Apple is lone holdout in DOJ e-book pricing case after Macmillan settles

Posted:
in iPad edited January 2014
Book publisher Macmillan has settled with the U.S. Department of Justice to avoid an e-book price fixing investigation, leaving Apple as the only company that has not yet reached an out-of-court settlement.

Macmillan's settlement means that book retailers, including Amazon, will be able to discount digital titles of all major publishers, according to The Wall Street Journal. Macmillan joins settlements already made by Penguin, Hachette, HarperCollins, and Simon & Schuster.

Book publishers
Late Apple cofounder Steve Jobs introduces iBooks iPad app and partner publishers in 2010. | Source: Apple


Those publishers, along with Apple, were accused of collusion in raising e-book prices. Apple offered publishers the ability to set their own prices on its iBookstore through the so-called "agency model."

That was a change from Amazon's low-margin wholesale model, which lets retailers buy content in bulk and sell it at or below cost. Apple and publishers favored the agency model because it gave the publishers the ability to set their own prices and control what an e-book should cost.

However, the end result of that was higher prices for e-books for consumers. That led the DOJ to move forward with litigation for "conspiring to raise e-book prices."

Following Macmillan's settlement, Apple stands alone against the DOJ's allegations. The iPad maker has denied the charges, but has not signaled whether it plans to settle.

Friday's settlement requires Macmillan to allow e-book retailers to begin discounting titles within three business days. John Sargent, Macmillan's chief executive, said his company settled "Because the penalties became too high to risk even the possibility of an unfavorable outcome," though he still contends that his company did not actually do anything wrong.
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Comments

  • Reply 1 of 59


    The DoJ continues on its crusade to gut an industry and hand it over to Amazon. There is either gross stupidity or rank corruption at work here.

  • Reply 2 of 59
    anonymouse wrote: »
    The DoJ continues on its crusade to gut an industry and hand it over to Amazon. There is either gross stupidity or rank corruption at work here.

    I agree. But at what point does amazon start making money? Can they survive indefinitely with this model?
  • Reply 3 of 59


    Originally Posted by anonymouse View Post

    The DoJ continues on its crusade to gut an industry and hand it over to Amazon. There is either gross stupidity or rank corruption at work here.


     


    One breeds the other. I imagine it's both.

  • Reply 4 of 59
    America is quickly losing its ability to remain a great nation. DOJ lawsuits like this, fighting wars we don't belong in, a government that seeks to satisfy itself instead of its people is a pathetic commentary on all of us.
  • Reply 5 of 59
    I'm for a free market setsing the price and compition thats what the constitution says but amazon is giving everything for free how do you call them a profitable comany and they seem to be in bed with the DOJ but that's my opinion
  • Reply 6 of 59
    trumptmantrumptman Posts: 16,452member


    This isn't even about Amazon. Anyone saying that is just like the folks defending Apple letting their stock tank while releasing "new" products with price increases all with last years technology (See "new" iPod Touch at $300 and "new" iPad Mini at $329).


     


    We are told that Apple doesn't care about the 30% they make on the iTune store. We are constantly told that it just pays for the hosting infrastructure. Well e-publishers are more than willing to host their own infrastructure as is anyone who wanted to include a store within their app for purchasing. Apple has denied stores within apps and is trying to bring more market to their own infrastructure rather than let lower margin products be dealt with by others.


     


    So the point about Apple and their 30% is pure nonsense. It is profitable and they want it.


     


    The claim that Amazon is trying to clear the field by forcing all their competitors out of this area is also nonsense. Apple has bucket loads of cash. Amazon could never force them to burn through it and survive themselves. Are we supposed to believe that Amazon has some means of losing $150 billion to force Apple to burn through their $137 billion, all so they can make that back and some untold of additional billions later on in the e-book market? Ebook revenue is still estimated to be less than $2 billion this year. So Amazon just needs to find a way to make Apple lose $137 billion so they can claim a $2 billion dollar a year market.


     


    People repeat these talking points so they can turn off their thinking.


     


    Apple wants their margins. They want it everywhere. They made a deal to keep them because Amazon will accept less than 30% profit on some books.

  • Reply 7 of 59
    gatorguygatorguy Posts: 19,817member


    Fortunately if the DoJ is true to form they'll let Apple settle too without admitting they did anything wrong. That's seems to be the norm.

  • Reply 8 of 59
    jragostajragosta Posts: 10,473member
    trumptman wrote: »
    This isn't even about Amazon. Anyone saying that is just like the folks defending Apple letting their stock tank while releasing "new" products with price increases all with last years technology (See "new" iPod Touch at $300 and "new" iPad Mini at $329).

