business model is based on being a monopolistic sandbox-hogging playground bully.
I think you confuse monopoly with a vertically integrated company. In fact, if I ran search & replace »monopoly« with »vertically integrated«, I'd agree with large parts of your post. But the two are not the same.

I can't think of a single category where Apple set out to become a monopoly, least because Apple focusses on the most lucrative part of the market and not for a majority stake.
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Jul 20, 2013, 06:14 PM
 
Originally Posted by theothersteve View Post
What you're doing is focusing too much on the concept of an agency model itself and the MFN clause on its own. Remember, this case is about proving collusion between a group in an industry. The courts addressed this:
Again, I wrote already that you have convinced me that Apple had colluded with the publishers in order to force Amazon to change the terms. And thanks to your explanations I am now of the opinion that in sum total, the unintended backsplash onto smaller players is very bad and a renegotiation of the contracts is a good thing.
Originally Posted by theothersteve View Post
You should stop focusing on this idea of the case being about Apple pressuring the publishers. It's about all of them, together, pressuring the industry.
Perhaps I did not do a very good job of arguing, but it was exactly this what I thought I had to convince you of.
Originally Posted by theothersteve View Post
But if you want to look at how Apple pressured the publishers to sign into this, it's an interesting discussion and could result in some lawsuit in its own right. Like how Eddie Cue blocked Apps from Random House to pressure them into signing the iBooks agreement.
I'm not sure whether I've commented on this before, but Apple blocking the Random House app was a dick move.
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Jul 20, 2013, 06:20 PM
 
Originally Posted by OreoCookie View Post
Which makes them idiotic fanboys in most cases. Plenty of rabid anti-Apple fanboys out there.

I cannot think of a single category where Apple set out to be a monopolist. To claim Apple wants to be a monopolist in the markets it enters stems from a fundamental misunderstanding of the company. To me, your misunderstanding is encapsulated in the following bit of your post:

I think you confuse monopoly with a vertically integrated company. In fact, if I ran search & replace »monopoly« with »vertically integrated«, I'd agree with large parts of your post. But the two are not the same.

I can't think of a single category where Apple set out to become a monopoly, least because Apple focusses on the most lucrative part of the market and not for a majority stake.
I think what shifuimam is trying to say is that Apple wants to dominate markets. That bit about their philosophy of either being the best in a market or not bothering to enter it at all...

But things the way they are now... Apple is a consumer company, and everyone is a consumer. With the convergence of technology, a consumer electronic device like a smartphone appeals to everyone. There's no need for "business" smartphones anymore. Just use an iPhone. Apple clearly didn't want Android on the market... and I think they can't help but think "monopoly" because of what happened in the past with Microsoft and Windows owning the market. It's not illegal to have a monopoly, and as a company, Apple pursuing dominance on the order of something like a Microsoft monopoly seems perfectly reasonable. If not, someone else can come along and own a software market. And then all the developers jump onto that platform... that platform then gets better Apps, and the rats leave the sinking ship that is the once dominant platform.

Apple clearly is trying to dominate the mobile computing era.

That's devices and content.

I think we'd all be naive to think Apple doesn't want all the marketshare. There's a lot at stake if people migrate to other platforms (the sinking ship). The iBookstore is simply a part of getting and keeping people on Apple's platform and devices. It's about the content.

When Eddie Cue said, "It's over for everyone" after Random signs, he's talking about controlling the market and the industry and competition.

I like competition because it makes us better. Apple doesn't because they're at the top and they have everything to lose. This specific conversation about Apple wanting to dominate... to "monopolize"... or whatever term we ascribe to it... is good in a sense that it speaks to the larger picture about what's driving Apple. About the decisions they're making. And about why they did what they did in this case.
     
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Jul 20, 2013, 06:26 PM
 
Originally Posted by OreoCookie View Post
Again, I wrote already that you have convinced me that Apple had colluded with the publishers in order to force Amazon to change the terms. And thanks to your explanations I am now of the opinion that in sum total, the unintended backsplash onto smaller players is very bad and a renegotiation of the contracts is a good thing.

