US government files antitrust suit against Apple over e-book pricing [u] - Page 6

And neither was the agency model.

yup, Apple and the publishers are price fixing. and consuemr prices went up. ok, bust 'em.

but ... Amazon was "dumping" with essentially a monopoly control of the market, in order to drive its competitors out of the business. why isn't the DOJ going after them for that too?

If there's evidence of illegality then they certainly could do so at some point. "Dad, you didn't see what he was doing before I hit him" does't get you off the hook tho.

I do not know the details of the deals that Amazon makes with publishers and authors but a little while ago there was some interesting folk lore doing the rounds that Amazon could charge what they liked for eBooks and, since it was on the equivalent of "sale or return" they only paid the book supplier a proportion of their actual sale price. This was whether or not Amazon were selling the book at a loss. In other words, publishers and authors were expected to fund Amazon's loss-leader or "market shaping" (ie put the competition out of business) activities.

The agency model puts a stop to that for those books and authors signed up through the Apple initiative. Publishers and authors get a guaranteed minimum for their product. The minimum is floating, however, and based on normal market supply and demand since any supplier could choose to sell for less; but then they would have to supply to Apple at the same level. Amazon did not want to sign up for this as it would have prevented them from having the publishers fund their loss leader activities. The way this would have worked is that since a publisher gets paid by Amazon based on the price for which Amazon sells a book, if Amazon chose to sell at a loss, and paid say 1c to the publisher as a result, Apple could turn around and require the same 1c to be charged to them for the same product, ruining the effect of the loss leader in the short term. Since loss leaders are only useful in the short term, Amazon would not activate them in this arena. It would also mean that Amazon's contracts with their suppliers would have to change as the suppliers would have to be compensated at fair market rates for their product, making Amazon themselves, pick up the tab for any loss leader activity (as indeed they should).

It is foolish to suggest that Amazon's loss leader activity is good for the consumer (even in the medium term). I believe the publishers jumped at the chance to extricate themselves from Amazon's well negotiated, but punitive, supplier terms. Apple presented suppliers with an alternative; a mechanism to push back against a giant outlet that was dictating terms and would put the smaller of them out of business over time.

I'm sure it's more complicated but I've not seen this avenue discussed. If the above is a major factor then Apple is doing publishers and authors a favor (though, likely, not for purely altruistic reasons).

I believe the government is being used as a shill, doing Amazon's bidding and hurting the book authors and suppliers. Followed soon after by the consumers who would end up with fewer choices. Additionally, will consumers benefit from the DoJ's actions or will the ultimate fine, that I've no doubt will be levied, have the effect of being a further tax on Apple (and by normal business processes, their customers)?

Reasonable points or faulty premis?

I don't think you have a reliable basis for a premise . The whole argument depends on "some folklore making the rounds".

To me it's incomprehensible how the market has not demanded free ebooks with their printed books purchased, or at leat ebooks at a minimal cost for every printed book. I can't see how a publisher is forcing me to pay double for the benefit of having an e version of a book for mobility purposes. But that's off topic...

On the topic at hand, it's clear that apple has been involved in an illegal practise here colluding with major book sellers so they could establish a business model that would ensure their profits by creating more profits for the publishers while simultaneously driving a competitor out of business. No wonder some publishers have already settled. Which of course does not benefit the customer. I really can't see what this going back and forth in discussions here is all about...

Just like the digital copies of movies that come when purchasing a DVD/Blu-Ray? Good idea and point.

I've noticed some of the magazine publishers offering free digital versions if you are a print subscriber. I assume that's what you want to see with books.

After reading the full text of thr complaint, it certainly makes one wonder what kind of other interesting deals may be happening in the part sourcing area at Apple

Even if Apple were guilty of colluding (I haven't made up my mind on that just yet), how on earth is making a company NOT sell a product at a loss driving it out of business? Is the company going to make it up in volume? Some of the logic in this thread is off the rails. "Apple is trying to make huge profits off of ebooks!" except if Apple even makes a profit off of them it's like 0.03% of it's profits. "Apple is trying to gouge consumers by raising ebook prices!" except ebooks were being sold at a loss with the RETAILER dictating the price so those prices were definitely not guaranteed to remain that low with a strong possibility to increase exponentially.

The complaint states that the Amazon bookstore has always made an overall profit. This selling books at a loss theory is something this forum has invented on its own.

