Even before being sued by the a group of states and the DOJ (along with
the major publishers), Apple's attempt at cornering the e-book market was
a failure. Apple could only wrangle less than 10% of the market -- and
many of those who read books on iPads were doing it with the Kindle app.
U.S. Alleges E-Book Scheme
Lawsuit Says Apple, Publishers Colluded to Raise Prices; Three Will Settle
Three of the publishers settled with the Justice Department, agreeing to
let Amazon and other retailers resume discounting of e-books. Settlement
of a separate suit filed by 16 states and U.S. territories could lead to
tens of millions of dollars in restitution to consumers who bought e-books
at the higher prices.
Amazon called the settlement a victory for consumers and users of its
Kindle e-reading device. It promised to renew discounting, which could put
pressure on such rivals as Barnes & Noble Inc. "We look forward to being
allowed to lower prices on more Kindle books," Amazon said.
Apple and two publishers didn't settle and are on track to face the
government in court. Apple declined to comment but earlier denied acting
in concert with the publishers.
Chief Executive John Sargent of Macmillan, a unit of Verlagsgruppe Georg
von Holtzbrinck GmbH, was one of the two CEOs to reject the government's
offer. He said a settlement would help Amazon "recover the monopoly
position it had been building" and "have a very negative and long-term
impact on those who sell books for a living."
That said, Macmillan is among four publishers that are proposing to settle
a parallel investigation in Europe. Europe's competition commissioner,
Joaquín Almunia, said Apple also has proposed settling in Europe.
As it prepared to introduce its first iPad tablet computer in early 2010,
Apple negotiated with publishers to offer their books in its new
iBookstore. Matching Amazon's prices would have involved taking a loss on
The suit contends Apple seized on publishers' discontent and offered them
a switch to agency pricing on the condition they imposed the same
arrangement on Amazon and other retailers. The suit cited a passage in the
biography of Apple's late chief executive, Steve Jobs, where he proudly
called the offer his "aikido move." Describing Apple's strategy for
negotiating with the publishers, Mr. Jobs said, "We'll go to the agency
model, where you set the price, and we get our 30%, and yes, the customer
pays a little more, but that's what you want anyway."
According to the suit, none of the publishers could, individually, force
Amazon to accept the new arrangement. A single publisher risked being
dropped by Amazon and might lose sales if it was the only one to raise
Aware of that problem, Apple executives worked with the publishers in late
2009 and early 2010 to give them "assurances of solidarity," the U.S. suit
alleges. It says the publishing chief executives held quarterly gatherings
at such Manhattan restaurants as Alto and the Chef's Wine Cellar private
room in Picholine.
"Our goal is to force Amazon to return to acceptable sales practices," a
publishing CEO wrote in a December 2009 email cited in the suit. "To
succeed our colleagues must know that we entered the fray and follow us."
The government said publishing executives knew what they were doing was
wrong and took "steps to conceal their communications with one another,
including instructions to 'double delete' email."
After Amazon started reaching out directly to authors, one publishing
executive said he was angry at the potential competition and expressed his
desire "to screw Amazon," the suit said.
In 2009, before the new pricing, Amazon was estimated to have around 90%
of the e-book market. Its share has now slipped to around 60%, according
to Mike Shatzkin, chief executive of the Idea Logical Co., a New York-
based publishing consultancy. He estimated that Barnes & Noble has between
25% and 30%, and Apple has much of the remainder.
One question is whether Apple will remain in the bookselling business if
it is forced to match Amazon's discounted prices. Apple's e-book market
share is small and immaterial to its business, analysts say. But it may be
unwilling to cede the entire category to Amazon.
Whatever happens to Apple's bookstore, customers should still be able to
read e-books on the company's devices. While Forrester says that slightly
more than half of iPad owners say they use the device to read books, many
do so on third-party iPad apps like the Kindle app.
Apple's empire is falling apart, bit by bit. When the iCult shepherd
falls, the iCultists start wandering off.
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