The Road to Apple's Ebook Price-Fixing Litigation Settlement

 
 
By Don Reisinger  |  Posted 2014-06-18 Email Print this article Print
 
 
 
 
 
 
 
 

Apple has done what many thought it wouldn't—settle a years-long ebook price-fixing lawsuit, putting to rest the possibility of the company having to come up with $840 million in damages. The exact amount of the settlement was not announced, but it's believed to be significantly less than the figure the plaintiffs were seeking in the ongoing case that Apple tried hard to win. The case centers on an agreement Apple and book publishers allegedly entered into to boost prices on ebooks and effectively cut into Amazon's dominance of ebooks in the marketplace. Not long after the launch of Apple's iBooks in 2010, major book publishers and Apple were charged with an antitrust violation. Apple and the publishers were charged with colluding on book prices to hurt competition and ultimately hamper the ability for consumers to get ebooks at a more affordable price. All of the companies initially claimed innocence, but before long, they decided to settle out of court rather than sit before a judge and defend themselves. Apple, as the last holdout, has put an end to the litigation. Once a federal judge approves the settlement, as expected, Apple can put the case behind it, and no doubt it will quickly fade from memory. This slide show looks back at the key elements of the case that brought us to this day.

 
 
 
  • The Road to Apple's Ebook Price-Fixing Litigation Settlement

    By Don Reisinger
    The Road to Apple's Ebook Price-Fixing Litigation Settlement
  • It Wasn't Just Apple

    Apple has been getting most of the headlines surrounding the ebook price-fixing lawsuit, due in large part to its prominence in the global business space, but it wasn't alone in the alleged activities. A wide range of major book publishers, including Simon & Schuster, HarperCollins, Macmillan Publishers and the Penguin Group, were also cited in the lawsuit.
    It Wasn't Just Apple
  • It Could Have Been Expensive

    It's possible that if Apple and the publishers had not settled their cases out of court, the damages could have easily risen to billions of dollars. In fact, Apple alone was expected to have to pay $840 million in damages before it settled its case out of court. The other companies settled their cases for millions of dollars. This was no small case, and it promised to be even bigger if the companies didn't settle out of court.
    It Could Have Been Expensive
  • The Publishers Were Pleased

    So, what's the background? At the time Apple started holding discussions with publishers in 2009, they wanted to find ways to profit more on ebooks. Apple offered that opportunity by allowing them to set their own prices—something called the Agency Model—and receive 70 percent of the revenue off those titles. The terms were better than they were with Amazon, and they were more than happy to take Apple's deal.
    The Publishers Were Pleased
  • Amazon Was a Concern

    Amazon was a huge issue for the publishers. In 2009, when the Kindle e-reader was just taking off, Amazon owned nearly 90 percent of the ebook market and was setting its own prices on books. The publishers, meanwhile, got a smaller share of the books Amazon was selling, which topped out at $10 to download the best titles. Amazon's size and share of the revenue was a major concern for the publishers.
    Amazon Was a Concern
  • It Was About the Publishers' Take

    Ultimately, when it comes to why the publishers decided to take Apple's deal, it all comes back to simple math. It's not clear exactly how much publishers were making on the sale of each Amazon Kindle ebook, but it's believed that the percentage was significantly lower than the 70 percent Apple was offering publishers. What's more, Apple pushed its ebook pricing higher, topping out at $15. That resulted in far more cash in the publishers' pockets and even more reason to take on Amazon.
    It Was About the Publishers' Take
  • Steve Jobs Wanted Control

    Then Apple CEO Steve Jobs made it clear in comments made both publicly and in private that he wanted to take Amazon down in the ebook space. For Jobs, it was all about control. He indicated on several occasions that if he could incentivize publishers to take his deal by offering them more money, he could in turn make more cash off the sale of ebooks. More importantly, he could use that to keep customers locked into his company's services and keep generating revenue off all of its offerings.
    Steve Jobs Wanted Control
  • Prices Went Up Dramatically

    After Apple announced iBooks and raised prices, Amazon had an issue. The company was being forced into an agency model that Jobs set up for his own gain or face not having books to sell, since publishers wouldn't offer their digital titles to the e-retail giant. After Amazon switched to the agency model, it reported hefty price increases, including a 14.2 percent raise for new titles, a 43 percent jump for New York Times bestsellers and an 18.6 percent increase on all titles on average. It was a mess.
    Prices Went Up Dramatically
  • Apple Argued for Its Innocence

    Not surprisingly, Apple argued that what it did was perfectly legal. Indeed, the company said that it could not control what publishers would do, but could only establish its own pricing model for its own digital service. Apple also used the defense that its loss would mean other companies would shy away from competing in the ebook space. The arguments didn't hold up, and U.S. District Court in New York found Apple in violation of antitrust regulations.
    Apple Argued for Its Innocence
  • Prices Are Back Down

    Now that the publishers have all settled and Apple is backing down, book prices have actually come down. Amazon is again able to offer its ebooks at lower prices, and while Apple is still offering a high percentage in revenue share to publishers, the company's own iBookstore shows prices that match those on Amazon. Interestingly enough, ebook sales are now higher than ever and, despite getting a higher revenue share in the agency model, digital book publishers are generating more cash now than they were in 2010 when they were following Apple's lead, according to recent research.
    Prices Are Back Down
  • Amazon Is Still a Concern for Publishers

    The battle between Amazon and publishers isn't close to over. Hatchette, one of the book publishers involved in the ebook lawsuit, is fighting with Amazon over royalties. The issues have gotten so bad, in fact, that Amazon has stopped selling some popular Hatchette books and, as of this writing, won't start selling J.K. Rowling's next title unless they can come to an agreement.
    Amazon Is Still a Concern for Publishers
 
 
 
 
 
Don Reisinger is a freelance technology columnist. He started writing about technology for Ziff-Davis' Gearlog.com. Since then, he has written extremely popular columns for CNET.com, Computerworld, InformationWeek, and others. He has appeared numerous times on national television to share his expertise with viewers. You can follow his every move at http://twitter.com/donreisinger.
 
 
 
 
 
 

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