|Figure A: Apple's Steve Jobs and the iPad|
You can expect a whole bunch of blog hype, and maybe Apple will settle or even win in court (they can afford aluminum unibody lawyers with MagSafe Thunderbolt connectors and retina teeth or something) but it comes down to this:
- Apple told the publishers it wanted to help them sell books at prices that made the publishers happier
- Apple told the publishers it was only really interested in getting into the market if all major publishers were on board
- Apple encouraged the publishers not to be left out, telling each of them that all the others were doing it
- The publishers and Apple were really excited about this, not because of consumer benefit or business improvement, but because of the opportunity to break Amazon's market share
- Most importantly, Apple's plan would have raised prices for books for consumers (and by the way, that's what really upsets the DOJ).
- Publishers were so desperate to raise a perceived price point they were even willing to accept slightly less cash on book sales as a result of Apple's regime (in the short term...then publishers would certainly raise prices more). The primary beneficiary of that initially higher price (and subsequently much higher price)? Apple, who would collect 30%.
There is documentation which appears to explicitly and implicitly back those assertions up.
All 5 of the book publishers have already settled with the Department of Justice.
I expect many Apple apologists will say "Apple was just trying to do the same thing they did with music, what's the difference here?". Well, there are several key differences here:
- When the iTunes Music Store first launched, there was not a flourishing market for purchased digital music. The market was highly fragmented, and most content was not available. Put another way, there was no Amazon to fight - it was Napster and terrible niche sites that tried to sell restricted downloads for $3 each that didn't play anywhere. So Apple's effort was not aimed at displacing a direct competitor
- The iTunes Music Store acted to improve price and value for consumers relative to existing markets
- There were far fewer strong-arm tactics involved with getting music content providers on board, partially because at that time Apple was much less powerful than it is now (at the time of launch, Apple had a "paltry 3% share" of the marketplace). Apple pitched it as an "experiment"!
- Apple told the labels what Apple's retail pricing would be, but it did not demand or encourage the labels to change their wholesale pricing (they could charge Apple whatever they wanted), and Apple did not give the labels control over retail pricing. At launch time, it was either "let us sell the songs at a retail price of $1, or take a hike".
|Figure B: Amazon's Jeff Bezos and the Kindle Fire|
The collusive activity encouraged by Apple resulted in Amazon losing the ability to sell books - the publishers (after colluding) forced Amazon to raise ebook prices. Again, they were so desperate to do this they actually made Amazon more revenue, and themselves less revenue. As one of the publishers said (trying to defend their actions), "it was a dumb way to do price fixing".
But the end result? We all paid more money for ebooks.
It has been said no company gets big by being nice. It's worth thinking about that the next time you catch yourself putting imaginary halos around Google or Apple or Yahoo! or Amazon or any corporation you think is virtuous or cool. Those companies have sent people to Chinese prisons, given confidential information to governments, censored media, acted as pseudo-police...and that's just the stuff we know about.
Amazon is dominant in several areas. That is cause for some concern - serious competition benefits everyone. Before the collusion, they had 90% market share for ebooks. After the collusion, 60%. Some of that is clearly attributable to the introduction of the iPad - the first compelling Kindle alternative. But some of it is clearly the result of the unfair pricing behavior.
I think of it this way: Both of these balding billionaires have reputations for being smart and mean. But one of them, when he had market dominance, fought for book prices to be lower for you, even if it meant he paid publishers the same amount and lost money on the books.
The other fought for them to be higher for you, even if it meant publishers got paid less, and his company pocketed the difference.
(And to be clear, in both cases, they felt this would make their companies stronger - they were in it to make money for their shareholders and themselves. Books or music or media is just incidental.)
Apple IS the music business now. iTunes has a 63% share of the digital download music business - and remember, that is starting from 0% just ten years ago. Amazon has been fighting a tough battle, and has about 22%. Both companies are rumored to be working on Rhapsody-esque streaming music services.
Flip the story around. If Amazon and the record labels were accused of collusion with the intent of displacing Apple, who would you believe?
Well, at least in terms of the labels, it wouldn't be the first time. The labels have been frequently investigated by the Department of Justice, and almost as frequently found guilty.
On top of it all, most modern pricing research around media seems to indicate there are huge net wins for lowering prices rather than raising them. This has been repeatedly demonstrated with DVDs and video games.
If nothing else, perhaps we should be worried about how rapidly we're forsaking tangible paper books that can be easily loaned, copied, and preserved for ephemeral digital "licenses" that can be revoked, changed, memory-holed, edited, and tracked by public or private entities.
Now I'm going to go listen to some digital music while I read an ebook! Seriously!