Apple, publishers 'sued for price fixing' | Hacker News Reader

Apple, publishers 'sued for price fixing'

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53 pointsyariang42 comments

I know I have bought less ebooks since the agency model came into play and a lot of paperback books on Amazon suddenly became three or four dollars less than the Kindle version.

I certainly haven't stopped buying them altogether, but when it was priced at ten bucks or less it was in impulse buy territory.

I don't understand why they aren't selling ebooks for the same price as printed books, minus the production costs. That would be fair.

Discriminating certain distribution channels might be good for profits, but I think it's clearly unethical.

I agree it would be fair. I don't agree that it is unethical. But I think it is counter productive. Attempts to price electronic items higher than the physical ones will only result in those items being pirated. They have not yet learned this lesson because they clearly think that the higher price will lead to more sales of the printed items.

I guess every industry needs to learn this lesson.

On the upside, the more they get addicted to the revenue from the electronic versions, the more strategic it will become, and once it is sufficiently strategic to them-- rather than the experiment I think they see it as now-- they will start having to seriously compete.

This will change the market dramatically, and most effectively.

The alternative- forcing their prices to be lower will only result in them removing availability (e.g. they'll stop publishing ebooks.)

Because they're desperately trying to protect the sales of hardcover books, and, in part, trade paperbacks. They don't want to risk cannibalizing sales.

Consumers look at ebooks like another variation of the same product. Publishers don't. To them, it's an entirely separate entity. To them, the question you're asking could be (very roughly) translated to "I don't understand why concert tickets aren't the same price as a CD. It's the same music."

It's a bit backwards, and the same kind of thinking that made the MPAA consider the VCR a threat to movie theaters and the MLB think that nobody would buy tickets to the ballpark if games were broadcast for free on TV.

But I can understand why they're doing it. An enormous part of their legacy business model is wrapped up in hardcover book sales.

As for production costs, it would only be paper, printing, and distribution. Nobody ever thinks about pre-production costs or employee costs in professional editors, typesetters, and jacket design. That's a lot of dough that they have to lay out that still needs to be paid out whether we're talking ink or bits.

If the book is unencumbered by DRM, then yes, I agree it'd be fair. Otherwise there's a certain hit to the utility of an ebook versus a printed book and the price needs to reflect that.

I can't lend it to a friend (let's face it, Amazon's current "lending" policy is just lip service). I can't print out a page or two of a cookbook so I don't have to spill sauce all over my fancy e-reader or iPad. The DRM nullifies any first sale rights I have, so I can't gift it, donate it, or trade it to the indie used book shop down the street from my house.

I personally thought that Amazon's original pricing at ten bucks a book reflected that pretty well, and allowed me a good tradeoff - I could pay $10 for the DRM restricted version, or $15-$20 for one with full rights. If I want something to read while on an airplane trip and forget about later, I'll buy the ebook. If I want a family heirloom, I'll buy the paper version.

What I've read from publishers is that the actual productions costs aren't that much. The fixed costs are still there, and some additional costs because now you have multiple formats.

See, http://michaelhyatt.com/why-do-ebooks-cost-so-much.html

If you really want to dig deep into how the publishing industry works, how they think, and what the real story is behind ebooks and pricing, check out Mike Shatzkin's blog at http://www.idealog.com/blog/

As much as I like Apple and ebooks, it sickens me that they want to charge more than $10 for best selling ebooks. It is an electronic file. I am willing to pay more than $10 for a physical paper book I can hold in my hand, but I can't see spending more than $2-$3 for an ebook. And so I rarely buy ebooks, even though I want to, because I can't see the economics behind doing so.

If ebooks are going to be just expensive as paper books then I'm going to buy paper books. Apple and the ebook publishers are just shooting themselves in the foot.

Apple would rather charge you $0.99 for every ebook. Just like they'd rather charge only $0.99 for a single, and $0.99 per TV show and $0.99 for a movie rental. Where they have enough pricing power, they are able to achieve this (they held the line on the $0.99 single for a long time.) Where they aren't they aren't.

Unlike Amazon, Apple is not in the business of selling books. Apple is in the business of selling iPads. Apple doesn't dictate prices - they let you set whatever price you want - because Apple realizes that central planning doesn't work. (Apple' can't know what the right price for frankenstein should be, and doesn't even try, while Amazon, as a retailer, does have pricing experts. Apple just want's %30, and for the market to be as robust and vibrant as it can be.)