Well like I said in a earlier post, Amazon selling a e-book below cost is like the dollar menu at a fast food place, most people buy other products at their higher price. Amazon sells more than just books, so if one buys a e-book below cost but buy 2,3,4 other items at their regular price then Amazon makes out well.

That still doesn't mean a company is automatically going out of business because it doesn't have the same loss leader (I know that wasn't your claim at all but it was myapplelove's claim.)

Why are people focussing on this like its all about Apple?

Ya see those seven other companies on the court documetns? (plus the three others that have already settled with the government) thats who this is really about. Apple just helped them get what they wanted.

Mainly because it's an Apple-centric website. I had intended to post (but decided against it) that if this case was only about the publishing houses then this case would be pretty straightforward but including Apple in it makes it a little strange since Apple doesn't need to actually sell ebooks at all to sell the iPad since there were/are several ereader apps available for it. Also, not sure why you chose to quote me specifically to make your point.

Here is the first site from a simple search that proves otherwise.

• http://www.teleread.com/chris-meadow...y-from-amazon/

Nope... this forum didn't invent it on its own. It was invented by plenty of others all over the net and reiterated on here. Of course we'll never know [for 100% sure] if they sell some books at a loss... Amazon is very tight lipped about that type of thing.

[pipped by SolipsismX]

It says in the complaint document that the MFN(Most favored nation) provision in the agreement was unlike other MFN agreements in that it "required each publisher to guarantee that it would lower the retail price of each e-book in Apple's iBookstore to match the lowest price offered by any other retailer, even if the publisher defendant did not control the other retailer's ultimate consumer price". Now, is that really possible that a provision like that can require apple to be offered the book for a dollar by the publisher if Amazon decides to take a huge loss and sell the same book for a dollar?

1) not even focussing on this forum, everywhere is focussing on Apple.
2) Including apple is because apple was included in the collusion... selling is irrelevant.
3) your post because it said Apple four times with no mention of publishers.

I'm pretty sure my post isn't the only one that says "Apple" multiple times. Also, I am sure people are focusing on Apple for two reasons: 1) It's a huge company that always gets buzz, and 2) It's the only non-publishing company being investigated.

(oh and I only wrote "Apple" three times in this post. Hope that is acceptable to you.)

I disagree with your analysis. The Publishers set the price, not Apple. There is no minimum price. Apple may be crossing the line when they want "most favored nation" status, but lots of contracts have such a status - in fact, when you sign a contract with any agency of the U.S. Government, they usually demand it.

Anyone CAN undercut Apple. But if they do, Apple gets to charge that price as well. I don't blame Apple - why would they let a publisher tell them that the price for a particular eBook is $20 and then let the publisher sell to someone else under the same agency model where the price for the same book is $10?

I've been in the publishing and the e-commerce business and I've had to deal with the ramifications of industry lawsuits. There are several strange things about the Government pursuing this:
- The Supreme Court ruled a few years ago that "manufacturers" can indeed set minimum selling prices, not just minimum advertised prices. My personal opinion is that the Supreme Court endorsed price fixing, but that's the law. Most of the TV set and camera manufacturers are now enforcing this on their high-end products. (It doesn't change how much they make, because wholesale is the same - it's really to try and keep legit physical retail in business.) I'm not a lawyer, but I don't see why this ruling wouldn't apply to publishers as well.

- When Amazon sells below their cost, many would consider that to be predatory pricing, which is illegal. Why isn't the Government going after them?

- The independent bookstores sued the major publishers back in the mid-1990s because the publishers (and the major distributors) were selling to the chains for less than they were selling to the independents. The publishers lost that lawsuit. I was involved in an e-commerce operation at the time and I tried to negotiate a deal with a major distributor where our wholesale discount would be based upon a guaranteed level of business and they couldn't do it because of this lawsuit. Our discounts had to be based on how many copies of any given title were ordered at the same time. Everyone got the same discount.

There is no consumer trade publisher that makes very much money. Trade publishing is a very short margin business. When Amazon sells below cost, that does help consumers, but in the long run, it could help kill the industry, just as even legal downloading of low-priced singles has helped kill the music industry.

Yes there are minimum prices. Apple and the publishers reportedly agreed that no new releases would be sold for less than $12.99, and some would be priced higher. There was no wiggle room on that. Amazon could not choose to advertise any new release for less.

This wasn't anything to do with Apple being able to match Amazon low prices with publishers taking the hit to guarantee Apple 30%. There wouldn't be any low Amazon book prices for Apple to worry about if those publishers hadn't been approached by the DoJ.