Perhaps I did not do a very good job of arguing, but it was exactly this what I thought I had to convince you of.

I'm not sure whether I've commented on this before, but Apple blocking the Random House app was a dick move.
You don't have to convince me about what this case is about. But I can see how you may have focused too much on that part of my disclosure on here because I did give the agency model and MFN clause some facetime. That is, it's important to understand the details of these latter two things even though this case isn't about these two things specifically. Both the agency model and MFN are legal as many of us already know. It's how Apple and the publishers glued them all together in a contract with Apple to create a foundation and point of departure to eliminate price competition and inflate prices industry wide.
     
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Jul 20, 2013, 06:30 PM
 
Hey guys I'll tell you what... when we're live, I'll give each of you a gift certificate to the store via PM. Thx.
     
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Jul 20, 2013, 06:49 PM
 
Originally Posted by theothersteve View Post
I think what shifuimam is trying to say is that Apple wants to dominate markets. That bit about their philosophy of either being the best in a market or not bothering to enter it at all...
The last statement encapsulates perfectly what Apple is about in my mind. But this is orthogonal to becoming a monopolist where market share is the overriding motivator.
Originally Posted by theothersteve View Post
It's not illegal to have a monopoly, and as a company, Apple pursuing dominance on the order of something like a Microsoft monopoly seems perfectly reasonable. [...]

Apple clearly is trying to dominate the mobile computing era.

I think we'd all be naive to think Apple doesn't want all the marketshare.
Apple has no intention of becoming a second Microsoft, it is not interested in market share. Just look at what they do in the smartphone market: they have one product (plus two older iterations) which together cover 75 % of the revenues of the total smartphone market. But they only have ~20 % in global volume marketshare. I think Apple is perfectly content with the situation where they have a majority of the profit share but a minority share of the volume. Apple does not attempt to soak up the rest of the market share by offering everything in between 3.5 and 6 inches, hitting every price point, adding styluses, special cameras and some such. They are not looking into licensing iOS either, so that others could build the devices Apple does not want to build. Apple is not looking to become the Microsoft of the mobile computing era.

Instead, Apple goes for the most lucrative part of the market and you're right that the primary goals of things like the app store, the iTunes Music Store and the iBook Store are just about keeping the platform advantage. A less generous way to formulate this is that Apple tries to build the nicest walled garden out there. But they're not interested in having the biggest one.
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Jul 20, 2013, 07:16 PM
 
Originally Posted by OreoCookie View Post
The last statement encapsulates perfectly what Apple is about in my mind. But this is orthogonal to becoming a monopolist where market share is the overriding motivator.

Apple has no intention of becoming a second Microsoft, it is not interested in market share. Just look at what they do in the smartphone market: they have one product (plus two older iterations) which together cover 75 % of the revenues of the total smartphone market. But they only have ~20 % in global volume marketshare. I think Apple is perfectly content with the situation where they have a majority of the profit share but a minority share of the volume. Apple does not attempt to soak up the rest of the market share by offering everything in between 3.5 and 6 inches, hitting every price point, adding styluses, special cameras and some such. They are not looking into licensing iOS either, so that others could build the devices Apple does not want to build. Apple is not looking to become the Microsoft of the mobile computing era.

Instead, Apple goes for the most lucrative part of the market and you're right that the primary goals of things like the app store, the iTunes Music Store and the iBook Store are just about keeping the platform advantage. A less generous way to formulate this is that Apple tries to build the nicest walled garden out there. But they're not interested in having the biggest one.
I don't agree. I think 15 years ago maybe what you say has some validity. But Apple intends for iOS to have the majority marketshare. If it doesn't, another platform will dominate and iOS will be relegated like the Mac OS was. The developers will flock to the other platform and Apple's platform will lose out. This is what Jobs was trying to prevent and wanting to stamp out Android. Android does have a large marketshare of smartphone operating systems... and things are still fleshing themselves out. It's not clear how all of this will end, but Android is a threat with Samsung devices flying around.

