Apple’s mistake was hooking up with the book-publishing cartel

1 July 2015

From Fortune:

An appeal court’s decision finding Apple guilty of collusion with publishers reinforces just how cozy a cartel the industry was.

Apple may be trying to keep the spotlight on its latest foray into the streaming-music business, but it is also still trying to clean up the mess caused by its ham-handed entry into an earlier market: book publishing. A federal court on Tuesday rejected the company’s appeal of an earlier ruling that found it guilty of orchestrating a conspiracy with the major book publishers, in what the court said was a successful attempt to artificially inflate the price of e-books.

As Fortune‘s Jeff Roberts reports, the court found Apple engaged in collusion with what amounted to an oligopoly—namely, Harper Collins, Penguin, Simon & Schuster, Hachette and Macmillan—and that its actions were a clear breach of antitrust law. Apple argued that the deal it cut with the publishers was necessary to blunt Amazon’s dominance in the e-book market, but the appeals court didn’t buy that argument. Judge Debra Ann Livingston wrote:

“Competition is not served by permitting a market entrant to eliminate price competition as a condition of entry, and it is cold comfort to consumers that they gained a new ebook retailer at the expense of passing control over all ebook prices to a cartel of book publishers.”

One reason the court failed to buy this argument is that the major publishers clearly had zero interest in actually competing on price—in fact, they wanted to do exactly the opposite. Their interest in doing a deal with Apple stemmed from a desire to maintain the existing favorable price structure for books, which allowed them to milk the market for high-priced hardcover versions of new novels before eventually releasing cheaper versions. Amazon’s low-priced e-books were a threat.

. . . .

The fact that the book industry was a cozy cartel is reinforced by the court’s description of how the publishers behaved even before Apple came along: They “operated in a close‐knit industry and had no qualms communicating about the need to act together,” the ruling says, quoting from the lower-court decision: “On a fairly regular basis… the CEOs of the [Big Six] held dinners in the private dining rooms of New York restaurants, without counsel or assistants present, in order to discuss the common challenges they faced.”

Since the publishers didn’t compete with each other on the basis of price, the appeals court decision says, “publishers felt no hesitation in freely discussing Amazon’s prices with each other and their joint strategies for raising those prices.”

. . . .

After strong-arming Amazon into accepting the new “agency pricing” model—in which the publishers got to set the price for their books, rather than allowing the retailer to do so—the book industry got exactly what it wanted. According to research by the Justice Department, the price of newly released books rose by an average of 24% and bestsellers climbed by 40%.

It says a lot about the book-publishing business that doing this actually caused book sales to drop fairly dramatically across the board: research done by another expert using data from Random House showed that publishers who switched to the agency model sold close to 15% fewer books than they would have otherwise. So the industry was effectively willing to trade a short-term decline in sales for the increase in power that they got over pricing as a result of the deal with Apple.

Link to the rest at Fortune and thanks to Michael for the tip.

Apple Loses Federal Appeal in E-Books Case

30 June 2015

From The Wall Street Journal:

A federal appeals court on Tuesday upheld a 2013 decision finding Apple Inc. liable for conspiring with publishers to raise the price of e-books.

The 2-1 ruling Tuesday by the Second U.S. Circuit Court of Appeals in Manhattan follows three years of litigation, millions of dollars in legal fees and a bold decision by Apple tochallenge the U.S. Department of Justice to a trial, even after all the publishers with which it was accused of colluding had settled their cases.

The iPhone maker is expected to pay $450 million, most of it to e-book consumers, as part of a November agreement with private plaintiffs and 33 states that joined the Justice Department’s 2012 lawsuit accusing Apple of violating civil antitrust law. The deal hinged on the outcome of the appeal. The penalty amounts to less than 3% of the Cupertino, Calif.-based company’s profit in the quarter that ended in December.

“We conclude that the district court correctly decided that Apple orchestrated a conspiracy among the publishers to raise e-book prices,” wrote Second Circuit JudgeDebra Ann Livingston. The conspiracy “unreasonably restrained trade” in violation of the Sherman Act, the federal antitrust law, the judge wrote.

. . . .

At the time, publishers were dissatisfied with Amazon’s aggressive discounts. Apple’s agreements ceded the power to set prices to the publishers, in what’s known as an agency model. But there was an exception: If another retailer were selling an e-book at a lower price, the publisher would have to match that price in Apple’s bookstore.

With a new outlet for their e-books, the publishers had the leverage they needed to reclaim some pricing power from Amazon, Justice Department lawyers said. Change was inevitable: The publishers couldn’t afford to sell their e-books in Apple’s store at Amazon’s discounted prices of $9.99 for most best sellers.

