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.

About that Impending Amazon-Apple Digital Textbook War

1 February 2015

From Ink, Bits & Pixels:

The launch of Amazon’s new Kindle Textbook Creator a couple weeks ago has caused a flurry of speculation about what this could mean for digital textbooks.

Many have mistakenly looked at the vaguely similar uses for iBooks Author and Kindle Textbook Creator and concluded that a great textbook war is about to commence.

I don’t see that happening.

While the edtech market is going through a period of upheaval and that is affecting digital textbooks, I think it’s wrong to frame the upheaval in terms of digital textbooks.

. . . .

To start with, anyone who foresees an impending textbook was between Amazon and Apple mistakenly assumes that Apple gives a toss about content sales. As I pointed out in July 2013, Apple’s profit is in hardware, not content.

. . . .

Speaking of hardware sales, that brings me to the next point which Flavorwire missed.

Apple can’t fight, much less win, a digital textbook war because they’re already losing the hardware battle. Apple’s ebookstore is irrevocably tied to Apple hardware, which means that the digital textbooks sold there cannot be read on Windows or Android devices, or Chromebooks.

Guess which devices are outselling iPads in schools?

Windows PCs still make up the bulk of the devices going into computer labs, obviously, but for the past several quarters Chromebooks have also been outselling iPads in the 1:1 device category.

Link to the rest at Ink, Bits & Pixels

1 million new iBooks customers each week since iOS 8 launch

16 January 2015

From Gigaom:

Apple’s iOS 8 and OS X Yosemite, which launched to the public this fall, come with iBooks pre-installed. That decision has paid off: iBooks has averaged one million new customers every week since mid-September.

Keith Moerer, the director of iBooks at Apple, revealed that statistic in a rare public appearance at the Digital Book World conference in New York City on Thursday. It’s startling to anyone who dismisses Apple as an also-ran in the ebook market and might encourage publishers and authors who haven’t focused on the platform to begin doing so.

. . . .

Moerer also spoke about other reasons that iBooks downloads are increasing. Since the launch of the larger-screened iPhone 6 and iPhone 6 Plus, “We are seeing more of our book sales starting to come from the phone.”

. . . .

“It’s in Apple’s DNA to support creative professionals of all types … many of whom use our hardware, many of whom use our software. That support carries over to the way we run our media business,” he said, adding:

Whether an author chooses to self-publish or work with a small or large publisher, I’m very proud that our business terms are the same. The same 30-70 split applies to a self-published author as well as an author published by the very biggest house. Because we’re not a publisher ourselves, we work very closely with publishers and we view them as partners. We view what we do as an expansion of our support of print professionals on the hardware and software side and the way we run our other media businesses.

. . . .

“One hundred percent of our merchandising is editorially focused. We accept no co-op payments, no pay for placement,” Moerer said.

. . . .

Asked if there are categories where iBooks might be outperforming other retailers, Moerer said the company sees particular strength in movie tie-ins: Apple can “leverage those customers” who come to iTunes to buy movies and music and also read.

Link to the rest at Gigaom

Apple Says App Store Sales Rose 50% in 2014

9 January 2015

From The Wall Street Journal:

Apple Inc. has a largely straightforward business model: It makes hardware, sells it at a premium, and pockets the difference. The rapid growth of its App Store is starting to change the formula.

Apple said total billings from paid apps and purchases made within apps for its mobile devices rose 50% last year, from more than $10 billion in 2013. That implies App Store sales of roughly $15 billion, making Apple’s take around $4.5 billion. Apple keeps 30 cents of every dollar that flows through the App Store.

That is still a relatively small slice of Apple’s $183 billion in annual sales. But it is growing much faster: Analysts estimate that Apple’s revenue grew 10% in 2014, according to CapitalIQ.

Moreover, the vast majority of App Store revenue flows directly to the bottom line—making it an increasingly meaningful contributor to Apple’s profits. Apple’s net income for the year ended in September 2014 totaled $39.5 billion.

. . . .

Apple said it has created—directly and indirectly—more than one million U.S. jobs. Roughly two-thirds, by Apple’s count, are developers creating programs to run on the iPhone, iPad and iPod.

Link to the rest at The Wall Street Journal (Link may expire)

Book Publishing Predictions for 2015

1 January 2015

From Flavorwire:

What will book publishing bring in 2015? Shrouded as the industry is behind a veil woven of billions and billions of dollars, it’s difficult to say. But if you look hard enough — at the bestseller lists, the court cases, the controversies — you can glimpse through the metaphorical keyhole and into the back rooms where the deals are made. With this in mind, here is a somewhat reliable predictor for the publishing industry in 2015.

