Apple's iBooks grew 100% in 2012, maintaining 20% share of eBook market
The ongoing antitrust trial by the U.S. Department of Justice alleging an effort by Apple to fix prices in the ebooks market has revealed that Apple's iBooks business grew by 100 percent last year, maintaining a 20 percent share of the overall market.
The government's puzzling case seeks to portray Apple as both a powerful co-conspirator with book publishers acting to raise prices and, at the same time, a failure in the market because it "forgot to focus on customers."
In a report on today's testimony by Publishers Weekly, Apple executive Keith Moerer, described as "a key figure in the negotiation of the agency pricing agreements in question," was asked by the government what Apple's iBookstore market share was at its launch in 2010 compared to 2012.
Moerer testified that Apple's share at launch was 20 percent of the overall market, and remains at the same level today. Between those dates, Apple added large publisher Random House in 2011.
The government blasted Apple's iBookstore as a "failure," charging that "Apple pricing was unfair to consumers,? and that ?Apple sold fewer books because of the higher price caps."
In response, Moerer stated, "I disagree. Ebook sales grew 100% last year at the iBookstore and it had over 100 million customers."
The government's prosecutor countered "when you drop prices you sell more books!" to which Moerer answered, "sometimes, yes."
But when the prosecutor stated that "Apple forgot to focus on customers, that?s why the iBookstore is a failure." Moerer replied, "That's not true."
Amazon executives charged that Apple's agency model was intended to "slowdown the success of the Kindle," which was being fueled by Amazon's wholesale model for ebooks, one that allowed Amazon to resell publisher's books below cost, undercutting the publishers' own hardcover pricing.
Testimony by publishers, however, indicates that the publishers themselves wanted to set their own prices rather than have industry wide pricing set by one, dominant reseller, just as record labels and movie studios sought to raise prices of some content above the prices Apple hoped to sell them.
Moerer also noted that Apple had set up price caps that publishers "pushed back" upon, and that they wanted ?uncontrolled? pricing above what Apple hoped to establish.
Rather than trying to set prices with its agency model, Apple's Moerer said it was intended to avoid ?windowing,? the practice of publishers withholding ebooks from the market to prevent cannibalization of their hardcover sales under the wholesale model.
"Apple is not against low price points,? Moerer stated, noting that its sells music, movies and other media at prices often below $3.
"We saw a lot of competition with the App Store on price and we thought it would be good for ebooks," Moerer stated, noting that HarperCollins planned to leverage the agency model to "experiment" with $3 to $5 types of new titles designed to "reach new audiences."
Under cross examination by Apple's attorney Orin Snyder, Sargent stated that "Amazon had an early advantage in the e-book market and established barriers to entry,? drawing attention to its ?below-cost pricing."
Sargent described the ebook market in early 2010 as dominated by Amazon, noting that "many companies were joining the market, but they lacked expertise or were undercapitalized and were proving to be unsuccessful."
He noted that included "even B&N, with great experience in physical books but no expertise in digital sales or devices. Google wasn?t a good retailer, Sony was a failure. There were lots of vendors with drawbacks,? he noted.
Asked by Apple's attorney, "Did Macmillan ever believe they had to move all resellers to agency?" he replied, "Absolutely not,? adding that there was no ?side deal" to push publishers to the agency model.
And examined on the question of why he was interested in which other publishers had signed on with Apple, something the government alleged to be evidence of collusion, Sargent answered that "the more publishers the better for us because the iBookstore had a better chance of success with a broad selection of titles."
Apple?s senior vice president of Internet Software and Services Eddy Cue is scheduled to testify in the case tomorrow. Apple announced earlier this week that it would be bringing iBooks to the Mac with the release of OS X 10.9 Mavericks later this year.
The government's puzzling case seeks to portray Apple as both a powerful co-conspirator with book publishers acting to raise prices and, at the same time, a failure in the market because it "forgot to focus on customers."
In a report on today's testimony by Publishers Weekly, Apple executive Keith Moerer, described as "a key figure in the negotiation of the agency pricing agreements in question," was asked by the government what Apple's iBookstore market share was at its launch in 2010 compared to 2012.
Moerer testified that Apple's share at launch was 20 percent of the overall market, and remains at the same level today. Between those dates, Apple added large publisher Random House in 2011.
The government blasted Apple's iBookstore as a "failure," charging that "Apple pricing was unfair to consumers,? and that ?Apple sold fewer books because of the higher price caps."
In response, Moerer stated, "I disagree. Ebook sales grew 100% last year at the iBookstore and it had over 100 million customers."
The government's prosecutor countered "when you drop prices you sell more books!" to which Moerer answered, "sometimes, yes."
But when the prosecutor stated that "Apple forgot to focus on customers, that?s why the iBookstore is a failure." Moerer replied, "That's not true."
