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On the fourth day of the federal government’s ebook pricing trial against Apple (s AAPL), Amazon (s AMZN) and Google (s GOOG) executives offered testimony in hearings that were often fraught and occasionally funny — but still introduced little evidence that was new or surprising to anyone who has been following the trial.
Kindling on the fire
First up on Thursday was VP of Kindle Content Russ Grandinetti, whose testimony continued from the previous day and who was questioned by Apple (s AAPL) attorney Howard Heiss. Heiss sought to demonstrate that Amazon needed participation from all of the Big 6 publishers in order to launch the Kindle Store in 2007,; to make it clear that Amazon was aware of publishers’ dislike of the $9.99 price point long before Apple came on the scene; and to show that Amazon had reasons of its own to switch to agency pricing, beyond the notion that Apple’s launch of the iBookstore forced it to.
Grandinetti insisted that he didn’t know what Amazon’s market share was for ebooks in 2009. “Would you agree that Amazon was the dominant ebook retailer?” Heiss asked. Grandinetti said he was “not sure.” “Can we agree on your definition of ‘dominant’?” Heiss asked more testily, citing the definition from the New Oxford American Dictionary, “which I believe Amazon uses” (it’s built into the Kindle).
Heiss then cited a 2010 CNET interview with an Amazon Kindle VP, Ian Freed, which was headlined “Amazon: We have 70-80 percent of ebook market.” “Do you know. Where Mr. Freed got the metrics. The data. The information,” Heiss said. Grandinetti responded that Freed was “probably relying on publisher reports.” (Judge Cote later noted that the CNET interview was from 2010, while Heiss had been asking Grandinetti about 2009.)
Heiss asked if Grandinetti was aware of publishers’ dislike of the $9.99 price for New York Times bestselling Kindle books. It “wasn’t secret,” he suggested. Grandinetti agreed, “It was not.” And Heiss referenced an October 2009 email from Kindle VP David Naggar to Grandinetti, which read in part, “The debate is RAGING and the next 6-9 months is when all the battles are going to be fought.”
What did Amazon know?
Heiss sought to show that Amazon was not unfamiliar with agency pricing before Apple launched the iBookstore. For instance, he noted that Amazon already used the agency model for newspapers, periodicals and some music. In addition, he noted that in 2009, the Wall Street Journal and New York Times both reported that Big 6 publishers were considering withholding new ebooks from retailers, releasing them a few months after new hardcovers — a practice known as windowing, which was intended to protect print sales from being cannibalized by ebook sales, and which publishers were considering because Amazon’s ebook prices were so low. In other words, Heiss wanted to remind the court that Amazon needed to consider forces beyond Apple when it was deciding whether to offer publishers an alternative to wholesale pricing.
In the most fraught section of Grandinetti’s testimony, Heiss referred to a section of Grandinetti’s deposition in which Grandinetti said that, following the introduction of agency pricing, ebook prices went up “across the board.” This was an “impression,” Grandinetti said. “You weren’t looking at any data?” Heiss asked. “This was anecdotal review by you?” Heiss then went on to cite “Amazon data” that showed that statistics showing that four publishers actually lowered prices on many NYT bestsellers after the introduction of agency pricing.
“In the aggregate, prices went up,” Grandinetti said cautiously. At this point, Heiss yelled at Grandinetti for turning to Amazon’s lawyer, who was sitting a few feet away from the witness stand: “WHY ARE YOU LOOKING AT MR. KIPLING?” “Mr. Heiss, please,” Judge Cote admonished.
Heiss wanted Grandinetti to admit that Amazon didn’t put much thought or data-driven analysis into its $9.99 pricing strategy — to suggest that the company simply chose $9.99 because it was cheap. Grandinetti countered that publishers lacked Amazon’s “specific knowledge” on pricing. “I take it that coming up with the $9.99 price didn’t offer any specific algorithm,” Heiss said, to which Grandinetti responded, “Simplicity can be sophisticated.”
Grandinetti was followed by Kindle VP David Naggar, whom Heiss questioned about contract negotiations with publishers. In particular, Heiss wondered whether it was reasonable to expect that publishers would not compare amongst themselves the contract terms that Amazon offered them. “We would let them know that we weren’t asking anything different from them than we were asking from others,” Naggar answered.
“When you told publishers that, did you simply expect them to take it on faith that you were being truthful with them?” Heiss asked. Naggar responded, “Yes.”
The day’s last witness from Amazon was Laura Porco, who was formerly a director of Kindle books and now works for Amazon’s MyHabit.com. Most of Heiss’s questions for Porco centered around her email exchanges with Madeline McIntosh, who was at Amazon from 2008 to 2009 (she worked for Porco) and is now the COO of Random House.
In particular, Heiss referenced one email exchange in which McIntosh referred to Porco’s belief that the Big 6 would never sign agency contracts unless they were offered 90-10 terms (in which the retailer would take only a 10 percent share; ultimately, the agency contracts that the publishers signed with Apple and Amazon offered a 70-30 split). “What we never figured was that five publishers would band together and insist on worse terms,” McIntosh wrote in one of the emails, and Porco wrote back, “Hysterical, isn’t it? Jedi mind tricks here in Seattle.”
According to Apple, the meaning of this email exchange was that McIntosh was being ironic publishers had actually agreed to 70-30 agency terms — a worse deal for them. Heiss also noted that a “Jedi mind trick” is a Star Wars reference, referring to the ability to get someone to do something they don’t want to do. Porco claimed, however, that McIntosh was being entirely straightforward and that by “worse” terms, she meant “worse than wholesale,” not worse than a 90-10 revenue split. As for the “Jedi mind tricks” reference, Porco told Heiss, “I was being very sarcastic in this email and it was quite the opposite.” McIntosh would understand this, Porco said, because she had worked at Amazon.
Google’s turn in the hot seat
Thursday ended with testimony from Tom Turvey, director of strategic partnerships at Google (s GOOG). Turvey was questioned by Apple attorney Orin Snyder, who concentrated his questioning on Turvey’s deposition — which Turvey was asked to provide by the government, and which Turvey prepared in partnership with government counsel.
In particular, Snyder slammed Turvey repeatedly for a sentence in the testimony in which Turvey said he was “directly advised” by publishers that their agency contracts with Apple would not allow them to enter wholesale contracts with other retailers, like Google — when, in fact, other Google emails showed that this wasn’t true. (Macmillan, for instance, had told Google that it could do either a wholesale or agency contract).
“I don’t recall whether I wrote these words directly or with counsel,” Turvey admitted. Snyder, who swigged from miniature bottles of water throughout the questioning and was clearly enjoying himself, persisted: “You cannot attach a name or a face…you can’t recall a single phone call…” Turvey responded, “My recollection is that these events happened. I can’t tell you with whom.” At five, Judge Cote cut Snyder off: “We’ll let Mr. Turvey escape so he can begin to enjoy his Thursday.”
Snyder also couldn’t help getting in a few digs at Google’s media business. “Would you agree Google is a powerful company in the media and entertainment space?” he asked. Turvey responded, “No, I would not.” (At another point, Snyder began talking about Apple succeeding in the ebook market where Google failed. Judge Cote interrupted: “No, no, no, Mr. Snyder. Bring it home.”)
“Do you own an iPad?” Snyder asked. Turvey said, “I do not.”