Amazon exec says Apple's agency model was designed to hinder Kindle

Posted:
in General Discussion edited January 2014
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.

Kindle


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.

Further, Gardinetti said publishers came to Amazon with an "ultimatum" after reaching deals with Apple in 2010, demanding they be allowed to set e-books prices on Amazon.com. 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, he said.

Citing a particular offer from MacMillan in 2010, Grandinetti said the pubisher's CEO Jon Sargent offered a choice between moving to the agency model or being forced to delay an e-book's sale until seven months after a hardcover version had been on the market. "I think I expressed how unpalatable the choice presented was." - Russell Grandinetti, Amazon VP of Kindle content

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

On Tuesday, Penguin Books CEO David Shanks described a similar discussion he had with Amazon over a proposed pricing strategy shift.

"They yelled and screamed and threatened," Shanks said. "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.

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

Amazon


The agency model, and its most favored nations clause, is central to the Justice Department's case against Apple, which alleges the company colluded with five major book publishers to fix e-book prices in the iBookstore. As part of its argument, the DOJ has framed Amazon as one of the parties hurt by Apple's purported scheme, asserting that the company's wholesale model was impacted by the alleged conspiracy.

Under Amazon's wholesale pricing, retailers buy content from publishers in bulk and are able to set resale prices at or below cost. In some cases, this strategy resulted in highly discounted e-book pricing for new books which would otherwise sell for much more. Amazon used the savings to move Kindles, which according to court documents controlled as much as 90 percent of the market by 2009.

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 on Wednesday, Simon & Schuster CEO Carolyn Reidy said that Grandinetti himself issued a threat against her company after it moved to Apple's agency model, reports CNET. Reidy testified that Grandinetti said, "If you're going to do this, we have to look at the whole business."

She recalled that the first two calls regarding the shift in pricing strategy were amiable, it was in the third that Grandinetti "threatened [their] business."

Wednesday's proceedings ended with Grandinetti on the stand, meaning he will once again testify on Thursday.
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Comments

  • Reply 1 of 107
    jragostajragosta Posts: 10,473member
    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.

    Yep - the objective here is clear. The DOJ wants to slander Apple to try to make themselves look good.

    There are multiple problems with the above testimony:

    1. How in the world would an Amazon executive know what the objective of Apple's agency model was? His views of what they were trying to accomplish must be hearsay.

    2. Even if it were true, there's nothing illegal about Apple trying to slow down a competitor.

    3. It it was true that Apple was trying to slow Amazon down, that's what competition is all about. So Amazon is complaining about having competition. No surprise there.
  • Reply 2 of 107
    jungmarkjungmark Posts: 6,687member
    Let me get this straight: Amazon has razor thin margins on the kindle, offers the kindle app on iOS, and is crying foul when it has to offer ebooks at the same price as Apple?
  • Reply 3 of 107
    gonevwgonevw Posts: 45member
    How do the dealings between the book publishers and Amazon have anything to do with apple?

    So as a new man to the game Apple had all the power? pulled the strings?

    looks to me like it was the five major book publishers greed and their agreement with Apple to not sell to anyone else for a lower cost. The publishers could just let apple sell for 9.99 not 12.99, right?
  • Reply 4 of 107
    And yet somehow the Kindle app appeared for iOS at the same time iBooks was released. Wouldn't a company so concerned with Kindle sales not want to yield such an obvious competitive advantage?

    What a crock of sh*t.
  • Reply 5 of 107
    dasanman69dasanman69 Posts: 12,980member
    jragosta wrote: »
    2. Even if it were true, there's nothing illegal about Apple trying to slow down a competitor.

    But it's illegal for Amazon to slow down the competition? What hypocrisy
  • Reply 6 of 107
    dasanman69dasanman69 Posts: 12,980member
    And yet somehow the Kindle app appeared for iOS at the same time iBooks was released. Wouldn't a company so concerned with Kindle sales not want to yield such an obvious competitive advantage?

    What a crock of sh*t.

