DOJ e-books trial: Steve Jobs didn't initally want iBooks, Eddy Cue 'didn't care' about publishers'

Posted:
in General Discussion edited January 2014
Proceedings continued in the U.S. Department of Justice e-book antitrust suit against Apple on Thursday, with the company's SVP of Internet Software and Service Eddy Cue testifying that he "didn't care" what prices publishers set for content sold through the iBookstore.

DOJ


According to in-court reports from Reuters, Cue said it wasn't surprising to see book publishers raise rates for new content after Apple debuted iBooks, but maintained the deals the company made had nothing to do with a market-wide hike in e-book prices.

Cue has been made out by the Justice Department to be "the chief ringleader" of an alleged price fixing scheme in which Apple colluded with five of the largest book publishers in the world to falsely inflate the cost of e-books sold through the iBookstore.

"I didn't raise prices," Cue said.

The longtime Apple exec was at the center of Apple's business dealings with the five accused publishers, all of which have settled out of court, as he negotiated iBooks terms with the firms between December 2009 and January 2010. Apple cofounder Steve Jobs, who according to Cue didn't initially want the then-unreleased iPad to function as an e-reader, gave the go-ahead to put together the iBookstore in 2009 under the condition that it had to be ready for the iPad's announcement in January of 2010.

Cue noted that Apple originally looked to adopt the wholesale model used by market leader Amazon, which allows retailers to price e-books after buying the titles from content owners. After discussing the terms with publishers, however, the company decided to employ the agency model. In that strategy, content owners are free to set prices under a most-favored-nations clause, which precludes them from selling the same titles to another reseller for less without offering the same to Apple. "I didn't care what deals all the publishers got with Amazon, Barnes & Noble or anyone else." - Apple SVP of Internet Software and Services Eddy Cue

"I didn't care what deals all the publishers got with Amazon, Barnes & Noble or anyone else," Cue said, adding that he had no knowledge of external talks book publishers were reportedly conducting on their own.

Cue said he told those publishers which Apple was dealing with ? Penguin Group, HarperCollins Publishers Inc, Simon & Schuster Inc, Hachette Book Group Inc and Macmillan ? the company was discussing options with rivals, but was careful not to mention names.

Cue became somewhat emotional near the end of his testimony, recalling how important the project was in light of Jobs' condition.

"He was near the end of his life near the launch of the iPad," Cue said of Jobs. "I wanted to get it done in time for that as I wanted to get it done for him."

Over the course of this week's proceedings, U.S. District Court Judge Denise Cote saw what at first appeared to be a "smoking gun" in the form of an purported email from Jobs to Cue. Presented by the DOJ, it turned out that the letter was actually a draft which was never sent. Last week, testimony from book publishing executives appeared to align with with Apple's assertions of non-collusion.

The trial will enter its final week on Monday, when Cue is scheduled to retake the stand.
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Comments

  • Reply 1 of 52
    timmydaxtimmydax Posts: 284member
    "He was near the end of his life near the launch of the iPad," Cue said of Jobs. "I wanted to get it done in time for that as I wanted to get it done for him."

    *sigh*

    Rush... Jobs.
  • Reply 2 of 52
    mjtomlinmjtomlin Posts: 1,819member
    "set prices under a most-favored-nations clause, which precludes them from selling the same titles to another reseller for less."

    Can we get this correct at some point in the future? MFN does preclude the selling of content at another reseller for less. Publishers are still free to do whatever they want.

    MFN just guarantees me that if a reseller strikes a better deal with the publishers, I have the right to lower my prices to match.
  • Reply 3 of 52
    robin huberrobin huber Posts: 3,246member
    Proverb: the hand (Apple) points at the moon (Amazon monopoly), the fool (DOJ) looks at the finger.
  • Reply 4 of 52
    mhiklmhikl Posts: 471member

    When the DOJ wins, it means it did its homework, did its job. No accolades, that's what a pay cheque is for. When the DOJ loses, it means it didn't do its homework and therefore was hamstrung in doing the second part of its job because it failed at the first, to separate the wheat from the chaff. When the book publishers blinked, the DOJ figured it was on the right track, had won and got cocky. There are wins to take credit, there are wins that fall from the sky.