Prices on many e-books increased immediately. Lawyers for Apple said the company unwittingly facilitated the push against Amazon by the publishers.

But the Second Circuit majority said the evidence showed the technology company knew what it was doing.

“Apple understood that its proposed contracts were attractive to the publisher defendants only if they collectively shifted their relationships with Amazon to an agency model — which Apple knew would result in consumers facing higher e-book prices,” Judge Livingston wrote in a decision joined by Judge Raymond J. Lohier Jr.

Link to the rest at The Wall Street Journal (Link may expire) and thanks to Nirmala for the tip.

When PG first read the trial court’s opinion, he was impressed by two things:

  1. The good job the trial judge did in analyzing the evidence in the case and crafting an excellent opinion that was unlikely to be overturned on appeal.
  2. How amazingly inept the the price fixing conspirators in Big Publishing and Apple were. The evidence showed them to be a bunch of bumblers and their testimony during trial did nothing to ameliorate this impression.

In a nutshell, Apple can now ask for a rehearing in front of the three judges who just ruled against them or an en banc hearing before all the judges in the Second Circuit or try to persuade the Supreme Court to accept an appeal.

PG doubts any of these paths would change the result in this case.

He will warn all and sundry to expect sporadic outbreaks of Amazon Derangement Syndrome.

Publishing’s Swiftian future

23 June 2015

From Futurebook:

Publishing has a new question to ponder this week: what could Taylor Swift do for us? Swift’s triumph: she got a tech giant to change its mind.

In an open letter to Apple, Swift said she was withholding the record, 1989, from Apple’s new music streaming service, Apple Music, because she was unhappy with the three-month free trial offered to subscribers. “I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company,” wrote Swift. “Three months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing.”

The blog prompted the following response from Eddy Cue, Apple’s senior vice president of Internet Software and Services,

“#AppleMusic will pay artist for streaming, even during customer’s free trial period”

“We hear you @taylorswift13 and indie artists. Love, Apple”

. . . .

Speaking to Billboard magazine Cue said they had already been been hearing “a lot of concern from indie artists about not getting paid during the three-month trial period” before Swift spoke out. Apple had sought to ameliorate the three-month royalty free window by paying a higher rate after the initial period. Now it will pay artists during the free period, and retain the higher fee afterwards. Still, Apple can afford it.

Could a little bit of Swiftian kick-back help the book business too? It is worth contrasting Apple’s manoeuvre with the changes Amazon made to how it will pay indie writers signed up to its all-you-can-read Kindle Unlimited (KU) and the Kindle Owners Lending Library (KOLL). The change (in brief) is that from 1st July authors with books in those schemes will no longer be paid their percentage of Amazon’s pool of money once 10% of a book has been read, they will now be paid based on what the number of pages read, after the Amazon-mandated “Start Reading Location” (SRL).

. . . .

Much will be written once the impact of the change hits. However, what I have read less about is how, in altering its payment terms, Amazon itself was responding to artist feedback. As the company noted: “We’re making this switch in response to great feedback we received from authors who asked us to better align payout with the length of books and how much customers read.”

In his two blogs about the subject Hugh Howey notes his own influence: “We have different degrees of leverage. I’ve tried to use my leverage to win concessions for all authors. A number of the bestselling authors have done this. We ask for pre-orders for everyone as soon as possible. Better reporting. More categories. All kinds of stuff. I pressure Amazon to extend the 70% down to 99 cents for shorter works, which I think is fair. I give them hell about the exclusivity requirement every chance I get, from the bottom of the ladder to the top.”

There is something intriguing about the growing power of individual artists or collectives—like Howey, Swift claims to be speaking up for those who don’t yet wield the same power as her, “This is not about me. Thankfully I am on my fifth album and can support myself, my band, crew, and entire management team by playing live shows. This is about the new artist or band that has just released their first single and will not be paid for its success.”

. . . .

Similarly, one wonders how indie authors outside of the elite group feel about Amazon’s change in terms. Many were co-opted into Kindle Unlimited without prior request because Amazon felt compelled to move against Scribd and Oyster, and though writers can opt out, the fund from which Amazon generates payments (though it has risen month on month) is still entirely made-up. Now how writers get paid has changed too—and without any sense of their being any negotiation. It is an extreme scenario, but not one we should feel entirely comfortable about.

. . . .

A more pertient question book publishers should be asking, is not what could Taylor Swift do for them, but how the music business got into a position where it had to rely on a single artist to run its negotiations for them.