Amazon would cut prices against the publishers desires, and the publishers would get the lower revenue. Amazon did this to drive up popularity of the kindle. Apple doesn't believe in operating this way, and has a consistent policy- you set the price.

I believe Apple's approach is superior because more people will sign up and there will be more availability of books. (and the iBook Store is probably much large now than the kindle store was at the same number of quarters after launch.)

I don't know much about Amazon's balance sheet, but I do know that, while Apple does make money from iTunes, it is not strategic money. It is money that helps fund data centers, and stuff like that. Apple's not in the media business, it is in the devices business, and it operates a media business only to generate demand for devices. %30 is meant to show a slight profit, not to boost the bottom line.

Alternatively, publishers could just sell their ebooks to everyone at a wholesale cost and then not concern themselves with what the retailer sells it for. In this situation, if Amazon wanted to do deep discounts, that's on them. Isn't this how Amazon works in other areas?

According to this infographic (http://p.printingchoice.com/e-books-vs-real-books/) that wholesale price would be about $10 on average for both paper and ebooks and then the retailers could make decisions after that point.

Let's just take for the sake of argument that this wholesale model is "better" for some definition of better. The question at hand is, what right do you, or I, or anyone have to force- and here I mean, using the threat of violence or imprisonment if one doesn't comply- this model onto Amazon, Apple, or the publishers?

Amazon and Apple own their stores. The publishers own their books. Freedom of association says they have the right to decide what terms to do business with each other. We have a long tradition market pricing in this country, where everyone competes for some mix of market share and profits.

There's no evidence that the 6 publishers and Apple have colluded to set prices, quite the opposite-- in the new model the prices are variable, whereas in the previous model, the prices were fixed by one agency: Amazon.

The real change here is that there is more competition. Before Amazon had essentially a monopoly on ebook sales, and after they have to compete with Apple.

As a result, Amazon may have been able to force prices to be lower by using the publisher's assets as leverage to sell more Kindles at publisher's expense.

But now that there's competition in the ebook store market, do you really think that more competition is going to result in higher prices over time?

Looking at other media sold online, over time the prices have come down (inflation adjusted.)

You might want to fix wholesale prices at $10, but in order to do that, you really would have to engage in price fixing of some sort. That info graphic shows that the cost distribution is different, and that difference is a strong argument for ebooks being cheaper to buy - but not for a specific model of selling them.

In the previous model it is true that prices for eBooks on Kindle were set by one entity: Amazon. However, that did not mean that the prices of eBooks were fixed by Amazon. There are these things known as "other eBookstores" (e.g. Barnes & Noble Nook, Kobo and Sony Reader) that set their own prices for eBooks after paying the wholesale price for the eBook, just like Amazon.

There is clearly less pricing diversity after the agency model than before, where there is a single entity setting eBook prices on a book-by-book basis: the publisher.

and the iBook Store is probably much large now than the kindle store

Maybe it is, but the iBook store is sorely lacking in programming books compared to Amazon (from my experience). I'm guessing there's a lot of other technical books they're missing, too. Perhaps they're targeting the kinds of books "the masses" would purchase.

Also, iBooks is not available outside of iOS.

Those two points are keeping me away from iBooks. (I want to at least read my books on my Macbook Air. Come on, Apple!)

Printing cost of a paper book is only $3-4, so even eliminating the cost of printing, ebooks would still be expensive. I suspect most of the cost of books goes to marketing and promotion, not printing and binding.

http://www.millcitypress.net/book-printing-costs.aspx

also make sure to factor in shipping, which amazon often must bake into the price slightly.

Shipping, handling, etc isn't free, though.

That's the difficulty with books. People fee like they've paid for the physical object in their hands, when really, they've paid for all of the work that went into making that object possible.

Even better (from the perspective of those suing), it appears that Apple and at least one publisher (Simon and Schuster) might be "cheating" on the agency model:

http://theorangeview.net/2011/08/is-simon-and-schuster-cheat...

As the iBookstore seems to be the only bookstore with this kind of special deal, that certainly adds some evidence pointing towards collusion.