    At the same time or before? I'm pretty sure it was on iOS before.
  • Reply 7 of 107
    shahhet2shahhet2 Posts: 143member


    Experts can help me here, but am I thinking this right way?


    Lets take one example.


    There are two real estate brokers X and Y selling lots of homes named  1,2,3,4,5


    X charges commission of $100 and says price of home 1 is $1000+$100 = $1100 to buyer (Consumer)


    Y guarantees seller that he will get his $1000 but on condition that Y takes 30% profit and he has to change price to $1300 to buyer (Consumer)


    Now Seller of home 1(to5) forces agent X to raise price of 1 to be $1300 as well else he will not list his home with X.


     


    Is this analogy correct?


    Aren't the consumer at loss here?


     


    I am sorry if I thought this wrong way, may be end consumer will think wrong way like me and needs to corrected similarly.

  • Reply 8 of 107
    When does the agent control the price. If it is my book, I want to sell it at a profitable level. Allowing Amazon to sell below market and destroy my hard cover sales is unfair. As publisher, I think I can say sell it for x or no books for you.
  • Reply 9 of 107
    shahhet2shahhet2 Posts: 143member


    Makes sense. Owner of book looses in-turn hardcover sales due to low digital price.  My thought was Amazon was taking less profit to sell books at lower price.


    So case doesn't makes sense. But in reality do people really buys hardcover books? How many percentage of hard cover vs digital as of now?


    As end consumer, anyone would always go for lower price for exactly same digital item.

  • Reply 10 of 107
    dasanman69dasanman69 Posts: 12,980member
    [quote] name="shahhet2" url="/t/157880/amazon-exec-says-apples-agency-model-was-designed-to-hinder-kindle#t_2339583"]Experts can help me here, but am I thinking this right way?
    Lets take one example.
    There are two real estate brokers X and Y selling lots of homes named  1,2,3,4,5
    X charges commission of $100 and says price of home 1 is $1000+$100 = $1100 to buyer (Consumer)
    Y guarantees seller that he will get his $1000 but on condition that Y takes 30% profit and he has to change price to $1300 to buyer (Consumer)
    Now Seller of home 1(to5) forces agent X to raise price of 1 to be $1300 as well else he will not list his home with X.

    Is this analogy correct?
    Aren't the consumer at loss here?

    I am sorry if I thought this wrong way, may be end consumer will think wrong way like me and needs to corrected similarly.
    [/quote]

    Amazon wasn't taking a commission on certain books, they were actually taking a loss but you pretty much got the gist of it.

    What I'd like to know is what if there was no Amazon and Apple was first to market what prices would have Apple forced on the publishers? They didn't give the music industry the benefit of setting their own price and now we're supposed to believe Apple is concerned about the publishers and has their best interest in mind?
  • Reply 11 of 107
    ufwaufwa Posts: 64member

    Quote:

    Originally Posted by TheMacadvocate View Post



    And yet somehow the Kindle app appeared for iOS at the same time iBooks was released. Wouldn't a company so concerned with Kindle sales not want to yield such an obvious competitive advantage?



    What a crock of sh*t.


     


    If 2009 and 2010 are the same time then no.




    The kindle app was first released for the iphone/ipod touch back in March 2009.


    http://appleinsider.com/articles/09/03/04/amazon_brings_kindle_ebook_library_to_the_iphone.html


     


    ibooks was announced in January 2010, and debuted with the launch of the ipad in March 2010.

  • Reply 12 of 107

    Quote:

    Originally Posted by dasanman69 View Post





    At the same time or before? I'm pretty sure it was on iOS before.


    You (and I) are half-right. iBooks was announced in January 2010 with the iPad, released at the end of March and made available for iPhone/iPod Touch in June with iOS 4. The Kindle app was also released in June.


     


    I was wrong about them being simultaneous, but the dates actually makes my point more emphatically: if Amazon was so concerned with Kindle sales, and iBooks was already in the wild, why release the Kindle app for iOS? Amazon was/is more interested in pushing content than hardware, that's why.    

  • Reply 13 of 107

    Quote:

    Originally Posted by ufwa View Post


     


    If 2009 and 2010 are the same time then no.




