In one of my earlier posts, I discussed the Kindle, e-readers, and the meteoric rise in e-book sales since these platforms were introduced some years ago. A few readers commented on this post that, in relation to their printed counterparts, the price of some e-books is entirely too high, especially considering the minimal cost of production and distribution.
The US Department of Justice happens to agree.
It has accused Apple Inc. (Nasdaq: AAPL) of engaging in clandestine operations to increase profit margins. As difficult as it may be to imagine that Apple would use illicit means to establish market superiority, it appears that the corporation did just that en route to the launch of the first-generation iPad in 2010.
Before the launch of the iPad and the iBookstore, e-books were bought wholesale and priced by the retailer. Amazon.com Inc. (Nasdaq: AMZN) routinely sold e-books for a loss to garner marketshare. Steve Jobs apparently found that publishers were more than willing to get away from this model, and he established a deal to allow the sale of e-books at "agency pricing," with Apple receiving a 30% commission on sales.
Defenders of Apple, particularly its lawyers, claim that this was a strategic move executed to gain marketshare without engaging in the same tactics as Amazon and other e-book purveyors. That would be fine, because there is nothing inherently illegal in such a deal.
However, what caught the DOJ's attention was a "favored nation" clause in the contract. The clause disallowed rival e-book retailers from selling titles for less than they would be sold in the iBookstore. This forced publishers to switch all e-book retailers over to the "agency model" established in the deal with Apple, and it precipitated an increase in e-book prices.
In December, the European Commission said it suspected Apple of engaging in restrictive business practices and price fixing in the European market. That case has yet to be resolved.
Apple and the five publishing firms have reportedly entered talks with the DOJ to avoid a threatened antitrust lawsuit. Should the agency model be deemed a trust, e-book prices are expected to decline as retailers and publishers are forced to restructure deals.
In a letter to the Senate Committee on Antitrust, Competition Policy and Consumer Protection the Consumer Federation of America charged that the e-book price-fixing arrangement, entered into by five major book publishers and Apple, is an anticompetitive practice that violates antitrust laws and will cost consumers over $200 million this year. It called on the Committee to look into the issue and support vigorous steps by the Department of Justice to eliminate the practice.
The letter rejects the claims by publishers and celebrity authors that new books and unknown authors can only be discovered by browsing the shelves of book stores and that setting high prices for e-books, to subsidize physical book distribution, is the only way to ensure there will be enough physical space shelves. The letter points out that in the digital age there is a much more efficient way for browsers to examine many more books and authors. They can use Internet browsers to search in cyberspace, where they can find not only all the works available from publishers, but hundreds of thousands of authors who have chosen to cut out the publishers as middlemen and sell directly to the public.
Yes, that's what they're supposed to do (and boy are they good at that), but that's not what my problem with them is. My problem is that they've positioned themselves as a company that offer these sleek, "life altering" products but, as a company, they run themselves like any other sleazy corporation. Remember the whole iPhone4 debacle when they denied there were any issues with the phones? And then (while still denying there was an issue), telling people that they're holding their phones wrong? haha
@Dex & @Value Hiker, I agree with both of you. The reason I am such an opponent of Apple is because they behave as a cutthroat corporate entity but have this public persona of "giving you things that make you enjoy the beauty of life".
I'm not naive enough to think that Apple is the only company that does anything along these lines, but that doesn't make it any less disgusting to witness.
"Apple and the five publishing firms have reportedly entered talks with the DOJ to avoid a threatened antitrust lawsuit. Should the agency model be deemed a trust, e-book prices are expected to decline as retailers and publishers are forced to restructure deals."
Great article as usual, Joey.
I pulled the above quote because it got me thinking about actions and consequences as they pertain to businesses. Let's say the agency model is deemed a trust and apple has to make some kind of reparations...I don't think that would affect Apple in the slightest. They still positioned themselves in the eyes of the public as "the place to go for cheap eBooks". This foothold on an emerging industry isn't something the DOJ can just wave a wand and watch disappear.
Maybe the reason publishing houses want to deal with these pricing issues is because they all saw what happened to the music industry when digital distribution essentially robbed the record labels of their power and control.
And that's why they do it, right? It's a calculated gamble. Maybe they'll get caught. Maybe they won't. But even if they do get caught, they can easily take the hit. No pain, no gain.
I say WHY NOT... The government seems to 'look into' all companies that get this size for one reason or another. They might as well follow suit and make it someone other than Google so it does not seem to get too lopsided.
Price fixing or not, people love these tablets. Tablet shipments grew so strongly in the fourth quarter for both the iPad and the Kindle Fire that research firm IDC has upped its 2012 sales estimates, predicting 18 million more unit sales than it had earlier projected. Globally, fourth-quarter shipments soared more than 50% from the previous period. Apple held a 55% share of the market, compared with 16.8% for Amazon. (Source: CNET/Nanotech blog)
They prob dont even need to write a check, they could just pay out of pocket cash. If it were a smaller company something like this could crush them, but to Apple they wont even notice it, the punishment should be scalled so its felt.
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