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There is a certain irony in the fact that the ebook telling the tale of the attempt at price fixing by Apple and five of the big six publishers that led to a civil lawsuit by the Department of Justice, is entitled, The Battle of $9.99: How Apple, Amazon, and the Big Six Publishers Changed the E-Book Business Overnight and costs only $1.99. Even better, it is a Kindle single. Only 58 pages in length, written by Andrew Richard Albanese and published by Publishers Weekly, it is a very good overview of the events leading up to the charges brought by the DOJ against Apple and the publishers. It is based on the DOJ complaint (which I outlined and included a link to in this diary) as well as testimony from the trial which concluded at the end of last month.

Apple contended at the trial that it had done nothing wrong by entering into agreements with the publishers that would guarantee it a most favored nation status by declaring that Apple could match the lowest price offered by any other digital vendor (read Amazon). The publishers went with an agency model, that allowed them to set the price of the ebooks and pay the retailers a flat 30% commission.

The fear of Amazon's $9.99 pricing under the wholesale model was so great that even though authors would take a serious financial hit under the agency model, they supported it with a statement on the website of the Author's Guild expressing their belief that the publishers had "no real choice."

In records cited by the government, Macmillan concluded that “the royalty payment for each sale of an e-book with the corresponding hardcover list price of $ 26.99 fell from $4.04 under wholesale to $2.28 under agency,” for example. And for a $14.99 trade paperback, “the decline was from $2.25 to $1.75.”

Kindle Locations 646-648

So, when the iPad was introduced in January, 2010, with agency agreements from all but Random House, Amazon was forced to agree to the same terms, resulting in the end of the promised $9.99 cap on every New York Times Bestseller-listed book. And increased prices for the consumer. And lowered earnings for the authors.

When the five publishing houses settled with the DOJ they agreed to refund $175 million to customers in the form of credits, some as high as $1.25 per book. And because they are credits to the customers' accounts and not cash refunds, the publishers will probably get most of that money back as consumers use them to buy more books. Those of us affected might see credits as early as this summer.

Judge Cote acknowledged the arguments of the publishers and Apple that Amazon's pricing policy could serve to restrict competition in the ebook marketplace by virtue of its 90% market share. The low prices could cause sales of hardback books to decline, hurting the entire industry, both retail and publishing.

But protecting business interests, such as brick-and-mortar bookstores, e-book retailers, or existing publishing houses, she explained, is not the type of harm the Sherman Antitrust Act is designed to prevent.

“The birth of a new industry is always unsettling,” she explained. “It is not the place of the Court to protect bookstores and other stakeholders from the vicissitudes of a competitive market.”

Kindle Locations 767-771

The case is now in the hands of Judge Cote, and her decision is expected later this year.

BREAKING UPDATE



In breaking news, instead of taking the months that we thought, Judge Cote issued her ruling today, and Apple lost.
A federal judge on Wednesday found that Apple violated antitrust law in helping raise the retail price of e-books, saying the company “played a central role in facilitating and executing” a conspiracy with five big publishers.
From the Judge's ruling (a pdf file):
Apple and the Publisher Defendants shared one overarching interest -- that there be no price competition at the retail level.  Apple did not want to compete with Amazon (or any other e-book retailer) on price; and the Publisher Defendants wanted to end Amazon’s $9.99 pricing and increase significantly the prevailing price point for e-books.  With a full appreciation of each other’s interests, Apple and the Publisher Defendants agreed to work together to eliminate retail price competition in the e-book market and raise the price of e-books above $9.99.

[snip]

CONCLUSION
     Based on the trial record, and for the reasons stated herein, this Court finds by a preponderance of the evidence that Apple conspired to restrain trade in violation of Section 1 of the Sherman Act and relevant state statutes to the extent those laws are congruent with Section 1.  A scheduling order will follow regarding the Plaintiffs’ request for injunctive relief and damages.

What it means. It means more legal action as anti-trust actions rarely end with the first round. After the hearing on damages and relief, Apple will likely appeal the ruling. According to the New York Times:
 
Keith N. Hylton, a professor at Boston University’s School of Law, said that Apple should have some good arguments to back its appeal, but it will be a difficult fight. “The new problem Apple faces is that the judge’s massive opinion relies so heavily on facts and inferences that an appellate court is unlikely to have room to modify the decision substantially,” Mr. Hylton said.
This is a very big deal, for if Apple loses its appeal, or fails to file one, the DOJ could be allowed to monitor its business practices. And because it is the DOJ, it is likely that they could look over more than just Apple's iBookstore. Mr Albanese, in his book has suggested that there would be nothing to stop the Department of Justice from examining the business practices that Apple employs in its iTunes and App Store as well as its iBookstore.

More news from the digital world of ebooks is below the divider doodle.

