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Penguin chief: Apple's ebook plan 'dramatically changed' market

Steve Jobs 'certainly a factor' in gouging retailers, court told

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The CEO of publishing house Penguin has admitted that Apple's arrival in the ebook market triggered a dramatic shift in how the digital tomes were sold.

David Shanks said, under questioning from the Department of Justice's lawyers in the ongoing Apple ebook price-fixing trial yesterday, that he understood all publishers signing a contract with the fruity firm would be getting a similar deal.

Accepting Cupertino's agency model of book pricing, Shanks testified, would force other retailers to do the same, according to reporters present at the hearing.

The agency model, where publishers set the price of ebooks and retailers take a cut, took over from the well-established wholesale pricing model, where books were sold at cost and retailers set the price for customers, after Apple came on the scene.

Shanks also claimed the “most favoured nation” (MFN) clause in the agency contracts, which stopped publishers from offering better deals to other retailers than they'd given Apple, was "certainly a factor" in trying to get other booksellers, like Amazon, onto the agency model.

"The fact that the parity clause was in the contract more or less made it a given we'd have to be at [sic] agency," he told the southern New York court.

However, when questioned by Apple's lawyers, Shanks said Penguin and the iPad giant didn't agree on every point of the final contract. Shanks claimed he didn't want the MFN clause in the final deal, and he tried to stop Apple putting price caps of $12.99 and $14.99 on books.

"I did not get the deal I wanted, but I wanted to be sold to Apple's customers," he told the judge.

Before the late Apple co-founder Steve Jobs took his multibillion-dollar biz into the ebook world, Amazon maintained its dominant position in the market by selling ebooks at low prices (frequently at or below cost) to encourage sales of Kindle ereaders. Shanks said Penguin believed Amazon was holding prices at artificially low levels with its strategy, and the publisher wanted to see what price customers would actually pay for ebooks.

Shanks heads up one of the “big five” publishers that have already settled with the US government in the price-fixing case, including Hachette, Macmillan, Simon & Schuster and HarperCollins.

The trial continues. ®

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