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| Now $6.99 at iBooks |
You probably received word recently that you may be eligible for part of a big settlement Apple has agreed to pay for colluding with book publishers to increase the price of digital books.
Don't get too excited. If the ruling stands, you may get a buck or two. The total payout is $450 million, but the aggrieved class is very large and the lawyers' cut is $50 million.
Still, it's an interesting case.
The background is that Amazon was selling just-released books for $9.99 on its Kindle platform. Publishers believed that ebooks should cost more, especially the newest ones, and feared that Amazon would gut the profitability of their business with its single, lower, flat-rate price.
Leaders of four of the five biggest publishing houses (Random House, the largest, was the exception) met several times to work out a plan to force higher prices. They found a sympathetic ear in Steve Jobs at Apple.
After more meetings, Apple and publishers agreed to establish an "agency model" that guaranteed guaranteed Apple 30 percent of the price of any book sold on iTunes. In return, Apple would let publishers set book prices. The publishers wanted ebooks to cost $12.99 or $14.99.
Still, it's an interesting case.
The background is that Amazon was selling just-released books for $9.99 on its Kindle platform. Publishers believed that ebooks should cost more, especially the newest ones, and feared that Amazon would gut the profitability of their business with its single, lower, flat-rate price.
Leaders of four of the five biggest publishing houses (Random House, the largest, was the exception) met several times to work out a plan to force higher prices. They found a sympathetic ear in Steve Jobs at Apple.
After more meetings, Apple and publishers agreed to establish an "agency model" that guaranteed guaranteed Apple 30 percent of the price of any book sold on iTunes. In return, Apple would let publishers set book prices. The publishers wanted ebooks to cost $12.99 or $14.99.
Steve Jobs, then the head of Apple, apparently was in the middle of the whole business. The court complaint cited this email that he sent to a publisher:
"As I see it, [conspiring publisher] has the following choices:
1. Throw in with Apple and see if we can all make a go of this to create a real
mainstream ebooks market at $12.99 and $14.99.
2. Keep going with Amazon at $9.99. You will make a bit more money in the
short term, but in the medium term Amazon will tell you they will be paying
70% of $9.99. They have shareholders too.
3. Hold back your books from Amazon. 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.
Maybe I'm missing something, but I don't see any other alternatives. Do you?"
The court filing also referenced Walter Isaacson's biography, Steve Jobs, with Jobs saying this:
"So we told the publishers, '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.'"
The publishers began to pressure other publishers and Barnes & Noble to adopt the agency model. There was a lot of back-and-forth, and ultimately the whole business was exposed in a lawsuit.
Now Apple is paying damages instead of trying to defend anti-competitive practices in a courtroom and risking a much more expensive result. Apple and publishers have agreed that ebook prices will be set by retailers, not publishers. The agency model is dead.
Or is it? Ebook prices are now higher pretty much across the board. I just looked up the prices for digital copies of Henry Kissinger's new book. Here is what I found:
Amazon: $18.99
Barnes & Noble: $18.99
iTunes: $19.99
The hardcover version of the above book -- which had to be typeset, printed, bound and shipped to warehouses and bookstores -- only fetches about three dollars more, $21.60 on Amazon and $22.03 at Barnes & Noble.
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