Amazon: Apple-Backed Publishers Pushed Us Around

Amazon.com Inc. (NASDAQ:AMZN) executive Russell Grandinetti, vice president of Kindle sales, testified in the third day of Apple’s (NASDAQ:AAPL) e-book trial, claiming that publishers led by Apple bullied Amazon into abandoning their e-book pricing model used to promote Kindle sales.

Grandinetti said that back in 2010 publishers pushed Amazon into a corner, saying that they had to abandon their pricing model if they wanted titles from those publishers available as e-books for Kindle. Amazon had only been charging $9.99 for new and popular e-book titles to promote sales of the Kindle e-reader, but the company relented under pressure from the publishers.

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Apple is accused of herding the publishers into an agreement that would force Amazon to raise prices. Apple set up a pricing model in which the publishers could set e-book prices themselves and give Apple 30 percent commission on each sale.

The first publisher to approach Amazon about the issue was MacMillian, a subsidiary of Georg von Holtzbrinck Publishing Group. Grandinetti described a “tense” meeting with a representative of the company, which ended in Amazon agreeing to allow the publisher to set its own prices so that Amazon would still have access to sell MacMillian’s books.

Other publishers involved in the scandal include News Corp. (NASDAQ:NWSA) owned HarperCollins, French publisher Lagardére, CBS Corp. (NYSE:CBS) owned Simon & Schuster, and Pearson PLC’s (NYSE:PSO) Penguin Group. All of the publishers have settled anti-trust claims out of court, leaving Apple to fight this battle alone.

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The publishing industry felt that Amazon’s pricing model was a threat to the entire publishing world. Using a traditional wholesale model, Amazon had been able to set its own prices for e-books, but publishers wanted to switch to Apple’s agency model, in which publishers could set their own prices. Amazon had been selling e-books at a loss to promote the Kindle e-reader, a tactic that was panicking publishers as e-books first started gaining popularity.

Grandinetti had a different idea about the publishers’ motivation. ”It was our belief,” Grandinetti testified, “that the reason we were in this situation was that some of the publishers wanted to slow the sale of the Kindle.”

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