no foolinDisclaimer: I’m not a lawyer or high-falutin’ financial analyst, and this is my personal opinion, not TeleRead’s. I just call them as I see them.

I ran across this article from Motley Fool blogger Mark Hibben, and felt it was worth calling out as the example of arrant fear-profiteering it is. I could sum up the article thus: “DOOM! DOOOOOOM! (By the way, pay us.)”

To be fair, the post opens with a reasonably cogent and accurate summary of the issues surrounding the Apple anti-trust case, not unlike the one I posted a few days ago. But it goes off the rails toward the end, when Hibben discusses Apple’s claim that its “most favored nation” contract clause is just “business as usual” for the company, and the same thing it did for digital music, video content, and so on. Then he uncorks this whopper:

The problem with Apple losing is its “business as usual” defense.  If Apple’s iTunes business practices served as a model for iBooks, and these practices were found to be anticompetitive, this opens the door to a wide ranging DOJ investigation into iTunes pricing, especially Apple’s relationships with music and video content providers.  Since Apple makes about $4 billion a quarter from iTunes, now the business stakes are much higher.

iTunes pricing has uncomfortable parallels with what happened with iBooks. Once again, Apple’s agency model has produced virtually uniform pricing for digital music and video content across the industry. Every song’s a buck, wherever you go on the Internet.  Most videos are released at the same time and have the same pricing, whether for rental or purchase.  The only area where there seems to be genuine price competition is in apps, because here the developers do set their own prices and do compete on price.

This is, of course, complete bullpuckey. Where do I even begin? There is nothing illegal about the agency pricing model (Apple’s “business as usual”) per se. Even the Department of Justice admitted that, or else they wouldn’t have permitted publishers to go back to using it after a specified cooling-off period as part of their settlement agreement!

For that matter, even Apple’s “most favored nation” clause is not the problem in and of itself either. It is reasonable from Apple’s point of view to want to protect itself from suppliers doing it dirty by giving other retailers lower prices but forcing it to keep charging higher ones. You’ll see that kind of thing anywhere that the price-setter is not the seller. The problem that got Apple dragged into court is the way that Apple allegedly used its MFN clause to force publishers to impose price raises on its competitors. And even then, that might be okay, legally. It’ll probably be this issue that sends the case up to the Supreme Court.

Did Apple do that with digital music? No. Apple pretty much single-handedly created the market for (legitimately-purchased) digital music with its iPod the way Amazon created the market for e-books with its Kindle. They didn’t crowbar their way into an existing market by forcing other successful vendors to raise their prices. There were no other successful vendors at that point (at least by the standards of iTunes), and iTunes actually lowered prices for consumers by holding track prices to 99 cents and lots of albums to either $9.99 or 99 cents * number of tracks, whichever was cheaper. (That’s another parallel to Amazon right there.) And even then, Amazon was eventually able to compete with iTunes by offering DRM-free tracks, which eventually forced Apple to go DRM-free itself.

So, no—Apple didn’t stifle competition where there was some, or raise prices where prices were low. It created a market where there was none. Not the same thing, and not illegal. There’s no reason for the DoJ to care about that.

And I certainly haven’t seen any digital music or movie sellers, or consumers, complaining that Amazon conspired with competitors to make them raise prices. But with e-books…guess what?

The reason behind all this fearmongering becomes clear in the next couple of paragraphs, wherein Hibben essentially makes scary hand motions concerning what this might do to Apple’s stock prices, and then tells you that, gosh, “The Motley Fool’s senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward.” But is he going to do that for free, out of the goodness of his heart? Nope! There’s a link you can click to be taken to a several-minute-long sales spiel for a $15 report and year of updates on Apple.

(Then, when you try to navigate away from the sales spiel, you get an “Are you sure you want to leave this page?” pop-up, favored tool of spammers and scammers everywhere. Yes, you twerps, I’m sure, or I wouldn’t have clicked away! And if I want to come back, I know just where you’ll be!)

