U.S. DoJ Investigates Apple, Publishers for Alleged Antitrust Violations

Does Apple’s Nudging of the Industry To an Agency Book Pricing Model Constitute Collusion?

Themis, Greek goddess of Justice. If only it were that simple, eh? Here’s perhaps the most interesting book-related story to appear while I was busy convalescing from a torn quadriceps tendon (in the long term) and hacking up multicolored phlegm (in the short term): the U.S. Department of Justice (DoJ) is investigating Apple Inc. and five U.S. publishers for possible antitrust violations.

It’s things like this that make me miss being a journalist – which probably explains in large part why blogging is such a big hobby for me (I don’t do nearly enough to promote it; I just like to indulge myself). Anyway, credit where credit is due; I first spied the antitrust story on Locus; it provides a link to a comprehensive story by the Wall Street Journal. That evil magnate Murdoch hasn’t quite ruined the Journal yet – say what you will about it’s conservative slant, it has been a source of quality journalism for many years, and hopefully will continue to be so, despite its current owner.

But I digress yet again. In addition to Apple the DoJ is looking at Simon & Schuster Inc., Hachette Book Group, Pearson PSO, Penguin Group, Macmillan and HarperCollins Publishers Inc. HarperCollins, incidentally, is owned by the aforementioned Rupert Murdoch’s News Corp., which, as alluded above, also owns the Wall Street Journal (WSJ). Ostensibly we can conclude from this that Murdoch hasn’t gotten his fingers too deep into the WSJ’s newsroom.

The WSJ says, citing unidentified sources – “people familiar with the matter” – that the DoJ is investigating whether Apple and these publishers colluded with one another to drive up the price of ebooks. Apparently Apple is trying to nudge the industry away from the standard wholesale model of book pricing, in which retailers buy books for half the cover price and then charge what they deem fit, to an “agency model,” which is how Apple operates its iTunes store. From the WSJ, to wit:

As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an agency model, under which the publishers would set the price of the book and Apple would take a 30 percent cut. Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price.

“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway,'” Mr. Jobs was quoted as saying by his biographer, Walter Isaacson.

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. “They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,'” Mr. Jobs said.

The Justice Department believes that Apple and the publishers acted in concert to raise prices across the industry, and is prepared to sue them for violating federal antitrust laws, the people familiar with the matter said.

The publishers have denied acting jointly to raise prices. They have told investigators that the shift to agency pricing enhanced competition in the industry by allowing more electronic booksellers to thrive.

Like I needed another reason to loathe Apple and its business practices.

Another interesting aspect to this story is that for once it’s not 800-pound gorilla Amazon getting beat up over pricing – and I’m not defending Amazon – but it’s the spectre of Amazon that Apple and these publishers cite in defending the agency model practice.

William Lynch, chief executive of Barnes & Noble, gave a deposition to the Justice Department in which he testified that abandoning the agency pricing model would effectively result in a single player gaining even more market share than it has today, according to people familiar with the testimony. A spokeswoman for Barnes & Noble declined to comment.

Prior to agency pricing, Amazon often sold best-selling digital books for less than it paid for them, a marketing stance that some publishers worried would make the emerging digital-books marketplace less appealing for other potential retailers. The publishers’ argument that agency pricing increased competition hasn’t persuaded the Justice Department, a person familiar with the matter said. Government lawyers have questioned how competition could have increased when prices went up. Amazon declined to comment.

Incidentally, the fact that everyone involved declined to comment, and the fact that there were no angry denials and or rebuttals following the publishing of the WSJ’s story March 9, that pretty much confirms that what the story claims as true. I can say that from personal experience; if there were some facts or conjecture in the story that weren’t correct, you can bet Apple, et al., would have been up in marketing arms and the press releases would issue forth like a volley of arrows in a Chinese historical epic. Television interviews would be conducted in which executives waxed indignant.

But when everyone continues to clam up, that’s a sure sign that the story is correct.

And while we’re on the subject of Apple, ebook publishing and naughty business practices …

Apple Refuses to Sell Books that Link to Amazon

Apple Inc.'s current corporate logo; the use of which here I believe constitutes fair use, yes?Over at paidContent – a great digital media trade mag – there is an interesting story by one nonfiction author Seth Godin and his experience with selling a short ebook through Apple. It seems Apple rejected his book because it uses links to Amazon in its citations of other works. To wit:

I just found out that Apple is rejecting my new manifesto Stop Stealing Dreams and won’t carry it in their store because inside the manifesto are links to buy the books I mention in the bibliography.

Quoting here from their note to me, rejecting the book: “Multiple links to Amazon (NSDQ: AMZN) store. IE page 35, David Weinberger link.”

And there’s the conflict. We’re heading to a world where there are just a handful of influential bookstores (Amazon, Apple, Nook…) and one by one, the principles of open access are disappearing. Apple, apparently, won’t carry an ebook that contains a link to buy a hardcover book from Amazon.

Now I should mention here that you shouldn’t be mislead by the term manifesto. Godin isn’t some self-published yahoo – see what I did there? – with some crazy, moralistic rant – although the title does kind of suggest that, at least to me. He’s an Internet entrepreneur, and was one before it was cool, as well as the author of 13 books that have been translated into 30 languages.

In fact he makes marketing seem almost not evil.

So … what does it all mean? That remains to be seen. But one thing is for sure: we’re living in a Chinese proverb; we live in interesting times. The world of ebooks and digital publishing is still a young one, remember — less than a decade old, really.

As for me, I don’t want to see Amazon, much as I appreciate it (for the most part), become the sole major seller of ebooks. By the same token, I don’t want to line the pockets of Apple’s c-level management and shareholders anymore than they already are. Nor do I want to see publishers colluding on prices, naturally.

It might be different if authors themselves were getting rich as a result, but I’m sure the average author isn’t going to see any benefit from price fixing. Contrary to popular belief, with a few notable exceptions, authors by and large aren’t living high on the hog, anymore than the rest of us are.

Anyway, something to think about the next time you stand in line for a nominal upgrade to your precious iPhone or iPad, or download something from the Apple store. It will be interesting to see how the ebook marketplace shakes out over the next few years.