Most of you have heard about the Department of Justice’s antitrust lawsuit against Apple and five of the biggest publishing companies—HarperCollins, Hachette, Simon & Schuster, Penguin and Macmillan. Three of the five have settled, but Apple, Macmillan and Penguin are standing their ground.
The other major player in this case is Amazon. Just a few years ago, the Kindle dominated the e-book market under the wholesale model, where a publisher would sell its books to a distributor for a fixed price and the distributor would decide how much to charge the public.
Apple has since eaten away at Amazon’s market share by introducing the iPad and the agency model, where publishers set the prices of their e-books, while the retailer receives a commission. The DOJ case alleges that Apple and the aforementioned publishers colluded to raise e-book prices and undermine Amazon.
My verdict: Apple has nothing to worry about, Amazon will benefit, and the DOJ will have a minimal impact. Here's why:
Why Apple will be fine:
- Apple’s e-book sales comprise a fraction of its revenue.
- Apple’s balance sheet is impenetrable. This lawsuit will barely make a dent.
- Apple customers are loyal. Regardless the outcome of this case, people will still crave Apple’s most profitable products like the iPhone and iPad.
- They might not have done anything wrong.
Why Amazon will also be fine:
- This case will likely result in lower e-book prices, which could boost Amazon’s market share back above 80%.
- This probably won’t eliminate the agency model, but it will make it less common, which will benefit Amazon.
- People love cheap books. Amazon sells cheap books.
Why the DOJ’s impact will be minimal:
- The penalty against Apple would be relatively small, and 5 years from now, people will be talking about the cool new product that Apple just came out with, and this case will be a blip on the radar.
Apple shares have fallen more than 10% in the last 5 days—but it’s difficult to tell how much of this drop can be attributed to the DOJ lawsuit. Apple is a powerhouse, but any new information in this case could turn my argument upside down. What do you think? Apple is not easily intimidated by the government or litigation in general. Should it have a reason to after this?
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