Apple's Price Fixing

Apple colluded with major book publishers to fix ebook prices.

Figure A: Apple's Steve Jobs and the iPad

It's really that simple. This Verge article is a good distillation, and this New Yorker article is even better if you want a typical long, brilliant New Yorker read.

You can expect a whole bunch of blog hype, and maybe Apple will settle or even win in court (they can afford aluminum unibody lawyers with MagSafe Thunderbolt connectors and retina teeth or something) but it comes down to this:

• Apple told the publishers it wanted to help them sell books at prices that made the publishers happier
• Apple told the publishers it was only really interested in getting into the market if all major publishers were on board
• Apple encouraged the publishers not to be left out, telling each of them that all the others were doing it
• The publishers and Apple were really excited about this, not because of consumer benefit or business improvement, but because of the opportunity to break Amazon's market share
• Most importantly, Apple's plan would have raised prices for books for consumers (and by the way, that's what really upsets the DOJ). 
• Publishers were so desperate to raise a perceived price point they were even willing to accept slightly less cash on book sales as a result of Apple's regime (in the short term...then publishers would certainly raise prices more). The primary beneficiary of that initially higher price (and subsequently much higher price)? Apple, who would collect 30%.

There is documentation which appears to explicitly and implicitly back those assertions up.

All 5 of the book publishers have already settled with the Department of Justice.

I expect many Apple apologists will say "Apple was just trying to do the same thing they did with music, what's the difference here?". Well, there are several key differences here:

• When the iTunes Music Store first launched, there was not a flourishing market for purchased digital music. The market was highly fragmented, and most content was not available. Put another way, there was no Amazon to fight - it was Napster and terrible niche sites that tried to sell restricted downloads for $3 each that didn't play anywhere. So Apple's effort was not aimed at displacing a direct competitor
• The iTunes Music Store acted to improve price and value for consumers relative to existing markets
• There were far fewer strong-arm tactics involved with getting music content providers on board, partially because at that time Apple was much less powerful than it is now (at the time of launch, Apple had a "paltry 3% share" of the marketplace). Apple pitched it as an "experiment"!
• Apple told the labels what Apple's retail pricing would be, but it did not demand or encourage the labels to change their wholesale pricing (they could charge Apple whatever they wanted), and Apple did not give the labels control over retail pricing. At launch time, it was either "let us sell the songs at a retail price of $1, or take a hike".

Figure B: Amazon's Jeff Bezos and the Kindle Fire

The collusive activity encouraged by Apple resulted in Amazon losing the ability to sell books - the publishers (after colluding) forced Amazon to raise ebook prices. Again, they were so desperate to do this they actually made Amazon more revenue, and themselves less revenue. As one of the publishers said (trying to defend their actions), "it was a dumb way to do price fixing". 

But the end result? We all paid more money for ebooks. 

It has been said no company gets big by being nice. It's worth thinking about that the next time you catch yourself putting imaginary halos around Google or Apple or Yahoo! or Amazon or any corporation you think is virtuous or cool. Those companies have sent people to Chinese prisons, given confidential information to governments, censored media, acted as pseudo-police...and that's just the stuff we know about. 

Amazon is dominant in several areas. That is cause for some concern - serious competition benefits everyone. Before the collusion, they had 90% market share for ebooks. After the collusion, 60%. Some of that is clearly attributable to the introduction of the iPad - the first compelling Kindle alternative. But some of it is clearly the result of the unfair pricing behavior.

I think of it this way: Both of these balding billionaires have reputations for being smart and mean. But one of them, when he had market dominance, fought for book prices to be lower for you, even if it meant he paid publishers the same amount and lost money on the books. 

The other fought for them to be higher for you, even if it meant publishers got paid less, and his company pocketed the difference.

(And to be clear, in both cases, they felt this would make their companies stronger - they were in it to make money for their shareholders and themselves. Books or music or media is just incidental.)

Apple IS the music business now. iTunes has a 63% share of the digital download music business - and remember, that is starting from 0% just ten years ago. Amazon has been fighting a tough battle, and has about 22%. Both companies are rumored to be working on Rhapsody-esque streaming music services.

Flip the story around. If Amazon and the record labels were accused of collusion with the intent of displacing Apple, who would you believe? 

Well, at least in terms of the labels, it wouldn't be the first time. The labels have been frequently investigated by the Department of Justice, and almost as frequently found guilty.

On top of it all, most modern pricing research around media seems to indicate there are huge net wins for lowering prices rather than raising them. This has been repeatedly demonstrated with DVDs and video games.

If nothing else, perhaps we should be worried about how rapidly we're forsaking tangible paper books that can be easily loaned, copied, and preserved for ephemeral digital "licenses" that can be revoked, changed, memory-holed, edited, and tracked by public or private entities. 

Now I'm going to go listen to some digital music while I read an ebook! Seriously!

Achievement Unlocked...

meez. WAY ahead of its time.

Regular readers know I always post proudly about any press I get on things I work on. I love to crow about my modest achievements. 

Well, not long ago, it came to my attention that TIME had written about another product I worked on: Meez.

They didn't like it.

If you have to do something wrong, do it really wrong! 

