The former publisher of the Wall Street Journal has defended Apple’s Agency Model that has been labelled by the US Department of Justice as being “anti-competitive”, saying it is not only good for Apple, but good for consumers and publishers as well.
Defending Apple’s Agency Model as opposed to Amazon’s methods, in a Wall Street Journal article Gordon Crovitz wrote: “Publishers conspired to repair an anticompetitive business model. They thought it made no sense for Amazon's Kindle to have a 90 per cent market share and a single loss-leader price of $9.95 for consumers. They were right.”
“Thanks to the agency model, the Kindle's market share has fallen to 60% thanks to competition from iPads and Barnes & Noble Nooks, and there is more variation in consumer prices, typically ranging from $5.95 to $14.95,” he wrote.
Crovitz discusses a meeting with Apple Senior Vice President of Internet Services, Eddy Cue at which he tried to argue for better terms for news publishers. In response to Crovitz’s requests Cue said: "I don't think you understand. We can't treat newspapers or magazines any differently than we treat FarmVille."
Crovitz explains that he had hoped for a better deal than the usual 30 per cent share that Apple takes for transactions through the App Store, but Cue’s response was a “sobering reminder that traditional media brands have no preferred place in the new digital world."
The article notes that the 30 per cent revenue-share model is Apple's standard practice, not, as alleged by the government, the product of a conspiracy. Crovitz writes: “It also should be the defense’s Exhibit A in the Justice Department’s antitrust case against Apple and book publishers: The 30 per cent revenue-share model is Apple’s standard practice, not, as alleged by the government, the product of a conspiracy. Whether it’s news, games, apps or books, Apple’s position is the same. The market determines the price, and Apple gets 30 per cent.”
“The Justice Department fails to acknowledge anywhere in its 36-page complaint against Apple and book publishers that this is the standard approach. (Indeed, the government complaint inaccurately refers to ’30 per cent margins’ for Apple. Operating margins are very different from sales commissions.) The government says this ‘agency model’ is inherently wrong (‘per se’ wrong, in legalese) and ‘would not have occurred without the conspiracy among the defendants,’” adds Crovitz.
Crovitz writes, “The problem for the government is that there’s nothing wrong with the agency model, which has been upheld by federal courts and is common across many industries.”
He suggests the DOJ should have: “Exercised restraint by letting the ebook market evolve instead of ordering it to freeze into a single model with a single provider at a single price point for consumers.”
However, other reports note that Crovitz doesn’t address the issue of the "most favoured nation" clause that features in Apple's contracts with the publishers – another feature of the DOJ investigation. This clause stops publishers from selling their ebooks at lower prices than on Apple’s iBookstore.