It’s over for Apple: Supreme Court denies certiorari in e-book pricing case
It’s the end of the line.
I’ve been writing about this literally for years, and it has been a very important story. It’s also been perhaps a tale of unexpected consequences.
First the quick headline, then some thoughts about it.
On Monday, the Supreme Court of the United States denied Apple (and a bunch of other cases) “cert”. What that means is that they did not certify that Apple’s loss at a lower court level in a case brought against it by the United States Department of Justice over e-book pricing deserved additional review.
The lower court’s ruling was clear enough that it didn’t need to be re-examined.
Even simpler: Apple loses.
Consumers will get some credit to buy e-books.
Now, let’s look at the stories within the story.
Apple is vulnerable
The DoJ also went after the biggest U.S. trade (the kinds of books you would have bought in a bookstore…not textbooks and such) publishers…all of which settled.
Apple fought on, and many people figured Apple had the resources to fight on as long as they wanted.
The thought was that Apple is so big, has so much money, and does so many court cases that, unlike the publishers, it was worth it for them to keep pouring money into this.
One again, they lost.
I’m not sure, but it’s possible the vacancy on the Supreme Court affected this. I’ve read that Justice Scalia would likely have supported Apple…and if this needed a majority and it was split (they don’t tell us much when they deny cert), that would have done it.
The tradpubs made a crucial strategic error
Here was the situation:
Amazon entered the very marginal e-book market (Sony was in it, but not much was happening in the USA with e-books) in 2007.
Part of their strategy was to promote that most bestsellers and new releases would be under $10…considerably less than the hardback equivalents (at least based on the publisher’s suggested retail price…but even discounted, those hardbacks were often above $10).
To do that, they clearly often sold the books at a loss: they paid more to the publisher than they got from the customer.
The publishers didn’t like that.
One of their biggest concerns was “price value perception devaluation”. Who would pay $25 for a hardback when, according to Amazon, $9.99 was the right price for a popular new release novel?
While it does cost somewhat less to produce an e-book than a hardback (an early analysis said it was about 12.5% lower, as I recall…many of the costs, such as editing, lay-out, legal are the same), the margin on hardbacks (the profit you can make) was higher…and they were selling a lot more p-books (paperbooks).
What could they do, though? Realistically, if they wanted to be in the exploding e-book business, they pretty much had to go with, and cooperate with, Amazon, which absolutely dominated the market.
Then, in the tradition of tempting Apples 😉 , the maker of the iPod offered the tradpubs (traditional publishers) a path.
Apple was getting ready to release a new device…a small, flat, super-portable computer. There were precedents in fiction (Star Trek: The Next Generation’s PADD, for one), but what would become the massively successful iPad was a big project.
The hardware innovator wanted to include books as part of the package and launch. It’s questionable if they really were that focused on the books in and of themselves, or whether they saw them more as a selling point for the device. If Apple hadn’t been introducing the iPad, would they ever have launched the iBooks store?
They wanted to get the prestige of having the major publishers onboard, and they knew those companies weren’t happy with Amazon.
Apple offered to let the publishers set the prices the consumers paid (within certain parameters) through something called the “Agency Model”.
The Agency Model is not, in and of itself, illegal. The DoJ alleged that Apple and the tradpubs coordinated in its use to raise e-book prices…that was the problem.
In my opinion, the tradpubs made a very big error.
They accepted the plan, and raised e-book prices on the most popular titles.
Why was it a mistake?
I’m seeing so many stories reporting this as it slowing the growth of the e-book market…perhaps critically wounding it.
I don’t think that’s what happened at all.
What it did was cede the market, in large part, to indies (independent publishers).
Indies had a very hard time having much of an impact on p-book sales. I was the manager of a brick-and-mortar bookstore…it just wasn’t practical for us to carry independently published books, for the most part. They didn’t have the resources to make selling their books practical. If I needed 100 copies in two days, they couldn’t do it, for example.
E-books changed all that.
You didn’t need book factories and distribution Godzillas. You didn’t have to fight for shelf space…it was pretty much infinite.
Indie e-book sales were present before the Agency Model came into being in 2010, but I think that move by the publishers and Apples greatly accelerated the market growth for the “outsiders”.
When I did an analysis of USA Kindle store bestsellers in January 2012, three of the top twenty them were from indies:
When I did a similar analysis in January of this year, the story was different: none of the top ten were from Big 5 publishers.
That’s not exactly apples to apples (so to speak), but it seems very clear to me.
At least at Amazon, the Big 5 share of the market for bestsellers has significantly eroded.
I think the tradpubs thought that raising e-book prices would mean that they would make more money…because people would keep buying their books at the same rate.
Instead, many readers instead discovered other options…and they’ve stuck with them.
You can’t undo that discovery.
The news stories reporting e-book slowed growth are actually reporting the Association of American Publishers reporting slowed growth…which might be more than offset by indies (although those stats are hard to get).
I think the publishers may also have wanted to “teach Amazon a lesson”. They did: they taught Amazon that the e-tailer could do its own publishing, at least for e-books, and do very well. 😉 Brick-and-mortar bookstores didn’t, for the most part, want to carry Amazon’s p-books, but in e-books, they are often at the top of Amazon’s bestseller list (thanks in part to Kindle First books (at AmazonSmile*)).
It’s about journalism
This case would have been very different without journalism.
Journalist Walt Mossberg was chatting with Steve Jobs at the iPad launch…and Jobs said that e-book prices would be the same at the then launching iBooks store and Amazon.
That was major evidence against Apple.
I think it’s also important to note that, while Mossberg had mainstream credentials, this was much more a new media incident. It wasn’t a sit down interview. It wasn’t even an ambush interview at Apple’s front door. It was a casual exchange which was recorded on a handheld, shaky Flip cam (remember those?), and then posted online.
You can watch the video (the e-book exchange is right at the beginning) in that Kara Swisher post (I’m relinking for those using screen readers: All Things Digital post by Kara Swisher).
I think those are the three main stories. It’s possible the pay-out to we consumers will boost the e-book business…we’ll get a credit to buy more e-books, as I understand it, not cash.
While this has been an important story, and I’m happy to have been able to provide whatever help to people in understanding it and its implications that I could, I won’t deny some relief in seeing its conclusion.
What do you think? Have questions? Do you think this was a good decision? How does it affect the future of e-books? Feel free to tell me and my readers what you think by commenting on this post.
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* I am linking to the same thing at the regular Amazon site, and at AmazonSmile. When you shop at AmazonSmile, half a percent of your purchase price on eligible items goes to a non-profit you choose. It will feel just like shopping at Amazon: you’ll be using your same account. The one thing for you that is different is that you pick a non-profit the first time you go (which you can change whenever you want)…and the good feeling you’ll get. Shop ’til you help!
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