Apple’s iBooks Scheme Dropped Amazon’s Monopoly To 60%, But Killed Industry Profits

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We’re all familiar with the antitrust complaint that the Department of Justice filed against Apple and five major publishers back in April, but how much of an impact that case could have on the book business if the ruling goes against Apple and its partners is beginning to come into focus.

When Apple launched the iBookstore back in 2009, it had a huge impact on Amazon; it dramatically reduced the retail giant’s market share of the ebook business from 99% to just 60% in three years, breaking its monopoly on ebooks.

But it wasn’t all good for publishers.

Apple attracted publishers with an iTunes pricing model that meant they could pick and choose their ebook prices, then provide Apple with a 30% cut — just like Mac and iOS developers do. Amazon’s plan was vastly different. Instead, it paid publishers $15 each for their books, and then sold them to Kindle users for just $10.

This was great for the user, but publishers were worried that over time, this price model would devalue their content. And as Amazon was in control of the market, it could, at any time, decide to pay only $5 per book instead of $15, and publishers would have no choice but to accept it.

In the early days, then, publishers did their business with Amazon because there was no alternative. Then iBooks came along, which allowed them to regain control. But Apple had a catch: Four of the six major publishers in the United States would have to sign up, or none of them would be able to take advantage of the deal. In the end, five of them did.

The result of this was that publishers actually made less for each book sold through the iBookstore than they did selling their content through Amazon — sometimes up to $100 million less each year. But it meant Amazon’s monopoly was finally broken.

“Publishers believed that Amazon was attempting to control every part of the industry,” Auletta writes, and that they were “worried that bookstores, burdened by the costs of rent and staff, were unable to compete with Amazon. Without the stores, publishers would lose their main customers, and their strongest ally in marketing.”

For customers, this should be great news, because it means we have choice, and that we can’t be forced into paying certain prices because only one retailer is selling ebooks. However, the DoJ believes that customers were harmed because Apple and the publishers colluded to make prices higher.

If the case goes against Apple and the two remaining publishers who haven’t already settled with the DoJ, it could have a huge impact on the ebook business. Amazon could regain some of its monopoly yet again.

Source: The New Yorker