# DOJ sues Apple, Publishers over eBook prices



## Steerpike (Apr 11, 2012)

Allegations are that the companies conspired to keep the prices and high and reduce competition. It certainly will be interesting to watch this, especially if the case doesn't settle:

DoJ sues Apple, publishers in e-book price fixing antitrust suit | ZDNet


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## Telcontar (Apr 11, 2012)

Yep, already read various sides of the conversation. My own thought is that we must simply wait and see what comes of it. I'm rather glad that I decided to go independent for awhile... while this will certainly affect the entire industry in time, I don't anticipate immediate disruptions to my tiny corner of it.


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## Rikilamaro (Apr 12, 2012)

I've seen headlines for this for the last week or so, but not really spent the time to read into it. While I understand the desire to make money, I do not understand why an e-book should cost more than an actual paper book. There's no paper, no binding, no ink, no shipping, etc. Yes there are the newly developed readers and improvements to them that took money to research and create, but that should be included in the price of the e-reader in my opinion. If I can buy a paper copy of The Girl With the Dragon Tattoo at my local used bookstore for $4.00, why would I spend over $100.00 to own an e-reader, plus pay $10.00 for the book? Or better yet, I can always get it at the *gasp* library. (You know, that place that lets you borrow books for FREE) Please, someone, explain this to me. Do e-readers come with scratch and sniff pages? Am I really missing out not being able to carry around my entire library everywhere I go?


Unrelated comment: I did find it humorous when the author referred to apple as the maker of shiny rectangles in his previous article on April 4th.


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## Leif GS Notae (Apr 12, 2012)

I am going with this thought: Will this act spur people to read more? 

Answer: No.

While it's great to have prices go down and allow people who might be on the fence to buy books, they still fall far behind other forms of entertainment today. Would you rather buy a book that you might take a month to read TELLING you what you want to know or spend it on a movie that might SHOW you the same thing in two hours? What about cutting out 6 books to buy a video game and have you reach that submersion level a book or movie can never reach?

In the end, book reading (unless non-fiction) will be lower on the market level. Yes, in the long rung, fiction is evergreen. But for now, it isn't even going to hold someone's interest when sacrificing something else.


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## Devor (Apr 12, 2012)

Collusion isn't easy to prove, and collusion-like practices are easy to slip into without actually breaking the law.  Proof would be strong levels of clear communications, while they could just be picking up on market signals and wanting to avoid a price war.

I suspect the DOJ is just hoping they'll give some concessions in a settlement, but I haven't followed it closely.


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## Benjamin Clayborne (Apr 12, 2012)

Rikilamaro said:


> I've seen headlines for this for the last week or so, but not really spent the time to read into it. While I understand the desire to make money, I do not understand why an e-book should cost more than an actual paper book. There's no paper, no binding, no ink, no shipping, etc.



Production costs have nothing to do with it. In general, ebooks should cost exactly what the market will bear. If consumers are willing to pay more for an ebook than for a physical book, then there is no problem (from any perspective) in charging more for it. The problem is if the ebooks cost more than they should because ebook producers are colluding to raise the price instead of competing like they're supposed to.

In general, lower production cost translates to lower sticker price, but it doesn't have to.


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## Steerpike (Apr 12, 2012)

I think the price of paper, ink, binding, etc. are pretty small for high-volume publishers. It is a small portion of the cost of producing a book for them. 

As for the collusion suit, my understanding is that the Feds already have a fair amount of information (testimony, emails, etc.) to show there were meetings and agreements to set these prices. It will be an interesting case. They'll have an easier time with it than the Zimmerman prosecutors (to use another case in the news).


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## Telcontar (Apr 13, 2012)

The gist of what I'm reading on various blogs and opinion pieces is that the case against the actual publishers is strong, while the case against Apple is fairly weak and not likely to result in a conviction. Penguin, especially, seems to be in the DoJ's gunsights. Level of expertise and knowledge no doubt varies between these articles, but a consensus exists so I feel I can trust it.

One blogger (Nathan Bransford) made the point that whatever happens in this article, the eBook publishing market is going to get a lot  more turbulent in the near future. I just hope that indie authors don't lose the ability to set their own price on Amazon and the like. I'm not sure that's likely, but I do think the risk exists.


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## Steerpike (Apr 13, 2012)

Telcontar said:


> The gist of what I'm reading on various blogs and opinion pieces is that the case against the actual publishers is strong, while the case against Apple is fairly weak and not likely to result in a conviction. Penguin, especially, seems to be in the DoJ's gunsights. Level of expertise and knowledge no doubt varies between these articles, but a consensus exists so I feel I can trust it.



The case is stronger against the publishers, that's for sure. Apple, however, will likely be impacted by the resolution of the case. The other thing Apple has to worry about (if in fact they were involved) is publishers providing the DOJ with additional evidence against Apple in order to settle the case.


