The federal court ruling describing how Apple fixed prices in the ebook market reads like a thriller: Steve Jobs was seriously ill in 2009, and his SVP in charge of books, Eddy Cue, raced all over New York to sign up five major publishers into a pricing agreement before he died.
At the same time, Apple was about to launch the iPad in 2010, and Cue and Jobs wanted all the publishers on board with the iPad’s iBookstore before the launch event.
Cue played hardball with the publishers, and they got their wish — Hachette, HarperCollins, MacMillan, Penguin, and Simon & Schuster all signed on with Apple,and book prices went up by as much as 50% virtually overnight, even though Amazon controlled 90% of the market.
What is startling about the ruling is how overt the cooperation was between the publishers and Apple. The publishing CEOs literally held regular dinners to discuss how they could rid themselves of Amazon’s dominance of the market, and CEO Jeff Bezos’ insistence that all ebook be sold at a mere $9.99.
And then there’s the star power. In addition to Apple’s Jobs and Cue, Rupert and James Murdoch, and authors Stephen King and Sarah Palin all had cameo roles.
Here’s how it happened, according to today’s ruling.
Amazon continued to sell books at $9.99, losing money, even when publishers increased the wholesale price of books they were giving the online giant.
This is what a price-fixing conspiracy looks like: The CEOs of the major publishers literally had dinner together on a regular basis to discuss how they would fight Amazon.
Publishers began delaying the release of ebooks so they could sell more hardbacks. Even Stephen King was in on it. They knew what they were doing was wrong — that's why Hachette executives wanted their emails deleted.
The ebook market was worth billions to Apple. Note that Apple SVP Eddy Cue was put in charge of the ebook-pricing business.
Apple founder Steve Jobs was seriously ill, and Cue wanted to get a book distribution and pricing deal done before Jobs died.
Apple decided to bring the publishers in on the launch of the iPad, by creating an iBookstore within it to compete against Amazon.
Apple got almost all the major publishers to sign agreements that would raise ebook prices from $9.99 to $14.99.
Apple knew that simply persuading all the publishers to sell at a higher price with Apple than with Amazon would not be good enough.
This is a graphic of the number of communications between publishers in the runup to their deal with Apple.
In January 2010, with all the price agreements in hand, Jobs launched the iPad — and highlighted the iBookstore.
But Jobs made a fatal mistake at the launch: He admitted publicly that he knew ebook prices were about to change dramatically.
The judge really hangs the whole thing around Jobs' neck. The case against Apple would have been much weaker if Jobs had not said anything about ebook pricing at the iPad launch.
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