[lpkmckenna]

Feds accuse Apple, publishers of e-book price fixing.

I've been thinking to myself "gosh, no one really talks about Apple's legal issues at MacNN." And then I saw this finally happened, so now we can talk about it.

Myself, I don't think the Feds have much of a case, for a few reasons:

1) Apple's "most favoured nation" clause is dog-standard online. For instance, the regular price for a downloadable title is the same at Steam, Origin, the Mac App Store, and MacGameStore (excepting sales, which are obviously not regular price).

2) Apple is giving publishers the exact same terms as every other content provider (except music, of course): set your own price, we keep 30%.

3) Amazon's ultra-low prices were hurting publishers and other ebook sellers. There's not a single entity except Amazon that favoured the previous pricing system, and Amazon was a virtual monopoly in that environment. Accusing the battered victims of a monopolist of anti-trust seems contrary to the spirit of antitrust law. If Amazon is permitted to set prices again, it will pretty much destroy everyone else.

4) All of this "price-fixing" was done entirely above-board. Everyone knew, not the kind of thing we generally associate with price-fixing.

We will likely see a mirror legal action in Europe soon.

Before anyone whines "downloads should be cheaper," try to remember that downloaded video games and other software are the same price as physical copies.

[The Final Dakar]

Originally Posted by lpkmckenna 

try to remember that downloaded video games and other software are the same price as physical copies.

Don't most people think that's idiotic? It certainly one of the reasons people continue to buy physical console games (the other being the ability to resell, which just devalues the non-physical file further).

[OreoCookie]

This decision to investigate Apple's ebook business is completely idiotic: if Apple needed to be investigated, it's music and videos since they're the market leader here. The market leader when it comes to ebooks is amazon.

[lpkmckenna]

Originally Posted by The Final Dakar 

Don't most people think that's idiotic? It certainly one of the reasons people continue to buy physical console games (the other being the ability to resell, which just devalues the non-physical file further).

I don't. Not having to dig out the disc just to play a game is a feature I'm glad to pay for.

I just had another thought: I can't see how this is price-fixing if the publishers aren't selling their books at the same price. What I mean is, when a bunch of gas stations would fix prices, the price would be the same, right? But nothing in the "most favoured nation" clause makes book publishers sell their books at the same prices as other book publishers.

Hypothetically, Penguin could sell every ebook at $15, S&S at $19, and so on. This is not price fixing between book publishers, it's price-fixing between book sellers (Apple, Amazon, B&N, etc). But how can it be called price fixing when one of the sellers didn't even want the deal?

EDIT: what I'm trying to say here is: if this is price-fixing, why isn't Amazon being sued? They agreed to this new model, right? They agreed to give up pricing control, right? They raised prices, right? How can Apple be sued and not Amazon for the exact same behaviour?

[The Final Dakar]

Originally Posted by lpkmckenna 

I don't. Not having to dig out the disc just to play a game is a feature I'm glad to pay for.

Aren't you a PC gamer? That's like, the defining part of the divide.

[lpkmckenna]

Originally Posted by The Final Dakar 

Aren't you a PC gamer? That's like, the defining part of the divide.

I'm not sure I understand your question. Yeah I'm a PC gamer. I think downloaded games are better because I hated having to insert a disc to play a game, I hated dragging discs around with my laptop, I hated having the disc drive run and killing my battery for no good reason while playing a game.

I think people buy console games because consoles are cheap, tv screens are huge, and couches are comfy. Disc resell and used games is nice too, for people who do it, I guess.

[The Final Dakar]

Originally Posted by lpkmckenna 

I'm not sure I understand your question. Yeah I'm a PC gamer. I think downloaded games are better because I hated having to insert a disc to play a game, I hated dragging discs around with my laptop, I hated having the disc drive run and killing my battery for no good reason while playing a game.

The answer to the question came in the next sentence.

[The Final Dakar]

Originally Posted by lpkmckenna 

I think people buy console games because consoles are cheap, tv screens are huge, and couches are comfy. Disc resell and used games is nice too, for people who do it, I guess.

Yes, your analysis in that regard is entirely correct.

