Apple, publishers back off in EU e-book antitrust case

BRUSSELS Wed Sep 19, 2012 10:50am EDT

Apple Inc. CEO Tim Cook takes the stage during Apple Inc.'s iPhone media event in San Francisco, California September 12, 2012. REUTERS/Beck Diefenbach

Apple Inc. CEO Tim Cook takes the stage during Apple Inc.'s iPhone media event in San Francisco, California September 12, 2012.

Credit: Reuters/Beck Diefenbach

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BRUSSELS (Reuters) - Apple Inc and four major publishers have offered to let retailers such as Amazon.Com Inc sell e-books at a discount to settle an EU antitrust investigation into their pricing deals and avoid possible fines.

The case highlights the battle between retailers and publishers over pricing control as publishers look to e-books to boost revenues, cut costs and reach bigger audiences.

EU regulators have been investigating Apple's e-book pricing deals with Simon & Schuster, News Corp unit HarperCollins, French group Lagardere SCA's Hachette Livre, Verlagsgruppe Georg von Holtzbrinck, which owns Macmillan in Germany, and Pearson Plc's Penguin group.

Apple and the publishers, with the exception of Penguin, have offered to settle with the European Commission, which began its inquiry last December. The EU watchdog detailed the offer on Wednesday, confirming a Reuters report on August 31.

"For a period of two years, the four publishers will not restrict, limit or impede e-book retailers' ability to set, alter or reduce retail prices for e-books and/or to offer discounts or promotions," the Commission said in its Official Journal.

It said the publishers and Apple also proposed to suspend "most-favored nation" contracts for five years. The clauses barred publishers from making deals with rival retailers to sell e-books at prices lower than those set by Apple.

The EU watchdog said third parties have a month to provide feedback on the proposals. If the response is positive, the Commission will end its investigation without an infringement finding.

Amazon, which makes the Kindle e-reader and had long sold e-books for as little as $9.99, declined to comment.

If the offer were to be accepted, it would mean the publishers getting off relatively lightly, said Mario Todino, a partner at Brussels-based law firm Gianni, Origoni, Grippo, Cappelli & Partners.

"The commitments are quite extensive and will more or less address the issues. However, the absence of a fine shows the Commission being quite lenient, as the alleged infringements could be considered hard-core," Todino said.

"The lenient stand could be the Commission taking into account two elements, the relatively new e-book distribution model and the market power of a major retailer," he said.

HarperCollins, Simon & Schuster and Hachette reached a settlement with the U.S. government in April with similar proposals.

Joseph Wayland, the U.S. Justice Department's acting antitrust chief, said that the department was in touch with Apple and the book publishers as part of litigation but declined to say if settlement talks were underway.

Asked about the settlement offer made to Europe, Wayland said, "What that means for us, I don't know."

Publishers switched to the agency model with Apple in 2010, under which they set the price of e-books and Apple took a 30 percent cut. The wholesale model favored by Amazon and other sellers gave retailers pricing power.

According to analysts at UBS, e-books account for about 30 percent of the U.S. book market and 20 percent of sales in Britain, but are still negligible elsewhere.

The Commission said it was continuing its investigation into Penguin. The company is also fighting the U.S. regulators.

(Additional reporting by Diane Bartz in Washington; editing by Rex Merrifield and David Cowell)

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Comments (2)
paintcan wrote:
If I understand the EU decision correctly, then e-book publishers will have to market e-books about the same way they had to market hard copy books, and it was always at the discretion of the retailer to set the price – even to the point of reducing the remainders to a few dollars. The retail mark up was always very high on books, as it is on most consumer goods. There are a lot of costs associated with retailing. No doubt about it – Apple and the major publishers were trying to fix prices.

E-books should be cheap. The quality isn’t that good, there is no weight to transport and they may even decay faster than conventional cheap paper books and the customer always owns the “blank book” in the form of the reader. After all – e-books can be destroyed in the presence of a strong magnet or if you step on, drop or otherwise damage the reader. It is also easier for anyone to publish anything. The shear abundance of available material and writers should guarantee that e-books are priced dirt-cheap. All an e-book publisher has to do today, essentially, is type and send. The Internet is the physical reality of “the book”.

