Daily Ticker

A Big Week for Apple: E-Book Trial Starts As Company Readies Music Streaming Service

Daily Ticker

Apple (AAPL) may be losing its competitive edge in the smartphone industry and the stock market, but it’s not for lack of trying.

Apple tried to get a leg up in the E-book market, allowing publishers to set the price for rights to their books at a higher rate than industry leader Amazon (AMZN) was paying. But when the government got wind of the deal it sued the publishers—and Apple. The five publishers—Hachette, Harper Collins, Macmillan, Penguin Group and Simon & Schuster—all settled, leaving Apple the lone defendant. That trial starts today in U.S. federal court in Manhattan.

Apple CEO Tim Cook has called the case “bizarre.” At an AllThings D conference last week, he said Apple had “done nothing wrong…so we’re taking a very principled position…we’re not going to sign something that says we did something we didn’t do…so we’re going to fight.”

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But U.S. District Judge Denise Cote, who’s hearing the case, told a pre-trial hearing last month that the government will likely prevail. “I believe the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of E-books,” she said.

“If you think back to when Apple was getting into the e-book space, Amazon completely dominated,” says Michael Santoli, senior columnist at Yahoo! Finance. “It was almost like Apple was the underdog,”

That’s not the case in the online music download industry, where Apple dominates. Nearly 10 years after Apple opened the iTunes Music Store, it accounted for more than 60% of the music downloads in 2012, according the NPD Group. Amazon had a 22% share.

“When Apple did it with iTunes they undercut everybody,” says Aaron Task, making a similar argument that publishers made about Amazon E-books.

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Now Apple is poised to take on Pandora and Spotify with a streaming music service. On Sunday Apple signed a licensing deal with Warner Music Group for rights to its recorded music and music publishing. The Wall Street Journal is reporting that Apple will pay the Warner Music Group 10% of the ad revenue the service earns--—which is more than twice the percentage that Pandora Media pays music publishers.

Apple has already signed a deal deal with Universal Music Group for recorded music rights but not publishing rights, and it’s expected to continue negotiations with Sony Music (SNE) entertainment for rights to its recorded music.

“Even though there’s no real connection between these two issues that Apple is dealing with…it’s the same kind of thing where you have to go to content creators, decide how you’re going to get paid, and decide about the economic model,” says Michael Santoli.

Apple's Investors and consumers may get more information on the expected upcoming music streaming service when Apple hosts its annual worldwide developers conference beginning next Monday, June 10 in San Francisco.

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