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Pl
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Apple
12·cv·02826
PX-0836
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT
OF
NEW
YORK
UNITED STATES OF AMERICA,
Plaintiff,
v.
APPLE, INC., et al.,
Def
endants.
Civil Action No. 12-CV-2826 (DLC)
THE STATE
OF TEXAS;
THE
STATE OF CONNECTICUT; et al.,
Plaintiffs,
v.
PENGUIN GROUP (USA) INC. et al.,
Defendants.
)
)
)
)
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)
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)
)
)
Civil Action No. 12-cv-03394 (DLC)
DIRECT TESTIMONY OF LAURA PORCO (AMAZON.COM)
1.
My name
is
Laura Porco. I have a bachelor's degree
in
Journalism from Ohio
State University. After graduating from Ohio State I worked for the Society
of
Professional
Journalists and the Indiana Arts Commission. I then went to work for Macmillan Computer
Publishing which, at the time I joined it, was a division
of
Simon & Schuster. Macmillan
Computer Publishing was later bought by Pearson and became a division
of
that company.
Following that job, I worked at a startup company called thebigstore.com, then I came to
Amazon
in
July 2000.
2. My initial
job
at Amazon was Senior Manager
of
the Books Merchandising Team,
which involved physical books. In 2004, I became Director ofMerchandising for Amazon's
physical books business. In that job, I was responsible for developing publisher relationships,
merchandising their titles and negotiating contract terms to sell their books on the Amazon
website. At the end
of
2006, I joined the Kindle team as Director
of
Kindle Books. As
of
mid-
2009, I reported to David Naggar, who
in
tum
reported to Russ Grandinetti,
VP-
Kindle. In
January 2011, I left the Kindle team and took a new
job
as the Director
of
Buying for
an
Amazon
business called MyHabit.com, which does not involve ebooks.
My Duties and Responsibilities on the Kindle Team
3.
The Kindle was launched in November 2007. Amazon's Kindle team had been
working on this project since before I arrived
in
late 2006. As Director ofKindle Books, I was
responsible for working with publishers to build the catalog
of
books available for customers to
buy electronically, ebooks.
4.
During 2006 and early 2007, I managed a team ofbetween seven and ten people
whose
job
was to build
an
ebook catalogue for the new Kindle product. During that time, we had
discussions with almost every trade and professional book publisher
of
any significant size, more
than 100 publishers. The publishers we talked with included the large trade publishers referred
to as the "Big
Six"-
Random House, Penguin, HarperCollins, Hachette, Simon & Schuster and
Macmillan.
2
5.
My team and I were responsible for negotiating agreements with the publishers to
get their ebooks into the Kindle catalogue. The Big Six publishers were particularly important to
Kindle's business because they had then (and still have) a large share
ofthe
physical trade books
market. By the time I arrived in 2006, some
of
the contracts had already been signed, including
some
of
the Big Six publishers' contracts.
6.
During our negotiations with publishers about ebooks, we spent a good deal
of
time talking about the customer experience we wanted to achieve and things like Digital Rights
Management ("DRM"). The publishers were mostly concerned about issues such as clarity on
copyright ownership, implementation
ofDRM,
and whether the files would be secure. We spent
considerably less time and energy negotiating financial terms with publishers. In fact, several
of
the largest trade publishers had publicly available ebook terms that we simply accepted. There
was very little discussion
or
negotiation
of
those financial terms between Amazon and the
publishers.
7.
In
addition to negotiating agreements, my team was primarily focused on working
with publishers to prioritize the electronic conversion
of
titles we believed were going to be
important to Kindle customers, including new releases and
New York Times bestsellers. Amazon
invested a considerable amount
of
energy and resources to make sure that when we launched,
Kindle would have the largest possible collection
of
books that customers would want to read.
We
worked with publishers to get them to digitize their titles and Amazon paid for digitizing
some books.
We
looked at Amazon's data regarding book sales
in
physical format and provided
that data to publishers to help them prioritize their investment
in
converting titles to the digital
format and negotiating rights with authors so they could make the books that customers were
most interested
in
available
in
digital format.
8.
At the time
of
the Kindle launch in November 2007, more than 90,000 ebooks
were available
in
the Kindle store. This included most
of
the then-current New York Times
bestsellers. Since then, Amazon has continued to invest
in
the Kindle store to add new titles and
to improve the customer experience.
3
Publishers
Complained
About
Amazon's
Prices
9.
I heard complaints from publishers about Amazon's $9.99 ebook price for New
York Times
bestsellers and new releases almost from the time the Kindle store launched. In late
2008, several
of
the Big Six publishers told Amazon that they were increasing the digital
li
ist
price
("DLP") for these ebooks. Before, most
of
these publishers had set a DLP
that
was
roughly
20% less than the physical list price
("PLP").
This lower price reflected the cost savings
associated with
a digital product,
as
compared to print books. But
in
late 2008, several
of
these
publishers increased the
DLP
to
match the PLP. By November 24, 2008, Hachette, Random
House, Simon
& Schuster and Penguin had all raised their DLPs
to
parity with the PLP.
(AMZN-MDL-0083273; AMZN-MDL-0120602)
On
January 29, 2009, Harper also announced
price changes that would bring its DLP into line with the PLP for most trade titles;
in
some
cases, its DLP was slightly higher than
the
PLP. (AMZN-MDL-0084692)
10.
