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Apple e-book fallout: What it means for your wallet

Apple iBooks Lawsuit Tim Cook
Image used with permission by copyright holder

A federal judge on Wednesday found Apple guilty of colluding with U.S. book publishers to pump up the price of e-books. While it’s far too early to say anything conclusively about the consequences of the ruling – Apple says it’s going to appeal the decision – experts believe U.S. District Judge Denise Cote’s thorough opinion makes it highly unlikely that Cupertino will make it out of this one with its dominoes still standing. So let’s assume for a moment that the ruling withstands Apple’s appeal. What does that mean for us, the consumers?

The fine print

According to the court ruling, Apple worked out a deal with five major U.S. book publishers that made it impossible for Amazon – the king of e-books – to sell e-books at the bargain price of $9.99, a price that helped make e-books popular but made it hard for publishers to sell more expensive hardcover print editions. Instead, Apple convinced the publishers to change to something called agency pricing – where the publisher, not the bookseller, sets the price – and to sell their e-books for $12.99 or $14.99 everywhere. This deal pushed the price of e-books up across the board, including on Amazon.

The U.S. Department of Justice and attorneys general from 33 states called foul, and Apple and the publishers got sued. All five of the publishers – Simon & Schuster, Penguin Group, HaperCollins Publishing, Holtzbrinck Publishers, and Hachette Book Group – settled their suits, which put an end to the whole price-boosting scheme. Apple, on the other hand, claimed that it did nothing wrong – and still claims that it did nothing wrong – so it chose not to roll over like the publishers.

Okay, with that bit of trivia out of the way, here’s a quick rundown of how this ruling may affect you.

Apple pays you the difference

One likely scenario is that Apple will have to pay some customers who purchased e-books between 2010 and 2012 a little bit of money – some approximation of the difference between what you did pay, and what you would have paid had Apple not gotten all meddlesome on us.

If Cote rules that Apple must open up its marketplace to other e-book-selling apps, you will likely be able to buy e-books straight through the Kindle, Kobo, and any number of other e-book apps.

I say some customers because attorneys general from only 31 states and two U.S. districts or territories joined the suit against Apple. Those states/territories are: Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, New Mexico, New York, North Dakota, Ohio, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, and Wisconsin.

If you live in one of the places listed above, you’re probably going to get a small payout from Apple in the future. It is also possible that other lawsuits from additional states may follow – so if you live elsewhere, don’t count yourself out entirely just yet.

Calculating an exact amount, at this point, is virtually impossible (there’s a whole other trial to determine that, assuming Apple loses its appeal). But let’s look at what we know.

First, because the publishers already settled, we know that they paid customers between $0.25 and $1.32 per book (depending on how new the book was, and whether it hit The New York Times Bestseller List). Second, the DOJ tells us that “e-books increased by an average of 18 percent as a result of the collusive efforts led by Apple.” If we use Amazon’s $9.99 pricing as the going rate before this whole debacle, that means you paid, on average, about $1.80 more for your e-book than the government thinks you should have paid.

What we don’t know right now at all is whether Apple will be forced to pay this difference for all e-books, or only e-books sold through its iBookstore.

Verdict: If you live in one of the areas listed above, and bought an e-book from the iBookstore at any point between 2010 and 2012, you’re probably going to get $0.25 to $1.80 back from Apple (probably in the form of a Apple Store credit) for each book purchased. If you didn’t buy any books from the iBookstore during that time, your payday is less than guaranteed.

Apple opens the e-book app gates

Apple e-book fallout kindleIn addition to a hefty settlement with customers, Apple faces certain restrictions on the deals it can make with e-book app developers. The DOJ suggests (PDF) that Cote may require Apple to “accept any new e-book reader app or any update to an e-book reader app,” which would presumably give us far more options in terms of where we can buy our e-books through iOS.

At the moment, Apple does not allow e-book apps, like Amazon Kindle, Kobo, or Sony E-readersell any e-books directly to customers. That means, for example, if you’re stuck at the airport and want to buy something to read from your iPhone or iPad, you have to do so through on your mobile browser, then access that download through the Kindle app (or just buy straight from Apple, of course). If Cote rules that Apple must open up its marketplace to other e-book-selling apps, you will likely be able to buy e-books straight through the Kindle, Kobo, and any number of other e-book apps.

Cheaper e-books? Maybe

Because the publishers have already settled this case, and no longer have the ability to block Amazon from selling e-books at whatever cost it likes, the change in e-book prices has already happened – for the most part, at least. Even books atop The New York Times Bestseller List are less than $10 on Amazon – some of them are free. So don’t expect e-book prices to change much due to whatever consequences Cote forces Apple to pay.

A downside for Apple (and maybe us, too)

One possible (likely?) consequence of Cote’s ruling is that it will hamper Apple’s ability to negotiate content deals of all sorts, including music, TV shows, and movies. Remember, Apple is the company that brought $0.99 songs to the world, which revolutionized and, some believe, saved the music industry from the collapse of free file-sharing that ran rampant before iTunes became the go-to place for music. It did this through some particularly deft negotiations. Experts believe that brokering such deals in the future may become far more difficult for Apple.

“If you’re a tech company and you are looking to aggregate content, you have to be exceptionally conscious about how you talk to your suppliers,” Ankur Kapoor, an antitrust lawyer, tells the Wall Street Journal. “U.S. v. Apple has put these communications under a very fine microscope.”

This may prove to be a bigger challenge for Apple than it is downside for consumers. Either way, we now just have to wait to see how much punishment Judge Cote thinks Apple deserves.

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Andrew Couts
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