Apple responds to DOJ, claims they fight for innovation and competition in the face of Amazon's ebook monopoly

Apple responds to DOJ, Amazon over charges of iBooks price-fixing

Apple has officially responded to Department of Justice (DOJ) charges, which alleges Apple conspired with publishers to force an agency pricing model that ultimately makes e-books more expensive for consumers. AllThingsD quotes Apple spokesman Tom Neumayr:

The DOJ’s accusation of collusion against Apple is simply not true. 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.

So Apple is basically playing the Tron card, claiming they fight for the user against the Amazon MCP. Interesting, but will it prove effective? It's not the agency model itself which is in question, it's the charge that publishers secretly met and colluded to fix the pricing under the agency model. If the idea had just happened to simultaneously and independently occur to them, the DOJ might not have a case. Either way, it will be tougher to make a case against Apple, who absolutely benefits from the 30% cut and most favored nation (MFN) clauses in their agency model, and may have encouraged it, but who may not have been in on the same meeting at the same time decisions were made. That remains to be seen -- or proven.

On the other side, Amazon benefits from the dissolution of the agency model because they can go back to leveraging their (now pseudo-, thanks to Apple) monopoly position to drive down costs and force competitors out of the market.

Absent DOJ intervention, there are arguments to be made either way for letting the market decide. If ebook prices are too high, people will stop buying them and Apple's agency model will fail and prices will have to come down to account for the lower demand and higher supply. (Unlike the App Store, there are far fewer players involved so a race-to-the-bottom is extremely unlikely.) If ebook prices are too low, publishers will go out of business and Amazon's retail model will fail and prices will have to go up to account for the higher demand and smaller supply.

Personally, I don't mind paying slightly more if it ensures a better market and ultimately better content. I'd prefer paying $5 to $10 for better iOS apps to ensure even more, better iOS apps in the future. Just like entertainment companies refusing to release timely content at fair prices is bad for -- not entitled -- consumers (why can't I buy Game of Thrones Season 2 on iTunes yet?), consumers refusing to pay a fair price for timely content is bad for the industry (why can't an awesome iOS game fetch the same price as a Happy Meal that's gone in 5 minutes?). In a perfect world, both would be in balance and everyone would benefit.

My opinions -- and yours -- aside, it doesn't look like Apple is going to be settling this one any time soon.

Source: AllThingsD

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

Apple responds to DOJ, claims they fight for innovation and competition in the face of Amazon's ebook monopoly


I respect your opinion but (lol, I know)... there is no way you can convince me that $5-10 increases for "better" apps to force the market to make "better" apps would be an acceptable model. That reminds me of SNK's Neo Geo (video game system) thinking that charging $200 for games because they were "better" made sense.
At the end of the day, it's all about how much the consumer values the product. If the consumer is willing to pay than so be it. Angry Birds is a perfect example of how effective $0.99 pricing can be. People don't mind paying a buck for this game - I guarantee it's a different story if you ask them to pay $5.

I'm not so sure. I've seen far worse apps out there, that cost more, and have high sales. not as high as Angry Birds, but, I'm sure you understand what im getting at.

Just wanted to point out that your Neo Geo example is flawed because the console used the same ROM Chips that were in the arcade version of its games. Yes, a 200+ mbit Neo Geo game is much more expensive than a 16 mbit SNES game. Ok, end rant ;)

Your assumptions about Neo Geo's games are wrong. The reason the cartridges cost so much was because the high price of ROM memory at that point in time and not because they thought they were "better" than everybody else. In contrast, the costs for Neo Geo CDs were much lower.
I know this has nothing to do with the original article but this uninformed comment had to be called out.

The point of Trusttee's comment wasn't to argue whether or not the SNK cartridge was better or not. The point is that the perceived value of the product from the company's point of view can differ from the market's perceived value of the product. As a company, you should always price the product as high as the market will allow.