. . . .

Next, we have the big “A” — Apple. Ever since it was sued by the government for conspiring to fix e-book prices, Apple has been forced to slow its inevitable crawl into book publishing. But in 2015 the crawl may build into a sprint. The early indication is that Apple will likely win its appeals hearing, now that the (new) judge seems to appreciate that Amazon monopsonizes 90 percent of the e-book market. My prediction here is simply that Apple will win its appeal in advance of Apple vs. Amazon: The Great Publishing War of 2016.

Speaking of Amazon: now that Simon & Schuster and Hachette have penned shadow deals with Bezos, it looks to be a fairly positive year for the “everything” Leviathan. Look for them to refine Kindle Direct, their self-publishing platform, with perhaps more “success stories” on the YA and genre fronts. And, now that we know that Simon & Schuster paid more “coop” money for “prominent display of their titles” in their deal with Amazon, it’s a reasonable assumption that, at some point in 2015, Amazon will announce design changes to its hideous marketplace.

Meanwhile, the Big 5 will continue its search for ways to circumvent Amazon. Already this month Hachette announced a short-term plan to sell select books directly through Twitter. It remains to be seen whether this venture will be successful, but it’s safe to say that the industry will likely see more partnerships between big publishers and middlemen, like Gumroad, who facilitate direct sales through social media and other platforms. Will readers buy books through social media? 2015 will likely decide.

Link to the rest at Flavorwire and thanks to Dotti for the tip.

Did Apple Fix E-Book Prices for the Greater Good?

17 December 2014

From The New Yorker:

Had you listened to the lawyers presenting oral arguments to the United States Court of Appeals for the Second Circuit between ten o’clock and eleven o’clock on Monday morning, you might have assumed that someone was suing Amazon. Much of the discussion centered on whether Amazon had a monopoly on e-book sales a couple of years ago. At one point, a judge even suggested outright that Amazon could be described as a monopolist company that engaged in predatory pricing.

But the case before the court that day wasn’t about Amazon—not directly, at least. It originated in 2012, when the Department of Justice sued Apple and five book publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) for allegedly conspiring to raise the prices of e-books in the run-up to the launch of the iPad, in 2010. Amazon, whose Kindle e-reader had a ninety-per-cent market share for e-books before the iPad’s introduction, had been buying them at the wholesale prices set by publishers, then reselling them at retail prices (typically $9.99 per book) that were often at or even below the original wholesale price. Amazon didn’t mind losing money on each sale, as long as the strategy helped sell Kindles and expand the e-book market. But publishers believed that the low retail price of e-books eroded the public’s perception of what books are worth. They also worried that the heavily discounted e-books were hurting hardcover sales, on which they depended for much of their revenue.

. . . .

So why the discussion now of whether Amazon was a monopolist before Apple came along? According to recent case law, price-fixing schemes designated as horizontal (that is, coördinated among competitors) violate antitrust law, no matter the parties’ intentions or the effects on the market. But “vertical” price-fixing (between a retailer and a manufacturer) may not be a violation, depending on such factors as the companies’ motives and the outcomes of their actions.

Last year, a federal judge named Denise Cote found that Apple had, in fact, collaborated in a horizontal price-fixing scheme, not that it had orchestrated a vertical one. Cote noted that Apple executives kept the publishers informed about what other publishers were up to; she also pointed out that Apple made clear to the publishers that it was important for as many of them as possible sign on to the proposed deal. Both of these activities, among others, Cote argued, showed that the company had facilitated horizontal price-fixing.

. . . .

On Monday, comments from the appellate judges in New York—especially Judge Dennis Jacobs—suggested that they might be more receptive than Cote to Apple’s line of reasoning. According to Agence France-Presse, Jacobs said, “What we’re talking about is a new entrant who is breaking the hold of a market by a monopolist who is maintaining its hold by what is arguably predatory pricing.”

. . . .

According to the Associated Press, when one of the judges, Raymond J. Lohier, Jr., asked a lawyer for the Justice Department how Apple and the publishers “could have broken Amazon’s monopoly of the e-book market without violating antitrust laws,” The lawyer noted that Apple could have let the competition among companies play out naturally without pursuing explicit strategies to push prices higher—or it could have sued, or complained to the Justice Department and to federal regulatory authorities. First told me, “My view of this has always been that vigilante justice is not appropriate—it was not even appropriate in the Wild West.”

