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Apple's lawyer said the agency model is beneficial to both consumers and markets

The e-books price-fixing trial with Apple has begun, and a U.S. government lawyer accused Apple of conducting shady business practices with the five book publishers. 

"Apple told publishers that Apple - and only Apple - could get prices up in their industry," said Lawrence Buterman, a lawyer at the U.S. Department of Justice (DOJ). 

Buterman also added that Apple's agency model with publishers (where publishers set the price and Apple takes a 30 percent cut) hurt consumers by raising prices. 

"Overall, average prices of e-books went up, costing consumers millions of dollars," said Buterman.

The three-week trial, which started yesterday, concerns the DOJ's lawsuit against Apple in regards to its method of fixing prices for e-books. 

Orin Snyder, Apple's attorney, disagrees with the DOJ's statements. 

"What the government wants to do is reverse engineer a conspiracy from a market effect," said Snyder. "Agency [model] is good and beneficial to consumers and markets."

Snyder added that DOJ's evidence, such as emails from former Apple CEO Steve Jobs, will likely be misinterpreted. He also said that average e-book prices fell after Apple entered the market, dropping from $7.97 to $7.34.


Apple is the target of the e-books investigation along with book publishers 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). However, all the book publishers have already settled with DOJ, so Apple is the only company going to trial. 

This all started in April 2012, when 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, and 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 with this because they thought the prices were too low.

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.

In April of this year, DOJ used an old email from former Apple CEO Steve Jobs as evidence in the e-books case. The email (dated in 2010) from Jobs to James Murdoch of News Corporation 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.”

U.S. District Judge Denise Cote, who is overseeing the trial, said last month in a preliminary hearing that the e-books price fixing case seemed to fall in favor of the DOJ
 
"I believe that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of e-books, and that the circumstantial evidence in this case, including the terms of the agreements, will confirm that," said Cote.

Source: Reuters



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RE: Am I reading this wrong?
By Motoman on 6/4/2013 1:18:43 PM , Rating: 2
They formed a cartel and participated in price-fixing. That's illegal, period.

Anyway, the publishers should be having their profit margins go through the roof. The cost to produce a real book is very high...equipment, labor, materials, factory, etc. The cost to produce an e-book is, well, not significantly higher than zero.

The entire cost of production and distribution has essentially been cut completely out of the equation. The editor saves the final version and emails it to Amazon. Done. Revenue from that point forward is practically 100% profit.

I have no idea what the publishers are whining about.


RE: Am I reading this wrong?
By testerguy on 6/4/13, Rating: -1
RE: Am I reading this wrong?
By Motoman on 6/4/2013 1:50:29 PM , Rating: 5
Wow you're lost.

OK sure, we'll let the courts play this out. So if you want to keep your head firmly planted in your a$s for a while and pretend what Apple was doing was legal, you just keep on doing that.

As for manufacturing and distribution costs of books, you're so far off the charts it's not even funny. You're trying to claim that that cost is ~3% of the book's price. That's a ridiculous lie.

Granted that dedicated publishers with their own facilities will have a tighter control on manufacturing costs than a 3rd party provider, here's a good look at what it would cost an average Joe to get a book manufactured in volume by a legitimate book manufacturer:

http://connect.lulu.com/t5/Product-Pricing-Informa...

If you ordered 10,000 copies of a 200 page 6x9 paperback, in black & white and no other frills, it works out to something like $5.80 per book. And that's just manufacturing cost - you've got distribution costs on top of that. So if you sell your paperback for ~$12, about 50% of it is already caught up in manufacturing alone.

Even if you cut that in half for a publisher that owns it's own manufacturing facilities, you're still at 25% of price for manufacturing before factoring in distribution costs. Hell, even if the big publishers can do it at a quarter of what it costs a self-publisher, it's still ~12.5% before you box it up, load it on trucks, and ship it around.

So...your 50p per £15 book? Please. Stop spilling your stupid on the internet.


RE: Am I reading this wrong?
By retrospooty on 6/4/2013 1:54:12 PM , Rating: 2
"Stop spilling your stupid on the internet."

It's all he's got. He could spill his pompous and arrogance as well, but it wouldn't matter. ;)

Defending their BS lawsuits, defending their "superior" products, defending the crappy moves they make and now defending the price fixing... Ugh. I don't even have the words to describe what a ridiculous waste of skin this clown is.


RE: Am I reading this wrong?
By testerguy on 6/5/13, Rating: -1
RE: Am I reading this wrong?
By BRB29 on 6/4/2013 1:38:23 PM , Rating: 1
Yes but they used to sell books for $40+. The cost of printing and shipping per book is much less than $5.

You also forget that there's a fixed cost to their operation before variable cost. They still have to print books, just much less. The fixed cost is still there while the variable costs decreases. Overall, their operation and production expense is there. With the decrease in ASP and profits per book, they are in grim financial situation. Publishers really need to restructure and be more efficient instead of suing people for money.

We all know they're all still holding us by the throat with text book pricing for school. Those authors barely gets any money yet the books are outrageously priced. They changed the book around without adding anything new and call it a new edition to make more money. Publishers are really disgusting and I hope they get their wake up call. Anybody trying to make money off broke college students trying to make it through school is evil.

quote:
They formed a cartel and participated in price-fixing. That's illegal, period.

I looked at ebooks for school and reading all the time. The same book is cheaper on amazon than apple. How is that price fixing?


