Apple, publishers sued over e-book pricing as sales jump
Apple and five of the six largest publishing houses have been sued in a class action suit accusing them of illegal price fixing via the agency model, while a new survey shows e-book sales have risen by more than 1000 percent over the past two years.
Seattle-based law firm Hagens Berman filed a class action law suit against Apple, Hachette, Simon & Schuster, Macmillan, HarperCollins and Penguin on Thursday, PaidContent reports. The companies are accused of conspiring to adopt the agency model in order to ?boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing."
Random House, the only "big 6" publisher not included in the suit, resisted the agency model at first, though it has since adopted it. The publisher began offering its books for sale on the iBookstore in March of this year.
The agency model allows publishers to set their own pricing while providing the seller with a portion of the revenue. Apple pushed to adopt the model for its iBookstore, which launched last year alongside the iPad. The company currently receives the same 30 percent cut that it first offered to developers selling software on the App Store.
According to the law suit, Amazon's Kindle had "the potential to massively reduce distribution costs historically associated with brick-and-mortar publishing." However, publishers were allegedly threatened by the new business model and sought to coordinate their activities with Apple in an effort to "restrain trade and retard innovation."
"Being hidebound and lacking innovation for decades, the publishers were particularly concerned that Amazon?s pro-consumer pricing of eBooks would negatively impact their moribund sales model, and in particular the sale of higher priced physical copies of books,? the complaint read.
The suit goes on to claim that ?Apple facilitated changing the eBook pricing model and conspired with the Publisher Defendants to do so? because ?the Kindle was (and is) a competitive threat to Apple?s business model.?
The complaint alleges that publishers announced the transition to the agency model for e-book sales to coincide with the release of the iPad. The fact that the publishers allowed Apple to use their trademarks in connection with the unveiling of the iPad and iBooks is put forth as evidence of the alleged collusion.
"As a direct result of this anticompetitive conduct as intended by the conspiracy, the price of eBooks has soared. The price of new bestselling eBooks increased to an average of $12 - $15?an increase of 33 to 50 percent," the filing continued.
Anthony Petru and Marcus Mathis are listed as plaintiffs in the case.
Last year, Connecticut Attorney General Richard Blumenthal conducted a review of e-book pricing over concerns that matching pricing on Apple's iBooks and Amazon's Kindle platforms reflected anticompetitive deals.
The dispute comes as the e-book industry appears set for explosive growth. According to the new BookStats survey, e-book revenue for trade publishers jumped up by 1274 percent since 2008, reaching $878 million in 2010. E-book net sales increased to 114 million last year, up 1039.6 percent since 2008.
In 2010, e-books grabbed 6.4 percent of the trade book market, up from just 0.6 percent in 2008. Digital books have performed especially well in the adult fiction category, where they held a 13.6 percent revenue share in 2010.
BookStats is published cooperatively by the Association of American Publishers and the Book Industry Study Group. The report includes data from close to 2,000 U.S. publishers. Though the survey only released numbers for 2010, e-books are expected to see even further success throughout this year.
Seattle-based law firm Hagens Berman filed a class action law suit against Apple, Hachette, Simon & Schuster, Macmillan, HarperCollins and Penguin on Thursday, PaidContent reports. The companies are accused of conspiring to adopt the agency model in order to ?boost profits and force e-book rival Amazon to abandon its pro-consumer discount pricing."
Random House, the only "big 6" publisher not included in the suit, resisted the agency model at first, though it has since adopted it. The publisher began offering its books for sale on the iBookstore in March of this year.
The agency model allows publishers to set their own pricing while providing the seller with a portion of the revenue. Apple pushed to adopt the model for its iBookstore, which launched last year alongside the iPad. The company currently receives the same 30 percent cut that it first offered to developers selling software on the App Store.
According to the law suit, Amazon's Kindle had "the potential to massively reduce distribution costs historically associated with brick-and-mortar publishing." However, publishers were allegedly threatened by the new business model and sought to coordinate their activities with Apple in an effort to "restrain trade and retard innovation."
"Being hidebound and lacking innovation for decades, the publishers were particularly concerned that Amazon?s pro-consumer pricing of eBooks would negatively impact their moribund sales model, and in particular the sale of higher priced physical copies of books,? the complaint read.
The suit goes on to claim that ?Apple facilitated changing the eBook pricing model and conspired with the Publisher Defendants to do so? because ?the Kindle was (and is) a competitive threat to Apple?s business model.?
The complaint alleges that publishers announced the transition to the agency model for e-book sales to coincide with the release of the iPad. The fact that the publishers allowed Apple to use their trademarks in connection with the unveiling of the iPad and iBooks is put forth as evidence of the alleged collusion.
"As a direct result of this anticompetitive conduct as intended by the conspiracy, the price of eBooks has soared. The price of new bestselling eBooks increased to an average of $12 - $15?an increase of 33 to 50 percent," the filing continued.
Anthony Petru and Marcus Mathis are listed as plaintiffs in the case.