Yes! Apple nobly fights for the rights of consumers to pay more for the same thing! All hail Apple!

Part of the problem is that Apple is singling out Amazon. But other Barnes & Noble raised their price at the same time, and to the same amount that others charged. If all are charging the same amount is that Apple forced the publisher to raise their price, and if the others had not gone along they would not have been allowed to sell the books. This deal also forced other ebook sellers like Rosetta and Fictionwise to stop selling books by certain publishers. I had purchased all of Tom Clancy's books from Fictionwise, and when I got a new computer, I tried to redownload them. I was told that I couldn't, due to the new agreement. All previous sales were null and void if the books were no longer sold by them.

If you want to see ridiculous pricing on an app, search the app store for the apps that help the autistic/def/mute/cerebral palsy children that use the iPad! AAC apps are ridiculously overpriced!

I hope they said more then that in their response (which i'm sure they did) because that quote say nothing to rebut the part in the complaint that alleges Apple entered into contractual agreements with publishers that requiring publishers to force other ebook retailers to a specific pricing structure on ebooks. It only says it benefited customers. That may be true. It is not, however, the only factor. And what constitutes benefit is arguable. Many will argue a lower price is a bigger benefit.

Nice how you try to confuse the issue by talking about apps in defense, then veer off to crazy town about Happy Meals.

I know this is a haven for Apple fan but arguing that consumers should pay more is ridiculous. Colluding is colluding and it's illegal. You might not think apple wasn't colluding but the DOJ have evidences that they did. Apple did this to win over the publishers and give Amazon the boot. It's a win-win for big corporate and a lose-lose for the consumers.

I haven't read everything, but from what I read, Apple said that their books couldn't be higher. That does nothing to say the publishers had to raise prices for others. I don't see how that is on Apple at all. They were mearly protecting themselves.
Also, as far as I know, there is no nook app for the kindle, no kindle app for the nook. The iPad/iPhone is the one place you can decide where to buy your book from. How is that anti-competitive again? I have iBooks, the kindle app, and the kobo app all on my iPad. I get the book where I can get it cheapest. Hunger Games Trilogy? Kobo. Total cost of $3.06.
I don't get this case at all. Seems like a waste of my tax dollars.

"On the other side, Amazon benefits from the dissolution of the agency model because they can go back to leveraging their (now pseudo-, thanks to Apple) monopoly position to drive down costs and force competitors out of the market. "
I get the feeling you wrote that as being a bad thing...

Lol of course apple can do know wrong on imore... Apple is the angel here. Raising prices for us consumers and not allowing other stores selling it cheaper than them cause they don't want to lower there price. How kind of apple to think of us.... How can you defend apple here... They are basically stopping companies to lower there prices just so apple doesn't... That's like asda telling all the other supermarkets you can't sell cheaper than us.

It is hilarious to see the struggle to turn every bit of mischief that Apple does into a positive thing.
What monopoly did Amazon ever had? B&N sells e-books, and they were around before Amazon and had a huge brand advantage. Sony has a e-book store as well. All around the world there are countless of local e-book stores. People just throw "monopoly" around to try to make Apple look good, the underdog fighting the system.

Boo Hoo for the publishers. I don't agree with them in the least. They charge simimlar prices for e-books as they do paperbacks (and sometimes hardcover). Of course they don't take into account the overhead saved with e-books. No need for factories to publish the books. No need to pay shipping costs. And how are they passing that on to the consumer?? Well they aren't.
Publishers aren't going backrupt anytime soon. To me, the cheaper the book the better for us the consumer.
All heil the free market economy!!
Collusion be dammed!!

It only costs a couple dollars to produce a physical book in quantity. Even under the old model, Amazon or the retailer would take ~55%, author would get `~10%, leaving ~45% for the publisher, from which every production cost and business cost was paid. So on a $10 book, retailer would make up to $5.50, author $1, and the publisher $4.50. Producing the actual book was/is a small part of that, as was/is shipping it around.

