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Amazon VP testifies on publishers 'ultimatum'

Top executive says five major publishers discriminated against Amazon because it was setting prices of e-books too low.

Last Modified: 06 Jun 2013 02:46
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Apple is accused of herding publishers into pricing model that would eliminate competition with Amazon [Reuters]

A senior executive at the retailer Amazon.com has testified that five major publishers discriminated against his company because it was setting prices of electronic books too low.

Russell Grandinetti, vice-president for Kindle content, said publishers gave him an "ultimatum" in 2010 to let them set prices of e-books sold on its website or they would withhold newly released books from the company's digital library until months after the hardcover editions appeared on shelves.

Grandinetti gave the testimony on Wednesday - the third day of an antitrust trial in Manhattan federal court.

The US Justice Department filed a lawsuit against Apple and five major US publishers in April 2012, accusing them of conspiring to fix prices for e-books.

The publishers all settled before trial and together paid $164m to resolve parallel claims by states attorney general that are also being asserted at trial. Apple, which became a Kindle rival when it launched the iPad in 2010, did not settle.

E-books dispute

Amazon, which debuted the Kindle in 2007, controlled up to 90 percent of the market by 2009, court filings show. It was pricing new and bestselling e-books at $9.99, often below cost.

We were not prepared to sign a contract for whatever length of time where we weren't confident we couldn't be further discriminated against by these publishers

Russell Grandinetti, vice-president for Kindle content on Amazon.com 

Amazon ultimately switched from the wholesale reseller model, in which it set prices, to the publisher-controlled agency approach similar to the one Apple had adopted in 2010.

In Apple's model, publishers pay the retailer a commission and can set prices of $12.99, $14.99 or more.

Grandinetti said if Amazon could, it would want to sell books for cheaper.

"Certainly if someone offered reseller, we would have taken them up on that offer," he said.

The Justice Department has sought to portray Amazon at the non-jury trial as the central victim of the alleged antitrust conspiracy amid disapproval by publishers of the low prices it was offering consumers for new and best-seller titles.

A provision in Apple's contracts stipulated that if other retailers sold e-books for less, then e-books on Apple's platform had to be the same price.

The Justice Department, which says Apple orchestrated the price-fixing scheme, contends the price parity clause was designed to compel publishers to move Amazon to the agency model.

At the trial, Grandinetti recounted that in January 2010, Jon Sargent, chief executive of the publisher Macmillan, offered him a choice of either moving to the agency model or having to delay selling e-books until after a title's hardcover had been on the market for seven months.

"I think I expressed how unpalatable the choice presented was," he said.

Amazon for a time subsequently pulled MacMillan books from its online store amid the e-books dispute, until finally capitulating and signing a three-year agency deal, according to Grandinetti.

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

Other publishers soon also sought to move to agency, in moves Grandinetti said Amazon believed were in part intended to "slowdown the success of the Kindle." At times, Amazon told publishers it may need to re-evaluate business relationships, though it ultimately did switch models.

"We were not prepared to sign a contract for whatever length of time where we weren't confident we couldn't be further discriminated against by these publishers," he said.

Two publishing executives have testified so far, both telling tales of tough negotiations with Amazon following their decisions to sign with Apple.

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