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Higher prices? Customers might not have noticed, top Apple exec

Apple, Inc. (AAPL) stands accused of costing customers "millions of dollars" by entering into secret deals with eBook publishers, rewarding them for blacklisting Apple's competitor, Inc. (AMZN).  In an apparent mea culpa, most of the publishers quickly settled with the U.S. Department of Justice (DOJ) -- but Apple has defiantly chosen to fight the feds in court.

In court today the feds grilled Apple's president of internet software and services, Eddie Cue. Cue tried to deflect the price fixing accusations saying he was working "24/7" on the deal and "felt tremendous pressure" to close it.  He recalls, "You have to understand that Steve [Jobs] was near the end. I wanted to get [the ebook deal] done for him."

Eddy Cue confirmed that "early on" (during Steve Jobs' final stretch as CEO) Apple was considering a potentially illegal deal to pitch to Amazon, in which Apple would agree to stay out of the digital book market if Amazon agreed to stay out of the digital music market.

Eddy Cue
Eddy Cue [Image Source: AP]

Court reporters called the morning testimony a win for the DOJ.  DOJ attorney Lawrence Buterman pushed Mr. Cue hard asking, "Do you think your customers cared?  Who protected Apple's customers from the higher prices?"

Mr. Cue responded, "I did."

But pushed, Mr. Cue appeared to concede that his company's deals later drove up e-book prices from the former de facto rate of $10 to $15.  Asked if Apple (or Amazon) customers complained about the highe prices, he commented, "They may or may not have, I can't recall."

In court Eddy Cue said Apple customers might have not cared about higher prices.

Mr. Buterman drove home his point, reversing the question and remarking, "Did your customers thank you for raising prices?"

Things aren't going very well so far for Apple in the case.  Federal Judge Denise Cote of the U.S. District Court for the Southern District of New York already submitted a preliminary ruling of guilt on grounds that Apple would lose a trial on account of the strong paper trail the DOJ had accumulated showing Apple willfully colluded with publishers to damage Amazon.

If Apple loses the trial, it will likely be on the hook for damages in 30 states and be required to pay substantially more than the "slap on the wrist" that the publishers who settled received.  Analysts say that a loss would also damage Apple's reputation, much as the court case against Microsoft Corp. (MSFT) in the late 90s hurt the Windows brand.

Source: The Verge

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By futrtrubl on 6/14/2013 3:49:20 PM , Rating: 2
Apple, Inc. (AAPL) stands accused of costing customers "millions of dollars" by entering into secret deals with eBook publishers, rewarding them for blacklisting Apple's competitor, Inc.

When did a publisher blacklist Amazon? Blacklisting was certainly not mentioned in the article linked to.

RE: Blacklist?
By Motoman on 6/14/2013 4:57:56 PM , Rating: 2
I don't think it ever came to that...but at least one publisher was told by Jobs to blacklist Amazon if they didn't play the game.

RE: Blacklist?
By Tony Swash on 6/14/13, Rating: -1
RE: Blacklist?
By lightfoot on 6/14/2013 9:41:43 PM , Rating: 5
On January 28th, 2010 Macmillan presented Amazon with an ultimatum: switch to the agency model and raise your prices or don't sell our books. You see that a publisher is a defacto monopoly in that if that publisher doesn't sell you their books, you can not get those books from any other publisher.

Amazon's initial response was to tell Macmillan to take a hike and they immediately delisted all their books. Ultimately, however, Amazon was forced to join the agency model when nearly every other publisher made the same exact demand.

RE: Blacklist?
By lightfoot on 6/14/2013 11:26:06 PM , Rating: 2
It's also important to note that Steve Jobs stated in a draft email:
“I can live with this, as long as they move Amazon to the agent model too for new releases for the first year. If they don’t, I’m not sure we can be competitive.”

This implies that had the publishers not pushed Amazon into an Agency model, that Apple would have walked away from the deal.

RE: Blacklist?
By StevenRN on 6/15/2013 12:17:32 AM , Rating: 2
You quote an email that was never sent.

RE: Blacklist?
By retrospooty on 6/15/2013 10:10:23 AM , Rating: 2
This seems suspect to me in the first place. How did they get a "draft" email from a CEO that hasn't been CEO for 2 years? It could only be from Apple's IT dept. - I call BS on that one. "I didn't inhale" comes to mind.