Link to the rest at The New Yorker

PG suggests that, even if Amazon was abusing its position in the ebook world (not a certain thing by a long shot because it was trying to push prices down, a good thing for consumers), the solution to monopoly power is not to create another monopoly that abuses its power – by price-fixing, which is what the Price-Fix Six did.

In 1985, Steve Jobs predicted the internet would inspire everyone to buy computers

16 December 2014

From The Verge:

Longform republished a Playboy interview with Steve Jobs from 1985. Nearly 30,000 words long, the conversation is full of interesting ideas and anecdotes. The interview spans the tech of the time. At one point, while discussing the potential of computers, Jobs compares Pong quite favorably to the work of Aristotle. In another chunk of the interview, Jobs comments on the future of home computing, predicting the average person would spend a considerable amount of cash on a personal computer so they could connect to a national network — a little different than the internet of today.

Playboy: What will change?

Jobs: The most compelling reason for most people to buy a computer for the home will be to link it into a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people-as remarkable as the telephone.

Playboy: Specifically, what kind of breakthrough are you talking about?

Jobs: I can only begin to speculate. We see that a lot in our industry: You don’t know exactly what’s going to result, but you know it’s something very big and very good.

Playboy: Then for now, aren’t you asking home-computer buyers to invest $3000 in what is essentially an act of faith?

Jobs: In the future, it won’t be an act of faith. The hard part of what we’re up against now is that people ask you about specifics and you can’t tell them. A hundred years ago, if somebody had asked Alexander Graham Bell, “What are you going to be able to do with a telephone?” he wouldn’t have been able to tell him the ways the telephone would affect the world. He didn’t know that people would use the telephone to call up and find out what movies were playing that night or to order some groceries or call a relative on the other side of the globe. But remember that first the public telegraph was inaugurated, in 1844. It was an amazing breakthrough in communications. You could actually send messages from New York to San Francisco in an afternoon. People talked about putting a telegraph on every desk in America to improve productivity. But it wouldn’t have worked. It required that people learn this whole sequence of strange incantations, Morse code, dots and dashes, to use the telegraph. It took about 40 hours to learn. The majority of people would never learn how to use it. So, fortunately, in the 1870s, Bell filed the patents for the telephone. It performed basically the same function as the telegraph, but people already knew how to use it. Also, the neatest thing about it was that besides allowing you to communicate with just words, it allowed you to sing.

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

Can Apple Win Its E-book Appeal?

15 December 2014

From Publishers Weekly:

On Monday, December 15, Apple will finally get their crack at overturning its 2013 e-book price-fixing judgment, with oral arguments scheduled before the Second Circuit Court of Appeals. What are the core arguments that will be pressed before the Second Circuit? What is at stake? And, can Apple succeed in overturning the judgment against them? Here is a short primer:

. . . .

Monday’s hearing is the main event: this is Apple’s appeal of Judge Denise Cote’s 2013 liability finding, in which the company was found to have conspired with five major publishers (Hachette, HarperCollins, Macmillan, Penguin, and Simon & Schuster) to artificially inflate e-book prices.

The 2012 suit alleged that five of the then Big Six publishers, threatened by Amazon’s $9.99 e-book prices,colluded with Apple to simultaneously move the industry to an “agency” model in which the publishers would take control of consumer e-book pricing in conjunction with the 2010 launch of the iPad and the iBookstore.

The five Publisher Defendants settled the charges against them and avoided trial. They admitted no wrongdoing, butrefunded $166 million to e-book consumers, and submitted to two years of Department of Justice sanctions. Apple, however, fought the charges, and, on July 10, 2013, after a two-week trial, Cote found Apple had violated Section 1 of the Sherman Act.

. . . .

In Apple’s version of events, the company did “nothing more” than “[hear] out” the publishers’ complaints about Amazon and convey its “openness to pricing above $9.99.” Nothing in the evidence, they stress, definitively shows otherwise.

Did Apple exploit the publishers’ desire to blunt Amazon’s pricing? Sure—but at no time, Apple attorneys insist, did Apple knowingly join a conspiracy—it was simply trying to enter the e-book market under “rational” business terms. And its entry into the e-book market ultimately had “pro-competitive” effects, helping to dent Amazon’s 90% share of the e-book market.

“That Apple used the leverage created by market dynamics and the publishers’ well-publicized antipathy toward Amazon to enter the market is quintessential competition,” Apple argued in a July appeal brief, “not conspiracy.”

. . . .

