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 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. 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.”

McIntosh, who is 43, was Amazon’s director of Kindle content acquisition for Europe from 2008 to 2009, based in Luxembourg. (Fun fact: Her husband Chris Pavone’s bestselling thriller “The Expats” is based on their family’s time in Luxembourg.) Prior to that, she had worked at Random House and its Bantam Doubleday Dell imprint for 14 years.

Random House’s COO position has been vacant for about four years.

In a letter to staff, Random House chairman and  CEO Markus Dohle notes that in her new role, McIntosh will “continue to oversee our digital and print sales, operations, fulfillment, IT, corporate digital product development, corporate marketing development, audio and travel publishing, and third-party distribution.”

Dohle’s full letter:

June 12, 2012

Dear Random House Colleagues,

When I asked MADELINE McINTOSH in 2009 to rejoin Random House I believed she had the wide-ranging skill set, service-focused ethic, and strategic aptitude necessary to help us drive our business forward and increase the audience for our authors’ works. In her role as President, Sales, Operations and Digital, she has exceeded expectations. Madeline has been, and continues to be, a vital part of the transformation of our organization as we redefine the way our sales and corporate operations support and collaborate with our publishing divisions. In recognition of her exceptional leadership and many accomplishments in core areas of our business, I am delighted to announce her appointment as Chief Operating Officer, Random House, Inc., effective immediately. Madeline will continue to report to me, and will continue to oversee our digital and print sales, operations, fulfillment, IT, corporate digital product development, corporate marketing development, audio and travel publishing, and third-party distribution.

I believe that the strong position we hold in the ever-changing marketplace is a testament to the special bridge we’ve established between our creative and corporate teams. This important ingredient of our success is a direct result of cultural and entrepreneurial changes that are taking place in every corner of our company. Together with the publishing groups, Madeline has been instrumental in helping me make those changes. The excellent work that Madeline and her teams are doing to support our publishing programs has ensured that we have become even more content- and author-centric as well as reader- and market-focused.

Madeline personally embodies in so many respects the values that we as a company hold high: She is a transparent and clear communicator; she is dedicated to teamwork and collaboration; and she combines a passion for books and publishing with pragmatic business expertise and the highest integrity. I know that I am among many who benefit daily from Madeline’s insights and ideas, and I am personally grateful to have her as a member of the Random House family and our worldwide senior management team.

Please join me in congratulating her on her appointment as Chief Operating Officer, and in wishing her continued success.

Markus Dohle

Self-publishing, part I: “There are no unrealistic expectations anymore”

Self-publishing platform Smashwords announced this week that it’s making self-publishing faster: Smashwords authors who sell e-books on Kobo and Apple will see faster “shipments” to those platforms, meaning that if they update their e-book’s price the change is reflected in near-real time. “We try to listen to people with unrealistic expectations,” CEO Mark Coker told me, “because their unrealistic expectations are the leading indicator of where we need to go.” Near-instantaneous price changes would allow an author to, say, sell an e-book “at $0.99 for the next five hours only.”

Smashwords is now working with library distributors 3M and Baker & Taylor’s Axis360 so self-published authors can get their e-books into libraries. Right now, the libraries buy Smashwords books at list price (publishers like Random House, meanwhile, charge more for the e-books they make available to libraries). Soon, Smashwords will allow its authors to set special pricing for libraries, Coker told me. “A lot of them are going to want to offer libraries lower pricing,” he said, or “will want to offer their books for free to libraries.”

Smashwords will soon let authors specify the countries where their books are distributed. Right now, authors (and the agents Smashwords works with) have the rights to sell their e-books in some territories, but not others. With the changes, for instance, an author could define that his or her e-book should be distributed “globally, except for commonwealth countries.” Smashwords will also let authors specify their prices by currency — a change from now, when authors have to price in dollars and retailers convert the currency automatically.

Also, Coker said, Smashwords will start accepting EPUB files (as opposed to Word files) later this year. With EPUB 3, that means the company could “potentially take more sophisticated books or enhanced books.”