    We are told that Apple doesn't care about the 30% they make on the iTune store. We are constantly told that it just pays for the hosting infrastructure. Well e-publishers are more than willing to host their own infrastructure as is anyone who wanted to include a store within their app for purchasing. Apple has denied stores within apps and is trying to bring more market to their own infrastructure rather than let lower margin products be dealt with by others.

    So the point about Apple and their 30% is pure nonsense. It is profitable and they want it.

    The claim that Amazon is trying to clear the field by forcing all their competitors out of this area is also nonsense. Apple has bucket loads of cash. Amazon could never force them to burn through it and survive themselves. Are we supposed to believe that Amazon has some means of losing $150 billion to force Apple to burn through their $137 billion, all so they can make that back and some untold of additional billions later on in the e-book market? Ebook revenue is still estimated to be less than $2 billion this year. So Amazon just needs to find a way to make Apple lose $137 billion so they can claim a $2 billion dollar a year market.

    People repeat these talking points so they can turn off their thinking.

    Apple wants their margins. They want it everywhere. They made a deal to keep them because Amazon will accept less than 30% profit on some books.

    Funny thing - I don't notice any facts to back up your rant.

    It is public knowledge that Apple's direct profits on iTunes are minimal (no one ever said that Apple doesn't care about it). The gross margins in ITMS are 30%. From that, you subtract all the costs of hosting, advertising, support, etc to get the operating margin. Both numbers are far, far lower than Apple's margins on other products.

    Apple obviously wants iTMS. It is probably also profitable (at a much lower level than most of their product). It is NOT, however profitable enough to be justified as a standalone business, at least not for Apple.

    The nonsense about Amazon is ridiculous, too. The fact that Apple has lots of cash does not mean that Amazon can't be guilty of anticompetitive behavior.
  • Reply 9 of 59
    tundraboytundraboy Posts: 1,598member
    @trumptman You don't make sense. You're saying Amazon is not out to clear out their competitors because their pockets are not deep enough to get Apple to lose $137 billion. Well, guess what? They don't need deep pockets now because the feds are doing the clearing out for them. Sure Apple wants the profits. Amazon does too and they'll be making more than 30% margins once they've sewed up the eBook retailing AND publishing industries.
  • Reply 10 of 59
    nagrommenagromme Posts: 2,834member


    I guess Apple's the one with the money to fight. Ironic, since Apple can't lose: even if iBooks' pricing has to change, or even if (worst case) iBooks' selection is harmed, it does little to Apple's core business of selling devices. An iPad will still be a better Kindle (because it's so much more than that) than an actual Kindle.


     


    BOTH Apple and Amazon would rather you buy an iPad than a no-profit Kindle... Amazon's happy to have you buy books on their site and read them in the Kindle app. Same with the Nook.


     


    There's good-sounding rhetoric on both sides, but in the end, an Amazon monopoly helps nobody. Heck, Apple's devices support Kindle content! Kindle is the ereader I use most on my iPad (because iBooks doesn't support library lending).


     


    And Amazon isn't always that great to authors—discounting your work without your say-so, etc.

  • Reply 11 of 59
    jragostajragosta Posts: 10,473member
    nagromme wrote: »
    I BOTH Apple and Amazon would rather you buy an iPad than a no-profit Kindle... Amazon's happy to have you buy books on their site and read them in the Kindle app. Same with the Nook.

    There's good-sounding rhetoric on both sides, but in the end, an Amazon monopoly helps nobody. Heck, Apple's devices support Kindle content! Kindle is the ereader I use most on my iPad (because iBooks doesn't support library lending).

    And Amazon isn't always that great to authors—discounting your work without your say-so, etc.

    Well, an Amazon monopoly helps no one ..... except Amazon. A monopoly allows them to control pricing and to lock authors and publishers into unreasonable terms (you even gave an example yourself). It's a mistake to look at only the present. A monopoly would allow Amazon enormous power in the future.

    Your claim that Amazon would rather have you buy an iPad is nonsense. Why did Amazon spend millions developing the Kindle? Why are they continuing to advertise it heavily? Why not simply partner with Apple and get the benefits you cite without the costs?
  • Reply 12 of 59
    john.bjohn.b Posts: 2,716member


    Yeah, Apple should just wave the white flag and let Amazon own the e-book market.  I mean, it's not like Amazon is selling tablets or anything...


