[h=3]By JOE PALAZZOLO[/h]A top executive at Amazon.com Inc. said Wednesday that five major publishers discriminated against his company because it was setting prices of electronic books too low.
Russell Grandinetti, testifying in the third day of the Apple Inc. e-book price-fixing trial, said publishers gave him an ultimatum in 2010: Amazon had to relinquish control of e-book pricing to the publishers or they would withhold newly released books from the company's digital library until months after the hardcover editions appeared on shelves.
Amazon relented, he said, abandoning the $9.99 price for many new and popular e-books that it had used to help sell customers on its Kindle e-reader—and that publishers had come to see as a mortal threat.
Apple is accused of herding the publishers into a pricing model that would eliminate price competition with Amazon and providing the leverage for them to implement it industry wide. Under the Apple agreements, publishers set the price of e-books, Apple got a 30% commission on each sale, and prices were capped at $12.99 or $14.99.
Mr. Grandinetti said the terms of the Apple agreements, some of which were reached only days earlier, never came up in his negotiations with the publishers.
Mr. Grandinetti's testimony underscored one of the quirks of the government's case against Apple: Once Amazon moved to the so-called agency model, it negotiated the same terms that the Justice Department has pronounced unenforceable in the Apple contracts, including a provision that said if another retailer were selling a book at a lower price, the publisher would have to match the lower price in Amazon's digital bookstore.
Mr. Grandinetti, vice president for Kindle content, testified that Amazon was unbending on this point. The new contracts had to include provisions ensuring Amazon was receiving the same selection and low price as its competitors because the company wanted to be confident it wasn't "being further discriminated against by these publishers," he said.
The first publisher to confront Amazon about adopting the agency model was the Macmillan unit of Georg von Holtzbrinck GmbH, in January 2010. Mr. Grandinetti described a Jan. 28 meeting between executives at Amazon and Macmillan as "tense."
The next day, Amazon removed the "buy" buttons from Macmillan titles listed on its website. But Amazon agreed days later to hand over pricing authority to the publisher, entering into a three-year deal in which Amazon would receive a 30% commission on each sale.
"We wanted to avoid losing most or all of their titles," Mr. Grandinetti said of the decision.
By the end of 2011, Amazon had negotiated similar deals with all the other major publishers, including Random House Inc., even as Random House was the only major publisher to refuse Apple's terms.
HarperCollins, Lagardère SCA's Hachette, CBS Corp.'s Simon & Schuster, Pearson PLC's Penguin Group (USA) and Macmillan have settled civil antitrust claims brought by the Justice Department and a group of states last year. (Random House, a unit of Bertelsmann SE & Co., wasn't named in the Justice Department's suit.) HarperCollins is owned by News Corp., as is The Wall Street Journal.
Printed in The Wall Street Journal, page B5A version of this article appeared June 6, 2013, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Amazon Official Tells of Ultimatum.
Russell Grandinetti, testifying in the third day of the Apple Inc. e-book price-fixing trial, said publishers gave him an ultimatum in 2010: Amazon had to relinquish control of e-book pricing to the publishers or they would withhold newly released books from the company's digital library until months after the hardcover editions appeared on shelves.
Amazon relented, he said, abandoning the $9.99 price for many new and popular e-books that it had used to help sell customers on its Kindle e-reader—and that publishers had come to see as a mortal threat.
Apple is accused of herding the publishers into a pricing model that would eliminate price competition with Amazon and providing the leverage for them to implement it industry wide. Under the Apple agreements, publishers set the price of e-books, Apple got a 30% commission on each sale, and prices were capped at $12.99 or $14.99.
Mr. Grandinetti said the terms of the Apple agreements, some of which were reached only days earlier, never came up in his negotiations with the publishers.
Mr. Grandinetti's testimony underscored one of the quirks of the government's case against Apple: Once Amazon moved to the so-called agency model, it negotiated the same terms that the Justice Department has pronounced unenforceable in the Apple contracts, including a provision that said if another retailer were selling a book at a lower price, the publisher would have to match the lower price in Amazon's digital bookstore.
Mr. Grandinetti, vice president for Kindle content, testified that Amazon was unbending on this point. The new contracts had to include provisions ensuring Amazon was receiving the same selection and low price as its competitors because the company wanted to be confident it wasn't "being further discriminated against by these publishers," he said.
The first publisher to confront Amazon about adopting the agency model was the Macmillan unit of Georg von Holtzbrinck GmbH, in January 2010. Mr. Grandinetti described a Jan. 28 meeting between executives at Amazon and Macmillan as "tense."
The next day, Amazon removed the "buy" buttons from Macmillan titles listed on its website. But Amazon agreed days later to hand over pricing authority to the publisher, entering into a three-year deal in which Amazon would receive a 30% commission on each sale.
"We wanted to avoid losing most or all of their titles," Mr. Grandinetti said of the decision.
By the end of 2011, Amazon had negotiated similar deals with all the other major publishers, including Random House Inc., even as Random House was the only major publisher to refuse Apple's terms.
HarperCollins, Lagardère SCA's Hachette, CBS Corp.'s Simon & Schuster, Pearson PLC's Penguin Group (USA) and Macmillan have settled civil antitrust claims brought by the Justice Department and a group of states last year. (Random House, a unit of Bertelsmann SE & Co., wasn't named in the Justice Department's suit.) HarperCollins is owned by News Corp., as is The Wall Street Journal.
Printed in The Wall Street Journal, page B5A version of this article appeared June 6, 2013, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Amazon Official Tells of Ultimatum.