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One of the most curious claims that Apple's attorneys have made during the company's antitrust fight with the federal government this week is that Amazon considered handing over the ability to price ebooks to book publishers well before the publishers began pushing retailers in that direction. If true, that would take some heat off Apple, which has been accused of initiating the trend.
Apple's claim was a surprise, considering that Amazon's ability to lower ebook prices below its competitors' was one of the factors that contributed to Amazon's then 90-percent market share. Why would Amazon have wanted to give up a competitive advantage? The government says Apple's claims are nonsense. To prove it, Mark Ryan, the DOJ's lead attorney, asked the Penguin Group's CEO David Shanks whether Amazon execs were happy when they were told they would be required to move to the agency model and lose control over ebook prices.
Amazon "would do anything" not to go to the agency model
Shanks chuckled. "No," he said smiling. "They yelled, screamed, and threatened." Ryan noted that Shanks said previously that Amazon "would do anything" not to go to the agency model.
Yesterday, Russell Grandinetti, vice president of Kindle content on Amazon, told Cote that the publishers accused of price fixing — Hachette Book Group, HarperCollins Publishers, Simon & Schuster, Macmillan Publishers, and the Penguin Group — issued an ultimatum to Amazon. Either it would accept the terms of the publishers' new agency contract and hand over book pricing to them or not get access to new releases on the ebook format until seven months after they debuted. In the meantime, it was implied, the ebooks would be selling on Apple's new iPad.
One of the side benefits of the trial has been the amount of information it has provided about the business practices of Amazon and Apple, two highly secretive companies. For starters, Amazon seemed to have dealt with the publishers in a heavy-handed way even before all the trouble in January 2010. Shanks testified that just prior to the launch of the Kindle e-reader in 2007, Amazon phoned him up and asked him to give an interview to a Newsweek reporter about the device.
He told Cote that during the interview, he gushed about the Kindle. But he said he was shocked when the reporter asked him what he thought about Amazon's $9.99 ebook prices. Amazon hadn't told him about the plan. His response to the reporter was: "They won't be $9.99."
Apple also liked to play head games with the publishers
Apple also liked to play head games with the publishers. Kevin Saul, one of Apple's dealmakers and attorneys, told the court that Apple will often try to pressure a supplier into signing a licensing agreement by informing them about competitors who have already done a deal with Apple. "The train is leaving the station," is how Apple puts it to the suppliers.
But Apple seemed to possess better salesmanship skills. Shanks, who has been CEO of Penguin for 12 years, said that his company loved the iPad. He said that when the iPad launched, the featured book the very first day was Winnie the Pooh. Orin Snyder, Apple's attorney, asked him if it was made available for Amazon's Kindle or Sony's e-reader. Shanks said no, noting the devices only displayed in black-and-white and the beloved children's book was too important to fans to offer in anything but in color.
