Well, the e-book case that began in 2012 when the US government accused Apple of price-fixing finally ended yesterday when the Supreme Court declined to hear Apple’s appeal. That left the original ruling intact, meaning that Apple is officially guilty of anti-competitive behavior and will have to fork out $450M in compensation.
There’s no doubt in my mind that the correct result was reached in law. Apple did deliberately set out to fix prices, it did strike secret deals, and it did intend to manipulate the e-book market. Emails from Steve Jobs confirmed the government’s claim that Apple struck the deals in the belief that consumers would end up paying more for e-books.
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. [Up from the typical $9.99 at the time.]
So far, so good. If you’d brought that evidence to me at the time Apple did the deals, I’d have agreed with the government that the company’s behavior was both illegal and morally wrong. But I’d argue that by the time the case was finally brought to court, it was already abundantly clear that it was not in the public interest to pursue it …
Let’s start with a brief recap. E-books were, at the time, sold on what’s known as the wholesale model. Publishers sold e-books to retailers in exactly the same way that companies sell widgets. If you wanted to retail e-books, you told the publisher how many e-books you wanted to buy, they gave you a wholesale price and you could resell them at any price you liked. Whether you made a profit, broke even or sold them at a loss was entirely up to you.
That was the model under which Amazon purchased e-books. Because the company was more interested in building market share than it was in making a profit, and because it reckoned that ten dollars was the maximum most people were going to be willing to pay for an e-book, it sold most of them at $9.99 regardless of what it cost the company to buy them. In many cases, Amazon was making a loss.
So before Apple entered the market, consumers were getting a good deal. They were paying significantly less for e-books than publishers wanted to charge.
Then along came Apple. What Apple wanted was to change the pricing model to what’s called the agency model. There, the publisher sets the retail price for the book, and the wholesale price is a percentage discount from the retail price. This is, of course, the same model Apple uses in its App Stores. The likely result of that deal was that consumers would end up paying the price publishers wanted to charge – typically $12.99 and up at the time – and Apple would take a 30% cut.
So far, so what. Apple could try to sell e-books for $12.99 or $14.99 if it wanted to, but consumers could still buy them from Amazon for $9.99.
Uh-uh, said Apple: if you want to do a deal with us, Mr. Publisher, you have to switch to the agency model with everyone else. This was the claim that Apple initially denied but which was shown to be true by those emails from Steve.
So Apple did break the law, it did try to force prices up, and for a time it succeeded in doing so. That was bad for consumers – in the short term.
In the longer term, however, what Apple did was break Amazon’s near-monopoly on the e-book market. While the company may have started out with loss-leaders, the universal pattern with monopolistic suppliers is that, in the long-run, they force prices higher. Breaking monopolies, and increasing competition, is a good thing.
And that’s what Apple has – to some extent – done. Before Apple entered the market, Amazon’s market share was around 90%. Today, Amazon is still the dominant player, with around 70% of the market, with Apple’s slice amounting to around 12%. Amazon is still an enormously powerful player in the market, but Apple has opened up the market, and other players – like Google Play Books, though tiny now, will increase their share. Slowly, Amazon’s market dominance will decline.
Sure, there are some publishers who still stubbornly price their e-books higher than their paperbacks. But there are many others who don’t. There are now e-books available at every price level. The increased competition Apple created has been good for consumers. It’s been good for indie authors too, giving them multiple markets to choose from, rather than just one (something in which I have a vested interest or two).
So yes, what Apple did was wrong in theory – but right in practice. The company effectively ended up doing the right thing for the wrong reasons.
Now, you can argue that shouldn’t matter. The company still broke the law, and did appear to be aiming to make you and I pay more for our books. But the judicial system has a public interest test. We don’t just consider the black-and-white position of the law, we also consider whether it is in the public interest to prosecute. Given that the end result was good for consumers, good for authors and good for publishers, I’d argue that in this case it wasn’t – and that fact was obvious long before the government brought the case to trial.