The Department of Justice, as anticipated, filed suit Wednesday against Apple and five of the Big Six publishers over alleged price-fixing. Three of those publishers have entered into a proposed settlement with the DOJ, but Apple is still on the hook.
We won’t know until we know whether Apple will win, lose or settle (and now there are 16 states piling on the charges, too), but in a way it’s a sort of hapless victim. If the DOJ theory is correct, Apple did participate in a sort of conspiracy, but one driven (again, according to the allegations) by publishers that were determined to keep controlling e-book prices. In the beginning of the e-book industry it was the publishers, not Apple, that had the upper hand.
It’s important to remember the climate in which this alleged conspiracy unfolded. Amazon, against publishers’ wishes, was going rogue with $10 e-books. The mammoth online retailer – which got its start in print books but essentially created the e-book business – was widely thought to be making nothing, or next to zero, on its proprietarily encoded e-books, the better to boost demand for the Kindle.
It was classic razor-and-blades: You want to make money on the razor, so you almost give away the blades, except only your razor can hold the free blades. But in e-books it’s an even better deal. Amazon doesn’t make e-books, and they are virtual goods, requiring no inventory and little overhead in the traditional sense.
But the publishing industry was displeased with Amazon’s new $10 regime. While it was beating on Amazon to change its ways, Macmillan – whose titles at the time included the best sellers Wolf Hall and The Gathering Storm – and Apple were negotiating terms for the iPad maker’s new offering: iBooks. Apple, unlike Amazon, was willing to play by Macmillan’s – and thus the publishers’ – rules.