• Amazon Executive Claims Apple's Agency Model Was Designed to Slow Down Kindle Sales

    During the third day of the U.S. Department of Justice’s antitrust suit against Apple, a high ranking Amazon executive said the agency model used by Apple and five major book publishers was meant to slow down the success of online retailer’s popular e-book reader. According to in-court reports from Reuters, Amazon’s vice president of Kindle content, Russell Grandinetti testified that his company told publishers it may have to modify business relationships as a result of adopting the agency model.

    Grandinetti continued by saying that publishers came to Amazon with an “ultimatum” after reaching deals with Apple in 2010, demanding that they be allowed to set e-book prices on Amazon. Unless an agreement was made, Amazon would have been barred from selling Kindle-ready e-books on the same day that hardcover versions of the titles were released according to him. Citing a particular offer from MacMillan in 2010, Grandinetti said the publisher’s CEO, Jon Sargent, offered a choice between moving to an agency model or being forced to delay an e-book’s sale until seven months after a hardcover version had been on the market. He said the following regarding the matter:

    I think I expressed how unpalatable the choice presented was.
    Penguin Books CEO David Shanks also described a similar discussion he had with Amazon over a proposed shift in pricing strategy when he mentioned the following:

    They yelled and screamed and threatened. It was a very unpleasant meeting.
    Shanks also noted that Amazon would routinely price new titles at $9.99 through its Kindle store, when the same book would sell for $26 as a hardcover. Wholesale pricing was cannibalizing profitable hardcover sales he said. Amazon resisted the pressure exerted by the publishing houses for a short time before finally submitting to their demands, inking a 3-year deal based on the agency model. Grandinetti said the following about MacMillan:

    We wanted to avoid losing most or all of their titles from our store.
    Other publishers began to move to the agency model in what Grandinetti believes were decisions made, at least in part, to “slowdown the success of the Kindle.” Amazon apparently made attempts to stop the exodus from wholesale, at times threatening to end relationships with certain publishers. In another testimony, Simon & Schuster CEO Carolyn Reidy said that Grandinetti himself issued a threat against her company after it moved to Apple’s agency model according to CNET. Reidy testified that Grandinetti said the following:

    If you're going to do this, we have to look at the whole business.
    Reidy ended up recalling that the first two calls regarding the shift in pricing strategy were friendly but the third was where Grandinetti “threatened [their] business.” Grandinetti was on the stand when the proceedings ended meaning he will testify once again.

    We’ll have to wait to see how the case unfolds.

    Source: CNET, Reuters
    This article was originally published in forum thread: Amazon Executive Claims Apple's Agency Model Was Designed to Slow Down Kindle Sales started by Akshay Masand View original post
    Comments 3 Comments
    1. shant1010's Avatar
      shant1010 -
      you don't say
    1. claustin's Avatar
      claustin -
      I'm failing to see the problem. It's akin to home movie releases being months after the movie is in theaters. Why would you go to the theater if you could just buy the movie and watch it at home the same day for far cheaper? It seems to me like this would be a smart business move for the publishers regardless of Apple's involvement. All Apple's entry into the market did was give the publishers a bargaining chip. Now I'm not saying ebooks should be as expensive as physical copies (it is in my opinion why digital comics aren't a huge thing yet), but to allow Amazon to grossly undercut the price of a new release hardcover edition is just bad business on the publisher's part. All Apple did was offer them a better deal. I've never felt ebook prices on the iBook Store were gratuitous, but they were obviously better for the publishers than their deals with Amazon.
    1. jOnGarrett's Avatar
      jOnGarrett -
      hmm, apple trying to slow down the growth of a competitor?!?!?
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