Attorneys for the U.S. Department of Justice counter that Apple did considerably more than “hear out” the publishers—and that Judge Cote got the case exactly right. In the DoJ’s appeal filing, U.S attorneys point out that the evidence against Apple was “overwhelming.” And, despite Apple’s dispute over “isolated pieces of evidence,” the judge “articulated the proper standard, and correctly applied it.”

U.S. attorneys claim they only needed to show there was “sufficient evidence” to enable “a reasonable fact finder to infer that the conspiratorial explanation is more likely than not.” And the volumes of evidence presented in the case, they say, shows that the alleged conspiracy was “more than merely plausible,” but made perfect economic sense: Apple wanted a retail platform for e-books on its new device, the iPad, but did not want to compete with Amazon on price. And the publishers wanted to end Amazon’s low prices, which they believed “devalued” their product.

. . . .

Lawyers say it will be an uphill battle for Apple. Look at it this way: to win, Apple must lead the Second Circuit to a completely opposite finding than the slam-dunk verdict Judge Cote came to, based on the same evidence, and a single, brief oral argument (each side is allotted just 20 minutes).

Apple’s appeal is also somewhat unusual in that it leans surprisingly hard on Cote’s reading of the evidence. Appeals generally hinge on legal and procedural errors. But in this case, Apple claims that Cote so abused her discretion that her conclusions are reviewable for “clear error.”Cleveland State University law professor Christopher Sagers, who has followed the case closely, told PW it is “definitely not impossible” that Apple could win. But, in his opinion, Cote’s reading of the evidence is sound, and some key parts of Apple’s arguments, because they revolve around findings of fact, could be deemed unreviewable.

Link to the rest at Publishers Weekly

PG thinks Apple will lose its appeal.

However, PG also believes that the outcome of the appeal is irrelevant to the ebook world. Apple has failed as a savior of Big Publishing and high prices for ebooks. In a nutshell, Apple can’t compete with Amazon in selling ebooks.

At the time the Price-Fix Six hatched its little plot, Apple was going to introduce the iPad and everyone thought it would dominate the ebook world. Although the iPad started off as the only game in town, it’s not any more. Gartner estimated that Android tablets represented 62% of tablet sales in 2013 while iPad sales were 36% of the tablet market.

Theoretically, Apple could remove Amazon apps from the iTunes store, but doing so would upset iPad owners and accelerate the market decline of the iPad.

So, if the Court of Appeals confirms that Apple illegally fixed prices or decides it didn’t makes no difference to anyone but Apple. Amazon is the king of ebook sales and is likely to continue that role, at least in the near-term future.

Apple, E-Books and the Amazon Juggernaut

15 December 2014

From a law school dean via re/code:

Being sued by the government under the antitrust laws has historically been a rite of passage for great American companies like Standard Oil, U.S. Steel, DuPont, IBM, AT&T, Microsoft, Intel and Google. Apple is the latest to be inducted into this rarified company. In a 2012 lawsuit, the Justice Department alleged that the Cupertino company conspired with seven book publishers to fix e-book prices. After being found liable by the federal district court in Manhattan in July of 2013, Apple is preparing to argue its case in the court of appeals today, Dec. 15.

Apple should be feeling good about its chances. Although the government’s case has superficial appeal, the record suggests that Apple’s actions may have benefited rather than harmed the welfare of e-book customers.

. . . .

First, although the point of a price-fixing conspiracy is generally to increase prices, there is compelling evidence that the shift from a wholesale to an agency model resulted in a decrease in the average prices of e-books. While the prices of premium books that Amazon had previously been selling below cost increased, Apple and B&N’s entry facilitated the vast expansion of the e-book market, including the availability of many new low-cost books. The net effect for consumers was an expansion of choice and variety at lower average prices.

Second, it would be misguided to judge the competitive effects of Apple’s behavior solely based on e-book prices. Amazon was strategically using low, and arguably anticompetitive, e-book prices to entrench the entire Kindle ecosystem. Market entry by new competitive ecosystems like the iPad/iBookstore required disruption of Amazon’s prevailing business model. Consumers undoubtedly benefited immensely from the introduction of the Nook and iPad and their associated online bookstores.

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

Can Apple clear its name in the ebooks drama?

3 December 2014

From Fortune:

When Apple goes before a federal appeals court on Dec. 15, trying to overturn the ebooks price-fixing judgment the Justice Department won against it in July 2013, there will be an elephant in the room.

That would be Amazon, the much admired and greatly feared ­discounter, which is not a party in the case. Yet the unposed question hovering over the proceedings will be: Did the regulators target the right bully?