I don’t know, $15 for all that might be a bargain. But if this half-assed scare tactic is the kind of analysis you can expect from The Fool, it brings to mind the old question about who’s more of a fool—the fool or the fool who follows The Fool. (And let’s also not forget the Fool analyst who predicted the Kindle would sink like a stone, before taking a screeching U-turn to declare it was instead likely to be the best thing ever.)

Admittedly, there is a disclaimer at the top of the article indicating that “entries represent the personal opinion of the blogger and are not formally edited.” Looks like a blatant attempt to have your cake and eat it too, to me. If you’re going to earn money from that personal opinion, and that personal opinion is trying to use inaccurate speculation to scare people into paying you, trying to disclaim responsibility for it is disingenuous.


  1. “Amazon was eventually able to compete with iTunes by offering DRM-free tracks, which eventually forced Apple to go DRM-free itself.”

    That’s a bit revisionist isn’t it? Who used DRM for music and who didn’t was up to the record companies. The record companies used DRM as a club against Apple. Letting Amazon go DRM free first was an attempt to reign in the iTunes monolith. Guess who lost that battle?

  2. The competitors “did Apple” dirty because they wanted variable song pricing so they could price older, slow-moving songs and albums lower, and Apple refused. And since Apple was the only game in town because DRM locked the pod-people in they had no choice but to swallow it. Apple turned Agency backwards and used their market power to force uniform pricing on the studios who had come to prefer variable pricing.
    Their only move was to give Amazon (and Walmart, while they stayed in) lower pricing.
    Once they switched Amazon to MP3, Apple had to negotiate new deals for DRM-free content and they had to let the studios truly set their own prices the way Agency is supposed to work.
    As the DOJ has repeatedly said, Agency is *not* price fixing.
    However, Apple likes to use Agency to hide price-fixing.
    And that is why they’re in court.
    They got away with it in music but that doesn’t mean they’ll necessarily get away with it in ebooks.

  3. Felix, now you’re only telling part of the story there. They wanted to sell some old music cheaper—but they also wanted to sell the newest hits at $1.29.

    Some rivals, like eMusic, and music industry analysts have suggested the higher prices come at a particularly bad time for the newly frugal American consumer, who had grown quite accustomed to 99-cent purchases. Amazon might now increase its share, since it now sells many of the same hits for a lower price.

    Huh. Media publishers under agency requiring stores to raise prices? Gee, never heard that before.

    And requiring Apple to raise prices while Amazon could “increase its share” because it still gets to “[sell] many of the same hits for a lower price”? I’m not saying that Apple is any kind of a paragon here, but you can certainly see why they would want to protect themselves against any publishers doing that to them again.

    Anyway, the point of this post is not to try to claim Apple is any kind of a saint. It’s just to point out that there’s very little likelihood that the scary scenario the Fool blogger is predicting could come to pass even if Apple does completely lose this court case.

  4. Sellers like complexity because that enables them to clip consumers a little here and a little there. It also confounds price comparison thereby amplifying the effect of advertising which, incidentally, is a cost passed on to the customer. Making it simple is pro consumer. Making it complex is anti-consumer.
    Digital goods are different from physical goods because they are produced on demand rather than in batches that sit in warehouses and on shelves until someone buys it. There is no risk of having to “eat” a ton of unsold eBooks. Thus, there is no need for highly variable prices if the item is priced right to begin with. Good books and good music have very long tails. It will all average out in time.

  5. @Chris; What I remember from the reports at the time (leaked by the studios) was that during negotiations Apple did not object to higher pricing on new releases (more money for them) but they refused to budge on the $0.99 floor. So the bone of contention was the lower bound of variable pricing (and the lower “commission” Apple would earn per track). Apple has never been a big fann of “making it up with volume”.

  6. For awhile back in the late ’90s, the Fool was flogging its “Dogs of the Dow” strategy as a foolproof method of investing. It worked for awhile, because in a rising economy everything does. When it failed, they shipped it down the memory chute and claimed that they would never say anything was foolproof.

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