What About the Publishers?

 

Apple contends that it did not conspire with major publishing houses, and all five publishing giants were quick to let Apple fight the battle alone. 

The first publishers to settle with the Department of Justice were Hachette Book Group, HarperCollins, and Simon & Schuster. As part of the agreement, each publisher was asked to terminate their contacts with Apple within one week of the settlement. 

After initial agreements were made, Apple, Macmillan, and Penguin continued to deny wrongdoing and were on the road to trial. 

In December 2012, Penguin, possibly to protect its merger with Random House, settled with the DOJ. Penguin is named the largest publisher in the suit and paid upwards of $75 million in settlements. 

In April 2013, Macmillan settled with the Department of Justice while still denying any wrongdoing. Macmillan dished out a heavy $26 million in settlements. Macmillan CEO John Sargent said that the company settled “because the potential penalties became too high to risk even the possibility of an unfavorable outcome.” With Macmillan as the last publishing house to settle, Apple was forced to face trial alone. 

According to the terms of the settlements, all consumers who purchased an e-book from any of the publishers between April 1, 2010 and May 21, 2012 were entitled to receive compensation. When all was said and done, the five publishing giants paid over $164 million in compensations. The settlement also ended the “most favored nation” clause, which will once again open up competition in the electronic book market. 

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Apple Takes a Bite of the E-book Market

A wrap up of one of publishing’s biggest trials

Apple said its last words in the Department of Justice antitrust trial in June and now awaits a verdict from U.S. District Judge Denise Cote. But what does the trial mean for e-book pricing? Especially for self-published authors? Read on for an analysis of the case and what the outcome could mean for the indie sphere. 

Trial Origins
In 2012, Apple came under scrutiny with the Department of Justice when it was accused of conspiring with five major publishers to fix prices in the e-book market. When Apple launched the iPad in 2010, it made a deal with five of the Big Six—Hachette, HarperCollins, MacMillan, Penguin, and Simon & Schuster—to ensure that Apple’s bookstore would always have the best price in the market. Together, the publishing giants and Apple collaborated to increase the prices of e-books and to break Amazon’s hold on the e-book market. 

A major shift in the market occurred when the industry evolved from the original wholesale model to the agency model. Eddy Cue, Apple’s content chief, approached publishers suggesting the launch of the agency model, in which the publishers would set the price instead of the wholesale model, where retailers set the price of books. With the agency model Apple would act as the “agent,” and would receive a 30 percent commission. 

The case is especially complicated because it relies so heavily on the late Steve Jobs. Much of the evidence lies in his emails and words that have since been forgotten. Quoted in Walter Isaacson’s biography, Jobs outlines Apple’s strategy by telling publishers, “We’ll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more, but that’s what you want anyway.” 

Apple had an agreement with publishers known as the “most favored nation” agreement, which ensured that e-books retailers such as Amazon and Barnes & Noble could not sell e-books for less than the price of Apple e-books. The combination of the agreement along with the agency model boosted e-book prices higher than Amazon’s $9.99 price point for popular electronic titles. 

How has e-book pricing changed?
The release of Amazon’s Kindle e-reader in 2007 stirred up the industry as Amazon priced popular titles at $9.99, much below the average cost of a hardcover version of the same title. As the pioneer of the electronic book market, Amazon used the wholesale model to buy and sell books, giving the company the ability to sell books at a loss and undercut its competition. 

When Apple entered the electronic book market, prices were raised by almost $5 per unit from Amazon’s $9.99 standard price. “Millions of e-books that would have been sold at retail for $9.99 or for other low prices instead sold for the prices indicated by the price schedules included in the Apple Agency Agreements generally, $12.99 or $14.99,” the prosecution claimed.

According to Digital Book World, e-book prices have stabilized in 2013. Prices have begun to settle as retailers and publishers aspire for a position that offers consumers what they want—lower e-book prices. Publishers and authors are beginning to experiment to see what will happen if they discount even some of the newest titles. 

The Case
Apple does not see a wrongdoing on its part as it maintains the belief that it simply wanted to create more competition in the e-book market. This case has the potential to cause major implications and changes in the e-book industry as well as other electronic media industries such as music and movies. Top tech companies are experiencing more scrutiny from the U.S. government. 

All five of the publishing houses have settled out of court, leaving Apple in trial alone. The case started on June 3, 2013 and came to an end on June 20, 2013 when final arguments were made. Judge Cote is expected to make the final verdict within the next few months. 

Based on Cote’s comments on June 19, some observers suspect she might side with Apple. As the case unfolded, Cote claimed she understood more through the presentation of the evidence. 

Apple attorney Orin Snyder says that if Apple is guilty, “that precedent will send shudders through the business community” as companies look for new markets. Justice Department attorney Mark Ryan contested that Apple was responsible of “an old-fashioned, straightforward price-fixing agreement” with five major publishing houses. Depending on the verdict from Cote, Apple could face major settlements, as well as a shot to its reputation. 

The e-book industry is a fairly new market without a standard price structure, which means that after the Apple case is settled, consumers could see significant changes in e-book prices across all major retail outlets. But as more and more competitors enter the field, the future of e-books looks bright and innovative. This is, and will continue to be, a place where publishers and authors can experiment with pricing and sales to see which model(s) will stand the test of time. 

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Molly Reger is a writer for Independent Publisher. She is currently studying Communication and Business Management at the College of Saint Benedict in St. Joseph, MN. She welcomes any comments, questions or concerns regarding her articles via email at mereger@csbsju.edu.


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