Link to the rest at Futurebook

PG isn’t an expert in the music business, but does know enough to wonder which industry treats its artists worse, music or publishing.

It’s not hard to treat authors better than Big Publishing does, so Amazon can consistently do so without breaking a sweat.

For example, PG doesn’t think the Authors Guild project to improve publishing contracts has attracted enough attention or analysis.

The list of contract provisions AG wants traditional publishing to change is an indictment of the industry’s horrible treatment of its authors. Even prisoners in the Soviet Gulag were released from oppression when they died. Under life-of-copyright contract terms, the maltreatment of authors continues down to their heirs.

As PG has mentioned before, in his experience with American business contracts across a wide variety of industries, no other group of (supposed) competitors offers such one-sided agreements whose terrible terms are so uniformly applied as does New York publishing. One might suspect collusion was occurring.

To make one point of comparison, which major New York publisher has provided any explanation of changed contract provisions impacting how authors are paid as Amazon has with its KDP Select Global Fund announcement?

Amazon treats authors as business partners. No one will contend that the partners have equal power, but with actions such as paying authors on a monthly basis, providing all authors with detailed sales information in close to real time, allowing authors to opt out of some royalty programs and choose which countries in which Amazon can sell their books, Amazon is miles and miles ahead of Big Publishing in the “authors are our partners” race.

If Taylor Swift were a megastar author, she would be condemning Big Publishing for underpaying authors at least as vigorously as she attacked Apple for underpaying musicians.

Is Apple Music the ebooks antitrust case all over again?

13 June 2015

From Fortune:

State attorneys general in New York and Connecticut are the latest to poke their nose into Apple’s arrangements with record labels, seeking out possible antitrust activities. The whole thing, however, feels less an illegal conspiracy than a stunt cooked up by competitors and politically ambitious regulators.

In case you missed it, news of the two investigations came the same week as the launch of Apple Music, a new service that will let users stream songs for $10 month. The state attorneys general, who say they want to find out if Apple and the record labels are conspiring to squeeze out “freemium” streaming services like Spotify, are following similar inquiries by the FTC and the European Union.

News accounts were quick to note that Apple has been here before, pointing to the company’s role as the mastermind of conspiracy in which publishers fixed the price of ebooks (a judge found Apple liable, but an appeals court is still weighing the verdict).

. . . .

“If Apple is doing independent agreements, that’s fine. There’s nothing illegal with Apple coming out with a paid subscription service,” said Andre Barlow, an Washington-based attorney who formerly worked on antitrust cases at the Justice Department. “These preliminary investigations are likely the result of competitors’ complaints.”

Barlow added that Apple would only face antitrust trouble if it had tried to create collusion between the record labels or abused dominant market power. Collusion is very unlikely, he said, given that Apple is currently subject to an antitrust monitor and because both the company and the record labels would be wary about improprieties in the wake of the high-profile ebook trial. In other words, Apple and the labels would be crazy to even try something shady in the first place.

As for abuse of market power, Apple’s influence has waned significantly in the music market since its heyday as a digital music selling powerhouse. In the realm of music streaming, Apple will be just one more player in a crowded market that already consists of Spotify, Rdio, Pandora, Tidal, YouTube, Rhapsody SoundCloud, and others. Apple will be hard-pressed to contend in this field, let alone dominate it.

Link to the rest at Fortune and thanks to Cheryl for the tip.

Apple Loses Bid to Oust Monitor

29 May 2015

From Publishers Weekly:

In a minor setback for Apple, a three judge panel of the Second Circuit Court of Appeals has denied the company’s bid to oust its court-appointed monitor, Michael Bromwich. In a brief opinion and order, Judge Dennis Jacobs, writing for the court, held that Judge Denise Cote did not abuse her discretion in appointing and retaining Bromwich, despite Apple’s objections, and that the monitor’s conduct was “appropriately constrained by the injunction and by other powerful restraints of law.”

Bromwich was appointed in October, 2013, after Judge Cote found Apple liable for its role in fixing e-book prices with five publishers. In her September 4, 2013 final order, she appointed the external monitor for a two-year term with a narrow mandate: to ensure that an antitrust training and compliance program was put in place at Apple that was “sufficient” and “reasonably designed to detect and prevent violations of the antitrust laws.”

Apple, however, has bristled over Bromwich’s work from the beginning, and Apple attorneys have sought to have him disqualified. DoJ attorneys counter that Apple is guilty of openly obstructing Bromwich’s work, and waging a “campaign of character assassination” against him.

“Apple simply does not want any monitor whatsoever,” DoJ attorneys concluded in one court filing, and “manufacturing these baseless objections is the only way it apparently believes it can achieve that result.”