Last year, Connecticut Attorney General Richard Blumenthal conducted a review of e-book pricing over concerns that matching pricing on Apple's iBooks and Amazon's Kindle platforms reflected anticompetitive deals.
The dispute comes as the e-book industry appears set for explosive growth. According to the new BookStats survey, e-book revenue for trade publishers jumped up by 1274 percent since 2008, reaching $878 million in 2010. E-book net sales increased to 114 million last year, up 1039.6 percent since 2008.
In 2010, e-books grabbed 6.4 percent of the trade book market, up from just 0.6 percent in 2008. Digital books have performed especially well in the adult fiction category, where they held a 13.6 percent revenue share in 2010.
BookStats is published cooperatively by the Association of American Publishers and the Book Industry Study Group. The report includes data from close to 2,000 U.S. publishers. Though the survey only released numbers for 2010, e-books are expected to see even further success throughout this year.
Comments
Or maybe they want Apple to rein in the publishers the way they did with the music industry. They should set up price tiers so if the book is between x and y pages, it costs $a.bc. Textbooks and magazines can have their own schemes separate from novels.
Is their argument that Apple should be setting the prices the way Amazon used to, rather than allowing the publishers to set their own prices? Weren't there complaints before that Amazon's price setting was unfair for devaluing books?
Basically yes on both counts. Publishers hated the Amazon model, and so when Apple came calling they jumped at a chance to negotiate a deal more to their liking. The accusation here seems to be that in acting together the publishers have unfairly raised prices on consumers. This seems a very odd case, in a lot of ways. What's the legal grounds here? Anti-trust? I didn't think consumers had standing to bring anti-trust complaints directly.
The whole thing is a bit
The Amazon model wasn't sustainable. As had been shown a number of times, Amazon was actually selling e-books for less than they paid for them. How can any company, long term, manage with that? Well, they can't.
What publishers were concerned about, at least most of them, was that at some
point, when Amazon had cornered sales on the Kindle, was that they would swing down the hammer, and either raise prices, or, more likely, demand that publishers drastically cut their prices to Amazon.
People who don't understand that, don't understand business.
Basically yes on both counts. Publishers hated the Amazon model, and so when Apple came calling they jumped at a chance to negotiate a deal more to their liking. The accusation here seems to be that in acting together the publishers have unfairly raised prices on consumers. This seems a very odd case, in a lot of ways. What's the legal grounds here? Anti-trust? I didn't think consumers had standing to bring anti-trust complaints directly.
The whole thing is a bit
Of course.
There are something like 6 major publishers. They can set the prices wherever they wish with the Apple model. How would it create more competition if Apple set the prices for all of them?
Of course.
There are something like 6 major publishers. They can set the prices wherever they wish with the Apple model. How would it create more competition if Apple set the prices for all of them?
I agree, and I don't see as how Apple agreeing to an agency model with all the major publishers can be considered anti-competitive when lots of things are sold on an agency model from Airline tickets to Condos.
But if the publishers all agreed to force Amazon to accept an agency model, that potentially might be anti-competitive, if they colluded - but even then I'm not sure, because they could make a good case that Amazon approaches being a monopsony and that they need to join together to approach parity in the negotiations. Has that happened or is Amazon still going with the wholesale model?
Honestly this is completely bizarre and kinda fascinating.
Edit: ok, I was right - this is the basis of the complaint
'The complaint claims that the five publishing houses forced Amazon to abandon its discount pricing and adhere to a new agency model, in which publishers set prices. This would prevent retailers such as Amazon from offering lower prices on e-books.'
http://www.hbsslaw.com/cases-and-investigations/ebooks
Is their argument that Apple should be setting the prices the way Amazon used to, rather than allowing the publishers to set their own prices? Weren't there complaints before that Amazon's price setting was unfair for devaluing books?
Or maybe they want Apple to rein in the publishers the way they did with the music industry. They should set up price tiers so if the book is between x and y pages, it costs $a.bc. Textbooks and magazines can have their own schemes separate from novels.
The article does very little to explain the situation. I get the impression that the author doesn't have any deep understanding, because he presents things in a vague, convoluted manner.
And don't some folks think that this author is really Dinger or Dilger or whatever his name is, using a pseudonym? It always seemed to me that Josh was a cub reporter, mistakenly thinking he was learning at the feet of the master by imitating Dilger's style.
It sounds like they are upset Amazon was given reasonable market competition.
Well, when what you refer to as "reasonable market competition" results in higher, not lower, prices to consumers, should consumers be cheering about it?
The point is that what you have characterized in that way, is seen by the suit as encouragement from Apple for publishers to collude in raising prices, by offering that "agency structure" as an alternative to Amazon's original, more consumer-friendly prices.
But it would be naive to think that, while putting on a frowny face, Amazon wasn't perfectly happy to see prices go up, which they take every opportunity to not-so-subtly blame on publishers.
After all, they had only established the earlier lower pricing model to grow that market in the first place.
But it would be naive to think that, while putting on a frowny face, Amazon wasn't perfectly happy to see prices go up, which they take every opportunity to not-so-subtly blame on publishers.
After all, they had only established the earlier lower pricing model to grow that market in the first place.