     


    If the DOJ is looking for brownie points shooting for the stars, better make sure the homework is done, fast and strong.

  • Reply 5 of 52
    stelligentstelligent Posts: 2,680member

    Quote:

    Originally Posted by mhikl View Post




    When the DOJ wins, it means it did its homework, did its job. No accolades, that's what a pay cheque is for. When the DOJ loses, it means it didn't do its homework and therefore was hamstrung in doing the second part of its job because it failed at the first, to separate the wheat from the chaff. When the book publishers blinked, the DOJ figured it was on the right track, had won and got cocky. There are wins to take credit, there are wins that fall from the sky.


     


    If the DOJ is looking for brownie points shooting for the stars, better make sure the homework is done, fast and strong.



    What's the point of your post? Why do you think the DOJ is looking for brownie points? Their lawyers know that they rarely get any.


     


    In some trials, it can be argued that a specific prosecutor is deliberately grandstanding to gain the spotlight. But this case has not developed like that.

  • Reply 6 of 52
    dasanman69dasanman69 Posts: 12,976member
    mjtomlin wrote: »
    "set prices under a most-favored-nations clause, which precludes them from selling the same titles to another reseller for less."

    Can we get this correct at some point in the future? MFN does preclude the selling of content at another reseller for less. Publishers are still free to do whatever they want.

    MFN just guarantees me that if a reseller strikes a better deal with the publishers, I have the right to lower my prices to match.

    So which is it? Do the publishers set the price or does Apple? And if Apple just handles the transaction how are they a reseller? The MFN would be moot since they don't buy anything from the publishers.
  • Reply 7 of 52
    froodfrood Posts: 771member

    Quote:

    Originally Posted by mjtomlin View Post



    "set prices under a most-favored-nations clause, which precludes them from selling the same titles to another reseller for less."



    Can we get this correct at some point in the future? MFN does preclude the selling of content at another reseller for less. Publishers are still free to do whatever they want.



    MFN just guarantees me that if a reseller strikes a better deal with the publishers, I have the right to lower my prices to match.


     


    If that was all there was to it, there likely would be no trial.  The problem is the MFN combined with Apple's 30% guarantee.  If competitive pricing drove the price to $9.99 on Amazon, Apple would be allowed to set their price at $9.99 *AND* be guaranteed to make $3 of that.  So if the publishers minimum price to make a profit was $9.99 they could not sell at that price.  They would be making no money at Amazon and losing their asses on Apple sales.


     


    With the 'Apple plan' if those publishers broke even at $9.99 they would have to sell at $12.99 in order to make only the $9.99 needed (since Apple takes 30% guaranteed).  Voila the new price publishers have to set is now $12.99 across all resellers.


     


    Have you actually read the DoJ's evidence?  It's pretty damning.  Apple is guilty as sin but I'm guessing they may have good enough lawyers to tap dance out of it.  With a jury they'd be off the hook for sure; with a judge that actually gets it- flip a coin.  As usual per Apple brilliance, I do believe Eddy Cue's statements are true.  If publishers wanted to set prices at $9.99 Eddy could care less.  Apple would make $3 per book and all the publishers would go out of business.  The system pretty much guaranteed they'd all have to raise prices and they all committed to doing that after Eddy got them all to sign up  ("Eddy we can't go with just 2 other publishers on board, you have to get at least 3 and then we'll sign on as the fourth",'double delete this message','you set the price, but if it is more than $12.99 we're not doing it and if it is less than that you will lose money....   You set the price, as long as it is $12.99'  blah blah blah

  • Reply 8 of 52
    aaarrrggghaaarrrgggh Posts: 1,572member
    dasanman69 wrote: »
    mjtomlin wrote: »
    "set prices under a most-favored-nations clause, which precludes them from selling the same titles to another reseller for less."

    Can we get this correct at some point in the future? MFN does preclude the selling of content at another reseller for less. Publishers are still free to do whatever they want.

    MFN just guarantees me that if a reseller strikes a better deal with the publishers, I have the right to lower my prices to match.

