Apple case cracks open e-books, digital goods pricing

Jul 12, 2013 by Rob Lever

A ruling by an American judge that Apple illegally conspired to fix e-book prices could boost competition in the market for all kinds of digital goods, including music and movies, analysts say.

Wednesday's decision by a federal judge also may allow online retail giant Amazon to cement its dominance, though are still evolving.

"The consumer is the huge winner," said David Balto, a Washington antitrust lawyer and former policy director for the Federal Trade Commission.

"Apple's policies clearly increased prices, and if permitted Apple would have used this formula to raise prices in numerous markets. This is a landmark decision that demonstrates the value of strong antitrust enforcement."

US District Judge Denise Cote's ruling followed a three-week trial in New York in June. She concluded that Apple was liable for "facilitating and encouraging" a collective effort by five publishers to end for . She has ordered a new hearing to determine damages.

David Crane, a University of Michigan specialist in , said Apple would now be heavily impeded from influencing the pricing of content.

"Whether it's music or movies or newspapers or whatever it is, basically Apple wants to be heavily involved in reformulating the business model of how pricing is set and who decides on release dates and so forth," Crane said.

"This kind of precedent says 'Apple: be very careful with anything other than having one-on-one negotiations with content providers.'"

The Justice Department has said it will seek interim relief and a court-ordered independent monitoring trustee.

A group of 33 states are seeking unspecified damages against Apple. A class-action suit against the technology giant could also be bolstered by judge Cote's ruling.

Apple has said it will appeal and "continue to fight against these false accusations."

Some analysts noted that the court decision could help Amazon assert its dominance in electronic books, and that the online retailer has moved to the "agency" model which Apple helped impose.

"Everybody is on agency now," said Roger Kay, analyst at Endpoint Technology Associates.

Before Apple came on the scene, Amazon used a "wholesale" model and sold e-books at the cut-rate price of $9.99 for most titles.

"Amazon was taking profit out for everyone else is well," Kay said. "Now it's busted open. But Amazon also benefits from higher prices."

Amazon is believed to control around two-thirds of US e-book sales—down from 90 percent a few years ago—while Apple's share is said to be around 20 percent.

E-book sales have been cooling after a few years of sizzling growth.

A survey by the Association of American Publishers said 2012 growth in such sales was 41 percent—an impressive figure but below the red-hot pace of recent years including 2011, when e-book sales doubled.

Michael Weinberg, vice president at the digital advocacy group Public Knowledge, said the marketplace is still sorting out the model for e-books and other content.

He hopes the case will raise awareness that the e-book market is being constrained by digital "locks," sometimes called digital rights management, which keep electronic content tied to one device.

"If you have all these files on your Kindle, and can move them to other devices, that would help the market grow," he said.

"While no one would argue that major publishers have fully come to terms with this lesson it is encouraging that they are at least aware enough of it to discuss it."

Explore further: Apple's fiscal 3Q earnings top analyst forecasts

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