David Shanks, CEO of Penguin Books, testified today that a provision in its e-books contract with Apple played a role in its decision to change contracts with other retailers, like Amazon.com, a crucial part of the US government’s case against Apple in the e-book anti-trust case happening now in federal court. Shanks said that the clause in question was “certainly a factor” in seeking out other retailers to an agency model, in which publishers control prices, not retailers, a model Amazon originally flouted.
In the anti-trust case, the US government is charging that Apple conspired with five publishers to fix prices for e-books between 2009 and 2010. Penguin is the first publishing company named in the suit which also includes HarperCollins, Simon & Schuster, Hachette Book Group, and Macmillan.
Apple has already gone on record, saying that it was the publishers that came to Apple, not the other way around.
The trial, just getting underway in New York with U.S. District Judge Denise Cote, was settled by all publishers named in the initial suit. Penguin, in fact, settled for $75 million just last May, the largest amount of all the publishers.
Shanks’ testimony took several hours, notes Reuters, and covered a lot of groung. Shanks admits to being concerned about the lower prices at Amazon, which accounted for about 90 percent of e-book sales in 2009, making it one of Penguin’s largest customers. Shanks said that Amazon’s strategy of charging only $9.99 for best sellers and new releases disrupted the “delicate ecosystem” by which people who wanted to pay less for books could wait until after the hardcover release.
“What transpired was by having e-books now at $9.99, it was cannibalizing hardcover editions, which sold on average at $26,” Shanks said in his testimony. He continued to say that Apple approached Penguin in 2009, about the time of the iPad release, and proposed a more publisher-friendly agency model for e-books sales. Shanks also testified that Penguin agreed to sign on with Apple’s terms only after other major publishers had.
Once the Apple deal was in place, Shanks says, Barnes and Noble adopted a model with similar terms, and Penguin went to Amazon with it’s new-found power. The negotiations with Amazon were rough.
“They yelled and screamed and threatened,” Shanks said. “It was a very unpleasant meeting.”