RE: Blacklist?
By lightfoot on 6/15/2013 11:27:26 AM , Rating: 2
The email was presented as evidence to establish motive and thought process of the CEO at the time.

Or they could have just asked Steve Jobs to testify... Oh wait they can't.

Motive is central to this case.

Did Apple intentionally drive up prices, or was it just a happy accident that Apple somehow ended up with unheard-of profits in a highly competitive industry?

Everyone bitches about how Amazon's prices were too low and that they were driving profits down in the industry... That is what competition looks like. What Apple was doing was NOT competition. Even if Amazon was breaking the law with predatory pricing, it is no excuse for Apple and the publishers to also break the law.

RE: Blacklist?
By Samus on 6/15/2013 4:18:02 PM , Rating: 2
This is why Apple thought they would win the case. Dead men can't talk, but those still living can be dumb enough to speak for them.

RE: Blacklist?
By maugrimtr on 6/17/2013 9:14:34 AM , Rating: 2
Amazon was not breaking the law. They purchased something and resold it for a price of their choosing. Booksellers have been doing since the invention of writing.

The publishers, in this case, had a different problem. Amazon was not a monopoly (you can walk into a bookstore anywhere as an alternative) but they were a powerful online force for ebooks. They used that to their advantage. They forced publishers to offer them discounts, adopt the Kindle format, and were attracting in their own authors. They had the potential to do a lot of damage to publishers (and arguably already had through discount and author contract losses).

At face value it looks unfair. In reality, it's just free market competition. Amazon were doing nothing that the publishers could not themselves do if they had bothered years previously.

How do you squish legal competition? You either compete do some illegal rigging. The publishers entered into a price fixing scheme with Apple. Apple would enter the market (disrupting Amazon's market share) and the publishers would assist them in gaining rapid market share by forcing Amazon to adopt the agency model (thus neutralizing price competition) or refusing to sell books (putting Amazon out of the ebook business and unable to compete with Apple either way).

Apple's case is based wholly on demonstrating that the price fixing was not a collusion, i.e. that all publishers independently chose the same time, by complete coincidence, to give Amazon an agency model or bust ultimatum. It was obviously not a coincidence or a reaction. Reactions are legal in price fixing, e.g. two gas stations on opposite sides of a road will fix prices (often) when one "reacts" to the price of the other so as not to lose business and/or maximise profit. There is no collusion there though it can look like it when prices are rising!

The only reason Apple are fighting this is to save reputation. They lose if they admit wrongdoing anyway, so they're just fighting it, I think, on the slim chance of a winning and getting away with a clean rep.

RE: Blacklist?
By StevenRN on 6/15/13, Rating: -1
RE: Blacklist?
By lightfoot on 6/15/2013 2:38:54 PM , Rating: 3
Why on earth are you crediting Apple for a result that was caused by a legal settlement between the Department of Justice and the publishers?

Yes, Apple forced the publishers into the agency model, which forced book prices up. The DOJ sued the publishers for price fixing and the publishers settled allowing Amazon to go back to the wholesale model. Some book prices then fell.

Apple's agency model did not cause book prices to fall. The Department of Justice threatening legal action against price fixing caused prices to fall. There is a HUGE difference.

Are some books cheaper now than they were before? Yes. But not because of Apple's agency model.

RE: Blacklist?
By Reclaimer77 on 6/15/2013 2:45:17 PM , Rating: 2
You sir, with your logic and critical thinking skills, are a very dangerous man around here :)

RE: Blacklist?
By Fritzr on 6/16/2013 11:22:53 PM , Rating: 2
But you don't understand. Apple does deserve the credit for lowered prices.

If Apple hadn't forced prices up using illegal methods
then DOJ would never have filed suit against the publishers
then the publishers would not have settled by dropping prices back to and sometimes below pre-agreement prices.
All hail Saint Steve. Hallelujah, Hallelujah, Hallelujah.

Steve Jobs was a marketing genius even if he did need help from his enemies to force Apple to back off so the good results could be achieved (in the case of ebooks quite literally) over Steve's dead body.

RE: Blacklist?
By Solandri on 6/16/2013 11:08:06 AM , Rating: 5
What is left out is it also dropped many books from the defacto $10 to $7 and $8 so, in aggregate, the average total cost of books people bought actually dropped. But why tell the truth in reporting?