Apple takes 30% of whatever price the publisher charges. If amazon charges 5 dollars and takes a loss then the publisher that sold the book to them for 10 dollars , as per the complaint and the MFN provision, must now allow apple to charge 5 dollars if it wishes and keep a 30% profit of that. It doesn't seem possible for Apple to be able to record a net loss by any undercutting. Just less of a profit.
The complaint appears to be addressing final retail price and not the lower price a publisher is offering someone else.

You're not following what their version of an agency model actually did. There's numerous links posted that clarify the fact that minimum prices were set by the publishers facilitated by Apple if the DoJ has the facts correct. Amazon (or any other competitor) were given no right to advertise books for less than the publisher permitted. Neither the publisher nor seller were giving up any profit because there would be no competitive price pressures. Only consumers were giving up any money. There was going to be no such thing as your $5 ebook bestseller.

Anytime . You're close, but it's even a bit finer of a distinction than that. Apple did not ask publishers to charge other retailers any specific price. The publisher's acted on their own in that regard, and supposedly met in secret to collude on price as a reaction to the market opportunity Apple was presenting. The governments case at first glance seem's analogous to suing a gun maker (apple) when a bunch of people get together and decide to shoot someone (the publisher's price fixing).


Again, it seems on it's face that you have the facts a bit reversed. If the AI article is a proper summation of the facts (obviously it's too early to be definitive here), then Apple had no say on what price publishers could set for other retailers. It only offered them more than their competitor (Amazon) was offering for books, and asked for the right to depart from the agreed upon pricing for a given book to match any price that was lower than theirs. It simply gave publishers an incentive to hope that their distribution channel would grow as it was a more profitable channel than Amazon's under the proposed pricing/split. Then the publishers went off and colluded to make sure that it worked because they saw dollar signs in their eyes.

For example, let's say you and I both sell books, and we aren't initially colluding with one another, then we both would give Apple a price and our books would compete on price and quality, etc. and then we could both go to other retailers and set higher or lower prices with the understanding that if any retailer we sold books to decided to undercut Apple's price, we would get a smaller amount from Apple. So with that situation in place, there would be market pressure for you and I to get together and make a secret agreement to never undercut Apple's price because if you undercut my prices, then I would undercut yours and it would be a race to the bottom. Especially in light of the fact that prior to the development of Apple's ebook channel (the iPad), Amazon was our only option and we were getting less than what we wanted from that channel. So we get together and we decide that we no longer want to compete on price. I'll sell my books to everyone for the same price I sell them to Apple, if you do the same. Does that make Apple guilty of something illegal? If so, what exactly?

Analysis from Nilay Patel over at The Verge:

http://www.theverge.com/2012/4/11/29...le-an-analysis

The quote from the DOJ complaint is that the MFN provision "required each publisher to guarantee that it would lower the retail price of each e-book in Apple's iBookstore to match the lowest price offered by any other retailer, even if the publisher defendant did not control the other retailer's ultimate consumer price". The end the sentence is the key part. Why is this a problem for the DOJ? I'm a shareholder and really want this just to go away but I also want to be very clear about what the DOJs case is.

The odd things is that the publishers were actually making more with Amazon's wholesale model than when they went to the agency model. Amazon typically paid half the cover price of the hardback edition for an ebook, so on a $28 hardback, the ebook cost Amazon $14. Amazon then sold the book at a loss for 9.99.

Under the agency model, that ebook was priced at 14.99, and the publisher took 10.50 while Amazon took 4.50. Hence, the publisher made 10.50 under agency when it was making 14 under the wholesale.

Hah, check this out from the comments section of The Verge:

The accusation is based on this allegation (in a nutshell): No individual publisher had the nerve to approach Amazon and demand a different pricing system. Without some form of cooperation by those publishers to impose an agreement on Amazon, Apple had no chance of getting the MFN clause. Thus, the accusation is that Apple became the mediator or hub in a conspiracy to have five of the world's six largest publishers collude to threaten Amazon with terms that would be crippling to Amazon's business if Amazon refused to accept agency pricing.

Only on Apple Insider will someone try to insinuate "feelings" about Amazon are involved.


Typical apologist attitude.

Grab the low hanging fruit first. While in the process of prosecuting Apple, Amazon information my come to light and allow the DOJ to move right on into Amazon.

Since no one has a crystal ball, speculation is not allowed in courts.

