Will Apple Overcharge for Textbooks?

Apple may be on the cusp of a digital textbook revolution. But will it come at the expense of our wallets? Despite the countless pages of speculation this week – including a report in which one analyst states that Apple AAPL could obtain as much as 95% of the digital textbook market – no one is questioning the cost structure that the Mac maker may choose to implement. But we should. In addition to the headline-stealing patent infringement cases of 2011, Apple got itself into a bit of trouble last year when Hagens Berman filed a class-action lawsuit claiming that the iPhone maker conspired with book publishers to illegally fix the price of new e-books. HarperCollins Publishers, Simon & Schuster, Hachette Book Group, Macmillan Publishers, and Penguin Group were the five publishers named in the lawsuit. “According to the suit, publishers believed that Amazon's wildly popular Kindle e-reader device and the company's discounted pricing for e-books would increase the adoption of e-books, and feared Amazon's discounted pricing structure would permanently set consumer expectations for lower prices, even for other e-reader devices,” Hagens Berman wrote on its site. “The firm believes that Apple was involved in the scheme. The complaint alleges that Apple believed that it needed to neutralize the Kindle when it entered the e-book market with its own e-reader, the iPad, and feared that one day the Kindle might challenge the iPad by digitally distributing other media like music and movies.” Kind of ironic, don't you think? The suit was filed on August 9, 2011 – more than 30 days before the unveiling of Amazon's AMZN first tablet, the Kindle Fire. One could argue that Hagens Berman heard about the rumors of the Kindle Fire and threw them into the lawsuit in an effort to strengthen its case. If Amazon had failed to launch a tablet, the aforementioned quote would have been perceived as a forward-looking statement. But since Amazon chose to release a tablet now, it makes the claims in the lawsuit seem much more plausible. At first glance, it isn't that hard to support the suit. Many of its allegations have already proven to be true; we know that Amazon was ultimately forced to raise the price of it new e-books. What we don't know is why, and since the lawsuit is attempting to provide answers to those questions, everything has seemingly fallen into place. The thing that gets me is that, even if every single claim was true, why would Apple work with book publishers to raise the cost of digital books? Wouldn't Apple be smarter – and make a larger profit – by fighting to reduce the cost of e-books? Consumers who could buy every new book they wanted for $9.99 are much more likely to spend $499 on a brand-new tablet. Apple makes the majority of its profits selling hardware, not software. So why would Apple work with publishers to ensure that we pay more money for new books? Some might think that it was a bully situation in which the book publishers forced Apple to comply. But I cannot envision a situation in which Steve Jobs would have ever let that happen. Let's also consider the price of games and other interactive items sold through the App Store. Apple was not at all opposed to the idea of selling crappy games for $0.99 apiece. From what I can tell, Apple may have actually encouraged this pricing and development strategy. If price fixing occurred within the book publishing industry, why wouldn't major game publishers have stepped forward to ensure that consumers couldn't acquire new games for a buck? Many argue that $0.99 games endanger those that retail for $50. I completely disagree with this belief (for a multitude of reasons), but you can bet there are at least a few game publishers who fear the long-term effects of the App Store pricing structure. Yet none of them have pressured Apple to raise the price of new apps. Rather, major game publishers like Electronic Arts EA have decided to enter the App Store with a wide variety of apps and a wide variety of prices. Thus, it doesn't make sense that Apple was involved in any form of price fixing with book publishers. That said, there are two things worth noting. First, what's with the lack of media coverage for this lawsuit? Compared to the patent infringement cases, this class-action suit has received very little attention. Second, if Apple did not engage in any form of price fixing, why was Steve Jobs so confident that Amazon would be forced to raise its prices? Was it simply a good guess? Had someone informed Jobs of an impending price hike? Or was he personally involved in the matter? Whether Jobs (or anyone at Apple) is guilty may not have an impact on how much the company charges for textbooks. App and music pricing excluded, Apple is and always has been a premium company. It could charge a very low price for digital textbooks and transform the industry overnight. But instead of doing that, I suspect Apple will charge a price that is only marginally lower than that of a traditional (hardcover or paperback) textbook. Even a 30% discount could be “marginal” when you consider the fact that students will not be able to resell their iPad books. Follow me @LouisBedigian