The average cost of ebooks dropped despite Apple getting the publishers to move to the agency model. Here's the pic from the DOJ filing which the Apple fans have been busy down-voting when I posted it before.

The colored lines are all the publishers who went along with Apple. The light and dark grey lines are Random House and other publishers. The vertical red line is the date Apple et al set for the switch to the agency model (Penguin in beige switched a month and a half later).

As is blindingly obvious, the prices for ebooks for all the publishers who went along with Apple went up. Towards the tail end of the graph, prices for Random House and other publishers, i.e. the ones who didn't go along with Apple, went down.

So the drop in average ebook prices was despite Apple's shenanigans. ebook prices for everyone involved with Apple went up. ebook prices for everyone not involved with Apple went down. In terms of sales, more books sold had their price go down so the overall average went down. But the ones whose price drove that downward trend were not Apple-affiliated publisher ebooks.

In other wors, if Apple hadn't tried to pull this stunt, ebook prices would've gone down even more than they did.

RE: Blacklist?
By sprockkets on 6/14/2013 5:36:05 PM , Rating: 2
They didn't AFAIK but one time one publisher tried to increase prices way up and Amazon declined, or something like that, and then a bunch of their books left the amazon catalog.

This says it all right here...
By retrospooty on 6/14/2013 3:54:39 PM , Rating: 4
"But pushed, Mr. Cue appeared to concede that his company's deals later drove up e-book prices from the former de facto rate of $10 to $15. Asked if Apple (or Amazon) customers complained about the high prices, he commented, "They may or may not have, I can't recall.""

So you conspired to artificially raise prices and you dont recall if anyone complained about it? Forget that it's illegal, immoral and just downright seedy. Just tune out the complaints and hope no-one call you on it... Oops. We just got served ;)

RE: This says it all right here...
By Tony Swash on 6/14/13, Rating: -1
RE: This says it all right here...
By sprockkets on 6/14/2013 8:36:07 PM , Rating: 3
It's clear you share the same view of reality as apple.

By Cheesew1z69 on 6/14/2013 8:38:36 PM , Rating: 2
Ya think?

RE: This says it all right here...
By retrospooty on 6/15/2013 10:15:56 AM , Rating: 3
So Amazon controlling an ebook ecosystem by offering a lower price is suspect... But Apple controlling an entire mobile platform/ecosystem by patent abuse, suing to ban competitors and bully boy tactics is OK?

You seriously need to turn your observational criticism back on Apple and really take a good hard look at what they are up to. If you actually looked at them objectively without waving your fanboy flag you would come to a very different conclusion.

By ptmmac on 6/17/2013 11:19:47 AM , Rating: 2
Protecting your patent is not patent abuse. It is using the current legal system in the manner in which it was designed to be used. Don't like the laws then get them changed. Vertical monopolies that compete in an open market with other eco systems are not illegal.

Jason Trolls Apple again for extra traffic
By ptmmac on 6/15/2013 11:08:54 PM , Rating: 2
Well here we all are again. Jason takes some of the facts and makes it sound like Apple is the worst company on earth.

Apple offered the publishers a chance to fight Amazon's efforts to undercut their most profitable sales for hard back books. The publishers did not know that Amazon was going to sell first run ebooks as loss leaders to lock up 90% of the ebook market place. The should have realized that it was a possibility, but they didn't. The publisher's were the ones who wanted to raise prices to Amazon. They didn't do this out of the goodness of their hearts. They had to stop Amazon from dropping the price for first run books so that their traditional customers book stores could stay in business. What Amazon was doing was not illegal because there is rarely someone who can afford to do this over the long term. Amazon is supported by a stock price that is unrealistic to say the least unless they actually kill all the companies who stock real products where we can touch them and feel them. No other company has had this kind of support from the market. A stock price with a PE of 2000!!?? That is just stupid. It was also the main reason Amazon could afford to sell books for a loss. These were not just any books, but the publisher's first run hardback blockbusters that paid all the bills and made the business possible. Amazon was dropping the perceived value of the publisher's bread and butter business.

