STOCK MARKET WATCH -- Monday, 15 July 2013

[Demeter]

17. The E-Book Conspiracy Comes to a Close

http://www.newyorker.com/online/blogs/elements/2013/07/apple-amazon-ebook-antitrust-court-ruling.html?mbid=nl_Daily%20%28284%29

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A typical conception of antitrust laws is that they protect consumers from monopolies, preserving competition at the expense of the biggest, most prominent player in a given market. But that’s not always the case. On Wednesday, U.S. District Court Judge Denise Cote ruled, in a hundred-and-sixty-page opinion, that Apple had conspired with five of North America’s largest book publishers in a scheme to raise and fix e-book prices, violating Section 1 of the Sherman Antitrust Act. A major beneficiary of the decision, Amazon, is not only one of the largest, most influential companies in technology but also the dominant company in bookselling. And, though Apple has said it will appeal Cote’s ruling, Wednesday’s decision likely ensures that Amazon will remain on top for the foreseeable future.

In 2009, Amazon’s market share for e-book sales was nearly ninety per cent, according to some estimates—a function of the Kindle’s success as the first truly popular e-reader and the company’s willingness to take a loss on books in order to expand its customer base. Amazon had set $9.99 as its standard price for new e-books—the book equivalent of Apple’s ninety-nine cents per song in iTunes, and far lower than what a new book would typically sell for in print.

Publishers feared both Amazon’s control of the market and its pricing model. But, working separately, they had no power to break the company’s grip. Then Apple decided to enter the market, and brought them together. At the end of 2009, just prior to the announcement of the iPad in January, 2010, Apple met with the “big six” publishers (Hachette, HarperCollins, Macmillan, Penguin, Simon & Schuster, and Random House), which together account for roughly ninety per cent of the sales on the New York Times best-seller list.

According to Judge Cote’s ruling, Apple, along with five of the six—Random House declined to join in—worked together on a scheme to set e-book prices higher, making $12.99 the base price for new best-sellers, and to effectively force Amazon into new agreements with the major publishers and thus take away its ability to set its own prices for their e-books. According to the Justice Department, as a result, the prices for “all ebooks” published by the five “Publisher Defendants” increased by over eighteen per cent; a jarring chart from a post-trial Justice Department memo shows the average prices for e-books from those five publishers spiking on Amazon at the start of April, 2010, as its new agreements with publishers went into effect, just after the launch of the iPad. The coordinated actions of Apple and the five publishers triggered a Justice Department investigation and, eventually, the antitrust suit that led to Cote’s ruling...MORE