. . . .

The case stems from events that occurred five years ago, when Apple was preparing to launch its first iPad. Apple’s negotiator extraordinaire, Eddy Cue, signed up five of the then six major publishing houses to start selling ebooks through what it would call the iBooks Store.

. . . .

Apple was breaking into a market then dominated by Amazon, which had an 80% to 90% market share—monopoly power in almost anyone’s book. The iPad’s new color touchpad e-reader would compete with Amazon’s Kindle 2, a black-and-white, text-only, single-use device that advanced pages with a button. So far so good.

But when the curtain rose on the iBooks Store on April 3, 2010, so did prices industrywide for most new-release ebooks, to the tune of about 17%.

That dramatic price rise—and a letter Amazon wrote to regulators two months earlier—led the Justice Department and 33 state attorneys general to sue Apple and five publishing houses for horizontal price-fixing in violation of the ­Sherman Act. In July 2013, after a three-week trial, U.S. District Judge Denise Cote of Manhattan ruled against Apple. (The publishers settled before trial.)

This is the stain on its reputation that Apple hopes the appeals court will wash away. The man at the center of the dispute, Apple’s Cue, 50, has agreed, in a Fortune exclusive, to grant his first press interview on the subject. An Apple lifer since he was 24, Cue now oversees iCloud, Siri, and all the company’s online stores. It was Cue who conducted the negotiations that led to the launch of the iTunes store in 2003, the App Store in 2008, and Apple’s new digital-­payment product, Apple Pay, in October. And it was he who negotiated Apple’s entry into the ebooks market in 2010.

“Is it a fact that certain book prices went up?” asks Cue. “Yes. If you want to convict us on that, then we’re guilty. I knew some prices were going to go up, but hell, the whole world knew it, because that’s what the publishers were saying: ‘We want to get retailers to raise prices, and if we’re not able to, we’re not going to make the books available digitally.’ At the same time, other prices went down too, because now there was competition in the market.”

. . . .

“We feel we have to fight for the truth,” says Cue. “Luckily, Tim feels exactly like I do,” he continues, referring to Apple CEO Tim Cook, “which is: You have to fight for your principles no matter what. Because it’s just not right.”

It’s a risky choice, since a loss would only set the stain. “Apple has an uphill battle,” says Herbert Hovenkamp, a law professor at the University of Iowa and co-author of a 22-volume antitrust treatise. “There was lots of evidence in the record, the judge looked at it, and she agreed with the government. Fact-findings get reviewed under a deferential standard. You pretty much have to accept them.” (It was a bench trial, meaning that Judge Cote herself, not a jury, was the fact-finder.)

Still, the issues are perplexing, and Apple has a fighting shot. Did prices go up because of price-fixing? Or did they go up, rather, because once Apple entered the market, the publishers finally had an alternative to selling through Amazon on whatever terms it demanded?

. . . .

In truth, though, anyone complaining about Amazon has a tough row to hoe. Since the 1970s a broad consensus has emerged that the only proper purpose of the antitrust laws is to protect consumers, and low prices are presumed to be the consumer’s highest priority. Under that regimen, gigantic discounters like Amazon seem to be golden.

. . . .

In November 2009, Apple was finalizing its top-secret iPad, which was to be unveiled in January. “I remember taking it home to play with,” Cue recalls, “and it was clear to me it would make a great ebook reader.” So he suggested to CEO Steve Jobs that Apple open an ebook store along the lines of iTunes. “He said, ‘I’m not going to delay the product for this,’ ” Cue recounts, “ ‘but I’ll let you go see what you can get done.’ ”

Cue knew little about the industry and had never met any of the publisher CEOs. His team set up six meetings for him in New York—one with each CEO of a Big Six ­publisher—on Dec. 15 and 16. The publishers were Hachette, Harper­Collins, Macmillan, Penguin, Simon & Schuster, and Random House. Cue never met with more than one publisher at a time. (Penguin and Random House merged in July 2013.)

A few days before the first meeting, Cue recalls, he read a newspaper article about the “industry being in turmoil, Amazon selling books below cost, and the publishers saying that if the practice doesn’t stop, they’re going to stop selling new releases digitally. I thought, Oh, these are going to be more interesting meetings than I thought.”

. . . .

The publishers sold their digital works to Amazon on the same wholesale model they used for “ink on paper.” They were aghast, however, when Amazon started selling nearly every digital version of a new release or New York Times bestseller—which typically sold in hardback for $26 to $35—for just $9.99. The practice cannibalized hardback sales and devalued authors’ intellectual property, the publishers protested. Over time, they feared, Amazon would use its market power to force down wholesale prices, slashing the funds available for author advances.

