The Trial, Week Two: A Worst-Case Scenario Email; Spotlight on Apple’s Eddy Cue and Publishing House Heads. Where’s Random House?

Week two in the Apple ebook price-fixing trial wrapped up Thursday with Apple executive Eddy Cue, the man the DOJ says orchestrated the alleged conspiracy, testifying that he negotiated vigorously with publishers but had no idea what they were saying to each other, as Thomson-Reuters reports.

He said he also did not know of calls the government said publishers were making between themselves, nor did he think anyone else at Apple knew.

“If they were working together, I assume I would have had much easier time negotiating,” Cue said.

Cue was also questioned about another key aspect of the government’s case, the contention that Apple caused ebook prices to increase. Cue acknowledged that the cost of some books did go up from the $9.99 Amazon was charging after Apple opened it’s iBooks store, but he said it was publishers who pushed for higher prices.

Cue is scheduled to take the stand again when the trial resumes on Monday. Though he was considered the government’s key witness, so far the only really surprising revelation from his testimony is an idea Cue had back in early 2009, nearly a year before Apple announced the launch of its iPad. He sent an email to Steve Jobs discussing an arrangement for Amazon’s Kindle app on the iPhone. After discussing whether there might be some financial arrangement with Amazon (other than Apple’s standard 30% commission for iPhone app sales) that would make sense for Amazon and Apple, Cue considers whether Apple might cede control of the ebook market to Amazon in return for Apple’s control of the audio/video market:

If it is not monetary, than i [sic] could see a scenario where iTunes becomes an ebook reseller exclusive to Amazon and Amazon becomes an audio/video iTunes reseller exclusive to Apple. I can’t see them agreeing to this but if they really value books and want to own the category going forward than maybe they would consider it.

Apple’s leverage, Cue suggests, is that Apple could otherwise open its own ebook store. He continued:

At this point, it would be very easy for us to compete and I think trounce Amazon by opening up our own ebook store. The book publishers would do almost anything for us to get into the ebook business.

The worst-case scenario of exclusive markets run by Amazon and Apple didn’t come to pass, of course. Instead, Apple would enter the ebook business in April 2010.

Other highlights from the week include:

U.S. attorney Mark Ryan questioned Macmillan CEO John Sargent about congratulatory emails he received from the heads of other Big Six publishers after publicly defying Amazon’s terms, Publishers Weekly reports.

Ryan’s rhetorical question to Sargent was “these are competitors, right?” and he was quick to hone in on a note from Hachette Livre CEO Arnaud Nourry: “I can ensure (sic) you that you are not going to find your company alone in the battle.”

Sargent responded, “we do business with and we compete with each other.”

Apple attorney Orin Snyder “went ballistic,” when he found out Random House COO Madeleine McIntosh wouldn’t be taking the stand, Publishers Weekly writes. Government lawyers said they didn’t need her to testify, and it’s too late for Apple to add them to the witness list. That means written statements submitted to the court by McIntosh, a former Amazon executive and the friend of an Amazon executive who testified earlier in the trial, will go unchallenged by Snyder.

Disputing the government’s claim that that iBookstore is a failure, Apple executive Keith Moerer said his company controls 20 percent of the ebook market (a figure that exceeds what many observers have estimated), Publishers Marketplace reported (subscription required).

Moerer also reported that Apple’s US ebook sales for 2012 “grew close to 100 percent year over year,” or “higher” growth than reflected in the 2012 AAP data (which by our count show the overall market for the reporting publishers growing by about 42 percent). He “believe[s] that the iBookstore’s market share is approximately 20 percent in the US and growing.”

Closing statements in the trial are expected by the end of next week.

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