Apple was the big loser in federal court today, having been found guilty of conspiring to gouge consumers and kick Amazon in the (digital) gut by fixing e-book prices. This seems like a victory for consumers, who would obviously prefer Amazon's $9.99 e-book prices—and a loss for the five publishers who colluded with Apple to raise that price, in what turned out to be a losing gamble.
On Wednesday, Manhattan Federal Judge Denise Cote found Apple guilty of getting together with publishers (Hachette, Macmillan, HarperCollins, Penguin, Simon & Schuster) and working together to raise the price of e-books, Reuters reported:
According to the plaintiffs, the conspiracy was designed to undercut online retailer Amazon.com Inc's dominance of the fast-growing e-book market.
Amazon at one time held a 90 percent share of the market, buying e-books at wholesale and then selling them at below cost to promote its Kindle reading device.
Apple, in contrast, entered into so-called "agency agreements" in which publishers were able to set higher prices and pay commissions to the Cupertino, California-based company.
Apple was actually the only company that showed up in court. The five publishers settled. As The New York Times noted, they find themselves in an especially perilous position:
The antitrust battle underscores the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy content with the push of a button. While the publishers want to embrace new media, they are also trying to protect their profits and retain control of their businesses.
They'll have to find another way to bolster their bottom lines.
"As part of their settlements, these companies were ordered to end agency pricing agreements for two years, and to stop 'most favored nation' agreements that could guarantee Apple or others the lowest prices," explains The Verge's Adi Robertson.
Those "agency pricing agreements" allowed Apple and publishers raise the prices of e-books from $9.99 to $12.99 or $14.99 —a pricing model that would allow them to circumvent Amazon's rock-bottom-pricing strategy. "Without Apple's orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010," Cote wrote in her judgment.
Apple remains defiant, saying in a statement that it will appeal the decision:
Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations. When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.
The irony of this debate over e-book prices is that e-book price points have steadily been trending downward. "Since late October, as many of those publishers sign new agreements with book retailers, the average price of a best-selling e-book has dropped from an average of $11.79 to $6.95," CNBC reported. And with e-books selling for deep discounts and some e-books going for free, you have to wonder how much lower can prices dip—or if that dip, at this point, is significant enough to make a significant difference for consumers.
This article is from the archive of our partner The Wire.
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