On day five of Apple’s e-book price fixing trial, HarperCollins’ CEO Brian Murray couldn’t recall very much from those heady days of early 2010, when Apple was negotiating its entry into the e-book business—but his testimony did suggest that he may have been the shrewdest negotiator of the five publisher CEOs. Under questioning from U.S. attorney Lawrence Buterman, Murray—who Apple lead negotiator Eddy Cue had once described as an "idiot" for his steadily worsening counterproposals—revealed that in fact he was using Apple to leverage Amazon and Barnes & Noble into agency deals with better terms.
It was HarperCollins, in its initial meeting in December, 2009, that first proposed to Apple the possibility of using an agency model for Apple’s new e-bookstore. Although notes from Apple’s Kevin Saul say that HarperCollins suggested agency was a way to “fix Amazon’s pricing,” Murray could not recall the specifics of the meeting.
But Murray and his team, which included Charlie Redmayne, then HarperCollins’ digital officer (now CEO of Pottermore) were not ultimately impressed with the economics of Apple’s proposals, and in the final days of the negotiations, Murray made agency proposals to both Amazon, and to Barnes & Noble for significantly more favorable terms than those offered by Apple.
“I was trying to leverage the entry of Apple to my advantage,” Murray explained, saying he would have walked away from Apple had he gotten Amazon to accept better agency terms. Ultimately, Amazon and B&N declined to negotiate agency deals. Murray was also prepared to walk away from Apple. It was a shrewd move. After all, if Murray had decided to do a deal with Apple, he was going to have to renegotiate with Amazon anyway. Why not start that process early, and see if a three-party negotiation would yield better terms?
Everything started out on great terms with Apple. In an e-mail (which Murray also did not recall) Murray told Redmayne the “meeting had gone too well,” and he “felt like he was dreaming” after the initial Apple visit. But by January 22, he told the court how negotiations had “broken down,” and he was prepared to walk away. Eventually Steve Jobs personally intervened with Murray’s boss, News Corp. executive James Murdoch. Murray conceded that had it been his choice for HarperCollins alone, he would not have done the Apple deal—however, in terms of the larger, News/Apple relationship, he embraced the Apple proposal as a good strategic move.
In another notable moment, Murray denied that News Corp. made the deal to “screw” Amazon, but e-mails entered into evidence show that Rupert Murdoch was said to be “pissed” at Amazon over what he perceived as a play for HarperCollins’ authors, and wanted to “screw” Amazon. On January 20, 2010, Amazon announced new terms for its self-publishing platform, essentially offering an agency model directly to authors with a 70% royalty. That move infuriated a number of publishers, including Murdoch, apparently, who saw the move as a threat from Amazon and more proof that Amazon would one day seek to woo publishers’ authors directly.
In terms of the case, there were few surprises. Murray was cagey on the stand, frequently unable to recall any details, even when confronted with documents in evidence. The evidence presented largely backed up the government’s position that publishers used the entry of Apple as a weapon to blunt Amazon’s pricing power. E-mails show HarperCollins saw the deal as a “strategic win” because it would raise e-book prices from $9.99 to $14.99. And notes from a presentation Murray gave to literary agents after signing with Apple also suggested that HarperCollins understood that Apple’s entry “forced” publishers to move Amazon to the agency model. Both are key contentions for the government’s case. Murray, however, could not recall what he might have said to the agents, and insisted that HarperCollins did not force Amazon onto agency. Murray also conceded that he expected “retaliation” from Amazon, and from consumers.
An e-mail from Redmayne to Murray pretty much sums up HarperCollins’ understanding of Apple’s proposal. “The upshot is that Apple would control price and that price would be standard across the industry,” Redmayne observed. “Ultimately the terms they want to impose would mean that Publishers would deliver the e-book industry to Apple and at the same time we would be expected to take the pain of $4 less revenue per book, upsetting 2 million Kindle customers and all the pain that Amazon would impose with their retaliation.”
Macmillan CEO John Sargent followed Murray, and was questioned by U.S. attorney Mark Ryan. Sargent readily conceded that he was concerned with Amazon’s “below-cost” pricing of e-books. And despite Ryan trying to use one of Sargent’s own presentations to show that Sargent believed e-book competition was robust in 2010, Sargent was blunt: he never believed Sony could compete, was unsure whether Barnes & Noble could succeed as a device-maker, and said that Google, while great at search, is a terrible retailer.
Sargent also made no bones about Macmillan's plans to use Apple's entry to get a handle on Amazon. “Typically one party controls price, and one party controls availability. Amazon wanted both. And we were going to force them to choose one or the other.” Sargent said that Apple’s entry provided Macmillan with an opportunity to address its relationship with Amazon. At one point, Ryan asked Sargent if he was proud of the move he made. "Yes," Sargent responded. "You're still proud of it today, aren't you?" Ryan asked. "Yes," Sargent replied.
Sargent was polite, even amiable for parts of his testimony. He recalled how the meeting in Seattle with Amazon on January 28, after which Macmillan’s buy-buttons were disabled, lasted just 20 minutes—a long flight for such a short meeting. But the questioning grew contentious toward the end of his testimony, as Ryan dug into the details of a lunch Sargent had with Amazon’s Russ Grandinetti on January 20, and a dinner that same night with Apple's Eddy Cue. Ryan’s contention seemed to be that Cue at some point during that dinner insisted to Sargent that Macmillan must push Amazon to an agency model. Sargent, however, could not recall the conversations at either lunch, or dinner, and said that Ryan’s suggestion sounded “completely alien” to him.
Sargent is scheduled to finish his testimony tomorrow.
The day began with Google’s Tom Turvey back on the stand. After being dismantled by Orin Snyder last Thursday for not being able to recall a single name of anyone at any of the five publishers who “directly informed him” of publishers’ plans, or of Apple contract details, Turvey’s testimony was put in perspective by a few quick questions from U.S. attorneys, and from Judge Cote.
U.S. attorneys asked Turvey if indeed he ended up signing agency agreements with the five accused publishers, after negotiating on wholesale—he did. That suggested that even though Turvey (like every witness so far) could not recall names or details, his assertion was materially true: he was at least shifted to an agency model following the Apple agreements. And, Cote asked him when he was asked to give his direct testimony—which was late April, 2013, more than three years after the event in question.