Apple: we broke "Amazon's monopolistic grip" on e-book industry

[plib]

ArsTechnica article here.

Apple has now publicly responded to accusations that it colluded with publishers to fix e-book prices. In a statement released late Thursday, the company says the launch of its iBookstore in 2010—along with the original iPad—not only brought competition to the market, it also broke "Amazon’s monopolistic grip on the publishing industry."

"The [Department of Justice]'s accusation of collusion against Apple is simply not true," Apple told several news outlets. "The launch of the iBookstore in 2010 fostered innovation and competition, breaking Amazon’s monopolistic grip on the publishing industry. Since then customers have benefited from eBooks that are more interactive and engaging. Just as we’ve allowed developers to set prices on the App Store, publishers set prices on the iBookstore."

One interesting item that comes up in the comments is that apparently the DOJ filing specifies that Amazon's book division has been profitable since Day 1. So there goes the argument about subsidizing book discounts from its other divisions by the look of it.

It has obviously hit a nerve. 361 comments and counting so far. Some of them are worth a read too, for fun value if nothing else. e.g.

wb wrote:
NONE of the ebooks I own are more interactive or engaging than their paper counterparts[...]

You're holding them wrong.

[JoHunt]

LOL at Apple's way of fostering competition by making sure that no one sells an ebook for a lower price than it does.

Publishers could have just set higher prices for the "more interactive and engaging" books if this if what it was all about

[TimW]

I had to dig out my Newspeak dictionary to help decipher it:

Today, we celebrate the first glorious anniversary of the Information Purification Directives. We have created, for the first time in all history, a garden of pure ideology – where each worker may bloom, secure from the pests purveying contradictory truths. Our Unification of Thoughts is more powerful a weapon than any fleet or army on earth. We are one people, with one will, one resolve, one cause. Our enemies shall talk themselves to death, and we will bury them with their own confusion. We shall prevail!

Sounds familiar...can't quite place it.

[rhadin]

Originally Posted by plib

One interesting item that comes up in the comments is that apparently the DOJ filing specifies that Amazon's book division has been profitable since Day 1. So there goes the argument about subsidizing book discounts from its other divisions by the look of it.

How could the DOJ know this? Amazon doesn't release figures and is not a party to the lawsuit. Even investors in the company don't know this information. I think it is a case of the DOJ simply pulling something out of its rear end.

[DiapDealer]

"We did nothing wrong. We just got together with a few friends and came up with a plan to level the playing field. I mean... since we couldn't initially see any profit in ebooks, what other choice did we have in order to get a piece of the action after we saw how mistaken we were? And in closing..... 'more interactive and engaging'."

[plib]

Originally Posted by rhadin

How could the DOJ know this? Amazon doesn't release figures and is not a party to the lawsuit. Even investors in the company don't know this information. I think it is a case of the DOJ simply pulling something out of its rear end.

I have no idea, maybe it is pulling it out of its rear end. However as they quote emails that the company investors also don't see I'm prepared to believe they have some grounds for items they include in a submission to a court of law until someone provides evidence to the contrary.

There's quite a lot of information the DOJ can obtain that won't be available to an investor. Investor/broker teleconferences and Form 10-K's can provide some useful information, but 90% of the iceberg is still below the surface.

Edit: Quote from the actual DOJ complaint.

30. When Amazon launched its Kindle device, it offered newly released and
bestselling e-books to consumers for $9.99. At that time, Publisher Defendants routinely
wholesaled those e-books for about that same price, which typically was less than the wholesale price of the hardcover versions of the same titles, reflecting publisher cost savings associated with the electronic format. From the time of its launch, Amazon's e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.

Note that the DOJ specify the "e-book distribution business", so they're not even cross-subsidizing from the physical book distribution business.

[TimW]

Originally Posted by plib

I have no idea, maybe it is pulling it out of its rear end. However as they quote emails that the company investors also don't see I'm prepared to believe they have some grounds for items they include in a submission to a court of law until someone provides evidence to the contrary.

There's quite a lot of information the DOJ can obtain that won't be available to an investor.

Edit: Quote from the actual DOJ complaint.

"At that time, Publisher Defendants routinely wholesaled those e-books for about that same price[$9.99], which typically was less than the wholesale price of the hardcover versions of the same titles.."

So $9.99 was actually at cost for the NYT and new releases? Not at a loss? No "predatory pricing" at all? Very interesting...

[plib]

Originally Posted by TimW

"At that time, Publisher Defendants routinely wholesaled those e-books for about that same price[$9.99], which typically was less than the wholesale price of the hardcover versions of the same titles.."

