Friday, May 18, 2012

iBookstore: Return of the complaint against Apple and publishers

Several details have emerged of a complaint filed by 17 states against Apple [PDF] and two publishing houses. This is always the accusation of collusion between Apple, Macmillan and Penguin to fix - upward - the prices of electronic books. The complaint is not new, but some elements remained hidden and they have just been made public (via PaidContent).

Initially, in January 2010, the first iBookstore iPad was announced with the backing of five of the six largest U.S. publishing houses, the latter joined the band a year later. But two years later (last month), three of these publishers are resigned (Hachette, HarperCollins and Simon & Schuster) to sign an agreement with the U.S. Department of Justice (DOJ) and to abandon the sales model adopted at the time, called "agency". Apple and two other partners have chosen to defend them. The sixth and most important of these publishers, Random House, was not under investigation and complaints; it will be understood later why.

Agency model

This is not so much the agency model is criticized (he did nothing illegal in itself, it allows the editor to fix the selling price to the customer) the fact that it has been decided and imposed jointly by all major publishers, led by Apple. With the result, say the plaintiffs, to form a kind of cartel preventing any competition on price e-books, to the detriment of the consumer. Facing them, Amazon, which has every incentive to get the old model where he could decide the selling price on its website, even at a loss to do so since its objective is to first flood the market with its KindleDans the traditional sales model that prevailed until 2010 and the agreement with the DOJ will perhaps update, the publisher sets a selling price for a book (eg $ 26), he then sells the book to the distributor and booksellers in their offers a discount (say 50%, bringing the price to $ 13) and the distributor can then choose a sale price to the customer, located between $ 13 and $ 26.

Amazon has it, a widespread sales price of $ 9.99, to popularize digital format and by extension, his reading lamp. And that, to the chagrin of traditional distribution channels that could not fall back on an electronic device to compensate for the loss of book sales. Since we saw some of them - at least those who could afford - to develop their own reading light (the Nook at the bookseller Barnes & Noble) or take the license of an existing model (Fnac and Kobo).

A big risk for the publisher (and by extension the traditional booksellers) was to see Amazon become omnipotent, require such an even greater discount. Amazon or directly negotiates with authors wishing bypass the installed editors preferring the all-electronic. Finally, by selling at a loss, Amazon popularized the electronic format at the expense of paper generating higher margins.

With the model agency said, publishers on the scene again and set the selling price to consumers, distributors are mere intermediaries that collect their dues along the way.

A front anti-Amazon

The complaint filed by 17 states recalled the chronology of events. We meet Steve Jobs, Eddy Cue, head of Internet services and software from Apple (the cons) and the small world of publishing houses and major booksellers. In the end of summer 2009, Hachette, HaperCollins, Macmillan, Penguin and Simon & Schuster - who were dubbed "The Club”, have agreed to proceed with an increase in the selling prices of e-books, say the plaintiffs. Second stage, in mid-December, four of them (except Penguin) agreed to delay the provision of certain electronic format most recent books. The objective was to put pressure on Amazon to renegotiate the prices up.

In mid-December, Apple approach publishers to announce that he will sell books (the iPad will be announced one month later). It was during these conversations that Apple discovered that Amazon sells e-books cheaper ($ 9.99) than it pays them to publishers. Unlike Amazon, Apple wants to make a profit on the sale of each book, or at least not lose money. Macmillan and Simon & Schuster him at that time spoke of the agency model: a price - higher - imposed by them and on which the distributor - Apple and its competitors - will charge its commission. Between 4 and 6 January 2010 (the iPad to be announced on 27 and time is short), Eddy Cue sends an e-mail to publishers and offer them a contract around the agency model includes the usual 30% commission from Apple. They shall also submit a grid that would see the prices of some bestsellers increase significantly. The complainants consider that from that time, Apple has made every effort to ensure that this sales model is adopted and applied collectively to all distributors.

Apple's role is described as active in the organization, the establishment and spread of this new policy. The company reassured and each of his interlocutors on the fact that others would give their agreement. Just after the demonstration of the iPad, Steve Jobs has publicly suggested that prices would change. When Walt Mossberg of The New York Times noted that his books on iBoosktore seem to be sold more expensive than Amazon (iBookstore not open until the following summer, but you could see rates in the demo made by jobs), the boss of Apple has briefly responded that the prices of competitors will align on its own [video 2 min].

Before that, on January 11, after the price proposals, the CEO of Macmillan returned to Eddy Cue for a reduction in the commission of 30%, Apple refused. During these negotiations, some publishers were afraid that their peers do not follow the movement, and see their prices rise, while in others they remain lower. Apple, on January 21, urged all partners to reach an agreement, because the iPad would be announced the week follows.

 Apple told them that everyone had signed or was about to do, with other. Everyone then called his counterparts to verify the reality of the progress of these discussions. The frequency and destination of these calls were recorded and were kept on file by the investigators. All things that can lead to the thesis of collusion.

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