If its not fixed, don't break it
The government's case against Apple hinges upon the idea that the company colluded with publishers to raise prices above the $9.95 price point established earlier by Amazon.Amazon executives charged that Apple's agency model was intended to "slowdown the success of the Kindle," which was being fueled by Amazon's wholesale model for ebooks, one that allowed Amazon to resell publisher's books below cost, undercutting the publishers' own hardcover pricing.
Testimony by publishers, however, indicates that the publishers themselves wanted to set their own prices rather than have industry wide pricing set by one, dominant reseller, just as record labels and movie studios sought to raise prices of some content above the prices Apple hoped to sell them.
Moerer also noted that Apple had set up price caps that publishers "pushed back" upon, and that they wanted ?uncontrolled? pricing above what Apple hoped to establish.
Rather than trying to set prices with its agency model, Apple's Moerer said it was intended to avoid ?windowing,? the practice of publishers withholding ebooks from the market to prevent cannibalization of their hardcover sales under the wholesale model.
"Apple is not against low price points,? Moerer stated, noting that its sells music, movies and other media at prices often below $3.
"We saw a lot of competition with the App Store on price and we thought it would be good for ebooks," Moerer stated, noting that HarperCollins planned to leverage the agency model to "experiment" with $3 to $5 types of new titles designed to "reach new audiences."
Escape from Amazon's domination of ebooks
Similarly, Macmillan chief executive John Sargent also testified today that he intended to ?increase prices? for select groups of new books, rather than being pressured to raise prices by Apple.Under cross examination by Apple's attorney Orin Snyder, Sargent stated that "Amazon had an early advantage in the e-book market and established barriers to entry,? drawing attention to its ?below-cost pricing."
Sargent described the ebook market in early 2010 as dominated by Amazon, noting that "many companies were joining the market, but they lacked expertise or were undercapitalized and were proving to be unsuccessful."
He noted that included "even B&N, with great experience in physical books but no expertise in digital sales or devices. Google wasn?t a good retailer, Sony was a failure. There were lots of vendors with drawbacks,? he noted.
Asked by Apple's attorney, "Did Macmillan ever believe they had to move all resellers to agency?" he replied, "Absolutely not,? adding that there was no ?side deal" to push publishers to the agency model.
And examined on the question of why he was interested in which other publishers had signed on with Apple, something the government alleged to be evidence of collusion, Sargent answered that "the more publishers the better for us because the iBookstore had a better chance of success with a broad selection of titles."
Apple?s senior vice president of Internet Software and Services Eddy Cue is scheduled to testify in the case tomorrow. Apple announced earlier this week that it would be bringing iBooks to the Mac with the release of OS X 10.9 Mavericks later this year.
Comments
Hopefully, we will learn from this trial some interesting data about the e-book market, just as we learned interesting data from the Samsung-Apple debacle.
It must be difficult for these guys to be running back and forth between WWDC and a trial...
This troubled me… when the prosecutor stated that "Apple forgot to focus on customers, that’s why the iBookstore is a failure." I wondered aloud, how is that a question? The prosecutor is making 'declarations' and that is not 'taking testimony'. I would have expected a resounding objection from Apple's attorney.
That one line demonstrates to me that most of this "case" is simply a zealous DOJ prosecutor full of "opinions" who is twisting facts into "evidence" based more on appearances than reality. When a prosecutor makes declarations like the one above while questioning a witness, it smacks of a 'witch hunt' for sure. Especially when his grounds for declaring iBooks "a failure" is so clearly wrong, and that he clung to his assertion even when corrected. Is this about justice, or merely about winning a career-making case against a high-profile defendant?
And then this, "asked why he was interested in which other publishers had signed on with Apple, something the government alleged to be evidence of collusion".
Say WHAT?? Seriously? I ran an 'interactive agency' in Tokyo for 7 years in what can only be called a highly competitive environment. I was ALWAYS interested in which companies were coming into the market, competing with me on bids. Just one of the reasons for my interest was the same as this publisher; more players gave my space more credibility, and the bigger the player, the more seriously our services were taken. We had a solid client base, even early on, but it was only after companies like Modem Media, Organic, Sapient and Scient entered the Japan market that our market space (and revenues) really took off.
My having interest in who was bidding against me, who was 'signing on' with the market, what kinds of terms other companies were getting with clients, etc… were those some kind of "evidence of collusion"? Hell no, not even remotely. That presumption is total nonsense on the part of this prosecutor.
From what I've seen so far, they don't have much of a case. Mostly it's a bunch of supposition and twisted "interpretation" of the 'evidence'.
This is pretty much what I was thinking. This latest line of questioning struck me as desperate: trying to "break" the witness with irrelevant attacks. Even if the iBooks business is a failure, is tht against the law? Shouldn't the government then be asking the same questions in regard to Amazon's entire business model?
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Originally Posted by Rayz
This is pretty much what I was thinking. This latest line of questioning struck me as desperate: trying to "break" the witness with irrelevant attacks. Even if the iBooks business is a failure, is tht against the law? Shouldn't the government then be asking the same questions in regard to Amazon's entire business model?