  • According to a LexisNexis® press release, the company is joining with OverDrive® to provide digital content to law libraries.
    Give your lawyers and staff around-the-clock access to the library on all major devices. Combine the benefits of a physical book with online functionality — understand the big picture when investigating an unfamiliar topic, and streamline research with intelligent links to online research. Plus, researchers can carry several books on a single device without the added bulk.

     

  • Cory Doctorow has weighed in on the SiDiM that the German Fraunhofer Institute recently released in his Publishers Weekly column, Lost in Translation. This new DRM would act as a watermark by changing punctuation or using synonyms so that each digital copy of a book sold is slightly different than any other. It was included in this diary. After explaining how very easy it would be to hack this type of watermark (compare the texts of two copies using the Unix command "diff" find the changes and modify them), Doctorow goes on to explain how useless SiDiM  would be as a protection mechanism.
    The idea that copyright owners might convince a judge, or, worse, a jury that because they found a copy of an e-book on the Pirate Bay originally sold to me they can then hold me responsible or civilly liable is almost certainly wrong, as a matter of law. At the very least, it’s a long shot and a stupid legal bet. After all, it’s not illegal to lose your computer. It’s not illegal to have it stolen or hacked. It’s not illegal to throw away your computer or your hard drive. In many places, it’s not illegal to give away your e-books, or to loan them. In some places, it’s not illegal to sell your e-books.

     

  • In another innovation, Amazon was granted a patent last week to allow it to add supplemental material to a reader's copy of an ebook that will apparently be tailored to the reader's preferences. The patent, according to Wired,  
    describes a way to enhance Kindle e-books by tacking on supplemental material provided by publishers or reputable sources. The e-books would be personalized by adding additional content within the specific interests of individual readers, or reader types. So, you could be reading A Game of Thrones and an additional story line or illustration (for example, a map) could be accessed from within the book, sort of like a DVD extra.

    The additional material could come from the publisher, or from “trusted contributors.” For example, a book that has been made into a TV series or movie could have additional story lines from those mediums, and this would allow the rights-holder to add them to the book. And while fan fiction writers would have a field day adding additional story to their favorite books, readers will only see suggestions about that additional content if they follow the creator of the extra material — either as an Amazon author or contributor, via a friend relationship on social media, or if the reader has expressed interest in similar content created by similar contributors.

    It seems kind of creepy to me that Amazon would be checking on my social media "friends" in order to tailor its product to what it perceives my preferences to be. And by social media, I would imagine Goodreads, acquired by Amazon a few months back, would be considered, by them, to be social media. But the patent was just granted and Amazon has not announced any plans to implement this ebook enhancement.

  • I'm sure that Amazon's continuing innovations have nothing to do with the Barnes & Noble announcement last month that it is discontinuing the color Nook. It had a lot more to do with the fact that the bookseller lost $275 million in the last fiscal year in its Nook business according to Forbes. Forbes also reported last night that the Barnes & Noble CEO, William Lynch, has resigned.
    Officially, Barnes & Noble offered no explanation for Lynch’s departure. It’s not difficult to read between the lines, though. Lynch, a one-time Palm executive, was unable to push Barnes & Noble into the tablet business, a market heavily dominated by Apple's iPad, and to a far lesser extent, Amazon‘s Kindle. That’s despite Lynch’s best efforts.

  • And last but not least, here are a few very cheap DRM-free books for Sci/Fi fans.

    Humble eBook Bundle II is offering these books as part of a bundle for which you name your own price for the next seven days only:

    Little Brother by Cory Doctorow
    Boneshaker by Cherie Priest
    Spin by Robert Charles Wilson  
    Shards of Honor by Lois McMaster Bujold
    Scroll down to the bottom of Humble Bundle's page to find the average price paid. If you pay more than that for these four, you also get:

    The Last Unicorn by Peter S. Beagle and
    Just a Geek by Will Wheaton

    Even better, you get to decide how much of your donation goes to the author, to a charity and/or to Humble Bundle.

    Story Bundle is also offering DRM-free Sci/Fi for the next thirteen days by independent authors:

    Hopscotch by Kevin J. Anderson  
    In Hero Years...I'm Dead by Michael A. Stackpole
    Santiago by Mike Resnick
    The Disappeared by Kristine Kathryn Rusch
    On My Way to Paradise by David Farland  
    Swarm by B. V. Larson

    If you are willing to pay more than $10 you will also receive
    High-Opp by Frank Herbert and
    The Stars in Shroud by Gregory Benford

