U.S. District Judge Denise Cote is expected to rule on the Apple ebook price-fixing case later this summer, after hearing three weeks of testimony that exposed the contentious and occasionally embarrassing backstory of Apple’s entry into the digital book business.
In closing statements Thursday, Justice Department attorney Mark Ryan said “Apple directed and oversaw a conspiracy to raise e-book prices and prevent low-price competition,” according to the Washington Post. Apple’s attorney Orin Snyder warned of the verdict’s potentially far-reaching repercussions “The government is taking perfectly sensible business agreements to infer sinister conduct,” he said. “If Apple is found liable . . . that precedent will send shudders throughout the business community.”
Regardless of the judge’s ruling, ebooks are transforming the book industry. In 2009 and 2010, the time of the alleged conspiracy, ebooks’ share of the market was in the mid-single digits. In 2012, digital editions accounted for 20 percent of book sales, with growth of the format showing no signs of slowing down.
The Apple price-fixing trial concludes today, after eleven days of testimony that provided a glimpse into the behind-the-scenes maneuvering among major publishers and Apple, Amazon and Google. Yesterday, it was Barnes & Noble’s turn to have its plans and tactics for launching an ebooks business revealed in court.
Apple called Barnes & Noble’s VP of digital content Theresa Horner to the stand, Publishers Marketplace reports, to show the bookseller was considering alternatives to the wholesale model used by Amazon as early as 2009.
As Horner described it, one of those models was a revenue share “where Barnes & Noble was assigning the price to the consumer, but that instead of paying the publisher 50 percent on the digital list price, we would pay them 50 percent on the monies received from the consumer. We also had a floor so that if — and the floor was 30 percent. And if we received less than 30 percent of the digital list price from the consumer, we were guaranteeing to the publisher we would give them 30 percent of the digital list price.”
Horner also confirmed that by late 2009 B&N wanted publishers to operate exclusively on the agency model with all retailers, ensuring a level playing field.
An email brought up during Horner’s testimony shows just how heated negotiations got during this period when publishers and retailers were vying to set themselves up to profit from ebooks.
The Trial, Week Two: A Worst-Case Scenario Email; Spotlight on Apple’s Eddy Cue and Publishing House Heads. Where’s Random House?
Week two in the Apple ebook price-fixing trial wrapped up Thursday with Apple executive Eddy Cue, the man the DOJ says orchestrated the alleged conspiracy, testifying that he negotiated vigorously with publishers but had no idea what they were saying to each other, as Thomson-Reuters reports.
He said he also did not know of calls the government said publishers were making between themselves, nor did he think anyone else at Apple knew.
“If they were working together, I assume I would have had much easier time negotiating,” Cue said.
Cue was also questioned about another key aspect of the government’s case, the contention that Apple caused ebook prices to increase. Cue acknowledged that the cost of some books did go up from the $9.99 Amazon was charging after Apple opened it’s iBooks store, but he said it was publishers who pushed for higher prices.
Cue is scheduled to take the stand again when the trial resumes on Monday. Though he was considered the government’s key witness, so far the only really surprising revelation from his testimony is an idea Cue had back in early 2009, nearly a year before Apple announced the launch of its iPad.
Week two in the Apple fix-pricing trial began Monday with HarperCollins CEO Brian Murray and Macmillan CEO John Sargent testifying that they weren’t forced by Apple to revise their terms with Amazon–as the Justice Department’s claims–but simply engaged in tough negotiations with both e-tailers to get the best possible deal.
While all five major publishers originally named in the suit have settled with the DOJ, the government’s case hinges largely on their actions in 2010, when Apple allegedly acted as “ringmaster” compelling them to adopt the agency model.
Monday’s witnesses also included a Google executive who finished testimony that began last week, when the Apple’s lawyer aggressively grilled him about his contention that publishers had told him Apple forced them to adopt a model that would result in higher prices. CNET reported:
Apple started to pick away at the Department of Justice’s claim that the tech giant conspired to inflate e-book prices by repeatedly and rapidly firing questions at a key Google witness.
The tactic paid off for lead Apple attorney Orin Snyder, who began to wear down on Thomas Turvey, director of strategic relationships for Google. Turvey appeared increasingly frazzled and frustrated as the afternoon went on.
Asked to name a publisher who told him about Apple’s demands, Turvey could not.
Random House is now encouraging its authors to report suspected online piracy of their books through its Author Portal. The portal provides information on the suspected piracy directly to Digimarc Guardian, a company working with Random House to remove stolen ebooks from the Internet. Digimarc will verify whether the link actually leads to your book (often the links are fake) and, if so, “immediate legal steps will be taken.”
For more information, see the publisher’s Random Notes blog.
A HarperCollins analysis of its own figures confirms what the Guild has long pointed out–that when sales migrate from hardcover to digital, publishers’ profits rise at the expense of author royalties. Publishers Lunch highlighted the numbers in a piece today covering HarperCollins’ investor day conference.
In the sample case of a new release frontlist title, the ebook edition is 39 percent more profitable, returning an additional $2.20 in profit to the publisher over the hardcover. Authors and agents will immediately note that much of the additional profit exists because the royalty allocation once earned out is $1.58 lower on the ebook than for the hardcover. On a hardcover, the author earns 30 percent of the publisher’s gross revenue, and 42.5 percent of the total margin (what the author and publisher together earn). For now, on the ebook, the author earns 25 percent.
On the AARdvark blog, agent Brian Fiore said HC’s numbers confirm what publishers have been denying for years: “That their savings on printing, binding and distribution make up for the lower revenue from lower e-book prices– and that increased profitability is coming entirely off the backs of authors.”
Fiore also dissected the often-heard argument that royalty rates are irrelevant to the large percentage of authors who never earn out their advances. The current ebook royalty standard, he wrote, penalizes authors who exceed expectations while leaving untouched celebrities and big name writers whose sales don’t merit their big advances.
The only thing really surprising about these figures from HC is that they came directly from the publisher. More than two years ago, the Guild did the math showing the disparity and proposed an interim solution that would protect authors until a fairer industry standard could be worked out. Since then, the continued migration away from print toward ebooks has made the need for a more equitable royalty system even more urgent.
On day one of the civil trial against Apple for alleged ebook-price fixing, the Department of Justice presented its case in an 81-slide deck that highlighted email communication between executives at Apple and heads of the five big publishers formerly named as defendants.
Many of the emails (which will be familiar to anyone who has been watching the case) referenced concern over Amazon’s $9.99 pricing strategy and publishers’ fears of trying to go it alone in challenging Amazon’s terms.