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## Telcontar (Apr 13, 2012)

They've already gone through the settlement process, though. Several other publishers did decide to settle, though the three named decided they had a better chance in court. I think if they'd had any more ammunition (in the form of evidence against Apple) to get a better deal out of the DoJ they would have used it already.


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## Steerpike (Apr 13, 2012)

Telcontar said:


> They've already gone through the settlement process, though. Several other publishers did decide to settle, though the three named decided they had a better chance in court. I think if they'd had any more ammunition (in the form of evidence against Apple) to get a better deal out of the DoJ they would have used it already.



Not necessarily. There's no reason to show all your card unless you have to. You go to court and if the government isn't making its case, then you're in good shape. If they do start making their case, ideally you want to have some negotiating power left to enter into settlements. Settlement talks can continue right up through a final disposition of the case.


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## Telcontar (Apr 13, 2012)

Steerpike said:


> Not necessarily. There's no reason to show all your card unless you have to. You go to court and if the government isn't making its case, then you're in good shape. If they do start making their case, ideally you want to have some negotiating power left to enter into settlements. Settlement talks can continue right up through a final disposition of the case.



No doubt possible, but given the extra costs associated with being the target of such major litigation I'd have expected them to fight for a settlement they could accept in that earlier segment. Then again, I'm not very well versed with lawsuit strategy.


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## Steerpike (Apr 13, 2012)

Telcontar said:


> No doubt possible, but given the extra costs associated with being the target of such major litigation I'd have expected them to fight for a settlement they could accept in that earlier segment. Then again, I'm not very well versed with lawsuit strategy.



Yeah, the expense is certainly a factor. But it may be they don't believe the government's case is strong, and if the business model is important it might be worth fighting if you think you can win. 

Still, it will be interesting to see what happens.


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## Devor (Apr 13, 2012)

I really haven't followed closely, but if the DOJ had evidence against Apple, I would expect them to play it safe and keep it close to the cuff (or at least try to).  But I'd also expect Apple to be the one to keep its hands clean, if only because they have so much more at stake.


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## Fnord (Apr 23, 2012)

It's important to look at the bigger economic picture in this case.  Amazon was doing what was tantamount to predatory pricing: they were trying to hold prices down as low as possible (even if at a loss) in order to drive out market participation and competition.  Apple responded in kind by using an agency model form of pricing, where they simply allow the publisher to charge any price they want through iTunes and Apple just takes a 30% cut off the top.  The only kicker was that the publisher couldn't charge a lower price through any other medium than they charged on iTunes (as an interesting aside, this is exactly the pricing model set up by the government to healthcare providers when Medicare was first introduced--doctors who used to charge prices based on ability to pay suddenly had a price floor, which did bad things to the price of healthcare overall).  

Personally, I think the DOJ shouldn't have intervened at all because in all honesty they're just picking winners and losers here outside of the desires set by demand in the market.  Apple wasn't setting prices; they gave publishers a choice.  The only choice they were barred from having was that to engage in price discrimination which, to me, seems fair.  Amazon, on the other hand, charged one price regardless of what the publisher wanted.  

But here's the kicker for those who worry about making money from publishing: if Amazon uses predatory pricing to drive out competition and essentially becomes a market monopsonist (that is being a single buyer among many sellers), then they can put pressure on publishing companies to drop the prices that the publishers sell their products to Amazon.  The $9.99 price becomes the new standard (or being the e-book monopolist, Amazon then raises the price--though this is less likely), but the publishers get squeezed out of their profits.  That means less capital for publishers to invest in new authors or new books and that means a lot of potentially good products don't get brought to market.  

Of course, that all depends on your thoughts about the necessity of big publishers (or any publishers) in general.  But it's economic food for thought.


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## Christopher Wright (Apr 24, 2012)

I'm really not happy with this action.

The agency model in and of itself isn't a bad thing -- essentially it says "the publisher gets to charge whatever he/she wants." Since I am self publishing my first novel (not a fantasy, so not relevant to this board) I, as the publisher, *should* be able to make that decision. I'm selling it for $3.50 as an eBook, which seems wholly reasonable to me. If people decide they don't want to pay for it, then I lose -- those the market forces.

The problem with Amazon's preferred pricing model is that they want to decide how much I  *actually* charge for it, much like Wal-Mart does with its suppliers (they negotiate really, really tough terms with their suppliers, to the extent that some manufacturers don't sell their things at Wal-Mart because they can't afford to -- the price margins are too slim).

The traditional publishers aren't pricing their books too high because of the Agency model -- they're pricing their books too high because they're not adjusting to the market very well. The Agency model makes it easier for them to do that, but even pre-agency they were fighting Amazon's attempts to price for them. The Agency model does help guys like me, somewhat, because it means if I say $3.50, then by God it'll be $3.50.