    The kindle app was first released for the iphone/ipod touch back in March 2009.


    http://appleinsider.com/articles/09/03/04/amazon_brings_kindle_ebook_library_to_the_iphone.html


     


    ibooks was announced in January 2010, and debuted with the launch of the ipad in March 2010.



    That's what I get for using Wikipedia as a source. :/


     


    "In June 2010, Amazon released a "Kindle for Android" version. With the Google Android application release, versions for the Apple iPhone, the iPad, Windows and Mac computers, and BlackBerry cellphones are also available"

  • Reply 14 of 107
    customtbcustomtb Posts: 336member
    On the surface nothing being done is illegal. It's not illegal to adopt agency pricing. It's not illegal for the publisher to set minimum retail pricing. It's not illegal to get a favored nation clause.

    What would potentially make it illegal is how the agreements came into being. If Apple et al got together and worked it out between all the parties. Or if the publishers got together and worked it out amongst themselves. But, If Apple worked out individual agreements, without the colusion, it should be legal.

    The publishers settling prior to trial could be a result of the colluding separately from Apple. Something like... You gonna do it? I'll do it if you do it. Well, I'll do it if he does. And they all did it.
  • Reply 15 of 107
    suddenly newtonsuddenly newton Posts: 13,758member

    Quote:

    Originally Posted by dasanman69 View Post





    But it's illegal for Amazon to slow down the competition? What hypocrisy


     


    Nah. The principle here is "It's only evil when Apple does it."

  • Reply 16 of 107
    starbird73starbird73 Posts: 538member
    dasanman69 wrote: »
    Amazon wasn't taking a commission on certain books, they were actually taking a loss but you pretty much got the gist of it.

    What I'd like to know is what if there was no Amazon and Apple was first to market what prices would have Apple forced on the publishers? They didn't give the music industry the benefit of setting their own price and now we're supposed to believe Apple is concerned about the publishers and has their best interest in mind?

    Actually, if you remember, all songs were 99¢ and albums were $9.99. Record labels wanted to charge the same as they did for CDs. Apple wanted realistic prices.

    When it came to books, all Apple did was say, "What ever the lowest price you, the publisher, set the price at is what we have it at. At no point was Apple setting the price.
  • Reply 17 of 107
    pendergastpendergast Posts: 1,358member
    customtb wrote: »
    On the surface nothing being done is illegal. It's not illegal to adopt agency pricing. It's not illegal for the publisher to set minimum retail pricing. It's not illegal to get a favored nation clause.

    What would potentially make it illegal is how the agreements came into being. If Apple et al got together and worked it out between all the parties. Or if the publishers got together and worked it out amongst themselves. But, If Apple worked out individual agreements, without the colusion, it should be legal.

    The publishers settling prior to trial could be a result of the colluding separately from Apple. Something like... You gonna do it? I'll do it if you do it. Well, I'll do it if he does. And they all did it.

    This man gets it.
  • Reply 18 of 107
    customtbcustomtb Posts: 336member
    I think Amazon would have been looked at for monopolistic behavior for selling books at or below cost to drown the smaller competition had Apple not jumped into the mix. But now there is real competition.
  • Reply 19 of 107
    shahhet2shahhet2 Posts: 143member

    Quote:

    Originally Posted by TheMacadvocate View Post


    You (and I) are half-right. iBooks was announced in January 2010 with the iPad, released at the end of March and made available for iPhone/iPod Touch in June with iOS 4. The Kindle app was also released in June.


     


    I was wrong about them being simultaneous, but the dates actually makes my point more emphatically: if Amazon was so concerned with Kindle sales, and iBooks was already in the wild, why release the Kindle app for iOS? Amazon was/is more interested in pushing content than hardware, that's why.    



    I was one of the first one to use Kindle on my device and I believe it was first week of March 2009.

  • Reply 20 of 107
    dasanman69dasanman69 Posts: 12,980member
    Nah. The principle here is "It's only evil when Apple does it."

    I admit that it does seem to be the case.
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