Notably, Judge Dennis Jacobs is also part of the panel that will decide Apple’s main appeal over its 2013 liability verdict.

Link to the rest at Publishers Weekly and thanks to Chris for the tip.

Apple Releases iBooks Author Starter Kit

18 May 2015

From Ink, Bits & Pixels:

Apple’s on again, off again interest in iBooks is on again as of last week. Bradley Metrock noted on LinkedIn on Friday that Apple has released a how-to book for iBooks.

iBooks Author Starter Kit is a no-frills beginner’s guide which lays out all the steps required to produce an ebook in iBooks Author. The Starter Kit walks a user through a detailed set of step-by-step activities, and provides all of the materials required to create a basic interactive book, including an iBooks Author template, images, color palette, copy decks, videos, keynote presentation, and more.

. . . .

While I think that Apple has been generally disinterested in iBooks, this book was published only days after we learned that iOS 8.4 will enable iPhones to read ebooks produced by iBooks Author.

Link to the rest at Ink, Bits & Pixels

What if printed books went by ebook rules?

9 May 2015

From OUPblog:

I love ebooks. Despite their unimaginative page design, monotonous fonts, curious approach to hyphenation, and clunky annotation utilities, they’re convenient and easy on my aging eyes. But I wish they didn’t come wrapped in legalese.

Whenever I read a book on my iPad, for example, I have tacitly agreed to the 15,000-word statement of terms and conditions for the iTunes store. It’s written by lawyers in language so dense and tedious it seems designed not to be read, except by other lawyers, and that’s odd, since these Terms of Service agreements (TOS) concern the use of books that are designed to be read.

But that’s OK, because Apple, the source of iBooks, and Amazon, with its similar Kindle Store, are not really publishers and not really booksellers. They’re “content providers” who function as third-party agents. And these agents seem to think that ebooks are not really books: Apple insists on calling them, not iBooks, but “iBooks Store Products,” and Amazon calls them, not Kindle books, but “Kindle Content.”

. . . .

[I]f you get hurt in the park while reading an iBook, don’t blame Apple—they’re simply go-betweens who provide the product but take no responsibility for it:


Conventional printed books, or “book books”—which in the old days we simply called books—don’t require a click-to-agree before reading. Imagine if Gutenberg made his readers accept these conditions from Amazon’s Kindle Store before they could read the Bibles he printed on that first printing press, back in the 1450s (readers is an archaic term for what we call end users today):

Unless specifically indicated otherwise, you may not sell, rent, lease, distribute, broadcast, sublicense, or otherwise assign any rights to the Kindle Content or any portion of it to any third party, and you may not remove or modify any proprietary notices or labels on the Kindle Content. In addition, you may not bypass, modify, defeat, or circumvent security features that protect the Kindle Content.

I mean, try plugging that into Google translate and see what comes out.

. . . .

What if that applied to “book books” as well? An analog version of Kindle’s Digital Rights Management agreement (DRM) wouldn’t let you lend your Gutenberg Bible to a friend, give it away, sell it at a garage sale, donate it to an adult literacy program, or use it to press flowers. Nor could you make it publicly available, for example, by reading it aloud during a religious service. Plus it turns out that unlike Apple, which has more money than God, Gutenberg barely made ends meet selling his Bibles, even though the few copies that survived the ravages of time are worth millions today. If Gutenberg had had the foresight to license his Bibles instead of selling them outright, his descendants and heirs would still own the rights to those first books, or as they might prefer to call them, those Analog Scriptural Piety Artifacts (aSPAs).

Link to the rest at OUPblog

Apple pushing music labels to kill free Spotify streaming ahead of Beats relaunch

8 May 2015

From The Verge:

The Department of Justice is looking closely into Apple’s business practices in relation to its upcoming music streaming service, according to multiple sources. The Verge has learned that Apple has been pushing major music labels to force streaming services like Spotify to abandon their free tiers, which will dramatically reduce the competition for Apple’s upcoming offering. DOJ officials have already interviewed high-ranking music industry executives about Apple’s business habits.

Apple has been using its considerable power in the music industry to stop the music labels from renewing Spotify’s license to stream music through its free tier. Spotify currently has 60 million listeners, but only 15 million of them are paid users.

. . . .

Apple is seemingly trying to clear a path before its streaming service launches, which is expected to debut at WWDC in June. If Apple convinces the labels to stop licensing freemium services from Spotify and YouTube, it could take out a significant portion of business from its two largest music competitors.

Link to the rest at The Verge and thanks to Paul for the tip.