[lpkmckenna]

Originally Posted by The Final Dakar 

The answer to the question came in the next sentence.

I just couldn't understand why you were asking, or why it was relevant to anything. But never mind, we should stick to the thread topic.

[The Final Dakar]

Originally Posted by lpkmckenna 

I just couldn't understand why you were asking, or why it was relevant to anything. But never mind, we should stick to the thread topic.

Because PC gaming and console gaming are very different experiences. From pricing, to access, to restrictions. It influences how those gamers approach purchases and how they game.

[OAW]

This lawsuit does seem odd to me. It is certainly true that Apple worked in conjunction with the book publishers to strong arm Amazon into abandoning the "wholesale model" and adopting the "agency mode". The publishers were threatening to withhold access to their titles from Amazon if they didn't play ball. Prior to the iBookstore debut Amazon if anyone was in a monopolistic position from a retail standpoint it was Amazon! But I don't see how this lawsuit against Apple falls under the purview of "anti-trust". At the time these deals were struck the iPad was just being release so it far from the dominant platform for ebooks. Even today I'm not sure if it is the dominant platform ... and it's far from a monopoly given the success of the Kindle. Does the "agency model" lead to higher prices? Most definitely. But Apple is only taking its standard 30% cut. The publishers can still price the ebooks as they please. If prices are artificially high then the focus should be on retail pricing collusion among the publishers rather than on Apple.

OAW

[mduell]

Originally Posted by lpkmckenna 

1) Apple's "most favoured nation" clause is dog-standard online. For instance, the regular price for a downloadable title is the same at Steam, Origin, the Mac App Store, and MacGameStore (excepting sales, which are obviously not regular price).

Before anyone whines "downloads should be cheaper," try to remember that downloaded video games and other software are the same price as physical copies.

MFN should include/prohibit sales by other vendors.

Downloaded video games are nowhere near the price of physical. I bought Civ V the other week when it was $22 physical (Amazon), $7 download (Amazon), or $24 download (Steam). Bought the download on Amazon and registered the key on Steam.

[The Final Dakar]

I really wonder how amazon does it.

[OAW]

At the time, publishers were concerned about Amazon’s practice of charging $9.99 for most newly released and best-selling e-books.

In early 2010, Steven P. Jobs, then Apple’s chief executive, suggested to book publishers that they sell e-books using agency pricing; Apple would serve as the online agent and take a 30 percent commission.

The five publishers made agreements with Apple for selling e-books, and Apple, which was about to introduce its iPad to the market, insisted on the “most favored nation” clause.

It is that clause that came under scrutiny by the Justice Department.

After making a deal with Apple in 2010, the publishers named in the Justice Department investigation renegotiated their agreements with Amazon from wholesale to agency pricing. Amazon had little choice but to consent, though it would have preferred to keep e-book prices low in order to convince consumers to buy its Kindle e-readers, then a relatively new device to the market.

Since the agency model was put in place in 2010, Amazon has steadily lost market share in e-books, going from close to 90 percent to about 60 percent. Barnes & Noble has gained a rising share of the market, more than 25 percent.

And the price of new books and bestsellers has settled between $12.99 and $14.99. In 2010, when agency pricing was first adopted, the sudden increase in e-book cost initially caused consumers to cry foul and accuse publishers of greedily raising prices.

A sixth major publisher, Random House, did not join the agency model until March 2011, and it was not a focus of the investigation, a signal that investigators were zeroing in on the way agency pricing was adopted, not on the pricing model itself.

Justice Dept. Sues Apple and Publishers Over E-Book Pricing; 3 Publishers Settle - NYTimes.com

Now I can see the Justice Dept. taking issue with the "most favored nation" provision that stipulates that a publisher can not set a lower retail price on one of its competitors stores than it does on Apple's store. I can also understand why Apple wanted that provision when it was facing a competitor with 90% market share. But this is the market share breakdown now ....



So it seems to be that this could be resolved by eliminating the ability of the publishers to set the retail price. Certainly they should be able to specify a minimum retail price with an "agency model" ... but beyond that it should be up to the retailer.