Apple was not a ring leader here. They were a catalyst. Any moron from business school could have told you that the publishers were in trouble if Amazon kept dropping the price of their products below cost. All parties here acted rationally like any individual would have done in the same place. Do you really want to get cheap books for the next 5 years until there are no local bookstores? Is that really in the best interest of consumers? Apple was not going to be willing to sell books that were sold at the same below market cost price. That is just crazy. Switching business models is not illegal. The reason this case has even come to trial is because so many of you are blindly supporting Amazon's position and it will make some prosecutor famous. Apple never had a monopoly and Amazon was not in the usual situation of a monopolist unless you recognize that they were destroying other businesses to take their long term profits, by losing money for longer than the little guys could survive. Borders did not die by accident. They died in a large part because of predatory pricing from Amazon. Jobs were lost and businesses closed so Amazon could please it's shareholders with it's willingness to play cutthroat.

Apple was no shrinking violet. They were looking to take advantage of unnatural market problem: the loss leader was stealing all the market share and the manufacturers of the books wanted this to stop. Apple helped them do that. This is not court house drama, it is resume stuffing for the prosecutor. Apple will win either at this level or on appeal. They never acted without legitimate competitors and they made the market move towards a more rational price.

RE: Jason Trolls Apple again for extra traffic
By lightfoot on 6/16/2013 1:03:25 AM , Rating: 2
It's odd that you both say that Apple was a "catalyst" but also say that they are not guilty of a conspiracy to fix prices.

The very fact that they facilitated the price fixing by the publishers makes them an accomplice to the crime. And according to U.S. legal precedent, if you are a facilitator, or an accomplice to a crime, you are as guilty of that crime as any perpetrator of that crime.

The fact that they were a catalyst, (your words, not mine) implies that the publishers would not have been capable of committing the price fixing had Apple not been present. That, by any reasonable standard, makes them responsible for the actions that were taken by the publishers.

You might be able to say that Apple was just a victim in all of this and they just happened to be in the wrong place at the wrong time, but the evidence suggests that it was the publishers, not Apple, that were coerced into signing the agreements containing the so-called Most Favored Nation clause, and the primary beneficiary of the price fixing scheme was not other book stores as you claim, but Apple its self.

And regardless of any presumed wrongs on the part of Amazon, collusion, price fixing, and anti-competitive behaviors are all violations of the Sherman Antitrust Act. Saying that "Amazon started it" is not a valid legal defense.

Should Amazon be investigated? Sure. But that doesn't make Apple innocent.

RE: Jason Trolls Apple again for extra traffic
By ptmmac on 6/17/2013 11:15:58 AM , Rating: 2
Actually in anti-trust law the situation in the market is directly relevant to the guilt of the party charged by the government. In this case, the government is attempting to let off all the parties who benefited from the conspiracy that they produced, and charge the company that supplied the technology that made it convenient to do the conspiracy. This was also a case of tit for tat in a vertical monopoly that faces competition from many other types of vertical entertainment monopolies. Have you ever complained that all movie theaters and ball parks charge for the food they offer? NO! Wow have you missed out on just this kind of monopoly.

Another point directly affects the weakness of the governments case. The government is facing a legal problem with the price fixing in this case because it is rational behavior that any company who faced the same market problem would have acted in the same manner. In other words, the conspiracy was putting the market back to natural market prices not creating a false set of prices for their own benefit. When one company dumps product on the market below their cost that is anticompetitive, and if that action is not illegal then the actions that restore the market into balance cannot be considered illegal either.

Good luck with that righteous anger. It is not going to get Apple convicted with out an appeal that over turns the decision. This Supreme Court has been so pro business that it actually makes decisions that are questionable (like protecting commercial speech of corporations like they are people!!). This one is a slam dunk for Apple.

By Cheesew1z69 on 6/17/2013 5:03:41 PM , Rating: 1
This one is a slam dunk for Apple.

What I don't get
By lightfoot on 6/14/2013 10:12:59 PM , Rating: 2
I don't get how anyone can seriously defend Apple in this case.

Apple made some very outlandish demands for being a newcomer to the eBook market.

First Apple demanded a 30% margin on any product sold to their customers. Why on earth should any retailer be guaranteed a profit on any product?

Secondly Apple demanded that nobody should be allowed to sell the same product at a lower price, even if they were willing to accept a lower profit margin. This is NOT a traditional Most Favored Nation clause, this is something entirely different. Traditional most favored nation clauses only guarantee that you will not pay the publisher (or other wholesaler) more than any one else pays. Apple actually was demanding that they only pay 70% of what the next best customer paid for the same product. This is insane.

