Apple settles with states/consumers over e-book prices

After a judge ruled that Apple definitely fixed prices, Apple has decided to skip a trial and settle

What happens when one company has what amounts to a monopoly on an entire industry, and then you get another major company who moves in and attempts to compete? A duopoly. And what happens when the new player ends up finding a way to jack up prices to screw over the incumbent? Everybody wishes we could just go back to the monopoly—so they make it happen.

That’s basically the breakdown of the Apple e-book price-fixing saga, which more or less culminated Monday as Apple reached a settlement with U.S. states and consumers to avoid a trial in July that could have resulted in Apple shelling out $840 million in claims.

For a company that generated $171 billion in revenue in 2013, that’s nothing, but Apple decided to pull out of the fight anyway—possibly because books really aren’t a huge selling point for the company and they just aren’t worth the hassle.

The details of how much Apple will pay in damages have not been released, but a Manhattan federal judge ordered Monday that Apple and the plaintiffs have one month to submit a filing seeking approval of their agreement, so we’ll find out soon enough.

Last summer, a federal judge determined that Apple colluded with five of the biggest book publishers (Hachette, Macmillan, HarperCollins, Simon & Schuster, and Penguin) to fix e-book prices. The ruling was a huge win for Amazon, allowing it to tighten its stranglehold on the publishing industry.

To recap, for years, Amazon has essentially been the arbiter of e-book prices, and it has determined that consumers should not be paying more than $9.99 for a digital product—never mind the effort the author put into the book, or the costs incurred by publishers who pay for marketing, book tours, speaking engagements, and so on.

At one point, publishers sold certain e-books to Amazon at hardback prices and Amazon paid the full price but turned around and sold them at the same $9.99 price tag anyway, absorbing the loss.

Apple’s iBookstore became the saving grace of the publishing industry, as it gave publishers a viable e-book distribution alternative to the Kindle store.

Apple execs and heads of the five publishers regularly sat down to private dinners together to come up with a strategy to address “Amazon’s bullying behavior” and curtail “their plans for world domination.”

Apple and the publishers agreed to adopt an agency model. Once Apple’s iBookstore became a reality, the publishers began withholding books from Amazon unless the e-commerce giant agreed to a higher price point. Faced with the possibility of losing whole catalogs of books from its Kindle Store, Amazon was forced to switch over to the agency model and start selling certain e-books at $12.99 or $14.99.

Of course, Apple wasn’t simply agreeing to this set up out of altruism, like it maintains. Apple was taking home a 30% cut of sales.

That’s actually the same cut that Amazon gets for e-books under its former agreement with Hachette, but now it has decided it wants a bigger cut and has started refusing to sell or seriously delay a vast swath of Hachette titles—because it’s well aware that with Apple out of the way, it can go back to commanding lower prices and higher cuts, despite the fact that the industry is already struggling.