Apple hit with antitrust lawsuit over e-book pricing

iBooks on iPad

The U.S. Justice Department has just slapped Apple and their various publishing partners, like HarperCollins, Macmillan, and Penguin, with charges of e-book pricing collusion. Sources say that HarperCollins is in a hurry to get the issue settled as soon as today, but Penguin was ready to put up a fight in court. Apparently Apple's contract demands that publishers sell their e-books on iOS for the lowest price that's currently being offered by competitors. This supports the agency model, whereby publishers are the ones setting the price, while the Justice Department wants things to stick with the wholesale model, where retailers set the price. We had heard last month that publishers were willing to concede to the Justice Department over the issue, but apparently settlement talks haven't been as productive as expected.

The idea here is that by having all of the publishers agreeing on the same pricing structure, it stagnates competition. Amazon still has a big lead in the e-book world, and under its current model, Apple won't be able to put up much of a fight if their prices aren't competitive. On the one hand, consumers should be getting the best prices possible, but on the other, publishers and their authors will have a rough time staying in business with smaller margins.

How often do you use Apple's iBooks? Do you prefer Amazon Kindle, or Kobo? Regardless of who you use, how much are you willing to pay for an e-book?

UPDATE 1: John Sargent from Macmillan has published an open letter on the matter:

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

Go read the whole thing via the TOR link below.

UPDATE 2: Nilay Patel of The Verge got his hands on the DOJ's paperwork, including references to the involvement of the late Steve Jobs, and Apple's head of internet services, Eddy Cue.

the government alleges that the publishing industry openly colluded to raise ebook prices and end Amazon's dominance, and that Apple was a willing participant in the scheme. What's more, the alleged conspiracy sounds like it was actually quite a conspiracy, with secret CEO meetings in private New York dining rooms and promises made to bosses up and down the chain.

Again, hit the source link for a lot of great info.

Source: Bloomberg, TOR, The Verge

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Simon Sage

Editor-at-very-large at Mobile Nations, gamer, giant.

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Reader comments

Apple hit with antitrust lawsuit over e-book pricing


Kindle all the way here. It works on all of my devices and I'm not locked into iOS only. The same goes for my wife and her iPad.

I'm into ebooks in a big way, but I never use iBooks. I have both a Nook and a Kindle, and have both apps installed on my iPad, iPod Touch, and Android phone. For reading my pre-Kindle/Nook ebooks (purchased from Fictionwise, Mobipocket, and others) I use Stanza on my iDevices and Aldiko on Android. Calibre is essential for managing my library.

Yeah, Kindle, Stanza and Calibre, that's what I do too. I steer clear of iBooks, it is basically useless to me.

The lawsuit included a quote from the late Steve Jobs, head of Apple, describing his company's strategy for negotiating with the publishers: "We'll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway."
Steve Jobs - man of the people.

eBooks are such a ripoff. No way they should cost the same as printed editions. i pirate everything and don't feel a bit bad.

@jim anonymous
So, what work do you do? Maybe some writer can swoop down and steal your paycheck too.
I am so glad that most people are honest and I support fair pricing books and music. Hopefully, the fallout from this suit will be a step in this direction.

Not all pirates are bad Sfwrtr.....
Study finds pirates 10 times more likely to buy music
According to research, those who download 'free' music are also the industry's largest audience for digital sales.
I pirate a lot of material from the internet but I also purchase a lot. I own all three Suzanne Collin Hunger Game novels in hardback ($42.00?) but I pirated the digital versions. You would think that an e-book would come free with a physical book but no its another $12.99. I don't feel bad for pirating because as many good albums, books, etc I have downloaded I have also downloaded a lot of crap that just gets deleted..

I use my kindle e-ink reader daily for books. Not a particular fan of iBooks except for PDFs. I rarely use the kindle iOS app, but I do read it.
IMHO, I think apple may have to relent on their 30% cut if they want books in their store. We will see...

this is one lawsuit I honestly say is stupid. Most, I can see the reasoning behind, but this one is rediculous.

