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How Apple shook up the electronic book market

Joab Jackson | June 18, 2013
Apple didn't try to fix or raise the prices of electronic books when it entered into the market in 2010, according to Apple Senior Vice President Eddy Cue. Rather, he says, the company was only working to ensure a profit for itself.

"I expected higher prices for some books, but [there would be] flexibility for other books," Cue said. He also noted that not all the prices for electronic books increased. Most of the price increases were for new, best-selling books.

"Do you recall customers calling to thank you for raising [electronic book] prices?" Buterman asked.

"They thanked me for opening an iBookstore," Cue responded.

During questioning by Apple's own attorney, Orin Snyder, Cue maintained that Apple did not have a set expectation for how much electronic books should cost. "$9.99 might be the right price, but we didn't know what the right price was," he said. Rather, Apple left it to the publishers to set the prices, requiring only 30 percent of the final price in order to keep its own business profitable. After expenses of delivering product and maintaining an electronic commerce store, Apple would reap a net profit in the "high single percentages," Cue said.

"Volume, not price, drives Apple's profits," Cue said.

In its case, the DOJ contends that Apple coordinated the activities of the five publishers, informing them that each of their contracts would be similar, and keeping each of the publishers abreast of what the other publishers were thinking. To this end, DOJ says it has plenty of electronic evidence, between emails and phone calls, that publishers were conferring with each other on the issue. For example, Jobs, in one email, stated that Apple could help publishers solve "the Amazon problem."

Another key part of the evidence was a quote from Steve Jobs, made right after the iPad launch. When asked by The Wall Street Journal why someone would pay $14.99 for a book on an iPad when they could get the same book for $9.99 from Amazon or Barnes & Noble, Jobs replied "that won't be the case ... the prices will be the same." For the DOJ, this quote was evidence that Apple knew it was asking all the publishers to raise prices for their books across the board.

The DOJ, however, still has to back its argument by showing very clearly that collusion took place. "If you want to prove conspiracy, you better bring very strong evidence. It can't be stuff that people can confer by just connecting the dots," Hylton said. Apple, meanwhile, is charging that the DOJ is taking these electronic documents out of context.

Cue, when questioned by Buterman, denied that he or Apple spoke with any of the publishers about what the other publishers were doing. He also repeatedly denied that he pitched publishers with the idea that Apple could incite a change in the structure of the entire electronic book market. He said he did not know who came up with the idea of all publishers going to an agency model at the same time. "My concern was to remain competitive," he said.

Concluding arguments from both sides are expected later this week.


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