Actually Amazon may well hate the Agency model. Back in the old wholesale model, the key thing was buying power. The more you bought the bigger the discounts you could demand from the publishers. The bigger your discounts the higher your profits and the lower your prices, so the bigger your share. The bigger your share the more you bought so the bigger your discounts.
Buying power is much less relevant when you're just getting a flat 30% same as everybody else.
Hogwash.
Who are these plaintiffs? If you think the price of digital books is too high, then your recourse is not to buy them. We live in a free market. It's not like ebooks are some critical resource. You're not entitled to them. Plus, you can always get them in a different medium, even a used paperback for a couple bucks.
In a free market, the price something sells for is dictated by the market. Evidentally, based on the explosion of growth, they're priced right. Shouldn't we be happy the publishing industry is doing well in this area? Books are always something worth paying for.
So the idea is that Apple conspired with publishers to increase the price of eBooks in order to remove one of the major benefits of the Kindle (i.e. the high upfront cost is offset by very cheap eBooks) and hence keep Amazon out of the media tablet market.
Sneaky Apple, very sneaky.
Well, when what you refer to as "reasonable market competition" results in higher, not lower, prices to consumers, should consumers be cheering about it?
The point is that what you have characterized in that way, is seen by the suit as encouragement from Apple for publishers to collude in raising prices, by offering that "agency structure" as an alternative to Amazon's original, more consumer-friendly prices.
But it would be naive to think that, while putting on a frowny face, Amazon wasn't perfectly happy to see prices go up, which they take every opportunity to not-so-subtly blame on publishers.
After all, they had only established the earlier lower pricing model to grow that market in the first place.
Nothing is stopping Amazon from selling eBooks for less than they pay the content owners. If it was that advantageous to their business they would be and the only reason they did so to begin with was to corner the market.
Nothing is stopping Amazon from selling eBooks for less than they pay the content owners. If it was that advantageous to their business they would be and the only reason they did so to begin with was to corner the market.
Uh, no... that's the whole point, and the point nearly everyone in this thread is missing in their rush to defend Apple's virtue. The agency model does *not* allow Amazon to to sell eBooks for less than what the publisher sets the price at. With the traditional wholesale model, Amazon can purchase books from the publisher and sell them at whatever price they want. Until Apple came along with the iPad, much was the same with eBooks.
The publishers like the agency model because it keeps prices high and they don't have to negotiate with big sellers like Amazon. Apple likes it because they don't have to compete on price against other stores like Amazon. Why so many of you like it is beyond me, but that can be said about a lot of policies people support that are directly against their own best interest.
That being said, even though I don't like it, I think publishers should be allowed to set the price of their products however they want... it's up to consumers whether they want to pay for it (many will just end up "pirating" it if it's too expensive). Just like the record companies and movie studios, ultimately the publishers just end up shooting themselves in the foot.
Now feel free to carry on with your Apple love fest.
Is their argument that Apple should be setting the prices the way Amazon used to, rather than allowing the publishers to set their own prices?
It's hard to follow their whole thing. It seems like they are arguing that Apple's model raises distribution costs of ebooks and therefore there's no reason for publishers to make them. Or something like that.
Weren't there complaints before that Amazon's price setting was unfair for devaluing books?
From the publishers yes. THey wanted to be able to set the price but Amazon was the only game so Amazon made it a condition that they, not the publishers, picked the pricing. And then Amazon did it very low to make ebooks a kind of loss leader to get folks to the site. ANd to get folks to buy the hardware.
Then along came the ipad etc and they had a choice and Amazon switched to the agency model rather than risk losing publishers when current contracts ended
They should set up price tiers so if the book is between x and y pages, it costs $a.bc.
The trouble with that kind of scheme is that it ignores costs like advances to the author etc. Some novels can sell for more based on the clout of the author, just as in paper some authors got a hardcover and some went straight to paperback.
I suspect that they will not win this suit and things will go on as they have.
The trouble with that kind of scheme is that it ignores costs like advances to the author etc. Some novels can sell for more based on the clout of the author, just as in paper some authors got a hardcover and some went straight to paperback.
To play the devil's advocate...
While it is true that tiered pricing based on size of book wouldn't account for "author clout", that's exactly how it was done in music. Up until a couple of years ago, every song on iTunes was 99¢, no matter if the singer was Rihanna or Rebecca Black.
Even now that there are different prices, you could argue the price is "controlled" since only a few possible values are allowed. "Premium" songs on iTunes don't get to charge more than 30% over the average. But the difference in average novel prices is certainly more than 30%. And while book prices in the last few years have gone from around $9-10 to $12-13, average song prices didn't go from 99¢ to $1.29 over the same period with premium now being $1.59.
I'm not saying I agree there should be fixed book pricing, but I guess I can see where there's at least some befuddlement. Why does Apple insist on fixing song prices, but refuse to fix book prices? What's the difference in their eyes?
Also... Is there any precedent of the Agency Model being considered price fixing? That seems to be the connection people are making. I don't understand how this could be price fixing. Don't you need more then one party involved in setting the price for it to be price fixing?