Getting rid of DRM: This is going to take forever

Macmillan’s Fritz Foy announced at the Publishers Launch BEA conference that the company’s sci-fi/fantasy imprint Tor/Forge will launch a DRM-free digital bookstore this summer, and it may include DRM-free e-books from other publishers too. Meanwhile, distributor IPG announced that it will give client publishers the option to sell e-books DRM-free, and Kobo will give authors the option to sell DRM-free through its new self-publishing platform Writing Life. Still, publishers are moving slowly and it looks as though changes are going to happen in trickles.

Penguin global digital director Molly Barton said at Pub Launch that “Penguin is interested in methods of file security that would allow greater interoperability between platforms,” but Random House president of sales, operations and digital Madeline McIntosh called the DRM discussion “a red herring in a publishers panel at the IDPF conference, Publishers Lunch reports (paywall). She noted DRM’s not the only thing that keeps readers using a particular digital bookstore’s platform: “We have to be clear about what the goal is and commercial reason [to remove DRM].”

Self-publishing, part II: It’s getting closer

“We saw that seven percent of the units sold [on Kobo] were coming from self-published authors,” Kobo EVP of content and merchandising Michael Tamblyn told me, making those authors “collectively the size of a major publishing house,” so we “wanted to get closer” to them. Thus the launch of Kobo’s new self-publishing platform Writing Life. Authors using it get a 70 percent royalty on e-books priced between $1.99 and $12.99 and a 45 percent royalty on books below $1.99 or above $12.99. By “looking at how e-books sell in general,” Tamblyn said, “we know that after $12.99 there’s a drop…and after that it’s difficult to generate significant demand.” So the royalty structure “encourages authors to stay within that space.”

Amazon took up a lot of floor space, with separate sections for Amazon Publishing and self-publishing platforms Kindle Direct Publishing and CreateSpace. At KDP, the company set up rows of chairs and, all day long, self-published authors gave presentations on why they use KDP. “I also sell on Nook [Barnes & Noble's self-publishing platform is PubIt],” I heard one author say, but Barnes & Noble doesn’t rent a public booth at BEA — which seems kinda dumb considering both Amazon and Kobo’s emphases on self-publishing at the show. Kobo, too, had the self-published authors participating in the beta launch of Writing Life speaking at its booth.

Startups: Maybe we’ll find a better way next year

The Javits Center’s vastness makes it tough for publishers and startups to randomly encounter each other, a lame “Digital Discovery Zone” is removed from the rest of the floor, and terrible or nonexistent WiFi prohibits quick demos or many interactions you need the Internet for. (Can I throw in one more complaint? There’s no WiFi in the press office and the woman who runs it yelled at me for “drinking all the water.”) The founder of one fairly well-known startup told me he was finding it tough to meet with the publishers who could get use out of his product. Despite a few panels that try to bring traditional publishers and newer companies together, BookExpo America remains, primarily, an event where publishers and authors pitch new books to librarians and booksellers. Maybe that’s what it should be, but since it’s also the largest book industry event in the United States, it’s not surprising that digital companies arrive with expectations about who they’ll meet and leave wanting more. It seems as if there should be a more efficient way to make these meetings happen — stay tuned on that.

Don’t hold your book party on a rowboat

OK, this one’s not digital. Author Robert Sullivan took BEA-going booksellers to the Hudson to promote his upcoming book “My American Revolution,” which is about the historical importance of New York Waterways. As the New York Times reports, “two rowboats – built at the boathouse to imitate 19th-century New York Harbor craft known as Whitehall gigs – left the pier loaded with booksellers, volunteer coxswains and local residents.” Unfortunately, one of the boats “struck a pier” and flipped, “dumping three BookExpo conventioneers, two instructors and two others into 60-degree water.” Five were able to climb onto the pier. “The other two drifted 100 yards away.” There were no fatalities.

See also

Social reading, discoverability and other unsolved problems at BEA 2012

Kobo launches e-book self-publishing platform, Writing Life

Macmillan’s Tor/Forge will launch DRM-free digital bookstore this summer

Wattpad raises $17 million to become the YouTube of writing

Photo courtesy of BEA