They've come in and priced the iPad aggressively so everyone can have one. They keep selling older models of iPhones so people can afford them. The reason they're doing this is to gain and maintain marketshare. And since iOS makes up such a huge part of their business now, it must be dominant to ensure their future success. If it wasn't about marketshare, they'd not sell cheaper, older iPhones and make everyone buy the latest one so sales didn't cut into the new iPhone sales.

Even Apple's business decisions demonstrate they're going after marketshare. And it's not clear that this is always the right thing to do. For instance, they've launched the iPhone 5 in India, a poor country. Apple finally has a presence there. But sales are abysmal and have fallen in just 6 months. They're not getting any traction. If Apple launches a cheap iPhone like some of the tech blogs suggest, this is even further support that Apple is going after marketshare, entering cheap, poor markets to spread iOS out like butter on bread.
( Last edited by theothersteve; Jul 20, 2013 at 07:29 PM. )
     
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Jul 21, 2013, 04:01 AM
 
Apple does not need to have a majority share to survive, or even to thrive.

Apple's share needs to stay just large enough to maintain critical mass for word of mouth to sell the stuff — the Mac is proof of that.
     
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Jul 21, 2013, 12:46 PM
 
Originally Posted by Spheric Harlot View Post
Apple does not need to have a majority share to survive, or even to thrive.

Apple's share needs to stay just large enough to maintain critical mass for word of mouth to sell the stuff — the Mac is proof of that.
I agree that I don't think Apple needs 90%+ marketshare in mobile operating system use... they're making a huge chunk of mobile profits now. But since iOS is such a large part of their revenues now... they can't afford to lose much marketshare because they could lose developer support and then they'll lose Apps and then it all comes crumbling down. The fact that they entered India and are selling old cheaper iPhones makes it undeniable that they're concerned about marketshare.

I'm not sure Steve Jobs would've entered India though. They sold just 210 k iPhones in India in the last quarter.
     
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Jul 22, 2013, 06:11 AM
 
Originally Posted by theothersteve View Post
I agree that I don't think Apple needs 90%+ marketshare in mobile operating system use... they're making a huge chunk of mobile profits now. But since iOS is such a large part of their revenues now...
That's not correct, just look at where app developers make the most money and have the easiest time to program for. And as long as Apple captures a substantial part of the profit share, they will stay in business making more and better iOS devices.
Originally Posted by theothersteve View Post
I'm not sure Steve Jobs would've entered India though. They sold just 210 k iPhones in India in the last quarter.
You're right that Apple has a tough time with developing markets, because they currently have no offering there.
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Jul 22, 2013, 12:29 PM
 
Originally Posted by OreoCookie View Post
That's not correct, just look at where app developers make the most money and have the easiest time to program for. And as long as Apple captures a substantial part of the profit share, they will stay in business making more and better iOS devices.

You're right that Apple has a tough time with developing markets, because they currently have no offering there.
The bottom line is that nothing is a forgone conclusion. None of us know what will happen.

As for developing markets, they currently do have an offering in India. And it's tanking.

I'm looking forward to tomorrow's earnings report to see what's happening. And I'll be listening carefully for any iBooks related stuff.
     
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Jul 23, 2013, 05:01 AM
 
Originally Posted by theothersteve View Post
The bottom line is that nothing is a forgone conclusion. None of us know what will happen.
True enough. Even the Wintel monopoly is crumbling after almost two decades of dominance.
Originally Posted by theothersteve View Post
As for developing markets, they currently do have an offering in India. And it's tanking.
Apple for one reason or another seems not to put much focus on India like they do with China, for instance. AFAI remember, they have had several China-centric WWDC sessions and at least part of the documentation has been translated to Chinese. Consequently, Apple is doing well in China.
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Jul 23, 2013, 10:10 AM
 
I believe China is growing at a *much* faster rate than India.
     
 
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