Imagine that Apple CEO Tim Cook secretly called the heads of the Big Four record labels, which control most of the music on the planet, and said, “Hey, next month let’s all agree to raise the price of a song in iTunes from $1.29 to $2, minimum.” And imagine that the record labels — who are supposed to be competing — all agreed.
And imagine that this took the form of a literal conspiracy, like in a movie, involving secret dinners between CEOs, emails being deleted, and an all-powerful villain, who, facing death from an incurable illness, demanded that when it came to pop music, “The price will be the same!” for everyone.
The icing on the cake: Rupert Murdoch is in on it, too.
And lo and behold, music on iTunes goes up to $2 — a 50% hike — for no reason whatsoever.
You’d be furious. People would call for boycotts. The FTC might investigate. It would be front page news.
And rightly so: That would be the very definition of illegal, anti-competitive monopoly exploitation of the $2.9 billion music download market.
But Apple founder Steve Jobs basically did just that in the book market, a federal judge ruled last week.
It’s a huge, watershed decision. Books a re a much bigger business than music. Ebook downloads were worth ~$3 billion in 2012, and they’re expected to grow to $8.2 billion in 2017. (The total book market including hardbacks is worth up to $42 billion.)
Yet no one seems to care.
People shrugged at the news. Normally, when an entire industry executes a permanent 50% price hike in a single month, consumers go crazy.
This chart (right) shows what happened to ebook prices back in 2010, once the iPad and its iBooks store came online. The average price of books leaped from ~$8 to just under $12.
By the way, this isn’t just some legal technicality in which a couple of contracts were altered and there was a happy side effect for Apple.
This was Steve Jobs, creating an iBook store for the iPad and wanting all publishers to sign up for it at prices 50% higher than the $9.99 level Amazon was charging. Apple and the publishers discussed it at their very first meeting.
The CEOs of the publishing houses had secret dinners in the back rooms of New York restaurants to figure out how to screw Amazon and its low prices. Hachette executives were told to delete emails in case they contained evidence of the conspiracy. Jobs and his staff wanted the deal done before he died. Murdoch was in on it. Apple’s Eddy Cue pursued the deal monomaniacally, pausing only to eat and sleep. And then, at the iPad launch event, Jobs gave the game away: When asked why anyone would pay $15 for a book on the iPad when Amazon sold them for $9.99, he replied “The price will be the same.“
The only thing the scene lacked was a thunderous sky and flashes of lightning as Jobs spoke.
The implication was clear: He knew ahead of time that Apple’s book deal would lock in a uniform new price for the entire market.
And by the entire market, I mean Amazon, too, which once controlled 90% of the ebook business. This chart (right) shows the effect on Amazon’s prices.
With their Apple pricing deals in hand, the publishers all renegotiated terms with Amazon — which is why all the top selling books on Amazon are now nearly $14, not $9.99.
Jobs even confessed that he wanted prices for ebooks to go up in his autobiography.
You can read it yourself. On Amazon, it’s currently selling for nearly $14 — not $9.99.
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