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The DOJ is calling Apple the "ringmaster" in the creation of this price-fixing scheme

The U.S. Department of Justice (DOJ) says an old email written by former Apple CEO Steve Jobs proves that the company was the "ringmaster" in the e-books price-fixing scheme.

A recent government filing revealed an old email (dated in 2010) from Jobs to James Murdoch of News Corporation, which said "Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

According to the Department of Justice, this email is evidence that Apple led the e-book price-fixing arrangement. The DOJ also said that this arrangement forced Amazon to raise its e-book price from $9.99 to the higher price mentioned in Jobs' email. Many publishers were onboard with this, but it ended with higher prices to consumers and dishonest profits for Apple and these publishers.

In addition to the email, there are statements from publishers saying that Apple bullied them into the e-books price-fixing situation. For instance, Jobs told Random House CEO Markus Dohle that his company would lose support from Apple if it didn't make a quick decision about joining back in 2010. Furthermore, Apple threatened to block an e-book application by Random House from Apple’s App Store if the publisher didn't agree to a deal with Apple.

The government filing also mentions that Penguin CEO David Shanks said Apple was the facilitator between publishers when making the agreement.

What does Apple have to say about all this?

“We helped transform the e-book market with the introduction of the iBookstore in 2010, bringing consumers an expanded selection of e-books and delivering innovative new features,” said Tom Neumayr, a spokesman for Apple. “The market has been thriving and innovating since Apple’s entry, and we look forward to going to trial to defend ourselves and move forward.”

Apple is set to go to trial June 3. It was initially the target of the e-books investigation along with Hachette Livre (Lagardère Publishing France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp., U.S.A.), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany), but all the book publishers have already settled with the DOJ.

Back in April 2012, the U.S. Department of Justice (DOJ) sued Apple and the five book publishers over anticompetitive practices concerning e-book sales. The book publishers were accused of partaking in an agency sales model with Apple, which meant that publishers were allowed to set the price of a book and Apple would take a 30 percent cut. In addition, the publishers could not let rivals sell the same book at a lower price.

Traditionally, publishers sell physical books to retailers for about half of the cover price, which is considered a wholesale model. Retailers then had the ability to sell those books to customers for a lower price if they wanted to.

But when e-books came along, this model was challenged. Amazon started selling best sellers for as low as $9.99 to encourage its Kindle e-reader sales. Publishers were not happy. 
Apple then came along with iBooks, and publishers began to worry that it would take over the book industry the way Apple's iTunes took over the music industry, where customers would choose to purchase cheap, digital books instead of physical books.

However, Apple attempted to resolve this when it struck a deal with publishers to implement the agency model in 2010. This helped Apple at the time of its iPad and iBooks launch. But its deal with publishers made it seem like an attempt to thwart Amazon's dominance.

Sources: The New York Times, Reuters

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Don't understand why ebooks so expensive.
By rameshms on 5/15/2013 1:55:58 PM , Rating: 2
Why should ebooks be as expensive as a hardcopy ? There are no costs involved in printing, transporting, storing and retail. Shouldn't the ebook price be a fraction of the hardcopy (or paperback) for that matter ?

What portion of a books retail price actually goes to the author/publisher ?

RE: Don't understand why ebooks so expensive.
By Solandri on 5/15/2013 2:38:56 PM , Rating: 2

Why should ebooks be as expensive as a hardcopy ? There are no costs involved in printing, transporting, storing and retail. Shouldn't the ebook price be a fraction of the hardcopy (or paperback) for that matter ?

Actually, the cost to print a book is only about 30% of its retail price.

What portion of a books retail price actually goes to the author/publisher ?

For a regular (printed) book by a big-name publisher, about 7%-20% of its price goes to the author. The rest goes to the retailer and publisher. The author royalty is low enough that self-publishing an ebook and having iTunes/Amazon/Google take 30% (i.e. 70% to the author) is pretty attractive.

We'll have to give it a decade or two to see how it all shakes out. I suspect most of the publishers who insist on keeping most of the profits for themselves are going to die out. If they do survive, it'll be because their name becomes branded and associated with a certain minimum quality level (spelling, grammar, layout, etc) in their publications.

What the independent-publishing industry (both ebooks and indie music) really needs are some review sites which function like a bestseller's list or top 100 charts, to help spread publicity for popular titles/songs. I think that's why Amazon does so well here - their rating and suggestion system pretty much fills that role.

By GulWestfale on 5/15/2013 5:55:44 PM , Rating: 2
i can't speak for authors who have a publisher (why on earth do you need a publisher if all you do is e-books???), but for us freelancers it's quite simple:
we get 70% of the retail price on amazon, plus a fee for each book that is loaned out through amazon's lending program (this varies month to month, but it's usually around $1.50 or so per book).

i publish on apple, kobo, sony, nook and others through smashwords, who take their own cut in addition to the platform providers. so i end up with about 50% of the retail price.

given that an author with a publisher (and the obligatory agent, who takes 20% of the author's earnings) only earns about 7-15% of the wholesale price of a printed book (perhaps a s little as 50 cents), i think i'm doing quite well making 2 bucks off a 3 dollar book. the only reason why publishers would sell ebooks for 10+ dollars is simple: greed.

RE: Don't understand why ebooks so expensive.
By InsGadget on 5/15/2013 3:31:26 PM , Rating: 2
All books are too expensive, IMO. Compare the retail price of an average book, CD, and DVD/Blu-Ray. Now compare the cost of creation: movies cost by far the most to make, followed by music, and then books (generally speaking). Yet, often books cost more than the other 2 forms of media, even though they cost a fraction to create, especially compared to movies.

Look at video, music, and audiobook subscription services: Netflix is $8 a month, Spotify is $10 a month, and Audible is an insane $15 a month. AND, you can only get ONE audiobook per month!! Whereas with the music and video subscriptions, you can watch/download as much as you want per month. It's absolutely ridiculous.

The publishing industry is due for a shakeup. Sorry authors.

By GulWestfale on 5/15/2013 5:57:36 PM , Rating: 2
don't be sorry, read my above post. you'll see that many authors agree with you (and me). publishers are no longer really necessary. all they do is add cost for the reader, while gobbling up the profits of the writers.

By TakinYourPoints on 5/16/2013 3:20:16 AM , Rating: 2
The cost of physical distribution isn't that big a deal. Its the same reason why a digital download of a game really shouldn't cost much less than a hardcopy; the cost of DVD duplication, packaging, and distribution really isn't that much.

The bigger problem is the split between the publisher (whether it is for a book, album, etc) and the author. Publishers are taking far too much nowadays given that distribution is simpler than ever. Movies and big budget games are a bit different since they actually fund the product as well.

By techienate on 5/17/2013 12:19:06 PM , Rating: 2
The problem, in my opinion, is that e-books cost significantly more, because you can't sell them or buy used. (Not to mention that you can't truly loan them out to somebody.) That lowers the value and raises the cost. Or to look at it another way, if 50000 people read a paper book, but some of them bought the book used, some bought it new but at a discount from list price on Amazon, and a few paid full list price at an airport book store, and then some of these people re-sold the used book, compared to 50000 people buying the book at typical e-book prices. The people as a collective unit will have paid out much more money in the e-book situation.

From a personal individual perspective (and the real reason I have some major issues with e-book pricing), I love e-books. I love having my books with me all the time and being able to read them on my smartphone's Kindle app whenever I have a free couple of minutes. But I can't afford to buy many books in e-book form. Typically, I'll buy used or new but at a significant discount from Amazon for most of my books. I would love to buy e-books, but I can't afford the premium.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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