As as side project I helped a friend publish a small book on Amazon for the Kindle. At the time we looked into doing the iBooks Store, but it was not yet open to self publishing.

Apple's requirements for pricing were as follows:

1. You could set whatever price you wanted. (e.g.: Apple doesn't fix the price at anything specific) 2. If you sell the book electronically elsewhere, you cannot sell it on iBooks Store for more than the price you sell elsewhere. 3. Apple gives you %70 of the sales.

I don't see how this is price fixing, nor is it trying to keep the prices higher. You can sell on the kindle for the same amount as the iBooks Store.

Amazon's terms: 1. You can set the price as you like. 2. You get a variable cut of the sales (sometimes it is %30 to you, %70 to amazon.) 3. Amazon can change the price if they want and sell your book for less, and pay you less.

So, yes, it is true that Amazon can run specials where they sell your book for $0.99 to drive traffic to the store, and when they do it, they do it at your expense.

I believe the facts don't support an allegation of price fixing.

As to the idea that Apple was "trying to run the kindle out of business", that's an allegation that is true of every instance of competition. If someone prices an android tablet that is competitive with the iPad feature-wise at half the iPad's price, that's "trying to run the iPad out of business" as well. It is what you're doing when you compete for sales, you want all of them to go to you and none to your competitor.

The linked article has nothing to do with self-publishing and everything to do with books from large publishers:

> 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 and extinguished competition so that retailers such as Amazon could no longer offer lower prices for e-books.

Amazon's discount specials also are not relevant to the price-fixing claim.

Self publishing is irrelevant to my point. The terms I mentioned are the terms both companies offered to everybody. Apple offered better terms, and specifically included in those terms that publishers couldn't jack up the prices compared to the price elsewhere.

The only reason Amazon offered "lower prices" in the past is because they ran discount specials. Amazon also allowed publishers to set the price on the books, except when Amazon would run a lower price.

Further, the complaint is to price fixing, and the reality is, both before and after the iBook Store came into being, neither company engaged in price fixing.

I don't follow. The price-fixing claim stems from publishers forcing Amazon to raise their prices by threatening to cut off Amazon's access to their books; it doesn't have to do with competition from the iBook Store. However, it alleges that Apple was complicit in forcing Amazon to raise prices, not through competition, but through threats.

Apple offered a better deal. That may be a competitive threat, but that is competition, not a threat of... violence? criminality? What are you implying?

Amazon was not forced to do anything, they chose to offer the same deal Apple does because they wanted to keep the business.

If Amazon only capitulated to this deal in order to keep the big six on board, why do they offer it to everybody, including small publishers?

https://kdp.amazon.com/self-publishing/help?topicId=A2MLJ06E...

That "%70 royalty" option is comparable to Apple's deal.

Also, why am I arguing with people who are not in a better grasp of the facts than I am, but who are instead repeating un-substantiated speculation and assertion?

I think you owe me some factual citations- namely, how Amazon was "forced" to do anything. Remember, choosing not to do business with someone is simply an expression of freedom of association. This is a recognized right in the USA. My ford dealership might want to sell toyotas, but toyota has the right not to sell me cars, "forcing" me to get them on the secondary market. So, when you say "force" you must mean a legal, or physical, rather than competitive threat, right? Because if it was simply the pressure from a competing deal that was better, well, Amazon voluntarily took that deal, they were not "forced" into it.

Please also show how apple did anything other than offer a better deal.

If you're going to make the allegation, shouldn't you have some evidence to cite?

> If Amazon attempted to sell e-books below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint claims.

http://www.google.com/hostednews/afp/article/ALeqM5hg3Qe5XrI...

Similarly,

> Recently, you may have heard that a small group of UK publishers will require booksellers to adopt an “agency model” for selling e-books. Under this model, publishers set the consumer price for each e-book and require any bookseller to sell at that price. This is unlike the traditional wholesale model that’s been in place for decades, where booksellers set consumer prices.

http://www.teleread.com/paul-biba/amazon-uk-tells-customers-...

This is the price-fixing Amazon is complaining about: "you can't sell our books unless you sell them at our prices." As far as I know, their complaint has nothing to do with royalty percentages or competition with Apple's iBook prices.

(edited for clarity)

"Apple offered a better deal." As was extensively documented at the time, unless you include anti-competitive factors, Apple did not offer the better deal. Amazon paid more money per eBook (and sold the eBooks downstream for less money) before the agency model than after it.

