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Court: Jobs convinced last publisher to use 'agency' model

updated 10:32 pm EDT, Mon May 14, 2012

E-mail predicted bad behavior by Amazon

As the e-book lawsuit from the Justice Department against Apple and two other publishers expands, some recently-unsealed evidence shows that former Apple CEO Steve Jobs personally intervened to convince a holdout major publisher that the "agency model" -- a standard pricing model in the book industry that lets publishers set prices for books -- was the way to go, and succeeded in convincing the publisher.

The class-action suit revolves around the Justice Department's contention that Apple and other publishers colluded to keep e-book prices higher than the lowest possible price. While some publishers have already settled with the government, Apple along with publishers MacMillan and Penguin fought back against the charges, saying that in fact it was Apple's e-book rival Amazon that was fixing prices and engaging in abusive monopolistic practices.

An amended complaint that allowed some 17 states to join in the lawsuit brought with it some new revelations, including the e-mail between Jobs and an unnamed holdout publisher, reports AppleInsider. Apple Senior Vice President of Internet Software and Services Eddy Cue, who was usually the point man for deals between content providers and Apple, was unable to get a commitment from one of the "big five" publishers for Apple's then-unrevealed iBookstore.

Amazon uses a "wholesale" model in which Amazon sets the price of the e-books, often selling them at a loss. At the time, Amazon was still compensating publishers for the normal price and eating the difference. This had caused it to become a near-monopoly for e-book sales at the time, a tool it was using to force publishers to lower pricing overall.

In Jobs' letter to the holdout publisher, he paints a three-choice picture for the company: go with Apple and the agency model, with most books priced between $13 and $15 dollars; sell with Amazon at $10 but eventually lose commissions as the company answers to its stockholders and $10 becomes the "new normal" with Amazon not allowing books to sell for more than that; or hold back the books from Amazon and face reprisals from the company as well as customer backlash and piracy.

Referring to the third option, Jobs wrote "Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started, there will be no stopping it. Trust me, I've seen this happen with my own eyes." He concludes the e-mail by saying he might be missing something, but "I don't see any other alternatives, do you?" The publisher reversed its stance and signed with Apple three days later.

The e-mail in and of itself does not suggest price-fixing -- under Apple's model, publishers are free to set whatever price they think the market will bear -- but also doesn't mention the main bone of contention the Justice Department has with Apple, the "most favored nation" clause that forbade publishers from selling the e-books at a lower price anywhere else than they did with Apple. The government has expressed concern that this may interfere with the notion of a free commodity market for e-books, but some publishers are afraid it will cause a "race to the bottom" that will drive most publishers out of business.

MacMillan and Penguin say that without Apple's agency model, Amazon would use its wealth to completely dominate the book market and dictate prices to publishers, something the company has already been accused of doing. Before the iBookstore and Nook market found audiences, Amazon had over 90 percent of the e-book selling market, and the average price of e-books has risen somewhat since Amazon has been whittled down to a 60 percent share.

While Amazon's loss-leader tactics were seen as good for consumers in the short run, and helped encourage early adoption, it would likely have led to consolidation and more corporate ownership of the publishing industry, along with the death of independent bookstores both online and brick-and-mortar. Author's Guild president and best-selling novelist Scott Turow has sided with Apple and the two publishing houses fighting the DOJ lawsuit, saying that while he personally made more money from the Amazon/Kindle model than the agency model, the former would destroy choice and make it difficult for less-popular authors to get exposure and sales.

Turow has pointed out that Amazon tends to abuse its position when it is dominant, punishing publishers that don't go along with pricing or exclusivity demands or who give exclusives to others. He has referred to the company as "successful" but "a bully" in the marketplace, and his comments have gotten wide (but not unanimous) support from authors. [via AppleInsider]





by MacNN Staff

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Comments

  1. Sandman619

    Joined: Dec 1969

    +3

    The profit model vs loss model… hmmm

    So Jobs sends an email to 1 publisher, somehow this is collusion ? How were the other publishers affected ? The worst that happens to Amazon is that they sell e-books at a slightly higher price, in a market that they controlled. No competitors wanted to enter the market with Amazon's model of losing money on the sale of ebooks… go figure

  1. facebook_Adam

    Via Facebook

    Joined: May 2012

    +1

    Blame the dead guy

    He can't defend himself.

  1. SierraDragon

    Joined: Dec 1969

    +1

    Jobs was right

    - First off SJ's passing is irrelevant. The entity involved is and was Apple Inc. Jobs's emails are just evidence.

    - By definition the email sounds like it references a collusive process that is per se illegal. However the net result of what Jobs was trying to accomplish would lead to (marketing behemoth) Apple _not_ setting prices; instead Apple sets its fees and Publishers decide what to price their books at. IMO the Justice Dept. will have a hard time developing really major punishment for the otherwise (apparently) collusive actions.

    - Justice was probably right to huff and puff, because if the _Publishers_ even discuss pricing among themselves it is a very bad thing for consumers, illegal, and they need to know that the US is paying attention.

    - OT: The Bush Republicans would have given them a gold star for colluding to raise prices.

  1. gentooq

    Joined: Dec 1969

    +3

    Jobs WAS right, and collusion requires . . .

    a lot more than what has been posted so far from the email. Apple contacting publishers individually, from the looks of things, and giving them a marketing truth "Go with Amazon and suffer the same fate as the music industry whom I personally saved from themselves, or come with Apple from the start and captain your own fate." hardly constitutes collusion.

    Now, if Apple got all of the publishers together, picture a setting like a dockside warehouse in a '40s gangster film, and laid down the law, you might be a little farther along. But truly, this case is purportedly about price fixing, and for that to happen two competitors must meet and agree on a pricing strategy that keeps prices higher than the market might otherwise.

    I'm sorry, but from my . . . admittedly . . . bleacher seats, it just does not look that way.

    CAVEAT . . . While I have an enthusiasm for the law, I am not a lawyer, nor have I ever played one on TV. Don't bother adding comments mocking, or even attempting to moot, my logic or arguments.

  1. charlituna

    Joined: Dec 1969

    +1

    what about the case against Amazon

    seriously. the way they marked all ebooks at $9.99 when they could recover the loss in other sales but other book sites didn't have that option just reeks of possible predatory pricing. and yet where was the DOJ.

    no where. they didn't care until Apple was in the mix.

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