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Eddy Cue, Apple's senior vice president in charge of internet software and services, took the stand today in the Department of Justice's antitrust case against Apple over the price of e-books following the launch of the iBooks Store in 2010.
Cue is Apple's chief negotiator and was in charge of all discussions with the major book publishing houses. The DoJ is alleging that Apple illegally worked with publishers to artificially increase e-book prices, a violation of U.S. antitrust laws.
In testimony today, Cue admitted that the prices of some e-books -- including many of those appearing on the New York Times best sellers list -- did rise after the iBooks Store was opened, but it was more the result of publishers being unhappy with Amazon's pricing of $9.99/book than anything untoward that Apple did.
Instead, Cue said that prices rose because publishers "expressed to us that they wanted higher prices". Apple's pricing model for e-books is the same agency model that it uses on the App Store -- publishers set book prices and Apple takes 30% of the revenue while returning 70% to the publishers.
He also said that he didn't know if publishers were working together on the negotiations with Apple and Amazon, but because all the publishers had issues with different parts of Apple's proposed contract Cue said that "if they talked together, I assumed it would be easier to get the deals done." Cue also said that he "wasn't trying to negotiate" for the entire e-book market and he wasn't attempting to fix issues the publishers had with Amazon.
Top Rated Comments
It's illegal to collude in a monopolistic way to game a mature marketplace for more profit. If every airline were to get together and jointly decide to raise prices on a NY-LA route by $100, that's illegal.
The DOJ's argument is that Apple sat down with the 6 major book companies and colluded to raise prices on the ebook market. Their argument fails because a) it wasn't a mature marketplace, since the 'eBooks market' had been around only for a few years, and only had one main player (Amazon), who had like 90% of the market, and b) Amazon was selling many of their eBooks for far below the intended price for eBooks. In many cases, Amazon was selling eBooks on their store for at or below wholesale price, which they were doing essentially to keep pricing pressure on brick and mortar bookstores and eventually drive more of them out of business.
So essentially Amazon was the one using a monopoly to control prices. Funny how things work that way.
Amazon controlled nearly all of the "best seller" ebook market (some niches had the publishers selling their own ebook), engaged in predatory pricing by discounting to near or below cost to ensure no other retailer could enter the market, and used their market power in physical books to threaten publishers who didn't play ball with them on eBooks.
As such, the ebook market was the Kindle market. You can argue that wasn't a monopoly, but Amazon controlled the market and was taking active steps to ensure that didn't change. And not only did the DoJ ignore this anti-competitive behavior, the state department gave Amazon a non-bid contract to provide ebooks and ebook readers because of that control.
And since you compared it to Apple's music - Apple never gave up their 30% margin so when the publishers were unhappy with Apple's control of the online music business and gave Amazon both non-DRMed music (which Apple had been asking for) and a lower price, Apple didn't go running to the DoJ screaming "collusion".
Now I will say that if there had been a deal struck between Apple and Amazon, Apple gets music and Amazon gets books, that WOULD have been collusion and Apple would have been in deep trouble for it (and maybe Amazon would FINALLY have taken a step the DoJ couldn't ignore).
In a trial, it's important to get all the background information to arrive at a correct decision. Amazon's actions at the time are 100% pertinent to the trial. If Amazon is found to have a monopoly on the ebook market during the period in question, it does affect what's considered collusion.
Amazon met every necessary requirement for a Monopoly in the ebook market before Apple entered the market, they were the source of over 90% of the ebooks at that time. How exactly do you think they were not a monopoly?
But maybe I'm wrong and you really don't know. If so, here's (http://www.scribd.com/doc/145486131/U-S-v-Apple-Et-Al-Opening-Slides) a decent glimpse into what the DOJ is thinking in pursuing this action against Apple.