Executive Testifies That Publishers Gave Amazon An Ultimatum After E-Book Deal With Apple

Interesting tag-line, really.

Interesting tag-line, really.

According to Russel Grandinetti, vice president for Kindle content at Amazon, publishers involved with the e-book anti-trust federal case told the Seattle-based retailer that unless Amazon agreed to their terms, it would have been barred from releasing e-books on the same day as print on Kindle, the wildly popular e-reader device that Amazon sells.

Grandinetti testified today that this ultimatum to switch to an agency model of publishing, in which the publishers set book pricing, came after the publishing houses made deals with Apple for their then new iBooks e-book service on the iPad.

The testimony from Amazon was heard today by a judge in the courtroom of U.S. District Judge Denise Cote, the third day of testimony in support of the US government’s case in United States v. Apple Inc et al. The case moved forward after all five major US publishers named in the suit settled with the US Department of Justice, while Apple did not.

According to court filings, Amazon’s Kindle, which debuted in 2007, had around 90 percent of the e-book market as of 2009, and was pricing new and bestseller e-books at only $9.99, which was significantly below the average cost of print copies of the same book. Yesterday, the CEO of Penguin books said that this model disturbed a “delicate ecosystem” of profits for the publishers.

Ultimately, Amazon moved to the publisher-friendly agency model, in which publishers can set prices for new books higher than $9.99, and pay the retailer a commission. During the testimony, Grandinetti said that Amazon would still like to charge less for e-books.

“Certainly if someone offered reseller, we would have taken them up on that offer,” he said, referring to the wholesale reseller model Amazon enjoyed prior.

The government’s case focuses on a clause in the agreement it reached with the five named publishers, called a price parity clause, which stipulates that if other retailers sold e-books for less, then they would need to be sold for the same lower price on Apple’s iBooks platform. The Justice Department contends that this clause was meant to encourage publishers to push Amazon to accept the same business model.

Gardinetti recalled that the CEO of Macmillan said that Amazon could either move to the agency model, or have to wait up to seven months for new bestseller e-book availability on Kindle.

“I think I expressed how unpalatable the choice presented was,” said Gardinetti.

Even though Amazon pulled all Macmillan books from the Kindle store, it eventually signed a 3-year long agency model contract, according to the testimony.

“We wanted to avoid losing most or all of their titles from our store,” he said.

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  • technochick

    Publishers deciding to tell Amazon to change terms or loss their deals is NOT the same thing as Apple doing anything.

    And the DOJ needs to look at the pricing clauses Amazon put in their contracts for years before Apple was an issue.

About the author

Rob LeFebvreAnchorage, Alaska-based freelance writer and editor Rob LeFebvre is Cult of Mac's Games and Tips Editor. He has contributed to various tech, gaming and iOS sites, including 148Apps, VentureBeat, and Paste Magazine. Feel free to find Rob on Twitter @roblef

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