The judge should be asking where the evidence is to continue this case. TELLING Apple what they are "doing wrong" (using suppositions like, 'forgetting about customers', a 'failing business', etc., something a prosecutor has no place doing), but then not remotely proving there was a 'conspiracy' to "fix prices"? (What the prosecutor is SUPPOSED to be doing.)
So far, it seems the only thing being "fixed" (aka "repaired") by Apple was a broken pricing model (Amazon's "fixed" $9.95 pricing on almost ALL books) that was killing the publisher's ability to make a reasonable profit on new releases. Apple introduced a more flexible model that simply said in its terms (called a 'most favored nation clause'), "you can price it as you see fit, but you can't sell it for less elsewhere without giving us the same lower-price benefit…" That's illegal? I don't think so.
In every other way the publishers were pretty much free to set their prices as they saw fit. How is that wrong? The market (and Apple encouragement) kept the prices in line, albeit higher than Amazon's artificially low pricing. If the only measure versus the agency model pricing is those artificially low "lost leader" prices from Amazon, then this case is really upside down, as you said… perhaps the DOJ should be asking Amazon about "price fixing" everything, regardless of cost, to a static $9.95 price?
Complete aside… it's pretty amazing how robustly the e-book market is growing. These numbers tell a pretty interesting story. If Apple doubled their sales, but only maintained static market share, that's pretty impressive overall market growth.
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Originally Posted by mdriftmeyer
Apple is going to win this case.
After the judge suggested that it would be in Apple's best interests to settle out of court? Unlikely.
Why do people keep blaming Obama for everything? Obama is the president, he doesn't run each department, he works with cabinet level people who run everything below them. Obama is responsible but there's no way he has time to make every decision. Put the blame where it belongs, on DOJ fanatics.
Agreed. This is a witch hunt. Always has been.
At the end of the day, the entire case rests on two things.
- One, Apple's insistence that Publishers can price the books at any price they wish, but Apple should be able to sell at the same prices as the lowest prices the books are sold anywhere.
- Two, Apple's insistence that this be done with an agency model, where it keeps 30% of the sales price of the books.
By itself, these two are not illegal in any way, shape or form. However, it had some repercussions. Assume Amazon paid $1M per book to the Publishers, and sold it for $9.95 each, hoping to make money on huge volumes. The publisher would be forced to let Apple also sell it at $9.95, and let Apple keep 30% of sales. They would only get $6.95 from Apple. Whether this was more or less than what they got from Amazon would depend entirely on the total number of books sold. In this example, if Apple sold 200K books, they would pay subscribers almost $1.4M, significantly more than what Amazon paid. Similarly, if Amazon ended up selling 500K copies of the eBook, the Publishers would get just $2 per copy - way lesser than hardcover.
It is this issue that led to Publishers pushing Amazon away from the wholesale model into the agency model. Amazon could get away with the wholesale model, because initially there was no competition, and publishers did not have a choice. Once Apple was available, publishers had choice, and could force Amazon to move away from wholesale model to agency. So the only real fault of Apple was that they provided competition to Amazon, and allowed Publishers to resist Amazon's model.
When the entire facts of the case are understood, I do not think there is any legal case against Apple or for that matter the Publishers. Apple was perfectly in the right to push for an Agency model - because Apple is not in the business of taking risks on number of copies sold. Amazon was perfectly right in seeking a wholesale model, because that is their core business, selling books in volume. Publishers were right in seeking to maximize revenue per copy in avoiding a wholesale model, and moving to an agency model. There was nothing wrong with the publishers taking advantage of competition, to say no to Amazon's wholesale model, which they had accepted earlier, because there was no other choice. The DoJ is also technically correct that this measure ended up increasing prices for the end-customer. The DoJ might even be right in insisting that this increase in prices happened because Apple discussed with the publishers and provided an alternative model to the publishers.
But despite all this, it still does not meet the definition of collusion. Collusion happens when all the players in a market sit together and decide to operate in a particular way. If a buyer offers a seller a model that is more attractive to the seller, it is not collusion. If the same model is offered to all the sellers in the market, it is still not collusion. It becomes collusion only if sellers sit down together, and decide to all change their terms, to protect themselves from a situation where if one of them changes terms unilaterally, it will probably result in a competitive disadvantage. If all of them change terms simultaneously, then no one has that disadvantage.
Another of the key differences, I think, is that with Amazon's model, it is Amazon that is the actual retailer (Amazon is both setting prices and direct-selling the books), whereas with Apple's model, it is the Publisher that is the seller (e.g. they are setting the prices), and Apple simply provides the "bookstore space" for a cut of whatever sales price the Publisher sets.
Quote:
Originally Posted by RichL
After the judge suggested that it would be in Apple's best interests to settle out of court? Unlikely.
She suggested based upon not all evidence submitted.
The DRM restrictions on iBooks (10 device limit) are totally screwing over education customers who can't have an Apple ID for every elementary-middle-high school kid.