Wednesday, May 16

17 More States Join The Class Action Suit Against Apple et al

Sometimes I get so focused on the Department of Justice suit against Apple and 5 of the Big-6 publishers that I forget a class action suit is still pending against Apple, Macmillan and Penguin. (It used to be against Hachette, Simon & Schuster and HarperCollins as well, but those publishers chose to settle.)

The latest news is twofold: 17 more states joined the class action suit and some documents have been released for public perusal, among them an email from the late Steve Jobs. He wrote:
    As I see it, [Conspiring Publisher] has the following choices:

    1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.

    2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.

    3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started, there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.

    Maybe I’m missing something, but I don’t see any other alternatives. Do you?- As 17 more states join class action against book publishers and Apple, new details revealed
Yesterday we learned that Apple et al lost their appeal to throw out the class action lawsuit.

Passive Guy, an attorney practicing contract law, has this to say: 
The basic charge against Apple and five of the six largest publishers is price-fixing. This charge is the antitrust equivalent of first-degree murder – the worst and most despicable act prohibited by this 120-year-old statute, The Sherman Antitrust Act. Its principal author, Senator John Sherman, said the purpose of the law is ”To protect the consumers by preventing arrangements designed, or which tend, to advance the cost of goods to the consumer.”

Based upon the allegations of the Department of Justice complaint, Apple and these big publishers intended to push up the price of ebooks sold through all retail channels and were successful in doing so, increasing the cost of these goods to book buyers.

Antitrust law contains a lot of gray areas, but collusive price-fixing isn’t one of them.
- by Passive Guy, A marketplace defined by collusion is neither a fair nor a free market
I would have never thought, two years ago, that Apple and two of the largest publishers in the US would be facing a suit by the DoJ and as class action lawsuit.

If Apple et al lose both lawsuits, what will be the result? I'm guessing, but it seems likely bestsellers will come down in price and (hopefully!) we will no longer see ebooks priced more expensively than hardcovers.

In the long term I suppose the question is: Will one or more of the Big-6 survive? But, whatever happens to the publishers, there's no question in my mind that Apple will do just fine. (Thank goodness! I want my iPhone 5. ;)

What do you think? If Apple et al lose, what will happen to publishing?


  1. "If Apple et al lose, what will happen to publishing?"

    Well, let's see.

    Suppose Apple, et al. win (20% chance). Agency pricing will continue unchanged.

    Suppose Apple, et al. lose big (20% chance). The judgment is crushing. Apple, et al. appeal the judgment, lose the appeal, and file for bankruptcy protection. DoJ files criminal charges against Apple, et al. executives. (Don't panic. This would take at least 5 years to play out. Likely longer.)

    Suppose Apple, et al. lose small (60% chance). Apple, et al. have to make token restitution to customers who can prove they were damaged by agency pricing (that is, readers who bought their books). Agency pricing goes the way of the dodo. Wholesale pricing becomes dominant. (Apple, et al. will appeal this, too. Still takes at least 5 years before final resolution. How many buyers will have their receipts then?) Amazon's market share increases. Brick-and-mortar bookstores discount books to fire sale prices. Some DTB publishers -- those who cannot adjust quickly to the new market -- go under.

    What effect will this have on readers?
    More books will go straight to eReader formats. Amazon, B&N, and Smashwords win. Apple takes a hit (they may get out of the book biz, 'cause their emphasis is profit, vice Amazon whose emphasis was, is, and will be market share). Fewer DTBs will be published year by year, and the spiral will continue until physical books become luxury items.

    Win or lose, the spectrum of eBooks available will continue to widen and the spectrum of DTBs available will continue to narrow.

    That's how I see it.


  2. I agree, well said. Regardless of who wins the lawsuit I believe that ebooks will, one day, vastly outnumber physical books to the point where physical books are luxury items. Whether any of the Big-6 are around then will depend upon how well they navigate this transition.

    In the short term, though--or perhaps the medium term--I wonder what the repercussions of the suit will be. For instance, Kris Rusch speculates that, at the very least, the Big-6 will be forced to overhaul their antediluvian accounting systems with the result that authors will receive more accurate royalty statements. And perhaps certain publishers will have their wrists slapped for not paying authors what they were supposed to. How will this affect the publishers' bottom line? Will it be enough of a financial hit to finish them as a company? I wonder.

    Thanks the comment.


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