OAW

[lpkmckenna]

Originally Posted by mduell 

MFN should include/prohibit sales by other vendors.

I don't understand what you mean.

Downloaded video games are nowhere near the price of physical. I bought Civ V the other week when it was $22 physical (Amazon), $7 download (Amazon), or $24 download (Steam). Bought the download on Amazon and registered the key on Steam.

Civ V has been out for a while now. When it was new, it was $50 everywhere (or $60, not sure). Amazon might have been able to sell it for a few bucks cheaper with bulk physical purchase, but not much cheaper.

For instance, Max Payne 3 is near release. Pre-purchase at Steam, Origin, and Amazon: $60.

[mduell]

Originally Posted by lpkmckenna 

I don't understand what you mean.

Most favored nation clauses generally prohibit the types of sales you were referring to.

Originally Posted by lpkmckenna 

Civ V has been out for a while now. When it was new, it was $50 everywhere (or $60, not sure). Amazon might have been able to sell it for a few bucks cheaper with bulk physical purchase, but not much cheaper.

For instance, Max Payne 3 is near release. Pre-purchase at Steam, Origin, and Amazon: $60.

The post I was replying to said nothing about age. Pre-sales may all be the same, but one will be cheaper within a few months.

[lpkmckenna]

Originally Posted by mduell 

Most favored nation clauses generally prohibit the types of sales you were referring to.

It depends on the actual contract. But generally, sales are only permitted post-launch.

The post I was replying to said nothing about age. Pre-sales may all be the same, but one will be cheaper within a few months.

That post was my post, which I intended to mean launch prices. Post-launch, retailers will want to clear out physical stock by cutting prices, and will lose parity with download prices, though download prices will drop too, but not at the same rate.

[lpkmckenna]

The Verge: Inside the DOJ's ebook price-fixing case against Apple: an analysis | The Verge

[imitchellg5]

I was just going to post a link to that.

I think this is a valid case.

[The Final Dakar]

Although Apple is listed as the first defendant, the bulk of the case is really about the publishers involved: Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster. According to the government, these publishers greatly feared Amazon's $9.99 Kindle book prices, which they called "wretched," and worked for years on a scheme to raise prices and limit competition. They also feared that consumers would get used to paying $9.99 for bestsellers and ultimately decrease publishing profits.

This sounds similar to what happened with online music, only in reverse.

[mduell]

Prices were lower than print books, due to dramatically reduced costs, so an ogliopoly of suppliers colluded on terms to transfer power and profits from consumers to themselves.

Originally Posted by lpkmckenna 

3) Amazon's ultra-low prices were hurting publishers and other ebook sellers. There's not a single entity except Amazon that favoured the previous pricing system, and Amazon was a virtual monopoly in that environment. Accusing the battered victims of a monopolist of anti-trust seems contrary to the spirit of antitrust law. If Amazon is permitted to set prices again, it will pretty much destroy everyone else.

Amazon and the millions of customers who chose their lower prices.

Originally Posted by lpkmckenna 

4) All of this "price-fixing" was done entirely above-board. Everyone knew, not the kind of thing we generally associate with price-fixing.

From The Verge's reading of the complaint: What’s more, the alleged conspiracy sounds like it was actually quite a conspiracy, with secret CEO meetings in private New York dining rooms and promises made to bosses up and down the chain.

[lpkmckenna]

Originally Posted by mduell 

Prices were lower than print books, due to dramatically reduced costs, so an ogliopoly of suppliers colluded on terms to transfer power and profits from consumers to themselves.

Printing books is not that expensive, and running an online store is not that cheap. There is probably not much of an actual cost difference.

From The Verge's reading of the complaint: What’s more, the alleged conspiracy sounds like it was actually quite a conspiracy, with secret CEO meetings in private New York dining rooms and promises made to bosses up and down the chain.

CEOs are allowed to eat together. When does a meal together become a secret meeting?

And there's nothing about this that was secret. Everything about this happened in public. It was discussed widely in the media while it was happening. I've been following this story for more than a year, and I haven't read a single word in the press today that I didn't know a year ago.