Only Apple could have convinced the publishers to agree to such an obviously one sided agreement. Apple's intention was to move all the profits from the publishing industry onto their own books. Instead what happened is prices across the board were forced up, and the only entity that directly benefited from the increased prices was Apple.

The amount that authors get paid did not change appreciably. Neither did the amount that the publishers earn. The only so-called "winners" were Apple and other re-sellers who they forced into a universal price and profit model.

This is not competition. This is collusion. This is very illegal. And Steve Jobs' emails clearly show that this result was exactly what he had intended.

The emails themselves, whether sent or not, clearly indicate a thought process and a motive for forcing publishers into an Agency model in order to guarantee a 30% margin on a tiny non-tangible digital download.

Just because Apple takes 30% of every App sale and music sale does not in any way justify a 30% margin on an eBook.

Consider for a second that a typical MP3 song costs 99 cents on iTunes. Apple claims that the 30% is what it costs for the infrastructure and distribution of that song. That is 30 cents for a 3-4 MB digital file.

An ebook on the other hand priced at $9.99 would put Apple's take at $3.00, ten times that of a single song. Also, an average eBook novel has a digital file size of 400-800 KB - roughly one fifth that of an MP3.

It simply is not possible to justify the same 30% margin on a ten dollar eBook as it is with a 99 cent MP3 or a $1 App.

/end rant.

RE: What I don't get
By StevenRN on 6/15/13, Rating: -1
RE: What I don't get
By lightfoot on 6/15/2013 11:36:47 AM , Rating: 2
Name one fact that is out-right wrong.

Yes, I am making implications and assumptions based on facts, but the facts themselves are not wrong.

Prices did go up. (They have since come back down now that the publishers have settled with the DOJ.)

Apple demanded 30% of every sale.

MP3 file sizes are typically much larger than eBooks.

Apple required that Amazon not be allowed to sell books for less than Apple.

Apple prohibited users of iDevices from purchasing books through the app of any competitor.

30% of Ten dollars is three dollars.

30% of one dollar is 30 cents.

Three dollars is ten times greater than 30 cents.

Apple (Steve Jobs specifically) knowingly assisted in the increased prices of ebooks, across the entire industry.

RE: What I don't get
By retrospooty on 6/15/2013 1:46:20 PM , Rating: 2
Facts? Apple fanboys dont care about facts. Here is what they do with facts.

[plug ears] lalalalalalalalala

Pay damages in 30 states?
By Guspaz on 6/14/2013 4:53:48 PM , Rating: 2
What about consumers who got burned by the higher prices the publishers managed to force Amazon to pay because of Apple? I'm not even American, but Amazon sold eBooks internationally through their US eBook store until recently, and I definitely saw prices skyrocket when "this price was set by the publisher" notices started appearing on

In fact, despite the publishers settling, the insane prices (where eBooks cost more than hardcovers) and the "set by publisher" notices are still in place.

RE: Pay damages in 30 states?
By StevenRN on 6/15/2013 12:20:59 AM , Rating: 2
Do consumers that paid LESS for books under the agency model VS Amazon's near blanket $10 cost have to pay back the extra? On the aggregate, the agency model has driven down the average purchase price of books. Some books went up in price. Many, many books went down in price.

Apple Deserves Serious Punishment
By cditty on 6/15/2013 12:04:19 AM , Rating: 2
It astounds me that the Apple fans are seriously trying to justify this. If this was Microsoft, the Apple fans would be calling for fines, a company split, and trying to send Ballmer to a Mexican prison.

Open your eyes people, Apple broke many laws and colluded with publishers. They deserve to be punished severely for this abuse.

By Motoman on 6/15/2013 10:07:34 AM , Rating: 2
Apple isn't a company. It's a religion. And even when the priests of your religion regularly rape the altar boys, the religious are far too stupid to ever leave their religion.

Final wish: Nuke them
By Scootie on 6/14/2013 5:25:21 PM , Rating: 2
What an idiot excuse. So if Steve Jobs would have wanted to nvke a country by the end of his life this guy would have certainly made it possible cause hey, Steve Jobs is almost done.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer

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