    So which is it? Do the publishers set the price or does Apple? And if Apple just handles the transaction how are they a reseller? The MFN would be moot since they don't buy anything from the publishers.
    The publisher sets the price under the agency model.
    The MFN clause adjusts the publisher's price to reflect the lowest price.
    Independent of whatever the price is, the agent gets 30%.

    So, if Amazon was on wholesale, they buy a $13 e-book for $10 and sell it for $10, making 0 profit.
    When they do this, Apple's retail price is adjusted to $10, and they get $3 commission so the publisher only gets $7. Obviously, the publisher would prefer to get $10 from everybody, so they would want to shift Amazon to a agent model with the same MFN clause.
  • Reply 9 of 52
    aaarrrggghaaarrrgggh Posts: 1,572member
    frood wrote: »
    Have you actually read the DoJ's evidence?  It's pretty damning. 

    Not really, at least not in any sense of what I have seen and what I understand the law to be.

    The problem with your argument is that the price was always $13. Amazon just engaged in illegal dumping and sold for $10. Initially, the publishers sold to Amazon at $10, expecting them to mark up the price to $13. When they didn't, the publishers increased prices to what they thought Retail should be, and Amazon decided to sell at an actual loss.

    Effectively, the publishers used Apple as a tool in their fight against Amazon, much like the music industry did the reverse of with DRM-free tracks. The difference being that music was never sold at a loss.

    The DOJ didn't go after Amazon because it isn't as good politics. Amazon lowered prices to the consumer (by taking a loss).
  • Reply 10 of 52
    dasanman69dasanman69 Posts: 12,976member
    aaarrrgggh wrote: »
    The publisher sets the price under the agency model.
    The MFN clause adjusts the publisher's price to reflect the lowest price.
    Independent of whatever the price is, the agent gets 30%.

    So, if Amazon was on wholesale, they buy a $13 e-book for $10 and sell it for $10, making 0 profit.
    When they do this, Apple's retail price is adjusted to $10, and they get $3 commission so the publisher only gets $7. Obviously, the publisher would prefer to get $10 from everybody, so they would want to shift Amazon to a agent model with the same MFN clause.

    Yes but the publishers don't set the price with the wholesale model and do with the agency model, so how can they be forced to sell for the same price if they never set the price with Amazon?
  • Reply 11 of 52
    malaxmalax Posts: 1,598member

    Quote:

    Originally Posted by Frood View Post


     


    If that was all there was to it, there likely would be no trial.  The problem is the MFN combined with Apple's 30% guarantee.  If competitive pricing drove the price to $9.99 on Amazon, Apple would be allowed to set their price at $9.99 *AND* be guaranteed to make $3 of that.  So if the publishers minimum price to make a profit was $9.99 they could not sell at that price.  They would be making no money at Amazon and losing their asses on Apple sales.


     


    With the 'Apple plan' if those publishers broke even at $9.99 they would have to sell at $12.99 in order to make only the $9.99 needed (since Apple takes 30% guaranteed).  Voila the new price publishers have to set is now $12.99 across all resellers.


     


    Have you actually read the DoJ's evidence?  It's pretty damning.  Apple is guilty as sin but I'm guessing they may have good enough lawyers to tap dance out of it.  With a jury they'd be off the hook for sure; with a judge that actually gets it- flip a coin.  As usual per Apple brilliance, I do believe Eddy Cue's statements are true.  If publishers wanted to set prices at $9.99 Eddy could care less.  Apple would make $3 per book and all the publishers would go out of business.  The system pretty much guaranteed they'd all have to raise prices and they all committed to doing that after Eddy got them all to sign up  ("Eddy we can't go with just 2 other publishers on board, you have to get at least 3 and then we'll sign on as the fourth",'double delete this message','you set the price, but if it is more than $12.99 we're not doing it and if it is less than that you will lose money....   You set the price, as long as it is $12.99'  blah blah blah



     


    Did you even read what you wrote?  As you correctly point out "Apple didn't care what prices the publishers set."  So how do you get from there to Apple is "guilty as sin" of colluding to raise prices.  If I walk into a room and tell everyone "hey dudes here are the terms I'm willing to accept and here's why it makes sense for you" and everyone says "sounds good, sign me up" I am in no frickin' way guilty of collusion.  Further this whole thing points out what Apple would only accept the agency model.  Why would they want to be hire a boatload of people to be market experts, setting prices for books?  The agency model made perfect sense for them.  Apple is going to win this one, not because they have brilliant lawyers, but because they did nothing wrong.