But the moment one tries to turn the electronic text into a paper copy, the cost goes way up. It is possible to find online a long out of print edition of an ancient Roman history that, I found, had no out of print editions listed anywhere and lives in only five incomplete copies that exist in European libraries and a variety of out of print editions that only the major libraries may have. They do not appear in Amazon. It took me two days and $60 to re-edit the text and print it out, even using refilled cartridges. I made a three volume set totaling about 800 pages (about 400 sheets of paper) out of it and made up bindings to preserve it. The sheer physical labor and materials costs are what really governed the price of paper books and I am not factoring in a cost for my time.

BTW – paper books published using modern computer inks are not very durable, at least in one set I have. The print and photo plates can be wiped off the page with a mild solvent. I found that out by accident when trying to remove a stain. With paper books of the very old and rare type – like the thousands of ancient books that drowned in Florentine basements during the flood of the late 60s – the paper and print were so durable they could be “laundered” of oil and mud and reassembled and one can’t really tell that they were damaged at all. But, no doubt, the process was staggeringly expensive.

Until the price of the readers goes way down, I’m not going near them. I have a few books that are over 100 years old and are still in excellent condition. I doubt anyone will be able to claim an e-reader will last as long or give as little difficulty. I suspect the e-readers will burn out rather quickly the same way pulp paper backs can turn brown and brittle in a matter of decades. I doubt e-book readers are going to survive as long as even cheap paperbacks. I like to keep my books as a way to remember I read them at all. Even a few fine art publishers like Abrams would use inferior quality paper. Theirs are some of the least durable paper books I have but as I found most as remainders, Just check some old book shops if anyone doubts me. I’m not in grief over their browning page edges after only 30 to 50 years, I never bought them at their retail price. And I have some better quality paper backs that are actually unchanged except for signs of wear, and are about the same age. The publisher Konemann seems to have come and gone in a matter of years but their very soluble books (the one volume I stained), like most others in the bookstores today, – were very beautiful and full of color plates and were very inexpensive. I have been buying fine Art books since High School (over 40 years ago) and have watched what the digital revolution did to paper book prices. Konemann was able to produce books with enormous numbers of color photos at very inexpensive prices. It used to cost a fortune to produce color separations and the price has dropped enormously.

If the internet goes through some revolutionary change, like changing the basic computer languages that are commonly used or even changing from binary to some more complex system, then e-books libraries could become obsolete overnight, in as much as all high tech devises seem to age very quickly. There are generations of electronic devises that were once used in the White House offices for recording and are now held by the Smithsonian. Only experts, who are aging themselves, can even remember how they worked. This might not be an issue for the average consumer or for those who read for light entertainment, but publishers will try to milk the product for what they can get. But it will be a big concern for major libraries if they want to go heavily digital or might want to eliminate the paper book entirely. The storage of paper creates some of the highest loads on the frame of a typical office building. There are a lot of good reasons to go paperless but going paperless also means the information will be less tangible and even dream like. “Print” material could become something like an hallucination.

Sep 19, 2012 1:16pm EDT  --  Report as abuse
paintcan wrote:
To try to put this concisely – the digital age has created the manufacturing processes that can produce artifacts and marketing gimmicks that are very nearly abstract and in such abundance, the products are nearly worthless before they are even sold to the retailer.

The only way the production can survive in the market place at all may be to “price fix”. The closer the production becomes as instantaneous and intangible as an idea, the harder it is to give it a tangible monetary value. Not even Marx’s cloth coat analogy makes much sense now.

If anyone can remember the old Sci-Fi movie “Forbidden Planet”, the collapse of the planet’s economy would have destroyed the Krell before their “ID” had a shot at them.

I have no firm idea what anything is “truly” worth anymore.

Sep 19, 2012 8:19pm EDT  --  Report as abuse
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