“Apple Inc. executives were prepared to abandon plans to enter the e-book business on the eve of the company’s 2010 debut of the iPad, Penguin Group USA Inc. Chief Executive Officer David Shanks testified in the U.S. government’s civil antitrust trial against Apple,” Bob Van Voris reports for Bloomberg News.
“Shanks, called on the second day of the trial in Manhattan federal court, yesterday described his company’s decision to sign a deal known as an agency agreement for Apple to sell Penguin’s electronic books. He said Penguin signed on after initially resisting Apple’s pricing model,” Van Voris reports. “‘It was fairly clear that they could take or leave being in the book business,’ Shanks said. ‘If they couldn’t get it on their terms, they weren’t going to take the jump into being in books.'”
Van Voris reports, “Shanks, under questioning by Apple’s lawyer, Orin Snyder, testified that the talks with Apple were a “typical negotiation” and that Penguin originally proposed that Apple sign an e-book contract similar to its existing deal with Amazon. The Penguin CEO said his company considered maintaining different pricing models, with Apple on the agency model and Amazon continuing to buy books at a fixed wholesale price. He said he pressed Seattle-based Amazon to switch to agency after signing an agency agreement with Barnes & Noble Inc. (BKS)”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
“”The Penguin CEO said his company considered maintaining different pricing models, with Apple on the agency model and Amazon continuing to buy books at a fixed wholesale price.””
Let’s clarify what the Agency model and the wholesale model mean with respect to e-book pricing for those who may be confused or unclear.
The Agency model means that middlemen, like Apple and Barnes & Noble, are agents for the publishers. As agents, they are not principals: they do not own what they are selling. (It is similar to Real Estate Agents — they have a legal duty to represent the best intetests of the seller.) Accordingly, agents have no right to set the selling price to customers. Price setting is the full responsibility of the publishers.
In the wholesale model, the wholesaler — here, Amazon — buys e-books outright from publishers at whatever price is negotiated between them. After that, Amazon owns the e-books and can legally do whatever they want with them, including resell them to customers at any price they wish. IAmazon has the legal right to determine e-book selling prices to customers. Even at a price below what they paid to purchase the e-books. (There are only a few situations in which it makes evonomic sense to sell below cost.)
Agency model = publishers retain the legal right to determine prices to customers, even when the product is sold through others.
Wholesale model = As the owner, through outright purchase, Amazon has the right to determine e-book prices to customers.
Amazon’s usual business uses the Agency model, as Amazon lets sellers determine their own prices to customers. Yet Amazon refuses to do business with publisher e-books on the same basis. Bizarre.
Excellent explanation. Thanks.
What’s more bizarre, in my opinion, is that no one in the IRS, DOJ, Wall Street or media appears to have any serious questions about the continuning existence of an allegedly profit-making enterprise that grows its revenue year in and year out but never posts profitable results.
Tom.
Thank you for that excellent explanation. If all that is true. I don’t believe DOJ has a leg to stand on. The effect might be higher e-book prices for costumers but that is just because the publisher in a capitalist economy as the US’s have set ther price at what they want as they can. Amazon is essentially subsidising books in order to drive other business. Amazons’s primary business it to offer as much stuff for low cost as it can, books, streaming etc in order to get more people to sign up for Prime. Prime will be their primary driver of revenu in the future just like the Costco model.
But, I’m still afraid Apple might lose this. DOJ can’t be seen losing this case. In their eyes Apple is already guilty and this is just for show. DOJ will probably force their will on Apple. Sadly.
The only way Amazon can attract customers is low price, that why they don’t want to let publishers set price.
Everybody forgets that Amazon was agressively after book stores by selling books under their prices. Several went bankcrupt because they could not sustain their business when Amazon was selling books at loss. Amazon is the bad guy here not Apple.
There is no absolute proof of any kind that Apple is guilty of price fixing, conspiring or any wrong doing whatsover, that the DOJ can show or prove – None, Zero , Zilch. That means no proof beyond resonalbe doubt.
Not in a million yeras. Steve Jobs was and Apple is way above the frey when it comes to integrity and ethics.
Yeras = humans years.😉
So AAPL wasn’t trying to fix its prices or anyone else’s, but to ensure it could make a profit when selling at prices already fixed by Amazon, and at which Amazon itself, and every other bookseller as well, was losing money on every sale.
I suppose the DOJ’s attorneys think the book selling industry would make up these losses eventually on volume, eh?
@AcquiredExpertise. You will be surprised with the truth! The DOJ actually believes that if you sell an item at a very small loss, you will eventually bridge that loss by achieving large volume sales! This is because the total sales volume will be so large that it will mask the miniscule loss per item sold. BAM!!! Job done! 🙂
I would so much happier if life were that simple, it would mean that I would have been truly institutionalized.
That is how much the DOJ employees have been institutionalized.