DOJ says Apple responsible for setting up, executing e-book price fixing

I hear a train whistle, the railway is ready to depart. All the way to the gulags, in the Soviet Socialist United States of America, where Government regulation controls the market.

[quote name="hill60" url="/t/157531/doj-says-apple-responsible-for-arranging-inflated-e-book-prices/0_100#post_2327002"]I hear a train whistle, the railway is ready to depart. All the way to the gulags, in the Soviet Socialist United States of America, where Government regulation controls the market.[/quote] No, no, no! You've got it all wrong! This is the country that pioneered free speech...so that the legal system could turn the whole concept into a farce where you got sued if you practiced it. It's good to see that the Antitrust Department is going after Apple. I mean, heaven forbid Amazon finds themselves in the position where they actually have a bonifide competitor. You can see why they call it the Antitrust Department, can't you? It's their job to create 'em...

From the bio, for many will be [I]tldr[/I], others might enjoy it: [B]Publishing and Journalism[/B] With the iPod, Jobs had transformed the music business. With the iPad and its App Store, he began to transform all media, from publishing to journalism to television and movies. Books were an obvious target, since Amazon’s Kindle had shown there was an appetite for electronic books. So Apple created an iBooks Store, which sold electronic books the way the iTunes Store sold songs. There was, however, a slight difference in the business model. For the iTunes Store, Jobs had insisted that all songs be sold at one inexpensive price, initially 99 cents. Amazon’s Jeff Bezos had tried to take a similar approach with ebooks, insisting on selling them for at most $9.99. Jobs came in and offered publishers what he had refused to offer record companies: They could set any price they wanted for their wares in the iBooks Store, and Apple would take 30%. Initially that meant prices were higher than on Amazon. Why would people pay Apple more? “That won’t be the case,” Jobs answered, when Walt Mossberg asked him that question at the iPad launch event. “The price will be the same.” He was right. The day after the iPad launch, Jobs described to me his thinking on books: Amazon screwed it up. It paid the wholesale price for some books, but started selling them below cost at $9.99. The publishers hated that—they thought it would trash their ability to sell hardcover books at $28. So before Apple even got on the scene, some booksellers were starting to withhold books from Amazon. 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.” But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.” Jobs acknowledged that he was trying to have it both ways when it came to music and books. He had refused to offer the music companies the agency model and allow them to set their own prices. Why? Because he didn’t have to. But with books he did. “We were not the first people in the books business,” he said. “Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.” Right after the iPad launch event, Jobs traveled to New York in February 2010 to meet with executives in the journalism business. In two days he saw Rupert Murdoch, his son James, and the management of their Wall Street Journal; Arthur Sulzberger Jr. and the top executives at the New York Times; and executives at Time, Fortune, and other Time Inc. magazines. “I would love to help quality journalism,” he later said. “We can’t depend on bloggers for our news. We need real reporting and editorial oversight more than ever. So I’d love to find a way to help people create digital products where they actually can make money.” Since he had gotten people to pay for music, he hoped he could do the same for journalism. Publishers, however, turned out to be leery of his lifeline. It meant that they would have to give 30% of their revenue to Apple, but that wasn’t the biggest problem. More important, the publishers feared that, under his system, they would no longer have a direct relationship with their subscribers; they wouldn’t have their email address and credit card number so they could bill them, communicate with them, and market new products to them. Instead Apple would own the customers, bill them, and have their information in its own database. And because of its privacy policy, Apple would not share this information unless a customer gave explicit permission to do so. Jobs was particularly interested in striking a deal with the New York Times, which he felt was a great newspaper in danger of declining because it had not figured out how to charge for digital content. “One of my personal projects this year, I’ve decided, is to try to help—whether they want it or not—the Times,” he told me early in 2010. “I think it’s important to the country for them to figure it out.” During his New York trip, he went to dinner with fifty top Times executives in the cellar private dining room at Pranna, an Asian restaurant. (He ordered a mango smoothie and a plain vegan pasta, neither of which was on the menu.) There he showed off the iPad and explained how important it was to find a modest price point for digital content that consumers would accept. He drew a chart of possible prices and volume. How many readers would they have if the Times were free? They already knew the answer to that extreme on the chart, because they were giving it away for free on the web already and had about twenty million regular visitors. And if they made it really expensive? They had data on that too; they charged print subscribers more than $300 a year and had about a million of them. “You should go after the midpoint, which is about ten million digital subscribers,” he told them. “And that means your digital subs should be very cheap and simple, one click and $5 a month at most.” When one of the Times circulation executives insisted that the paper needed the email and credit card information for all of its subscribers, even if they subscribed through the App Store, Jobs