We'll go to [an] 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.
—Steve Jobs
As
expected, the U.S. Department of Justice today
filed suit against Apple and the five largest publishers of electronic books in the US, accusing them of entering into an illegal agreement to raise e-book prices and limit competition.
While futurists and technologist had predicted the rise of the electronic book for decades, it was the 2007 launch of the Amazon Kindle that made the e-book a mainstream consumer item. Amazon.com sold e-books using the wholesale model that traditional booksellers had used for decades, whereby the retailer buys books from the publishers for an agreed-upon set price, usually about half of the recommended cover price, and is then free to sell the book to consumers at whatever price the retailer wants. Amazon famously sold most popular titles for $9.99, which was usually several dollars less than the corresponding hardback and trade paperback prices, and a price point that many credit with getting the e-book market off the ground.
By early 2010, Apple was preparing to introduce the first iPad, and wanted a piece of the potentially lucrative e-book market. Apple proposed that publishers move from the wholesale model to the so-called "agency model," whereby the publisher would set the retail price of the book and the retailer would take a cut of the price. As the Justice Department's lawsuit explains, this is where the defendants crossed the line:
6. Apple facilitated the Publisher Defendants' collective effort to end retail price competition by coordinating their transition to an agency model across all retailers. Apple clearly understood that its participation in thisscheme would result in higher prices to consumers. As Apple CEO Steve Jobs described his company's strategy for negotiating with the Publisher Defendants, "We'll go to [an] 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." Apple was perfectly willing to help the Publisher Defendants obtain their objective of higher prices for consumers by ending Amazon's "$9.99" price program as long as Apple was guaranteed its 30 percent margin and could avoid retail price competition from Amazon.
7. The plan - what Apple proudly described as an "aikido move" - worked. Over
three days in January 2010, each Publisher Defendant entered into a functionally identical agency contract with Apple that would go into effect simultaneously in April 2010 and "chang[e] the industry permanently." These "Apple Agency Agreements" conferred on the Publisher Defendants the power to set Apple's retail prices for e-books, while granting Apple the assurance that the Publisher Defendants would raise retail e-book prices at all other e-book outlets, too....
8. After executing the Apple Agency Agreements, the Publisher Defendants all then
quickly acted to complete the scheme by imposing agency agreements on all their other retailers. As a direct result, those retailers lost their ability to compete on price, including their ability to sell the most popular e-books for $9.99 or for other low prices. Once in control of retail prices, the Publisher Defendants limited retail price competition among themselves. Millions of e-books that would have sold at retail for $9.99 or for other low prices instead sold for the prices indicated by the price schedules included in the Apple Agency Agreements—generally, $12.99 or $14.99.
Let's hope this lawsuit results in fairer prices for e-book consumers everywhere.