Most of you have probably heard something about Apple and eBook prices, even if it was just a link or two on Yahoo News. Early last month, U.S. district court found Apple guilty of conspiring with several publishing companies to raise eBook prices. While business scandals are nothing new (a company not acting in the best interests of its customers? The horror!), this one has the potential to affect how we get our books and how much we’re going to have to pay for them, so I’m letting Snowden and Syria fall off my radar for a couple days and picking apart this one for you guys. It’s actually pretty scary how the kind of back-room dealings we usually see in thriller novels actually take place between real companies and have tangible effects on us as consumers and customers.
According to statements made by the court, this whole thing began back in 2008. Amazon had around 90% of eBook sales with the Kindle. They paid publishers a percentage of the retail price for each “book” they sold and were free to set what that retail price would be. They chose to sell some of their books at $9.99, which was below cost (the idea being that cheap bestsellers would encourage more people to buy Kindles and they would turn a profit by selling those). Several of the large U.S. publishers worried that this would lead people to expect all books to be $9.99 --- and start passing over the more expensive hard copies in favor of digital ones (which was probably Amazon’s intent all along).
In December 2009, executives from Apple began meeting with executives from Hachette, Macmillan, HarperCollins, Penguin and Simon and Schuster. Along with Random House (which merged with Penguin in 2013), these five represent the largest book publishers in the world. They agreed to a contract with Apple where books would be sold in Apple’s iBookstore (which, at the time, was under development for its 2010 release with the iPad) using an “agency” method. In this contract, the publishers would set prices and Apple would receive 30% of the profits. They also placed considerable pressure on publishers to price books at $12.99 and $14.99. For more information, have a look at this article.
So Apple was being a little bit of a bully. Nothing new, if you know anything about Apple. But the real kicker was another part of the contract that forbade the publishers from selling books to retailers who would sell them at a lower price. If Amazon wanted their books at all, they had to sell them at the same prices Apple had set up with publishers. This bit was less shrewd business, and more of something we like to call “strong-arming.” And it was also illegal. But it worked: Apple’s share of the eBook market went up, Amazon’s share went down (it’s sitting at around 60 percent today), and eBook prices jumped.
Fast forward two years to 2012. The U.S. Department of Justice filed a suit against all five publishers and Apple, claiming that this new contract violated antitrust law. In short, they accused Apple of trying to monopolize eBook sales and all of them of unfairly stifling competition (which they definitely were). All five publishers agreed to settle outside of court, paid a lot of money and went back to the wholesale method that allowed Amazon (and any other retailer) to set the prices for books however they wanted. Apple refused to settle and, in early July 2013, the court ruled against them.
So now what? Well, on August 2nd the Department of Justice released its proposed remedies, which say Apple has to cancel its contracts with publishers and ban it from making new ones for five years if those contracts prevent competition over price. Also, Apple has to allow other eBook retailers to put links from their eBook apps to their online bookstores. These were not allowed before, so you couldn’t buy eBooks from Amazon or Barnes and Noble on your iPad (you could download books you’d already purchased, but couldn’t buy them directly). Finally, the court proposed having a person as an external monitor, to watch over Apple’s business practices and make sure they followed these guidelines. Apple has said these measures are too harsh and that it hasn’t done anything wrong and will appeal the court’s decision (again, pretty par for the course for how Apple does business).
What difference does this make for us? Prices for Kindle books are already down, with barely any above $11.99. This whole thing actually had a legitimate impact on prices, if you go back and look at the Kindle Store over the last couple years. If the court chooses to apply the remedies they laid out, then we also get direct links to other eBookstores on Apple products. Long term, this could lead to Amazon taking back a greater share of the eBook market --- and probably even lower prices for us. As great as cheaper books are, this still doesn’t address the core issue about how eBooks are sold. We are still in the middle of a power struggle between publishers and retailers, and I predict there will be more attempts (whether legal or illegal) on both sides to gain greater control over the eBook market.