said that Apple would not give it out. That angered the executive. It was unthinkable, he said, for the Times not to have that information. “Well, you can ask them for it, but if they won’t voluntarily give it to you, don’t blame me,” Jobs said. “If you don’t like it, don’t use us. I’m not the one who got you in this jam. You’re the ones who’ve spent the past five years giving away your paper online and not collecting anyone’s credit card information.” Jobs also met privately with Arthur Sulzberger Jr. “He’s a nice guy, and he’s really proud of his new building, as he should be,” Jobs said later. “I talked to him about what I thought he ought to do, but then nothing happened.” It took a year, but in April 2011 the Times started charging for its digital edition and selling some subscriptions through Apple, abiding by the policies that Jobs established. It did, however, decide to charge approximately four times the $5 monthly charge that Jobs had suggested. At the Time-Life Building, Time’s editor Rick Stengel played host. Jobs liked Stengel, who had assigned a talented team led by Josh Quittner to make a robust iPad version of the magazine each week. But he was upset to see Andy Serwer of Fortune there. Tearing up, he told Serwer how angry he still was about Fortune’s story two years earlier revealing details of his health and the stock options problems. “You kicked me when I was down,” he said. The bigger problem at Time Inc. was the same as the one at the Times: The magazine company did not want Apple to own its subscribers and prevent it from having a direct billing relationship. Time Inc. wanted to create apps that would direct readers to its own website in order to buy a subscription. Apple refused. When Time and other magazines submitted apps that did this, they were denied the right to be in the App Store. Jobs tried to negotiate personally with the CEO of Time Warner, Jeff Bewkes, a savvy pragmatist with a no-bullshit charm to him. They had dealt with each other a few years earlier over video rights for the iPod Touch; even though Jobs had not been able to convince him to do a deal involving HBO’s exclusive rights to show movies soon after their release, he admired Bewkes’s straight and decisive style. For his part, Bewkes respected Jobs’s ability to be both a strategic thinker and a master of the tiniest details. “Steve can go readily from the overarching principals into the details,” he said. When Jobs called Bewkes about making a deal for Time Inc. magazines on the iPad, he started off by warning that the print business “sucks,” that “nobody really wants your magazines,” and that Apple was offering a great opportunity to sell digital subscriptions, but “your guys don’t get it.” Bewkes didn’t agree with any of those premises. He said he was happy for Apple to sell digital subscriptions for Time Inc. Apple’s 30% take was not the problem. “I’m telling you right now, if you sell a sub for us, you can have 30%,” Bewkes told him. “Well, that’s more progress than I’ve made with anybody,” Jobs replied. “I have only one question,” Bewkes continued. “If you sell a subscription to my magazine, and I give you the 30%, who has the subscription—you or me?” “I can’t give away all the subscriber info because of Apple’s privacy policy,” Jobs replied. “Well, then, we have to figure something else out, because I don’t want my whole subscription base to become subscribers of yours, for you to then aggregate at the Apple store,” said Bewkes. “And the next thing you’ll do, once you have a monopoly, is come back and tell me that my magazine shouldn’t be $4 a copy but instead should be $1. If someone subscribes to our magazine, we need to know who it is, we need to be able to create online communities of those people, and we need the right to pitch them directly about renewing.” Jobs had an easier time with Rupert Murdoch, whose News Corp. owned the Wall Street Journal, New York Post, newspapers around the world, Fox Studios, and the Fox News Channel. When Jobs met with Murdoch and his team, they also pressed the case that they should share ownership of the subscribers that came in through the App Store. But when Jobs refused, something interesting happened. Murdoch is not known as a pushover, but he knew that he did not have the leverage on this issue, so he accepted Jobs’s terms. “We would prefer to own the subscribers, and we pushed for that,” recalled Murdoch. “But Steve wouldn’t do a deal on those terms, so I said, ‘Okay, let’s get on with it.’ We didn’t see any reason to mess around. He wasn’t going to bend—and I wouldn’t have bent if I were in his position—so I just said yes.” Murdoch even launched a digital-only daily newspaper, The Daily, tailored specifically for the iPad. It would be sold in the App Store, on the terms dictated by Jobs, at 99 cents a week. Murdoch himself took a team to Cupertino to show the proposed design. Not surprisingly, Jobs hated it. “Would you allow our designers to help?” he asked. Murdoch accepted. “The Apple designers had a crack at it,” Murdoch recalled, “and our folks went back and had another crack, and ten days later we went back and showed them both, and he actually liked our team’s version better. It stunned us.” The Daily, which was neither tabloidy nor serious, but instead a rather midmarket product like USA Today, was not very successful. But it did help create an odd-couple bonding between Jobs and Murdoch. When Murdoch asked him to speak at his June 2010 News Corp. annual management retreat, Jobs made an exception to his rule of never doing such appearances. James Murdoch led him in an after-dinner interview that lasted almost two hours. “He was very blunt and critical of what newspapers were doing in technology,” Murdoch recalled. “He told us we were going to find it hard to get things right, because you’re in New York, and anyone who’s any good at tech works in Silicon Valley.” This did not go down very well with the president of the Wall Street Journal Digital Network, Gordon McLeod, who pushed back a bit. At the end, McLeod came