  • Reply 12 of 52
    dasanman69dasanman69 Posts: 12,976member
    frood wrote: »
    They would be making no money at Amazon and losing their asses on Apple sales.

    Wrong, they would be making money with Amazon and losing their asses with Apple. The publishers are still getting $10 per ebook regardless of sales model.
  • Reply 13 of 52

    Quote:

    Originally Posted by Frood View Post


     


    If that was all there was to it, there likely would be no trial.  The problem is the MFN combined with Apple's 30% guarantee.  If competitive pricing drove the price to $9.99 on Amazon, Apple would be allowed to set their price at $9.99 *AND* be guaranteed to make $3 of that.  So if the publishers minimum price to make a profit was $9.99 they could not sell at that price.  They would be making no money at Amazon and losing their asses on Apple sales.


     


    With the 'Apple plan' if those publishers broke even at $9.99 they would have to sell at $12.99 in order to make only the $9.99 needed (since Apple takes 30% guaranteed).  Voila the new price publishers have to set is now $12.99 across all resellers.


     


    Have you actually read the DoJ's evidence?  It's pretty damning.  Apple is guilty as sin but I'm guessing they may have good enough lawyers to tap dance out of it.  With a jury they'd be off the hook for sure; with a judge that actually gets it- flip a coin.  As usual per Apple brilliance, I do believe Eddy Cue's statements are true.  If publishers wanted to set prices at $9.99 Eddy could care less.  Apple would make $3 per book and all the publishers would go out of business.  The system pretty much guaranteed they'd all have to raise prices and they all committed to doing that after Eddy got them all to sign up  ("Eddy we can't go with just 2 other publishers on board, you have to get at least 3 and then we'll sign on as the fourth",'double delete this message','you set the price, but if it is more than $12.99 we're not doing it and if it is less than that you will lose money....   You set the price, as long as it is $12.99'  blah blah blah



    Apple uses the agency model for iOS apps. Nobody's complaining about collusion with apps, so what is the big deal with ebooks? The law should be the same. 

  • Reply 14 of 52
    ifij775ifij775 Posts: 470member
    I hope this case blows up in the DOJ's face, but I doubt that will happen.
  • Reply 15 of 52
    dasanman69dasanman69 Posts: 12,976member
    Apple uses the agency model for iOS apps. Nobody's complaining about collusion with apps, so what is the big deal with ebooks? The law should be the same. 

    Because you can't buy iOS apps from anywhere else but from the app store and devs cannot sell you apps for your iDevice without going through the app store. Yet you can buy eBooks from Amazon, B&N, and Apple. Apple couldn't compete on price nor could it provide a much better user experience to justify the price increase so it had to somehow get the playing field level which is what the MFN clause does.
  • Reply 16 of 52
    inklinginkling Posts: 731member
    The fact that Steve Jobs didn't initially want iBooks is most interesting. It almost makes this mess of a dispute worthwhile, that and learning what Apple believes its market share to be--an impressive 20%. No wonder Amazon is unhappy. No wonder it whistled for the DOJ to do its dirty work.

    Of course, that's not really surprising. From the start, Apple hasn't had its heart in selling ebooks like it has in selling music. I spotted that early on, particularly as month after month passed with no Mac version of iBooks. Even now, I've yet to hear if iBooks for Macs will run on anything but Mavericks. That matters, particularly for school kids.

    Perhaps that tilt was just Steve Jobs, I thought. More likely it's the 1970s generation that's running Apple now. No one who thinks of that era says, "Ah yes, that was an era when they knew how to write great books." Those who came of age then don't seem to be avid readers either. By that decade there were many other distractions for growing minds.

    When I was growing up in the 1950s and 1960s, reading mattered, if for no other reason than to beat the boredom of being a kid. There were only three TV channels and they rarely carried children's programs. CDs and DVDs didn't exist, much less the Internet, and 8-tracks players only arrived late. Teen music meant listening to static-ridden AM radio. No video games either. When I got out of school, I often went to the public library and read scifi or boy's adventure tales until it was time to bike home for supper. Sadly, I suspect not many kids do that today. Like I said, too many distractions.