During the fall
of 2008
and early 2009, I had a number
of
discussions with
publishers, including HarperCollins, Random House and Hachette. The publishers told me that
their decision to change their pricing policy regarding DLPs was tied
to
Amazon's $9.99 pricing
policy for most
New York Times bescsellers and new releases. I
don't
remember specifics
of
these conversations. but it was clear
to
me
that the publishers hoped that changing their
DLP
would force Amazon
to
raise the customer price for these ebooks.
11. [n December 2009, several
of
the
publishers told Amazon that they were planning
to
window a substantial number
of
their ebooks. Maja Thomas
of
Hachette told me that this
change in policy was "about
our
pricing" and that there
was
no
data
to
support what they were
doing. (AMZN-TXCID-0009278)
Tbe
Publishers
Simultaneously
Demanded
Agency
12.
I first heard about the agency model during a dinner with Madeline Macintosh
of
Random House on January 18, 2010. I
was
in New York that week on a periodic trip to meet
4
5
with publishers. I’ve known Madeline for many years; she worked at Amazon on my team for a
while, and we often had dinner together when I traveled to New York. During our dinner,
Madeline told me that she had heard that HarperCollins, Simon & Schuster and Hachette were
going to do a deal with Apple that would allow the publishers to control the ebook consumer
price and that the publishers would release new titles only to Apple and to other retailers that
went along with this new model. (AMZN-MDL-0142874; AMZN-MDL-0160969 – 971)
13. Madeline was worried that Random House would be the only publisher that
decided to stay with the reseller model and that they would be unable to sell books in the Apple
store. Madeline also told me that she was under pressure from other publishers for Random
House to move to this agency model because Apple had made it clear that unless all of the Big
Six participated, they wouldn’t bother with building a bookstore. She was concerned because
she believed that other publishers were talking with one another and were making plans to move
to the agency model. She specifically mentioned Simon & Schuster (Carolyn Reidy), Hachette
(David Young) and HarperCollins (Brian Murray). I was uncomfortable with the subject of this
conversation and I immediately reported it to my supervisors and Amazon’s legal counsel.
(AMZN-MDL-0160969 – 971)
14. I had previously scheduled meetings with other publishers during the rest of the
week and I used the meetings as an opportunity to talk to my partners at the other publishers
about this new model, whether it was something that they were talking about or thinking about.
During that week and, possibly, the following week I remember speaking in person or by phone
with Michael Selleck at Simon & Schuster, Ana Maria Allessi at HarperCollins, Maja Thomas at
Hachette, Tim McCall at Penguin, and Fritz Foy at Macmillan. My recollection of these
conversations is that the publishers were telling me that they were thinking about making the
change to a new model in which they would control pricing. Several of the publishers also told
me that they were switching to an agency model because it was the only way in which Apple
would open a bookstore and do business with them. I heard that comment from Madeline
Macintosh during our dinner and I also recall having that conversation with Ana Maria Allessi at
HarperCollins and
Maja
Thomas
at
Hachene. As a result
of
these conversations, I believed the
publishers were acting together,
with Apple, to change to the agency model.
15.
In
late January, I provided information about my discussions with the publishers
to Amazon's lawyers, who were preparing a letter to the government antitrust agencies .
Agency Negotiations
and
Aftermath
16.
In
February and March 2010, I participated in negotiating agency agreements with
four
of
the five publishers (Russ Grandinetti had handled the initial agency negotiations with
Macmillan). During the negotiations,
we
had discussions with Hachene, HarperCollins, Simon
& Schuster and Penguin in which they all made it clear to us that reseller terms in any form were
non-negotiable because agency terms were the only way Apple wanted to do business. They also
told us that they were requiring Amazon
to
switch its terms
to
agency because that's what Apple
required them
to
do. They said their agreement with Apple included restrictions around
consumer pricing that made it technically impossible for them
to
remain on reseller terms with
Amazon
or
any other retailer. They told us that the wholesale model with Amazon would no
longer
work
for them because
of
these requirements. I remember having this conversation
during the agency contract negotiations with each of the four publishers I worked on who moved
to agency
in
2010, Hachette (Maja Thomas), HarperCollins (Ana Maria Allessi), Simon &
Schuster (Michael Selleck) and Penguin (Tim McCall and David Shanks). These negotiations
with publishers included multiple participants over many discussions.
17. During these negotiations, each
ofthe
four publishers told
us
that there was no
room for Amazon
or
for the publishers
to
negotiate different customer pricing. We tried to
negotiate for the ability to run price promotions across all books (such
as
"$5 .00
off
any mystery
title")
or
to offer a points
or
rewards program for frequent ebook buyers, but
we
were told that
none
of
those promotions could
be
permitted. I remember these discussions
in
particul
ar
because
some
of
them became quite heated.
6
18.
After the move to agency, we continued
to
communicate with publishers how bad
their agency pricing
was
for their business. We looked at the growth
of
agency publishers'
ebook businesses compared with the growth ofreseller model publishers' ebook businesses and
the difference was significant. For example,
in
July 20
1
0, we prepared charts illustrating the
difference and I reviewed these with each
ofthe
publishers. (AMZN-DOJ-0004 I
7-
420;
AMZN-DOJ-000466- 483) They did nothing to change their pricing
in
response.
1 declare under penalty
of
perjury that the foregoing
is
true and correct.
EXECUTED on
April 24
2013.
Laura Porco
7