The incentive that Apple offered was helping publishers control downstream prices, which is exactly the price-fixing this case is about.

Self publishing isn't irrelevant to your point. I seriously doubt those terms you quoted from Amazon are the same terms the big six negotiated with them.

As wild speculation, I imagine the terms Amazon and Apple have with the big six are identical and that's where the charge of price collusion comes from: there's only six publishers than really count and no one can sell their eBooks at a lower rate now.

Let me put your "doubt" to rest: https://kdp.amazon.com/self-publishing/help?topicId=A2MLJ06E...

The "%30 royalty" is Amazon's old model, the "%70 Royalty" is the Apple "Agency model".

When Apple announced the model, Amazon moved to offer the same model, and they offered it to everybody.

That we're self publishing is relevant only in the fact that we've actually published a book on Amazon and are relating the current situation, rather than making an argument based on "doubts". The purpose of this press release, by the way, is to sow such fear, uncertainty and doubt, and as you'll notice it has many assertions and little in the way of facts.

The allegations stem from the agency model that was forced on Amazon by the big six publishers when the iPad launched. Previous to that model, Amazon treated eBooks like they did everything else -- they'd buy them at a wholesale price and then sell them at whatever price they wanted. That included, to my understanding, selling them at a loss so they could sell more Kindle hardware.

Under the agency model, the publisher sets the retail price instead of the wholesale price. So Amazon now has to sell it at that price. This is probably different than the deal you got with Amazon since you don't have the leverage that the big six have.

The agency model also includes other stipulations to protect the traditional publishing model. One example is that many eBooks don't launch for several weeks after the hard cover books. My understanding from listening to Robb Wolf and Tim Ferris talk about their recent book launches is this helps the NY Times Best Seller rating in some way.

As a consumer, I use Amazon for their discounted prices. Recently when I wanted a book, I could pay $49.99 at the local B&N or $32.95 at Amazon plus $3.99 for one-day shipping. However, had I wanted to get the same book in digital format, my options were $39.99 at Amazon or $39.99 at Barnes & Noble.

How was the agency model forced on Amazon? Apple offered a better deal, and if I recall correctly, even before the iBooks Store had launched, Amazon changed their terms to offer the same deal. Amazon offered this same deal to everyone, including us. I'm not under a misunderstanding of what the deals are... I think you believed what you read in this press release and took it at face value.

A "model" cannot include "other stipulations". It is simply a broad description of an arrangement. There are many books that are not available for the Kindle or on iBooks, and it has been many years since they were published.

In short, the linked to article is FUD, Amazon chose to meet Apple's terms because they rightly recognized they were more competitive.

I agree, it is stupid that you can buy the physical book for less than the ebook. However, no matter how stupid it is, it isn't price fixing.

Amazon chose to meet the publishers' terms because publishers began to withdraw books from Amazon:

> Macmillan CEO John Sargent had been meeting with Amazon to discuss getting full control over e-book prices, but Amazon refused to budge and all Macmillan's books were temporarily removed from Amazon—including the print versions. Amazon eventually relented and is allowing the books back on site, and is going along with Macmillan's demands for higher e-book prices.

> At issue is Amazon's practice of setting nearly all new e-book releases at $9.99 no matter what it's paying the publisher. This means Amazon may be paying the publisher $14 per title, for example, but is intentionally taking a loss on sales in order to push cheap e-books to Kindle users.

http://arstechnica.com/gadgets/news/2010/02/publishers-conti...

Amazon was paying the publishers the full price they demanded -- the issue was not about publisher profit. Instead, Amazon intentionally took losses to promote ebooks as loss leaders. Publishers threatened to remove their books unless Amazon only sold their books at pre-specified minimum prices.

All of this may be true but none of it puts Apple at fault nor do I think Apple will lose this one.

Indeed; I think the lawsuit intends to prove that Apple collaborated in the publishers on forcing the new prices, but that's an allegation I've never seen evidence for.

One piece of evidence: Steve Jobs's apparent foreknowledge that "The prices [of eBooks] will be the same."

Citation (from Jan 2010, well before Amazon agreed to the agency model): http://kindleworld.blogspot.com/2010/01/steve-jobs-pulls-his...