(It's worth noting TIME hated the concept, not so much the execution. I did consulting on the initial site design - the final site as shown here included some of that work but was further developed by the Meez team).

"There is no such thing as bad publicity except your own obituary" - Brendan Behan (1923-1964)

Forget About The #1

You are in Los Angeles.

You select a ridiculous red Dodge Charger from the rental car place. You know that when you're in L.A., you need a stylin' ride. There are many ways to get from LAX into the city, and you still remember a few of them.

There is a record industry convention at the Century City Hyatt. You know this hotel well. Smack in the middle of Avenue of the Stars. Pretty and swank. Near Beverly Hills and Santa Monica. Has its own shopping center nearby. You've been there before.

Pulling into traffic, you turn on KROQ. They are playing "Come As You Are" by Nirvana. You laugh out loud. Weren't they playing this when you left L.A. 13 years ago? You turn it up, and you roll the windows down as you accelerate.

You remember buying this record when it came out in 1991 at the Wherehouse on Sunset. You watched the videos on MTV in your terrible apartment in the Ramparts district. It changed everything.

Come as you are
As you were
...as an old memory

You look out the window of the hotel and see what would be called "June Gloom", if it were actually June. You look at the freshly cut and watered lawns and medians and watch the cars glide by.

You have time for a light lunch and coffee alone in the nearly deserted restaurant, before heading off to your first set of meetings.

You fight the good fight
You fight the good war
...it's wearing me down

Your first night, you are lucky to meet with an old friend who used to be in a band. Has a kid now. Still buys guitars and plays at home. The restaurant is in Culver City. Yeah, you know where that is. Dinner is tasty and you have a nice Old Fashioned.

Soon your friend has to get back to his family. You start to head back to the hotel, but you're sort of on autopilot and before you know it, you pass by the old photo booth. Incredibly, it is still there. You turn on Cashio. Drive a few blocks. You used to live here. Right here. You creep up Shenandoah, marveling at the neighborhood and buildings.

This is what you wanted, kid
A universe behind your lids
...cheap thrills don't come clean 

Turn and turn. Olympic. The park where you used to run at night, across from what used to be Ships. You sigh. You should have gone there more. There. You lived in that house with your brother and your friend. Before. It had a pool in the back yard. You floated there at 2 am in that big heat wave, after a Ralph's run to get ice cream.

You drive on. The Joint. Still there, still hosting live music. Is that where you played your last L.A. show? One of them, anyhow.

15 minutes later, in a different part of town now. Used to be a record store there. You had a nice dinner at that other place. Several, in fact. You think of other places you could go visit. You could head back up to Beachwood... Yeah, that was where...well, let's not go there.

She hung the moon
She said goodbye today
I took a long, long drive
Thinking of the last time I saw her face

You go back to the hotel eventually, the doors admitting you to the cool lobby, the bed admitting you to sleep. In the morning, you will exercise before your meetings.

For dinner, you connect with an old friend. You agree to meet at Dan Tana's in Santa Monica. It's just down the street from Doug Weston's Troubadour. You look for parking in the out-of-the-way place you would have parked 15 years ago, and you actually find it. Walking up, you remember you've been here before, a long time ago. A date with L_____.

Dinner is good. You have drinks and catch up. Things are good. You're both older and healthier. Divorced and remarried (and, in his case, divorced again). Both still playing music. And one of your friends is playing a show tonight. In Hollywood. At Boardner's. Well, you know the way. Many ways to get there. So of course, you go.

You walk into the club. A few people are smoking. The music is crazy loud. You see K_____ sitting on a couch. You step in front of him, smile and wave. He smiles big and yells over the din "WHAT ARE YOU DOING HERE???"

You yell back "I HEARD YOU HAD A SHOW! CAME DOWN TO SEE IT!" You hug. He's genuinely surprised and touched to see you. You yell/chat for a bit and watch the other band play. They're pretty good for what they do.

At the bar you order a soda water. It costs $3. Nothing has changed in RockWorld. You are happy to be there, to experience this again. To be at a club in Hollywood, hanging with friends, watching other friends play on stage. It's like the last 15 years never happened.

It's just like I was never here
It's just like we were never there

But they did happen. To you, and everyone else. Many of the people you know and would have been here with are gone. A couple are dead, most just left town. On the plus side, you're much more patient about the other bands, and able to listen both more and less critically and just enjoy things. On the minus, your feet are hurting from all the running. You feel your broken bones and bruises. Tired. Sometime before the end of the set, you slip out.

The streets of Hollywood are quiet. You're near Musicians Institute. You can see the signs.

The scent of magnolia fills the perfect evening air. You remember the simple pleasure of living in this beautiful weather, experiencing these evenings. The countless lonely walks back to your car, the driving before and after shows and parties, the walks around your neighborhoods, gazing up at the moon.

As you turn onto Highland, a song from one of your old bands comes up on your iPod. You think about all the people you knew, everything that happened.

When you cross La Cienega on Santa Monica, you turn your head south and see a stream of streetlights, headlights, and taillights shooting away to infinity. A million memories and dreams all converging and fading in the distance. Beautiful, momentary, and forever out of reach.

Tomorrow? Well, it might never come
I wish I could shoot out the sun
Forget about the #1