Steve Forbes on Apple, The Justice Department, and E-Book Pricing

I read this Steve Forbes’ Fact & Comment piece about the justice deprtment’s lawsuit against Apple (and book publishers) over e-book pricing in a recent issue of Forbes. I normally agree with much of what Mr. Forbes says but not this time.

The agreement among Apple and five publishers allowed the publishers to set the price of their wares in Apple’s eBookStore; in return Apple would get a very rich 30% slice of the revenues. These publishers agreed not to sell their e-books at lower prices elsewhere. The deal meant that participating publishers would have to persuade Amazon to charge the Apple price or forgo selling their books on Amazon, which happens to be a humongous marketplace.

I understand what Forbes is saying but, isn’t this considered price fixing? What gives Apple the right to tell publishers that they can’t sell their books for less elsewhere? What’s to stop Walmart or Target from doing the same thing?

I know publishers need to make money but I think it is pure craziness to have to pay nearly the same price for an e-book as a physical copy of the book.

One last thing before we leave this topic. Check this out (bold mine):

Traditional publishers are fighting for survival. Authors can sell their writings directly online, with no middleman necessary. Amazon, in fact, happens to have a burgeoning service to help these scribblers do just that.

What’s up with calling authors who bypass traditional publishers “scribblers”? How many highly successful books were passed up by traditional publishers? Hmmm…

8 thoughts on “Steve Forbes on Apple, The Justice Department, and E-Book Pricing”

  1. Sounds like Mr. Forbes is feeling a little threatened by digital media and those organizations that are pushing it forward.

    Media in general, and publishing specifically, is being disrupted in a big way and I feel that many are more comfortable pointing fingers instead of innovating and finding new business models.

  2. It’s not price fixing, it’s a contract between businesses.

    Normally retailers get products from wholesalers, distributors, or manufacturers. The retailer sets the price for the products they sell.

    Now imagine you’re a retailer of cogs and sprockets, but instead of the normal process, you go to Spacely Sprockets and tell them you’ll operate the store and they can sell their sprockets in your store for whatever price they want. But obviously, you don’t want Spacely Sprockets to go down the street to your competitor and sell sprockets for 50% less than they sell at your store. All your customers will go to your competitor and you’ll not only lose the sales of sprockets, but all the other cogs and widgets those customers would buy at your store when they come in for sprockets. So you have your lawyers create a contract between you and Spacely Sprockets: you’ll agree to give up some control of your business by letting Spacely Sprockets set the selling price for sprockets, and Spacely Sprockets agrees not to undercut your business.

    Now if Apple had told each publisher what to charge for each book, that would be price fixing. But Apple agreeing to let publishers set the price as long as they don’t undercut Apple is not price fixing.

    1. Kevin,

      Thanks for the well-written response.

      It still stinks to me. I think in order for Apple to have that kind of control, they should have to purchase the publishers outright.

    2. Price-Fixing according to Wikipedia:

      The intent of price fixing may be to push the price of a product as high as possible, leading to profits for all sellers but may also have the goal to fix, peg, discount, or stabilize prices. The defining characteristic of price fixing is any agreement regarding price, whether expressed or implied.

      Sellers might agree to sell at a common target price; set a common minimum price; buy the product from a supplier at a specified maximum price; adhere to a price book or list price; engage in cooperative price advertising; standardize financial credit terms offered to purchasers; use uniform trade-in allowances; limit discounts; discontinue a free service or fix the price of one component of an overall service; adhere uniformly to previously-announced prices and terms of sale; establish uniform costs and markups; impose mandatory surcharges; purposefully reduce output or sales in order to charge higher prices; or purposefully share or pool markets, territories, or customers.

  3. Most of my ebooks are free because they are out of copyright. Interesting to see what Apple can do about that.

  4. The publishing companies should all be very scared of independent authors who choose to self-publish. They are going to have to significantly change the way they market and price books, as well as the way they treat their customers. It’s getting easier and easier to create and market your own rebook, between social media and the ease of creating ebooks.

    I have several friends who have published their own books and have done very well. They retain complete control and keep all of their own profits. Sounds like the way to revolutionize a market to me.

  5. Apple has (via contract) really created a excellent coupe in their market space. First, the obvious limitation that publishers could not “sale their e-books elsewhere for less than the price at Apple (set by the publisher themselves).

    The second and less obvious achievement is Apple has offloaded “market competition analysis” to the publishers. In effect, Apple does not have to watch the price of it’s e-books at B&N, Amazon, or elsewhere. Except to make sure the publishers are not violating their contract with Apple.

    It’s a big win for Apple (30% profit and no price competition) , a semi-win for publishers (more profit, but more administration overhead) and a big loss for consumers (no pricing competition).

    Apple and publishers will find the Motion Picture Industry went through similar antitrust litigation in the late 40’s, early 50’s where studios controlled both production and distribution of films. That made small, local theaters unable to compete with larger studio owned theaters. The resultant law suit broke up studios from distributors from theaters and introduced an auction style distribution method to film releases where the studios had no say in the auction distribution process.

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