Apple’s e-book ‘cartel’

Filed under: Business, Computer, electronics

Apple’s e-book ‘cartel’

A revenue chart for the quarter would look very different, with Apple soaking up nearly all the profit there is to be made selling tablet computers these days. See here for how Amazon will “vaporize” the market for everyone but Apple.Apple was more that two years late to the e-book market. Amazon had launched the Kindle in November 2007 and was selling untold numbers of e-books for $9.99 apiece. Together, according to an earlier IBM study, the two devices accounted for 10.2% of Black Friday’s online retail traffic.

According to a class action suit filed in the US District Court for the Northern District of California by the Hagens Berman litigation group, the booksellers were “terrified” by the heavily discounted e-book price structure — which lowered the perceived value of printed books — and were looking for a way to force Amazon to raise its prices.If one publisher acted alone to try and raise prices for its titles, that publisher would risk immediately losing a substantial (and growing) volume of sales.

The language of the European Commission’s press release Tuesday announcing the start of a formal antitrust investigation of Apple (AAPL) and five major book publishers doesn’t address the obvious question: If Amazon (AMZN) is the 500-lbs. gorilla in the e-book trade, why has Apple’s much smaller iBookstore been targeted?The answer lies in a deal that Steve Jobs cut with the five publishers named in the probe shortly before the iPad press conference in January 2010, when he announced the formation of the iBookstore.

“Fortunately for the publishers,” according to Steve Berman, Hagens Berman’s lawyer, “they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple.”Given Amazon’s first-mover advantage and ever growing installed user base, publishers knew that no single publisher could slow down Amazon and unilaterally force an increase in eBook retail prices.On Nov 10., the Department of Education’s IT department slammed on the brakes.

Not wanting to risk a significant loss of sales in the fastest growing market (eBook sales), the publishers named as defendants (“Publisher Defendants”) solved this problem through coordinating between themselves (and Apple) to force Amazon to abandon its pro-consumer pricing.Under the Publisher Defendants’ new pricing model, known as the “Agency model”, the Publisher Defendants have restrained trade by coordinating their pricing to directly set retail prices higher than had existed in the previously competitive market.

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