So $9.99 was actually at cost for the NYT and new releases? Not at a loss? No "predatory pricing" at all? Very interesting...

What's also interesting is the reason - "reflecting publisher cost savings associated with the electronic format."

Tell me again how there's no great saving on e-books v. pbooks?

[plib]

I should have read this complaint before, it's better than a John Grisham!

53. The executive in charge of Apple's inchoate e-books business, Eddy Cue, telephoned each Publisher Defendant and Random House on or around December 8,2009 to schedule exploratory meetings in New York City on December 15 and December 16. Hachette and HarperCollins took the lead in working with Apple to capitalize on this golden opportunity for the Publisher Defendants to achieve their goal of raising and stabilizing retail e-book prices above $9.99 by collectively imposing the agency model on the industry.
54. It appears that Hachette and HarperCollins communicated with each other about moving to an agency model during the briefwindow between Mr. Cue's first telephone calls to the Publisher Defendants and his visit to meet with their CEOs. On the morning of December 10, 2009, a HarperCollins executive added to his calendar an appointment to call a Hachette
executive at 10:50 AM. At 11:01 AM, the Hachette executive returned the phone call, and the two spoke for six minutes. Then, less than a week later in New York, both Hachette and HarperCollins executives told Mr. Cue in their initial meetings with him that they wanted to sell e-books under an agency model, a dramatic departure from the way books had been sold for over a century.
55. The other Publisher Defendants also made clear to Apple that they "certainly" did not want to continue "the existing way that they were doing business," i.e., with Amazon promoting their most popular e-books for $9.99 under a wholesale model.
56. Apple saw a way to turn the agency scheme into a highly profitable model for itself. Apple determined to give the Publisher Defendants what they wanted while shielding itself from retail price competition and realizing margins far in excess of what e-book retailers then averaged on each newly released or bestselling e-book sold. Apple realized that, as a result of the scheme, "the customer" would "pay[] a little more."

I think that pretty much nails the concept that the DOJ can get a bit more detailed information than your average investor. And probably nails Apple too.

[Apache]

Originally Posted by rhadin

How could the DOJ know this? Amazon doesn't release figures and is not a party to the lawsuit. Even investors in the company don't know this information. I think it is a case of the DOJ simply pulling something out of its rear end.

Amazon has to file their taxes just like everyone else.
Apache

[Barcey]

It's ironic that Amazon basically copied the iPod model play by play and now Apple critisizes their monopoly. I'm sure this isn't lost on anyone and Apple's official statement is just laughed off.

[curtw]

Originally Posted by Barcey

It's ironic that Amazon basically copied the iPod model play by play and now Apple critisizes their monopoly. I'm sure this isn't lost on anyone and Apple's official statement is just laughed off.

That is absolutely false. Apple did not sell digital music at a loss, hoping to "outlast" the competition. They offered music at a fair price, with a published profit margin. What the market decided was that this was a fair price and a superior user experience, and people flocked to it.

Amazon's $9.99 price was *only* designed to eliminate the competition, no matter how much you feel it benefited you, the customer. In the long run, if Amazon had been able to establish a monopoly in e-books, how much do you think books would cost?

[DiapDealer]

Originally Posted by curtw

Apple did not sell digital music at a loss, hoping to "outlast" the competition.

And apparently, if you believe the DOJ complaint, Amazon didn't sell digital books for a loss, either. The relevant bit from the official complaint is just a few posts up.

30. When Amazon launched its Kindle device, it offered newly released and
bestselling e-books to consumers for $9.99. At that time, Publisher Defendants routinely
wholesaled those e-books for about that same price, which typically was less than the wholesale price of the hardcover versions of the same titles, reflecting publisher cost savings associated with the electronic format. From the time of its launch, Amazon's e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.

[NightGeometry]

Hmm, it seems that according to the US DoJ Amazon weren't making a loss on ebooks during their 9.99 period.

If Amazon established a monopoly I think they would not really care whether book prices were higher or lower than they are now - I suspect they'd work to optimise sales at whatever price level they, as a retailer, calculated they'd make most money. They'd presumably also attempt to force wholesale rates down, but publishers could at any time start selling books themselves. In this brave new world they could do that.

The lesson publishers should learn from Apple is - remove DRM and don't let yourself be locked into one retailer. Instead they went bonkers.

[Giggleton]

Discounts? Price Fixing? Wholesale? We care not for these things. The creator should be able to set their own price, from now until the end of time.