[OAW]

A couple of articles which reflect my misgivings about this anti-trust lawsuit .....

The government’s decision to pursue major publishers on antitrust charges has put the Internet retailer Amazon in a powerful position: the nation’s largest bookseller may now get to decide how much an e-book will cost, and the book world is quaking over the potential consequences.

As soon as the Department of Justice announced Wednesday that it was suing five major publishers and Apple on price-fixing charges, and simultaneously settling with three of them, Amazon announced plans to push down prices on e-books. The price of some major titles could fall to $9.99 or less from $14.99, saving voracious readers a bundle.

But publishers and booksellers argue that any victory for consumers will be short-lived, and that the ultimate effect of the antitrust suit will be to exchange a perceived monopoly for a real one. Amazon, already the dominant force in the industry, will hold all the cards.

“Amazon must be unbelievably happy today,” said Michael Norris, a book publishing analyst with Simba Information. “Had they been puppeteering this whole play, it could not have worked out better for them.”

The government said the five publishers colluded with Apple in secret to develop a new policy that let them set their own retail prices, and then sought to hide their discussions.

After that deal was in place in 2010, the government said, prices jumped everywhere because under the agreement, no bookseller could undercut Apple.

HarperCollins, Hachette and Simon & Schuster settled the charges Wednesday, leaving the other two, Penguin and Macmillan, and Apple to fight.

Amazon, which already controls about 60 percent of the e-book market, can take a loss on every book it sells to gain market share for its Kindle devices. When it has enough competitive advantage, it can dictate its own terms, something publishers say is beginning to happen.

Cut in E-Book Pricing by Amazon Is Set to Shake Rivals - nytimes.com

The U.S. Justice Department's legal pursuit of Apple for alleged e-book price fixing stretches the boundaries of antitrust law and is likely to end in defeat.

That's what happened in 1982, when an embarrassed Justice Department admitted its antitrust lawsuit against IBM was "without merit" and abandoned the case. And in 2001, a federal appeals court nixed the Justice Department's ambitious attempt to rewrite antitrust law by carving Microsoft into two separate companies.

"It's a harder case against Apple than the publishers," says Geoffrey Manne, who teaches antitrust law at the Lewis and Clark Law School in Oregon and runs the International Center for Law and Economics. (See CNET's list of related articles and an explanation of e-book economics.)

One reason lies in the Justice Department's 36-page complaint, which recounts how publishers met over breakfast in a London hotel and dinners at Manhattan's posh Picholine restaurant, which boasts a "Best of Award of Excellence" from Wine Spectator magazine. The key point is that Apple wasn't present.

The Department of Justice "has a far better case against the publishers than Apple," says Dominick Armentano, professor emeritus of economics at the University of Hartford and author of Antitrust and Monopoly who's now affiliated with the Independent Institute in Oakland, Calif. "If the CEOs of the various publishers got together in hotel rooms to discuss prices, they are sunk" and might as well settle, he says.

Richard Epstein, the prolific legal scholar and professor of law at New York University, goes further. Epstein argues in an essay published yesterday that there are "difficulties" with the Justice Department's case against publishers as well: "It will take some time to hear the whole story, but the betting here is that this lawsuit is a mistake."

During a press conference yesterday in Washington, D.C., Attorney General Eric Holder accused the companies named as defendants of concocting a "conspiracy."

But even Holder's version of events didn't accuse the publishers of agreeing on specific prices. If they agreed on anything, it was on a business model -- namely, that the so-called "agency model" that Apple's iBookstore offered was better than Amazon.com's wholesale model.

DOJ is likely to lose e-book antitrust suit targeting Apple | Politics and Law - CNET News

OAW

[lpkmckenna]

But even Holder's version of events didn't accuse the publishers of agreeing on specific prices. If they agreed on anything, it was on a business model -- namely, that the so-called "agency model" that Apple's iBookstore offered was better than Amazon.com's wholesale model.

Exactly. This sentence summarizes everything wrong with this pointless case.

[lpkmckenna]

Apple has now publically commented on the case: Apple: we broke "Amazon's monopolistic grip" on e-book industry