Macmillan didn't withdraw their books from Amazon. It was Amazon that dropped Macmillan.

Edit, for the [citation needed] crowd:

"We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles." -- http://www.amazon.com/forum/kindle/Tx2MEGQWTNGIMHV/1?_encodi...

Yes, Amazon protested Macmillan's eBook policy changes by the temporary Macmillan boycott. But don't forget what Amazon was protesting: Macmillan was refusing to sell eBooks to Amazon at the higher pre-Apple wholesale price that permitted Amazon to set its own price downstream.

Let me say that again. Macmillan demanded that Amazon pay them less money per eBook so that Macmillan could control the price Amazon charged the end consumer. That sounds obviously anti-competitive to me.

I'm not convinced that "If you sell the book electronically elsewhere, you cannot sell it on iBooks Store for more than the price you sell elsewhere." isn't classified as price fixing. There have certainly been cases in the past where preventing a retailer from discounting a product below a certain point has been classed as price fixing.

Edited - My comment earlier was worded poorly and did not come across as I was hoping.

The price fixing talk did not start with Amazon. It started because when Apple joined the market the publishers where not going to give them the same deal that Amazon had forced on them. So I think Apple wanting to get a piece of the market worked with the publishers and they all set the same pricing. Now it happened so quickly that people think they fixed the price which I agree they did. Instead of each one working with apple to come up with there own pricing.

This whole price fixing thing came about when Amazon had 95% of the market share and was able to dictate the prices, since they where the only ones selling e-books in large amounts. Now that apple is in the market along with other people Amazon share is at about 55% so they have lost that ability to control the market.

I do think Apple and the book companies came together to set a hire price and force Amazon to follow suit or risk not having all the books that Apple would have.

I do not understand why the books have to cost that much. I agree with NathanKP in that they are just files and the cost to the publisher is almost nothing at all. I know they are wanting to make a profit but I think when you charge more then a paper book something is wrong.

Go all e-books with a lot less paper books and call yourself the greenest in the business. I find that a lot of companies are scared of change and I am not sure why. I see change as a great thing that can propel the world in to new and better technology.

It seems counter intuitive, but I think it has to do with the opening up of the ebook market. Several years ago, Amazon offered the only decent ereader in town--the Kindle. Thus, given the limited market, they could dictate price and keep the market price low because there wasn't much demand.

Fast forward several years and each of the major bookstore chains offered their own ebook reader (Nook, Kobo) and tablets started offering ebook experiences--either through Amazon/Barnes and Noble/Kobo apps or the tablet creator's own ebook reader (iBooks). The market explodes in terms of the number of devices people now read on, and publishers start treating ebooks as an accepted way of offering content--with that comes the high costs in terms of marketing, promotion, post-production costs (do they do anything special for ebooks), that kind of thing.

I'm dubious about this analysis. You seem to be saying that prices were low when Amazon had a monopoly and prices have risen as competition entered the market. That's counterintuitive so perhaps I've missed something.

I am saying the prices where lower then they are now. When Amazon had a almost all the market share they were able to bully the publishers to the pricing they wanted. When Apple entered the market publishers stood strong and got together and got Apple to the prices on there ebook store.

Amazon then was forced to raise there prices if they wanted to get the same books that Apple got. So yes as the market has grown and there are more choices the prices have gone up. The publishing industry conspired with each other to get hire prices.

But by all accounts that spat was not about what Amazon was paying the publishers. It was about what price Amazon were allowed to sell those books at to their customers. Those are fundamentally different issues.

I think it's the same idea as what happened with the online music market. Initially, it was a niche market that reached a turning point when Napster hit the scene and started offering music online for free. At that point, publishers started taking action and we saw the rise of digital music stores and the complete marginalization/destruction of the previous market with low prices/easy access.

In other words, Amazon had a niche market that few people competed in. Hence, price ended up being artificially low (same as the online music market in the 90s). Once people realized they could turn it into another distribution channel, competitors exploded and the price of the good adjusted to a more normalized market value.

In economics, a monopoly can go one of two ways. It can either push prices to an extreme high in order to maximize profit, or it can push prices to a low in order to lock competitors out of the market and incentive the purchase of other goods (Kindles in Amazon's case). Once the monopoly broke, the price of the good normalized--which for us means it increased.

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