Readers & Book Lovers Series Schedule





DAY TIME (EST/EDT) Series Name Editor(s)
SUN 6:00 PM Young Reader's Pavilion The Book Bear
Sun 2:00 PM What's on Your E-Reader? Caedy
Sun 9:30 PM SciFi/Fantasy Book Club quarkstomper
Bi-Monthly Sun Midnight Reading Ramblings don mikulecky
MON
alternate Mondays
2:00 PM Political Books Susan from 29
Mon 8:00 PM Monday Murder Mystery michelewln, Susan from 29
Mon 11:00 PM My Favorite Books/Authors edrie, MichiganChet
TUES 5:00 PM Indigo Kalliope: Poems from the Left bigjacbigjacbigjac
alternate Tuesdays 8:00 AM LGBT Literature Texdude50, Dave in Northridge
alternate Tuesdays 8:00 AM All Things Bookstore Dave in Northridge
Tue 8:00 PM Contemporary Fiction Views bookgirl
WED 7:30 AM WAYR? plf515
Wed 2:00 PM e-books Susan from 29
Wed 8:00 PM Bookflurries Bookchat cfk
THU 8:00 PM Write On! SensibleShoes
Thu (first each month) 11:00 AM Monthly Bookpost AdmiralNaismith
Thu (third each month - on hiatus) 11:00 PM Audiobooks Club SoCaliana
FRI 8:00 AM Books That Changed My Life Diana in NoVa
Fri 8:00 PM Books Go Boom! Brecht; first one each month by ArkDem14
SAT (fourth each month) 11:00 AM Windy City Bookworm Chitown Kev
Sat 11:00 AM You Can't Read That! Paul's Book Reviews pwoodford
Sat 9:00 PM Books So Bad They're Good Ellid

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Comment Preferences

  •  A couple of tidbits. (7+ / 0-)

    1) As of May, 2013, Barnes & Noble's Nook HD and Nook HD+ opened the Google Play store, meaning the Nook HD/HD+'s are essentially Android devices (with some limitations).  The Amazon Kindle app is now available to Nook users (but the reverse is not true); you can read your Kindle books on your Nook HD/HD+ devices.

    2) 3M has been working with a large number of city library systems around the country to create the 3M Cloud Reader, an app available for the PC, Android, and iPad/iPod/iPhone.  It's available here: http://solutions.3m.com/...  If your local library is a member, and you have a library card, you can check out books onto your phone, device, or PC for whatever period of time your local library allows.

  •  so much interesting information here (3+ / 0-)

    I love your e-publishing series.

    I'm not sure how I feel about the ruling, though. Many authors publish their own ebooks, and it's disconcerting to set a low price and then see amazon slash it. The wholesale model makes the most sense to me when a merchant pays the supplier an agreed-upon sum up front. Then it's up to the merchant to set its price depending on how much profit to take. But to me the agency model made sense for writers (at least those who became "publishers") because they were in essence giving something over on consignment, and the typical arrangement there is for the consigning party to set the price. The Authors Guild predicted Amazon, if it could set the price, would undersell everyone else, which would push people to buy Kindles and lead e.g. to the death of Nooks. And after other publishers signed settlements, that's pretty much what happened, right? But I haven't read The Battle of $9.99, don't know the details, and as ever, may have things all wrong.

    "I am sure of very little, and I shouldn't be surprised if those things were wrong." Clarence Darrow

    by scilicet on Wed Jul 10, 2013 at 11:53:21 AM PDT

    •  Amazon spent three years developing the (8+ / 0-)

      digital book and reader. They were the first out with a means to make ebooks a reality when Borders and Barnes & Noble sat on their hands, feeling safe behind their big box stores and internet websites that had driven so many small booksellers out of business.

      The publishing industry, unable to focus on a future that could conceivable greatly reduce, if not eliminate, paper books, concentrated on anti-piracy of digital media instead of re-inventing itself to keep pace. Frankly, when they agreed to sell ebooks to Amazon on the traditional wholesale method under which books had been sold for years, they didn't expect ebooks to last and had not devoted much time to even thinking about what they would mean to the industry if they did.

      They objected to Apple's low price because they feared that the public would come to expect digital books to be so much cheaper than printed ones and that they would eventually lose money. (Amazon paid its self published authors 70% of the retail price of their books, btw.) But the low prices that Amazon charged for physical books doesn't appear to ever have bothered them.

      The judge felt, and I agreed with her, that if the publishers and Apple wanted to protect the writers and the public from the threat that they felt Amazon posed, they should have done it legally, and not by violating the anti-trust laws.

    •  Amazon Took the Risk (5+ / 0-)

      by cutting their profit margins by pricing at $9.99.  They even lost money doing so and they even continued selling at $9.99 when the publishers increased their wholesale price to them.  If they couldn't move e-books in the numbers they hoped, it would have doomed them.  That's a standard business practice in aggressive marketing, and it can be extremely risky.

      Apple fixed the game to guarantee itself hefty cuts from e-book sales.  No risk for them because the fix was in.  They didn't care what the customer had to pay, only Apple and the publishers would make more money.

      For a detailed outline of the collusion, that involved Steven King and Sarah Palin books (with their consent), and Rupert Murdoch, see Business Insider article.