If amazon took 55% cut and apple only takes 30% why the MFN rule iBook store prices would bee lower.
And if everybody whent from 55% cut to 30% after apple changed the model why did the prices go up?

The agency model allows the publishers of Books to price the content at whatever price they want, like Movie studios, record labels and App developers.
The prices went up because the publishers used Apple's "Most Favorable Nation Clause" and a new ally ecosystem as ammunition to leverage power against Amazon for new agreements that would see the price increase on Amazon.
This allowed them (publishers) to Price a book for let's say $15 on Amazon and price it at $12.99 on iBooks and not violate the "MFN Clause" This took power from Amazon, gave more power back to publishers as well as opened them to new profit (what they have been wanting but not getting from Amazon) but it also removed a competitive outlet for cheaper eBooks to consumers.

As an App developer and content creator I also don't believe that just because a product has become digital that the price should automatically decrease. You are paying for the content, not the file format, not the delivery system and the packaging. It is up to the consumer to decide if the content is worth the price that is being asked.
Sure, you can say you take away the expenses of making a physical product by releasing said content in digital form, but that doesn't mean that there are not new costs that need to be offset in the digital format. It really depends on the content and how it is being delivered.
It is perfectly reasonable for a content creator to want to offset the cost of Apple's cut by increasing their content by $1 or $2 depending on the content. Also if they sell the content directly to consumer via their own store front and pay for credit card processing well you should expect the price to be higher there as well because the cost has to be offset.
Apple, Amazon and any other retailer has to pay for maintenance, engineers, programers and credit card processing fee's. They could easily choose to charge the consumer a convenience fee for providing fast, easy access to content without leaving home. They could tack on a $1 fee for their cloud sync service. They don't but they could. Instead they just charge the content creator/publishers instead.
We should be thankful there is no triple dipping going on = Content creators offset cost to Apple/Amazon with slightly higher price, while Amazon/Apple charges a fee to user for convenience, while also charging content creator. It may seem imaginable but triple dipping is not something new and could very easily happen in the digital world.

"If ebook prices are too high, people will stop buying them and Apple’s agency model will fail". That reminds me of the Internet Explorer debacle a few years ago.
As it happens, the iPad comes with the App Store and the iBooks app. Apple knows most users will not download Kindle or go through the hassle of purchasing an e-book on the Amazon webpage and then sync with their devices, they will just use the built-in ecosystem.
Thus their system is not likely to fail, not because it is better or less expensive, but because it takes advantage of novice, elderly, or just not tech savy users who just want to use their system in the simplest possible way.

The more I read the worse it looks.
1) The complaint did not come from one crazy dude at the Department of Dustice, but from 15 different states.
2) Amazon never had a monopoly and never sold e-books at a loss to drive out competition. In fact, according to the DoJ, the e-book division at Amazon has been profitable from day 1.
3) Apple says it launched the iBookstore in 2010 to break Amazon's monopolistic grip, but then sells e-books at a higher price???
4) "If the idea had just happened to simultaneously and independently occur to them, the DOJ might not have a case". Are you guys serious? Do you honestly believe that?
5)"Amazon benefits from the dissolution of the agency model because they can go back to leveraging their (now pseudo-, thanks to Apple) monopoly position to drive down costs and force competitors out of the market". Thanks to Apple?? Where is B&N in this so-called monopoly? How is driving down costs a bad thing? And what does it have to do with forcing competition out of the market? Putting these two together binds them together, but one has nothing to do with the other.
6) "Personally, I don’t mind paying slightly more if it ensures a better market". And how does that follows? Why paying Apple more ensures a better market? Publishers and authors are profiting from Amazon's model, the only difference is that publishers, the useless middle man, get less rich and customers pay less. What Apple proposes puts more money on the publishers pockets and makes the customer pay more. How is that beneficial to us? How does that benefits the author?