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Ebook trial: Tossing Amazon out the window

The Apple ebook price-fixing trial has opened an interesting window onto…well, windows. In testimony yesterday, Amazon executive Russell Grandinetti claimed publishers used the threat of delaying Amazon’s access to their ebooks to coerce the retailer into accepting the same agency pricing model as Apple, resulting in higher prices to consumers.

Delayed access, during which Apple and other agency-based retailers would be able to sell ebooks, would have posed a major threat to Amazon’s ebook market share, could have been crippling to its efforts to build the Kindle business. So Amazon ultimately knuckled under, according to Grandinetti.

“We didn’t want to move to agency,” Grandinetti testified. “We were presented with ultimatums from publishers.”

To the Justice Department, that ultimatum  is evidence of an Apple-orchestrated conspiracy to fix prices throughout the industry: the essence of the agency model, after all, is that the publishers get to set the price consumers pay and limit retailers’ ability to compete with each other on price. Another way to look at what the publishers were doing, however, was establishing ordinary price-based release windows for their titles — something that happens all the time in the media business.

The movie industry has operated on price-based windowing for decades. The essence of a windowed-release strategy, after all, is price discrimination. Those who want to see a new movie right away, when its still in theaters, pay the highest price. Those willing to wait a while can rent it on DVD or VOD for less. Those willing to wait longer still can watch it for free, when it comes to ad-supported television.

The publishing industry, in fact, has had differently priced windows for decades. Books come out first in hardcover, at the highest price, and are later available for less in paperback, often from a different class of retailer.

Had Amazon defied the publishers’ ultimatum, and the publishers followed through on their threat, it would have created a situation that one class of retailer willing to charge the highest price for ebooks would get the first window, while those that wanted to sell at a lower price got a later window. Standard operating procedure.

The publishers’ mistake was that they didn’t adopt a clear windowing strategy for ebooks from the start, which made their belated efforts, seemingly at Apple’s behest, look fishy.