I've purchased ebooks for years, and the price has always been fair. But when Apple entered the picture, all of a sudden I could no longer buy books from Fictionwise, I had to go to Barnes and Noble. The prices also increased about 25-30% when that happened. I'm not against the market place setting the price, but when one company (Apple) controls how others (Barnes and Noble, Amazon) price their merchandise that concerns me. I have a Nook, as well as an iPad. Why should I pay more for an ebook that will never see an Apple product, just so Apple can sell books from their store? And prices are continuing to climb, books that were selling for $12.99 now routinely go for $14.99.

I have purchase a couple different eBooks. Priced the same title on Kindle and iBooks. Kindle is always cheaper by a buck or two. So, Kindle it is (on my iPad)

I've been deeply annoyed with the pricing of ebooks, and I've stuck to paper books as a result. In my mind, ebooks are a stalled technology advance until they cost significantly less than paper books, and currently they seem to cost as much or more. Which is ridiculous given the low cost of production.
So yeah, this price-fixing lawsuit comes as no surprise to me. Apple managed to bring us cheaper music and cheaper apps, but then turned around and produced more expensive ebooks? Shame on them.

Everybody assumes that the bulk of the cost of a book is the printing. I do not own a print shop but I bet the typical ink/paper cost of a book is below one dollar . Proofreading, cover design, ISBN and Library of Congress IDs, marketing, profits and remunerations all apply also to electronic editions, so there is no reason for an abrupt reduction of prices.

Keep telling yourself that. Printing, materials, and especially shipping are huge factors in a book's price.

Not really. Traditionally most of the price was the 55%+ cut the retailer got. I had several books published in the good old days before eBooks and the retailer (including Amazon) took most of the money.
The agency model hurt Amazon and retailers far more than publishers, restricting them to 30% and not letting them sell at a loss like they used to do. (Discount book bins.)

audiobooks only for me except for some comics and sheet music. Audiobooks are faster and i can go through chapters while i drive, do laundry, shop in the grocery store, walk through the mall. i go through about a book a week.

I personally never purchase digital books because I feel the publisher is ripping me off. I don't know what it costs to print/bind/distribute a paperback book but it sure as hell is a lot more than the bandwidth costs to let me download the digital copy from their server. So why does it cost the same or sometimes even more for the digital version?
Besides that, I can usually find a used copy that makes the digital version seem ridiculous. For example the new paperback and digital version might be $30 while a used version can be as low as couple of bucks. What makes digital copies even more outrageous is that you can't loan or sell them afterwards.

Oh and did I mention that you can usually borrow these books from your local library for free. Where can I borrow a $45 ibook for free?

There is a 2010 article by David Derrico that does the breakdown of average printing costs per copy:
Hardcover: U$ 2,50
Trade paperback: ~ U$1
Paperback: U$ 0.75
Selling e-books is not free. There are IT/hosting/broadband costs as well, so I think people have had unreasonable expectations about e-book prices. Having said that, I do think they are terribly expensive, and in a ideal environment, publishers should be adding much less to the final costs, instead of the current 45-55%.

The article only tells half the story. The issue is that Apple colluded with the publishers to set a price at $15 for most bestsellers, etc. Previously most of those e-books were selling for $10 on Amazon. However, Apple wanting a cut of 30% as usual on everything they sell wouldn't be able to convince the other guys to keep selling at $10 and give up $3 to Apple when margins were thin already. So, they all colluded and decided at $15 or whatever it is that most go for, everyone is happy and it doesn't eat their margins and Apple takes its 30% and the consumer is the one thats screwed. This is against anti-trust laws in the US and is illegal. Everyone is quick to use the word 'monopoly' with regards to Amazon but really they are the ones selling at lower prices. Ever find a book cheaper on iBooks than at Amazon?
I suspect more of this could come for Apple. On a separate note I know to never bet against Apple stock (so I don't) but I also think something ugly like this or some other factor could also seriously undermine its growth and valuation. Of course it may not which is why I don't touch it at all in the first place. All good things must come to an end though and hopefully it jus stagnates like Microsoft has and doesn't collapse, lots of my friends own Apple shares but that's off topic. I am not an Apple basher by any means (in fact I love the denies as I own 4 Apple devices and am typing this on a Macbook Air) and hardly post on here, mostly lurk but I work in finance and so follow the news obviously and this post doesn't quite give the full implication that the issues is that Apple wanting its 30% basically got the book retailers to increase their prices to something that makes everyone happy (ie. colluding) so it could still take 30% and they could still make money.

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