(Right now, Kobo is selling it for $0.99 for some damn reason, so Amazon has lowered the list price to $0.99 in response. Very vexing. As far as I can tell, $0.99 doesn't have the magic influence it once had -- I priced it there for a month and it didn't affect sales at all -- so I might as well be profiting more from each individual sale.)

Amazon is the best place for a self-published author to be right now, but that's sort of a problem. It is so much better than everywhere else primarily because it's trying to own the market. Once it does I see the market changing drastically, and not as happily in our favor.


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## Steerpike (Apr 24, 2012)

I don't necessarily agree with the above, at least insofar as my understanding of the issue goes. Amazon allows you to set your price as the publisher. They can discount your item, but your royalties are still based on your set price (with the possible exception of when they are price-matching against what you are selling for elsewhere). That's no different than a traditional retail store. They buy books from a publisher and can turn around and sell them at whatever price they like. The burden of any discount falls to Amazon.

Amazon doesn't decide how much you actually charge. They decide how much THEY charge. You decide how much you charge. This is no different from the traditional retail model. If they're just matching a price you are selling at elsewhere, that's a different story.

Apple's model, it seems to me, gives less control to both publishers and booksellers. This shouldn't surprise anyone familiar with Apple's practices.

Even if you characterize Amazon's practices as predatory, it doesn't change Apple's bad practices. I think it is better to provide more freedom to act on both sides of the equation - letting publisher's decide at what price they are willing to sell, and if they go through "retailers" like Amazon, allowing the retailers to decide at what price they sell to consumers (so long as the publisher is getting royalty on the price she sets).


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## Christopher Wright (Apr 24, 2012)

That's not my experience, Steerpike. When Amazon lowers my price the amount of money I get is based on how much they sell it for. If my original price is high enough to clear the 70% mark, I still get %70 (instead of %35) but it's based on the actual sale price.

It's only if you price at the %35 mark that your earnings are based on the original price, regardless of their sale price. So the situation you outline above only holds true for eBooks priced from $0.99-$3.49.


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## Steerpike (Apr 24, 2012)

I'll check my terms and services. The way you presented it is supposed to be what happens if they price match. In other words, if you are selling through Kobo cheaper, they match it and then your royalty is determined by the lower price. If Amazon decides on its own to discount the price, your royalty should be based on the price you set.

Except for the price matching, that's how standard retail book sales work. Publishers sell a book to a bookstore, like Barnes and Noble. Say the publisher gets $4, for example. B&N usually sells it at the list price, $7.99 or whatever. But they don't have to. They can sell it for five bucks if they want. They publisher still got their $4. 

If you are getting a lower royalty from Amazon than what would come off the price you set, it is probably because they're matching a price you are selling the book for elsewhere. But I haven't looked at the terms and conditions in quite a while, so I can check and see if that has changed.


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## Fnord (Apr 24, 2012)

It's probably also important to point out (though I have less experience with this in regards to publishing specifically), that if you as an independent publisher sell something to Amazon for $3 an "e-copy" and Amazon sells it at the same price as big publisher books, it could lower your revenue because you sell fewer of them.  Say, given that you lack reputation as a bigger author, people only will buy 100 of your books at $9.99, but if Amazon offered it $6.99 and you sold 500 at this lower price, your revenue is actually higher.  But if you don't get a say in the price, then it can be shooting you in the foot.  

Demand for books across all authors and publishers is not the same, so they shouldn't be priced the same.


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## Steerpike (Apr 24, 2012)

Fnord said:


> It's probably also important to point out (though I have less experience with this in regards to publishing specifically), that if you as an independent publisher sell something to Amazon for $3 an "e-copy" and Amazon sells it at the same price as big publisher books, it could lower your revenue because you sell fewer of them.  Say, given that you lack reputation as a bigger author, people only will buy 100 of your books at $9.99, but if Amazon offered it $6.99 and you sold 500 at this lower price, your revenue is actually higher.  But if you don't get a say in the price, then it can be shooting you in the foot.
> 
> Demand for books across all authors and publishers is not the same, so they shouldn't be priced the same.



That makes sense. I don't know that Amazon raises the price above the list price, but they may have the power to do so.

With respect to their royalty payments, they must at some point base it on the publisher's set price and not the discounted price, because that is sort of what started a lot of this in terms of Apple's agency model. Amazon was selling eBooks at a loss. If they based their royalty on the discounted price, they could never take a loss. So they must have been basing the royalty on the publisher's set price, and then discounting their sale price even below that, taking a loss to try to attract people to their platform. This sort of thing can be illegal (but isn't necessarily illegal).

I'd look at Amazon and Apple's policies separately, even though what one does influences the other. In other words, if Amazon was engaged in anti-competitive predatory pricing, that is an issue that may need to be address. It doesn't excuse Apple and the other publishers conspiring to keep prices higher, if in fact they did so.

It is an interesting saga.


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