Eddy Cue of Apple Inc (NASDAQ:AAPL) Opens Up about iBooks Price-Fixing Scandal

423

By Thomas Copeland on December 4, 2014 Company

Apple’s Eddy Cue has surprisingly come out of the dark and spoken about the price-fixing scandal of iBooks. Cue talked about the allegations that were proven in a ruling by a lower court. Apple is all set to appear at a Federal Court for appeals to challenge the ruling, which says that Apple was involved in backhanded deals on e-books to curb the competition by Amazon.

The iBooks boss told Fortune that Apple is ready to keep fighting the ruling until the company can successfully prove that Apple and its partners who were implicated too were not involved in any price-fixing deals. Cue hopes to keep going until the ruling against Apple is overturned.

Amazon was the sole leader when it came to e-books, but all that changed when iBooks was introduced on Apple’s (NASDAQ:AAPL) iPad. The low rate e-books had become a threat to the paperback market, which forced the publishers to go for a deal with Apple Inc. (NASDAQ:AAPL). According to the deal the publishers offered iBooks their latest publications, which would then be sold at a higher price to the buyers. This would allow the buyers to have more options for buying e-books and publishers would have the benefit of negotiating with both Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL).

However according to a judge of the Federal Court, Apple’s (NASDAQ:AAPL) arrangement with publishers was nothing but price fixing, which is illegal and this claim is the one that Cue hopes to get overturned.

Apple (NASDAQ:AAPL) spent $840 million at the trial to settle the case. For its appeal the company settled on a “conditional settlement” that would give the tech giant $450 million back; this would cover the cost of attorney and damages, but only if Apple (NASDAQ:AAPL) wins. Therefore the company has quite a lot at stake because if it were to lose the case the tech giant would have a damaged reputation.

Cue had discussion with five of the major publishers for this deal; these publishers include Macmillan, Simor & Schuster, Penguin, Hachette and HarperCollins. He convinced them to switch to “agency pricing” from what is commonly known as “wholesale model”.

Amazon (NASDAQ:AMZN) follows the wholesale model, which allows the company to charge as much as it wants for the books it sells. To get more customers Amazon usually sells these books at cheap rates. Apple (NASDAQ:AAPL) offered publishers the agency pricing, which prevents the content owners to sell their content (they sell to Apple) to other sources at reduced prices.

This arrangement says that Cue came up with an iBooks store that sells books at a rate that is 50% higher than the rate Amazon was selling at.

Cue said in an interview that publishers considered the wholesale model too cheap and that is why they were fine with increased book prices. Cue believes that iBooks actually caused an increase in a few book prices; this gave Amazon some stiff competition and threatened its monopoly, which allowed Amazon to sell content at cheap rates.