RE: Am I reading this wrong?
By Motoman on 6/4/2013 1:54:45 PM , Rating: 2
quote:
The book publishers were accused of partaking in an agency sales model with Apple, and the publishers could not let rivals sell the same book at a lower price.


I don't know what to tell you about why you might find the ebook cheaper on Amazon at the moment. The core of the Apple cartel was about not letting anyone else sell the books any cheaper, and that verbiage was in their contracts.

I don't believe that your manufacturing & distribution cost estimate is correct, but even if we pretend it is that's $5 that goes right back into their pockets.

I agree about your points on textbooks...to a point. Sure, we can complain about how overpriced they are, but accusing a company of being "evil" because they seek to maximize there revenue is off-kilter. They're charging a price that the market is apparently willing to bear. And that's about all that can be said about that.s $5 that goes right back into their pockets.

I agree about your points on textbooks...to a point. Sure, we can complain about how overpriced they are, but accusing a company of being


RE: Am I reading this wrong?
By BRB29 on 6/4/2013 2:30:23 PM , Rating: 1
quote:
Sure, we can complain about how overpriced they are, but accusing a company of being "evil" because they seek to maximize there revenue is off-kilter. They're charging a price that the market is apparently willing to bear. And that's about all that can be said about that.s $5 that goes right back into their pockets.


How could you say that when the class specifically state I have to use that ISBN and there's only 1 publisher. Schools usually have a close relationship with publishers. Amazon and many other book retailers made text books cheaper. The new thing publishers are doing now is make "special" edition books for that specific school. Usually there's hardly any difference besides a CD and account for some online study guide/quizzes.

Yea I go to GMU and I was forced to buy GMU edition books all the time. The book itself has no difference with the regular version. It comes with a CD and account that you cannot get anywhere else unless you buy that book there new. It normally cost an additional $50-100. Buying a used book is useless because the teacher requires you to complete online materials.

Then when I dig deeper I hear from the staff and several professors that the school has a contract with publishers. Several professors also have contracts with them.

I think you may have been out of school in a long time. Education is a business these days and a lucrative one.


RE: Am I reading this wrong?
By Motoman on 6/4/2013 2:52:34 PM , Rating: 2
Oh, believe me, textbooks were horrendously expensive when I was in school too. The contracts and such have been the norm for decades. None of this is new. Well...any online bits would be new since I was in school...the internet had just begun at that point. I was one of a select few students who was allowed to remotely access the school's mainframe (via my boss 2400 baud modem) to do my programming work.

This was a time when IBM sponsored our computer labs...some of which were OS/2. And our school had one of hte first 1Gb hard drives ever produced for "mass consumption" - it was about the size of a mini-ATX tower by itself and cost something like $2,000.

So yeah...long time ago. But the same issues were at play. If colleges wouldn't accept the contracts and students wouldn't go to those schools and pay their costs, then things would change. They may ultimately anyway, with the needed concern for the cost of education at the moment.


RE: Am I reading this wrong?
By lightfoot on 6/5/2013 11:10:49 PM , Rating: 3
The publishers have already admitted guilt and have settled with the Department of Justice.
Per the New York Times, the reason books are currently cheaper on Amazon:
quote:
The settlement calls for the three publishers to end their contracts with Apple within one week. The publishers must also terminate contracts with e-book retailers that contain restrictions on the retailer’s ability to set the price of an e-book or contain a so-called “most-favored nation” clause, which says that no other retailer is allowed to sell e-books for a lower price.


Their contracts with Apple have already been deemed illegal. The book publishers broke the law. The only question that remains is would they have been able to do it without Apple's help. The very likely answer is "No." It is very unlikely that the publishers could have coerced Amazon, Walmart, or any other retailer into the agency model had Apple not forced the issue.

Keep in mind too that the Most-favored nation clause by its self does not constitute price fixing. Only the combination of the MFN and the mandatory 30% cut that Apple takes does.

For example: A publisher sells a book to Amazon for $10. Amazon chooses to sell that book at cost. The publisher still gets $10, Amazon sells more books and more Kindles, and customers pay less. Everyone wins, with the possible exception of Barnes and Noble and Border's.

Then Apple enters the market and tells publishers, "you can't allow Amazon (or anyone else) to sell the same book for less than us." (This is the most-favored nation clause.) They then tell the publisher that they will take 30% of the sale price right off the top and only pay the publisher the remainder. The only benefit to the publisher is that they get to set the price. The publisher then has to go to every other book seller in the world and tell them what price to sell their books for. (This is called the "Agency" model, where the seller acts as an agent of the publisher.) The publisher also doesn't want to be paid less than they were before, so they set the price to $15 dollars (this allows Apple to take their 30% cut and still leave at least $10 for the publisher.)

In this case:
1. Apple (and all other book sellers including Amazon) win - they are guaranteed a 30% margin on all sales.
2. The publishers don't lose (or gain) anything other than a possible change in the quantity of books sold.
3. The customers (at all booksellers) lose - they pay more for the same book.

Understandably the Department of Justice shredded those contracts. Consumers were clearly being harmed by a cartel of book publishers. The question remains, was it Apple's fault?

I think that the key finding will be that all the book publishers strongly resisted the most-favored nation clause. The only reason that any of them agreed to it was because Apple required it. In my book, that makes Apple guilty.


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