From Amazon’s perspective, the price simply gained converts to a new way of reading, sold Kindles, and served the purpose of any loss leader: getting people to the store.

Though publishers raised wholesale prices, Amazon held fast. By 2009 it was absorbing $2, $5, and even $7 losses on the sale of nearly every copy of those key titles.

In their clubby world the publisher CEOs naively hobnobbed with abandon. Four times between September 2008 and September 2009, at least five of them supped together without lawyers present. Three of those dinners were in a private room at Picholine, a fine French restaurant on Manhattan’s Upper West Side. Though the participants gave innocuous reasons for the gatherings, the government said they “offered publisher defendants opportunities to discuss how they could work collectively in pursuit of higher retail e-book prices.”

. . . .

There and elsewhere some publisher CEOs unquestionably shared sensitive business information, including plans about “windowing.” Windowing was one of the few weapons the publishers had against Amazon. It meant withholding the release of an ebook until several months after the hardback release—the way paperbacks are withheld. None of the publishers wanted to do that because they’d lose the benefit of the buzz surrounding a new release, and the practice invited piracy. But in early 2009 two publishers warned Amazon that they might resort to windowing certain blockbuster titles.

. . . .

So the publishers faced a quandary. If a company started windowing, it risked retaliation from Amazon. But if publishers sought safety in numbers, coordinating their windowing, they would be colluding in violation of the Sherman Act.

In August, Hachette’s then CEO, David Young, sent an email that evinced collusion. “Completely confidentially,” he wrote the CEO of Hachette’s French parent, “[Simon & Schuster CEO] Carolyn [Reidy] has told me that they are delaying the new Stephen King … I think it would be prudent for you to double delete this from your email files when you return to your office.”

. . . .

That a competitor follows another’s lead is not collusion. If one airline raises its fare on a route, for instance, and every other carrier matches that fare within minutes, that’s fine, as long as they didn’t agree to do it beforehand.

In this case, though, given the Picholine dinners and the “double delete” email, Judge Cote inferred that the ­publishers had “synchronized their windowing strategies.” But she went further: She found that Cue—who at this point had still never spoken to a single publisher—­somehow knew they were colluding. “Before Apple even met with the first publisher-defendant in mid-December,” she wrote, “it knew that [they] were already acting collectively to place pressure on Amazon to abandon its pricing strategy.” She cited only the fact that newspapers had reported each windowing announcement. (Cue says he never heard of the Picholine dinners until after the government sued in April 2012.)

. . . .

But there was one more term. It read: “All resellers of new titles need to be in agency model.” The clause addressed the fact that if Apple was using agency (with publishers setting prices) while Amazon was using the wholesale model (with Amazon setting prices at $9.99), Apple’s prices wouldn’t be competitive. Most antitrust lawyers would say that this term was illegal, however, because Apple can’t tell its suppliers how to deal with Apple’s competitors.

. . . .

So when Cue sent out the actual draft contracts, he replaced that term with a “most favored nation” clause, or MFN. It gave Apple the right to match the price at which any new-release ebook was being sold by another retailer. (Cote acknowledged that MFNs are ordinarily legal.)

With the MFN, publishers could keep their wholesale model with Amazon, if they wanted. If they did, though, and Amazon priced a book at $9.99, Apple could sell that book at $9.99 too. In that case, of course, the publisher would make only 70% of $9.99 from Apple—about $7—instead of the $12 or $15 wholesale price it was used to getting for that book from Amazon. That would be the worst of both worlds for the publisher: It would still be stuck with the $9.99 price point, and it would be making less money too.

. . . .

Negotiations continued down to the wire; the last publisher inked its deal only the day before Jobs unveiled the iPad at San Francisco’s Yerba Buena Arts Center. (Random House didn’t sign till a year later, so it wasn’t named in the government’s suit.)

At the launch Jobs showed how he could download a book from the iBooks Store. The volume chosen was priced at $14.99. Afterward, then Wall Street Journal columnist Walt Mossberg asked Jobs in a videotaped exchange: Why would someone buy for $14.99 a book that’s available on Amazon for $9.99?

“That won’t be the case,” Jobs responded. “The prices will be the same.”

To the government, that was a confession to price-fixing. But it was also just a description of how the MFN worked. If Amazon was still selling the book at $9.99, then the iBooks Store could sell it at that price too.

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

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