E-Book Antitrust Monitor Says Apple Cooperation Has ‘Sharply Declined’

20 April 2015

From re/code:

Apple’s cooperation with a court-appointed monitor has “sharply declined” as he reviews the iPad maker’s antitrust compliance policies, the monitor wrote in a report to a judge.

Michael Bromwich, who became Apple’s monitor after it was found liable for conspiring to raise e-book prices, said in a report on Thursday that Apple objected to providing information and “inappropriately” attempted to limit his activities.

Bromwich, whose relationship with Apple has been testy since the start, had indicated that relations had improved in a report in October to U.S. District Judge Denise Cote in Manhattan.

However, he said in his latest report that the company recently had taken a more “adversarial tone” in discussions.

“We have conducted no interviews since January, and Apple has rejected our recent requests for interviews,” Bromwich wrote.

Link to the rest at re/code and thanks to Joshua for the tip.

Amazon vs Apple

10 February 2015

From the Self-publishing Advice Blog of the Alliance of Independent Authors:

Everyone knows that Amazon sells more books than Apple, but it’s becoming obvious that Apple has moved past B&N into the number two position, and Apple is continuing to grow. According to iBooks Store Director Keith Moerer, addressing publishers at Digital Book World 2015, Apple’s ebook businesses is gaining 1 million new customers every week. That’s a lot of new readers.

. . . .

If you’re an author, and your books aren’t being sold through Apple, you need to rethink your strategy. Of course, that would mean you’d have to abandon Kindle Select as Amazon demands exclusivity if an author is in Select. And that brings up a question many authors ask.

Should You Be Exclusive On Amazon?

I’ve never been a big fan of Amazon’s exclusivity clause. I also haven’t been a fan of the way that Amazon treats authors in relation to how other companies treat authors.

But let’s leave exclusivity aside for the moment, and focus on…

Who Is The Best eBook Retailer For Authors?

. . . .

The answer to the question of who is the best eBook retailer is more complicated than it might appear. Amazon sells the most books. We all know that. And in an article last March regarding which eBook retailer is number two, Jeremy Greenfield from Digital Book World had this to say.

I wish I could give you a clear answer, but after nearly a month of investigation into whether Apple or Barnes & Noble is now the second-largest ebook retailer in the US, this is the best I have: It depends.
I think with developments we’ve seen in the last half of 2014, Apple has secured the number two spot, but let’s move off the sales topic and focus on other issues.

I hear a lot of complaints about Apple, most of them having to do with how difficult they are to deal with, or how strict they are about accepting material, or how you need a Mac to submit a book. All of that is true—to an extent. But none of that has much to do with the long term.

Even if it takes you two weeks to upload a book—what’s two weeks when your book will be there for years, theoretically, forever. And yes, Apple can be strict about what material they accept, but I’m convinced that’s better for indie authors in the long run. As to needing a Mac… I wish it wasn’t so, but it is. That leaves you with a few choices, the easiest of which is using a good distributor, which isn’t a bad idea anyway.

. . . .

Categories 2 3
Commission 99c–2.98 35 70
Commissions 2.99–9.99 70 70
Commissions 10+ 35 70
Commissions Int’l[1] 35 70
Coupons X
Delivery charges 15c per megabyte up to 2 Gig free
Exclusivity required for some benefits X
File types .mobi epub
Free books w/Select 5 days per quarter anytime
Free books w/o Select X anytime
Payment terms 60 days 32 days
Price matching enforced X
Pricing internationally some control complete control
Reach globally 12 territories 51 countries
Sales reporting updated every few hours daily
Scheduling promotions with Select anytime
Series manager tool X
Uploading easy need a Mac

. . . .

Delivery Charges

This is one of those things that—when first looked at—seems like nothing. But the more you analyze the cost, it becomes apparent how serious it is. (Amazon only charges you if you are in the 70% commission plan.)

My charges for normal mystery books average 10–12c per book. On a book priced at $2.99 that reduces your earnings from $2.10 to about $2.00. That represents an effective cut of about 4%. So in reality, you’re getting 66% instead of 70%.

The actual charges amount to 15c per megabyte. This could get serious if you have a 10-meg file and are selling your book for $4.99. Instead of receiving $3.50, you’d get $2.00. That’s taking your commission from 70% to 40%. A huge cut in commissions.

This is so important, I want to spend a moment on it. If you’re a typical novelist and your book is primarily text it won’t affect you much. Maybe the 3–4% I cited above; however, if you produce cookbooks, illustrated books, non-fiction books heavy with charts, tables, graphs, and images—then these delivery charges mean a lot.

Link to the rest at ALLI and thanks to Suzie for the tip.

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