      Odd coincidence that the ruling comes on the 5th anniversary of the Apple App Store.

      Readers & Book Lovers Pull up a chair! You're never too old to be a Meta Groupie

      by Limelite on Wed Jul 10, 2013 at 03:07:42 PM PDT

      [ Parent ]

  •  The judgement was a foregone conclusion (3+ / 0-)

    The judge said as much before and during the "trial".

    In the beginning, the universe was created. This has made a lot of people very angry, and is generally considered to have been a bad move. -- Douglas Adams, The Hitch Hiker's Guide to the Galaxy

    by boriscleto on Wed Jul 10, 2013 at 01:03:55 PM PDT

  •  Ha! I Just Knew You Were Gloating (3+ / 0-)

    when the news of the Apple judgment came across CNBC while I watched this AM.  And I knew it the night before when I learned B&N's CEO kissed his executive position good-bye.

    I thought, "Susan must be rubbing her hands together with glee as she poises them over her keyboard!"

    Very interesting what the judge had to say about Steve Jobs, too.

    The judge said that "compelling evidence of Apple's participation in the conspiracy came from the words uttered by Steve Jobs, Apple's founder, CEO, and visionary."

    and

    In emails introduced as evidence, Mr. Jobs seemed to gloat after published reports in January 2010 that Macmillan and Amazon were separately clashing over pricing following the Apple deal.

    and

    "Wow, we have really lit a fuse on a powder keg," Mr. Jobs wrote in a Jan. 30, 2010, email.

    In a group email at Apple the next day, Mr. Jobs said: "We have definitely helped stir things up in the publishing world."

    In her decision, the judge found that there was direct evidence that Apple engaged in a price-fixing conspiracy.  WSJ

    The bloom is off Steve Jobs' rose.

    Does this mean prices for e-books will fall?  Not likely.

    Readers & Book Lovers Pull up a chair! You're never too old to be a Meta Groupie

    by Limelite on Wed Jul 10, 2013 at 02:42:55 PM PDT

  •  I don't know (2+ / 0-)
    Recommended by:
    Susan from 29, RiveroftheWest

    how you feel about it, but I'm glad Apple lost.

    As you know, I worked in publishing for twelve years, and I've run many Profit & Loss projections.

    The profits are usually tiny (except for major best-sellers) and the losses are often huge (for all midlist books, plus the ones you THINK will hit the best-seller list...and end up on the remainder table).

    Whatever is good for the publisher is ultimately good for the reader: as long as the publisher is healthy, they can print the midlist stuff that brings us joy (and maybe, just maybe, if they're lucky, breaks even for them).

    Irony takes a worse beating from Republicans than Wile E. Coyote does from Acme. --Tara the Antisocial Social Worker

    by Youffraita on Wed Jul 10, 2013 at 03:10:21 PM PDT

  •  What about Amazon and antitrust? (2+ / 0-)
    Recommended by:
    wonderful world, RiveroftheWest

    The New York Times recently reported that Amazon is cutting out some of their discounts and that their authors are getting concerned about losing readers.  It could be that without other bookstores (virtual and brick-and-mortar), Amazon will start jacking up prices. (and full disclosure, I work at a non-Amazon bookstore and use a non-Kindle e-reader)

    -7.13, -6.97 Facts matter. Vice President Joe Biden 10/11/12

    by klamothe on Wed Jul 10, 2013 at 08:24:02 PM PDT

    •  Amazon has not conspired with anyone to (2+ / 0-)
      Recommended by:
      wonderful world, RiveroftheWest

      create a conspiracy to restrain trade. They have provided a product that no one else did, at a price that was better than anyone else's. That is not antitrust, that is free enterprise.

      If you own a non kindle reader it is because Amazon spent the time and the money to develop a market which did not exist before the Kindle. No one else wanted to make the investment. The big six publishers and Apple wanted to cash in on the growing popular market and increase prices at the same time. Instead of trying legally to compete, they conspired to force Amazon to increase its prices to the consumer while they reduced royalties to the authors.

      There are a lot of things that I don't like about Amazon. But this is one instance where they actually did nothing wrong. Digital books are changing book selling, just like digital music disrupted the music selling business.

  •  Gad, I was just about to download ebook software (2+ / 0-)
    Recommended by:
    Susan from 29, RiveroftheWest

    from the iStore or whatever on my iPad so I could buy an eBook written by a friend of mine.  She says she gets a bigger cut of an eBook edition than if I were to buy the Kindle version from Amazon.

    Now I'm thoroughly confused.  Should I just go ahead and buy the Kindle edition or should I go ahead and download this eBook software to get that version of the book my friend has written?

    "Religion is what keeps the poor from murdering the rich."--Napoleon

    by Diana in NoVa on Thu Jul 11, 2013 at 01:56:05 PM PDT

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