     


    /sarcasm

  • Reply 13 of 59
    MarvinMarvin Posts: 14,195moderator
    Those publishers, along with Apple, were accused of collusion in raising e-book prices. Apple offered publishers the ability to set their own prices on its iBookstore through the so-called "agency model."

    That was a change from Amazon's low-margin wholesale model, which lets retailers buy content in bulk and sell it at or below cost. Apple and publishers favored the agency model because it gave the publishers the ability to set their own prices and control what an e-book should cost.

    This is great, only Amazon can afford to buy in such large volumes to be able to sell at or below low volume cost price so preventing other retailers raising the prices means it gives Amazon an anti-competitive advantage. Nice work Department of Justice. I suppose now we just sit back, count the business closures and watch the unemployment rise as they can't replicate a business model that operates with...

    let's see 2012 annual sales $61b, net profit -$39m = -0.06% net margins.

    If I walked into a bank and asked for a $61b loan to buy books in bulk and sell them at or below cost price to effectively end up with bugger all at the end of the year and wipe out retail businesses up and down the country, do you think they'd give it me? At least I'd be able to make it look to investors like it was worth something what with all the big numbers:

    http://seekingalpha.com/article/1157031-amazon-s-margin-myth-sleight-of-hand

    This is one of those scenarios like the ones that break the laws of robotics. Which outcome do you decide is the greater good? Does the robot kill the human who is dismantling the robot before it can prevent the human detonating a bomb to kill thousands of people? If the greater good is ensuring the survival of the many at the expense of the few then yes.

    Are people really going to stop shopping at Amazon if their prices are higher? No because nobody else can undercut them when they don't pay their taxes anyway. Laws need to be enforced to help not destroy the economy.
  • Reply 14 of 59
    john.bjohn.b Posts: 2,716member

    Quote:

    Originally Posted by starbird73 View Post



    I agree. But at what point does amazon start making money? Can they survive indefinitely with this model?


     


    Sure, just as long as their shareholders let them get away with it.  Last time I checked, their P/E ratio was something approaching 4000.


     


    Edit:  The P/E for AMZN is currently 3,752.9.  As a comparison, AAPL is 10.8.  image

  • Reply 15 of 59
    lilgto64lilgto64 Posts: 1,147member
    why not room for both model?

    or is letting the owner of the content have any say whatsoever in the price of their product now a bag thing? I suppose if you want to buy everything from Amazon and WalMart with no other option whatsoever, then maybe so.
  • Reply 16 of 59


    nice, done... you have to be pretty stupid, young or just to into Apple not to understand why this needs to happen. But I think those are qualities the new iOS era has brought into the Apple community.

  • Reply 17 of 59


    Originally Posted by agramonte View Post

    nice, done... you have to be pretty stupid, young or just to into Apple not to understand why this needs to happen. But I think those are qualities the new iOS era has brought into the Apple community.


     


    (Demeaningly) Young, stupid, and "too into Apple". Way to endear yourself to much of the userbase here.

  • Reply 18 of 59
    quinneyquinney Posts: 2,521member
    jragosta wrote: »
    Why did Amazon spend millions developing the Kindle? Why are they continuing to advertise it heavily? Why not simply partner with Apple and get the benefits you cite without the costs?

    They sold Kindles at a much lower price than iPads, especially at the beginning. This allowed them to get POS terminals into the hands of more people.
    Also, don't forget the data mining benefits of selling their own devices.
  • Reply 19 of 59
    charlitunacharlituna Posts: 7,198member

    Quote:

    Originally Posted by trumptman View Post


     


    The claim that Amazon is trying to clear the field by forcing all their competitors out of this area is also nonsense. 



     


    If you are correct then why did Amazon have a favored nation clause since they opened their ebook sales that gave them control over what other stores could charge by way of denying them the right to discount below Amazon. Why did Amazon push for rights to start sales before 'street' and deny it to all others or dump all ebook and paper from publishers, why the demands for lifetime exclusive rights and so on


    onto amazon never had the DOJ after them but it doesn't make what they were doing legal or right. Just not punished.

  • Reply 20 of 59
    charlitunacharlituna Posts: 7,198member

    Quote:

    Originally Posted by lilgto64 View Post



    why not room for both model?



    or is letting the owner of the content have any say whatsoever in the price of their product now a bag thing? I suppose if you want to buy everything from Amazon and WalMart with no other option whatsoever, then maybe so.


     


    Basically my argument. Let each store set their terms and those that are okay with them be okay with them. The only real collusion is the favored nation clauses so ban those. I would also say, to benefit customers, put a limit on exclusive deals for all media if not ban them. Say no more than six months, no renewals or extensions. 

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