This is a bit arcane, but the simplistic version goes like this: prior to the ebook explosion, books were sold on the wholesale model. The publisher set a recommended price, the vendor paid half that price and was then free to price the book however they wanted.Apple has been found guilty of conspiring with book publishers to raise ebook prices, in one of the biggest anti-trust lawsuits ever brought by US federal authorities.
US district judge Denise Cote ruled on Wednesday that the company played a "central role" in a conspiracy with the biggest book publishers in the US to fix prices in violation of antitrust law.
Executives from the companies would meet in the private dining rooms of upscale New York restaurants to bemoan the low prices charged by the ebooks market leader Amazon, and what they could do about it, Cote said in her ruling.
Cote ruled that that damages would be determined at a new hearing. Apple continued to deny on Wednesday that it had done anything wrong, and said it planned an appeal.
The ruling was not unexpected, as Cote had earlier suggested that Apple's defense would fail, and the publishers – Hachette Book Group Inc, Macmillan, HarperCollins Publishers LLC, Penguin Group and Simon & Schuster – settled with the Department of Justice ahead of the trial. With Random House, these six firms are the largest publishers of trade books in the United States.
"The plaintiffs have shown that the publisher defendants conspired with each other to eliminate retail price competition in order to raise e-book prices, and that Apple played a central role in facilitating and executing that conspiracy," Cote said in the decision (pdf). "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010."
The US Department of Justice said the conspiracy was created to challenge Amazon's dominance in the ebook market. The publishers and Apple sought to raise e-book prices above the $9.99 price tag favored by Amazon.
According to the court, Apple and the publishers began meeting in mid-December 2009 to discuss "their abhorrence of Amazon's pricing". Apple suggested raising prices to $12.99 and $14.99.
During these talks, Apple said it wanted to announce the iBookstore at the 27 January 2010 launch of the iPad, but would only do so if it was assured the company could make a profit.
"With a full appreciation of each other's interests, Apple and the publisher defendants agreed to work together to eliminate retail price competition in the e-book market and raise the price of e-books above $9.99," said Cote.
As early as 2008, executives at MacMillan and Hachette discussed ways to get Amazon to increase ebook prices. All of the publishers expressed frustration in 2009 and began campaigning for prices to be raised in newspapers and in private dinner meetings.
"On a fairly regular basis, roughly once a quarter, the CEOs of the publishers held dinners in the private dining rooms of New York restaurants, without counsel or assistants present, in order to discuss the common challenges they faced, including most prominently Amazon's pricing policies," said Cote.
The judge's ruling highlighted the influence in the policy of Steve Jobs, Apple's founder, who was ill at the time it was discussed. She quoted Eddy Cue, senior vice-president of internet software and services at Apple, who had a significant role in creating the iBookstore, saying he had ad personal motivations for pushing negotiations with publishers.
"Cue knew that Jobs was seriously ill and that this would be one of his last opportunities to bring to life one of Jobs's visions and to demonstrate his devotion to the man who had given him the opportunity to help transform American culture," said Cote.
The antitrust suit was filed against Apple by the Department of Justice, 33 US states and territories in April 2012.
In a statement after the ruling, Apple said:
Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations. When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong and we will appeal the judge's decision.
Amazon changed the picture drastically with the introduction of the Kindle. In order to promote sales of Kindle, Amazon sold new ebooks at 9.99, which was below the wholesale price they were paying for the books. The publishers were still receiving full wholesale price, but Amazon was essentially throttling other vendors and cutting into hardcover sales.
(Protip: hardcovers are a fuck you to the consumer. They are priced at somewhere around three times as much as the mass market paperback while not costing nearly three times as much to produce. They're a sucker game to soak money from consumers who are hooked on a series and can't wait for the delayed mass market paperback release.)
Apple, looking to get into the market, set up to switch to the agency model with the publishers. This model (which is also the model that indie authors work under) allow the publisher to set the final price, while the distributor takes a percentage of revenue instead. With the Big Six acting in collusion, Amazon was forced to accept the shift to the agency model, which allowed publishers to raise ebook prices across the board.
At the end of the day this is not going to have very much positive outcome for the consumer. Some folks will probably receive credits from the distributors they use, but as the new price point has been set nobody's going to do anything silly like lower prices. As the market has proven that it can bear the costs of the increased pricing (bear witness to the gargantuan profits the Big Six have been recording recently, driven in part by the new JIT distribution that's slashed the loss on returns that used to plague the industry, which is another topic in and of itself) we're going to keep overpaying for our literary product.
However, Apple may lose some petty cash and Amazon wins one in the Corporate Court. So if you root for a team, there is that.