up to Jobs and said, “Thanks, it was a wonderful evening, but you probably just cost me my job.” Murdoch chuckled a bit when he described the scene to me. “It ended up being true,” he said. McLeod was out within three months. In return for speaking at the retreat, Jobs got Murdoch to hear him out on Fox News, which he believed was destructive, harmful to the nation, and a blot on Murdoch’s reputation. “You’re blowing it with Fox News,” Jobs told him over dinner. “The axis today is not liberal and conservative, the axis is constructive-destructive, and you’ve cast your lot with the destructive people. Fox has become an incredibly destructive force in our society. You can be better, and this is going to be your legacy if you’re not careful.” Jobs said he thought Murdoch did not really like how far Fox had gone. “Rupert’s a builder, not a tearer-downer,” he said. “I’ve had some meetings with James, and I think he agrees with me. I can just tell.” Murdoch later said he was used to people like Jobs complaining about Fox. “He’s got sort of a left-wing view on this,” he said. Jobs asked him to have his folks make a reel of a week of Sean Hannity and Glenn Beck shows—he thought that they were more destructive than Bill O’Reilly—and Murdoch agreed to do so. Jobs later told me that he was going to ask Jon Stewart’s team to put together a similar reel for Murdoch to watch. “I’d be happy to see it,” Murdoch said, “but he hasn’t sent it to me.” Murdoch and Jobs hit it off well enough that Murdoch went to his Palo Alto house for dinner twice more during the next year. Jobs joked that he had to hide the dinner knives on such occasions, because he was afraid that his liberal wife was going to eviscerate Murdoch when he walked in. For his part, Murdoch was reported to have uttered a great line about the organic vegan dishes typically served: “Eating dinner at Steve’s is a great experience, as long as you get out before the local restaurants close.” Alas, when I asked Murdoch if he had ever said that, he didn’t recall it. One visit came early in 2011. Murdoch was due to pass through Palo Alto on February 24, and he texted Jobs to tell him so. He didn’t know it was Jobs’s fifty-sixth birthday, and Jobs didn’t mention it when he texted back inviting him to dinner. “It was my way of making sure Laurene didn’t veto the plan,” Jobs joked. “It was my birthday, so she had to let me have Rupert over.” Erin and Eve were there, and Reed jogged over from Stanford near the end of the dinner. Jobs showed off the designs for his planned boat, which Murdoch thought looked beautiful on the inside but “a bit plain” on the outside. “It certainly shows great optimism about his health that he was talking so much about building it,” Murdoch later said. At dinner they talked about the importance of infusing an entrepreneurial and nimble culture into a company. Sony failed to do that, Murdoch said. Jobs agreed. “I used to believe that a really big company couldn’t have a clear corporate culture,” Jobs said. “But I now believe it can be done. Murdoch’s done it. I think I’ve done it at Apple.” Most of the dinner conversation was about education. Murdoch had just hired Joel Klein, the former chancellor of the New York City Department of Education, to start a digital curriculum division. Murdoch recalled that Jobs was somewhat dismissive of the idea that technology could transform education. But Jobs agreed with Murdoch that the paper textbook business would be blown away by digital learning materials. In fact Jobs had his sights set on textbooks as the next business he wanted to transform. He believed it was an $8 billion a year industry ripe for digital destruction. He was also struck by the fact that many schools, for security reasons, don’t have lockers, so kids have to lug a heavy backpack around. “The iPad would solve that,” he said. His idea was to hire great textbook writers to create digital versions, and make them a feature of the iPad. In addition, he held meetings with the major publishers, such as Pearson Education, about partnering with Apple. “The process by which states certify textbooks is corrupt,” he said. “But if we can make the textbooks free, and they come with the iPad, then they don’t have to be certified. The crappy economy at the state level will last for a decade, and we can give them an opportunity to circumvent that whole process and save money.”

I've been suspicious of Amazon over very weird prices. I was looking at buying some software that I had to purchase with a CD because that's the only way it was sold. I haven't checked to see if it is still the same as it was a year ago, but I checked three sources for the exact same software to see what was going on. I checked with Apple and they had the exact same list price as the software developer. Amazon had it listed, but the retail list price they had it at was actually above the retail list directly from the Mfg. and then it was discounted, in this case, only a couple of dollars. But I thought it was weird that Amazon had the product with a Retail List price that was higher than the Suggested Retail Price directly from the Mfg. It's not always that way, but it does happen with Amazon. All I know is that the company that is the original source of a product, whether it be software, music, books, etc. should have a Retail List price, discount it to the reseller community for whatever discount they want to offer (30% is completely reasonable mark-up) and then let the retailer offer discounts if they want to. That way the public knows there is a published Retail List price, the resellers have a reference that there is consistency amongst each other. What they did with Amazon first, was screwy and I can see Jobs trying to explain a more consistent, fair and reasonable way of doing electronic books. It's too bad the DOJ thinks that this is illegal. I don't think it was being done with malicious intent, it was just offering a standard pricing model that was consistent amongst the retail community, especially their biggest competitor, Amazon.