    I certainly hope Apple has a change of heart. Music isn't everything. There are some things that only good books can do. And I despair when I try to push richly formatted ebooks with full-color photos through Amazon's Kindle plug-in for InDesign. They come out looking awful. I'm much happier with what InDesign's epub export looks like on my iPad. I want Apple to succeed, in part, to force Amazon to make their Kindle titles look better.

    --Michael W. Perry, Hospital Gowns and Other Embarrassments





  • Reply 17 of 52
    tbelltbell Posts: 3,146member
    mhikl wrote: »
    [SIZE=14px]When the DOJ wins, it means it did its homework, did its job. No accolades, that's what a pay cheque is for. When the DOJ loses, it means it didn't do its homework and therefore was hamstrung in doing the second part of its job because it failed at the first, to separate the wheat from the chaff. When the book publishers blinked, the DOJ figured it was on the right track, had won and got cocky. There are wins to take credit, there are wins that fall from the sky.[/SIZE]
    [SIZE=14px] [/SIZE]
    If the DOJ is looking for brownie points shooting for the stars, better make sure the homework is done, fast and strong.

    BS

    As a lawyer, I can tell you judges have a built in bias favoring the government.

    Apple should have elected a jury.
  • Reply 18 of 52
    studentxstudentx Posts: 112member
    When is the DOJ going after the bankers who cause the global economic crash?

    Oh wait, e-book pricing is more important. Right?!!!

    Idiots.
  • Reply 19 of 52
    hill60hill60 Posts: 6,989member
    dasanman69 wrote: »
    Because you can't buy iOS apps from anywhere else but from the app store and devs cannot sell you apps for your iDevice without going through the app store. Yet you can buy eBooks from Amazon, B&N, and Apple. Apple couldn't compete on price nor could it provide a much better user experience to justify the price increase so it had to somehow get the playing field level which is what the MFN clause does.

    Apart from developers selling the same Apps through Amazon, Play or wherever.

    Unless you want to say that iOS has all the Apps, other platforms have nothing. ;)
  • Reply 20 of 52
    froodfrood Posts: 771member

    Quote:

    Originally Posted by waldobushman View Post


    Apple uses the agency model for iOS apps. Nobody's complaining about collusion with apps, so what is the big deal with ebooks? The law should be the same. 



     


    iOS apps affect Apple and Apple users.  Nobody has a problem with that.  Apple wanted iBooks.  If they had set their price at $12.99 no one would have a problem with that either and there would be no lawsuit.


     


    The problem is, unlike iOS apps which only work on Apple's system, books are the same everywhere.  Apple knew they would fail horribly if they priced their books at $12.99 while the same books were available everywhere else for $9.99.  So they came up with an amazing structure that would raise prices across all platforms to $12.99.  That is the problem.  I could care less if Apple wants to sell iBooks for $100.  If it comes up with a system that raises book prices to $100 in all stores I have problem.


     


    Seriously, read the DoJ's evidence from start to finish.  It starts out with 'hahaha we can't set our prices to $12.99, no one will all buy our books'....  Apple "well, not if you were all to do it at the same time....."     "ooooohhhhhhhh....."   And from there it degrades to 'hey, double delete all these emails'     Steve Jobs asked about he is going to sell books at $12.99 while others at $9.99....    "They won't be"   To the publishers  'OMG I can't believe he said that'      You'd have to be pretty smitten with Apple to actually believe they weren't involved and all books doing a step price change from $9.99 to $12.99 overnight is an amazing coincidence that is somehow terrific for consumers.


     


    Amazon was making money on books.  Incredibly low margins so they had to sell a ton of them, and they *were* selling top titles at a loss to get consumers in the door.  Because the DoJ stepped in prices are now actually lower.  I think the average e-book is around $7.50 now (which Apple fans actually credit to Apple lol).  More people have entered the market.  So if $9.99 is 'selling at a loss' and 'dumping' how are people making money at $7.50   Did the price of electrons drop?  Or are people entering the market because they all want to make huge losses?

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