Who are these "competitors"? Amazon pretty much revolutionized the eBook, they didn't have competition. They then figured out that money can be made in selling eBooks cheaper than paper books simply by selling in volume. In turn, the lower priced eBooks would generate interest in the platform and sell Kindles. Everyone was still getting paid the same since Amazon was still buying at the normal price. The problem was publishers never expected eBooks to take off. Once they did and started cutting into the paper sales, publishers were concerned their antiquated business model losing money. Well the publishers were already in too deep to do anything to slow eBooks (like raise prices) because they had no other eBook distributor. Well along comes Apple trying to get the iPad off the ground. They approach the publishers and offer them an alternative. The only way iBook could work though is if Amazon was not able to keep selling low cost eBooks because people would just keep buyingnfrommAmazon. THey conspired and fixed the prices. Amazon had no choice but to except because Apple is a power house and Amazon knew they would lose all the publishers. Bottomline Amazons method was good for everyone. Apples is not simply because prices went up for The consumer.

It was the other person who brought up the idea of feelings about Google and Amazon.

... but, of course, you missed the irony in that post... twice.

I wonder why? Perhaps the hardcover sales represented the minority of book income.

You are indeed correct. Only Apple fanbois would stand up for a company that is breaking the law and ripping you off at the same time. Seriously people, wake up. Apple is just another company that wants your money. They are not your friend you protect no matter what they do.

Hmmm... I wonder if this is the type of objectivity that Asherian was talking about...

I'm disappointed by this article. If only it was written by DED, it would have more spelling errors and include some kind of non sequitur about Google Android activations.

Two things. First, your first sentence doesn't mean the same thing as the second. For instance, if the publisher sets the price they get that is different then them setting the retail price. Second, you may be right about the agency model at question, and if so, I apologize. I generally do read the complaints, but this time I regrettably hadn't when I first posted. I read a summary from someplace, which never does one more justice than getting the information first hand. You do appear to be correct at least about what the government is accusing Apple of doing.


With that said, agency like models aren't per se illegal. Take for instance Apple's other products. Apple sets the price, retailers like Target, Best Buy, and Walmart fall in line on price. You might get a dollar variation here and there, but it is rare. There can only be one reason for that. Further, you can't honestly tell me the oil companies aren't getting together on pump pricing.

I think Scott Turow (Harvard law grad, famous author, and President of the Author's Guild), sums the issue up nicely. He states, The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support.

Amazon was killing competition by using its market dominance in selling traditional books to force pricing on e-books by denying publishers the ability to sell hard copies if Amazon didn't agree to undervalue the selling price of e-Books. Considering Amazon's dominant market position, that was anti-competitive. It used it's dominant position in one market to further advance its position in another market. That is what Microsoft got in trouble for doing when it used its Windows dominance to advance Internet Explorer at the expense of Netscape. That is the essence of how anti-competitive behavior works. Using one's dominance in one area to gain an advantage in another area.

Assuming everything the government says is true, how was what Apple did anti-competitive?Apple didn't use its market dominance in any area to force the publishers on board. If anything, the opposite is true. Publishers originally were hesitant to make a deal with Apple (go back and read the news stories prior to ibooks being announced). Apple simply gave publishers what music companies have wanted a long time from Apple: the ability to set their own prices. Amazon could have blown this up by simply refusing to deal with the publishers. This is what it originally did. Some publishers, however, jumped from Amazon. Amazon blinked first after a short period of time.

Let us look at other facts. Apple makes its money selling hardware and very little on selling e-Books. On its hardware, Apple allows competitors like Amazon to offer applications like the Kindle that compete with Apple's own offerings. Amazon has something like 70 percent of the e-Book market (largely because of its former shady practices that it used to tie people into the Kindle), and it recently announced it sold more e-books than traditional books. Last I checked Apple had around 20 percent of the e-Book market.

If things go back to Amazon's preferred method, publishers will really be hurting as Amazon will again force the price of e-Books down below the profitability margin to further try and solidify its lead in the e-Book market at the expense of competitors like Apple and the paper based book market. This will be a bigger problem now that traditional book sales are really hurting.


In the world of music, musicians used to make money on the sale of their music. Except for a few artists, this is no longer the case. They make no money on the sale of music. They, however, can afford to lose money on music sales because the sale of music is largely used to promote concerts where the real money is made. In the world of books, authors cannot afford to lose money on the sale of books as book authors typically don't do concerts. Amazon's model will likely put the hurting on authors like Turow.