Apple's Eddy Cue: Yep, we caused e-book pricing to rise

The head of Apple's content businesses also says the company considered a deal with Amazon where Apple would control music and Amazon would control books.

Eddy Cue (middle) and Apple's attorneys walk into the New York courthouse today. Sarah Tew/CNET

NEW YORK -- A high-level Apple executive admitted his company's deal with publishers caused some e-book prices to rise, giving weight to the government's accusation that Apple's machinations hurt consumers.

Eddy Cue, Apple's senior vice president of Internet software and services, who took the stand Thursday in district court in lower Manhattan, also said Apple considered splitting the market with Amazon in a setup where Apple would control the music market, while Amazon would monopolize books.

Cue's testimony marks a pivotal point in the trial, in which the Justice Department is attempting to prove that Apple's deals with the publishers artificially inflated e-book prices. Apple has maintained it has done nothing wrong.

Cue, however, acknowledged that the price of certain digital books, such as New York Times best sellers, increased after Apple opened its iBookstore in April 2010 and remained elevated through 2012. He noted it wasn't a surprise prices rose because all publishers told him they had problems with Amazon's $9.99 pricing.

"They had expressed they wanted higher prices from us," he said. Apple's defense, meanwhile, spent much of the afternoon walking Cue through his responses to DOJ questioning. He sought to show that Apple was looking out for customers and pursuing legitimate business agreements, not trying to change the e-book market. And Cue said he believed that while some prices would be higher, consumers ultimately would benefit from the bigger selection of titles.

"I knew some books would definitely go up, but others are available for the first time there," Cue said.

Cue, who typically sports jeans and a button-down shirt, wore a gray suit, white collared shirt, and red tie to court. He rarely raised his voice and kept a neutral expression on his face, but started to get testy during certain lines of questioning, such as whether Apple cared if consumers had to pay higher prices. By contrast, Cue became more lively and engaged during questioning by Apple attorney Orin Synder, talking animatedly about how he negotiates content deals.

The Justice Department tried to show that Apple didn't care if consumers had to pay $12.99 or $14.99 for e-books instead of $9.99, but Cue disputed such comments.

"Our consumers were protected by my price points," he said. "I thought we were going to treat our consumers very, very fairly."

A debate has been going on during the trial about whether digital book prices did in fact rise after the iBookstore launched. Apple's attorneys have argued that pricing has fallen, but the U.S. Department of Justice has said prices spiked "dramatically" after Apple's entry into the market. A Justice Department expert witness -- Richard Gilbert, emeritus professor of economics at the University of California at Berkeley -- on Thursday testified that even if overall average pricing fell, it didn't mean customers weren't harmed or that certain segments didn't rise.

"Here you have clear evidence some titles went up in price," Gilbert said, noting overall prices haven't been affected by some new publishers and authors entering the market with books priced very low, such as at $2.99. But pricing for best sellers and other titles have risen, he said.

Apple's Eddy Cue introducing iTunes Radio earlier this week James Martin/CNET
Thursday marked the end of the second week of the three-week trial in the district court in lower Manhattan. Testimony will resume Monday, and closing arguments are scheduled for June 20. Cue will take the stand again Monday.

Cue is the highest-ranking Apple executive to testify during the trial. The Justice Department has portrayed Cue as the "chief ringleader of the conspiracy" to control e-book pricing, and it has said his testimony would show Apple colluded with the publishers to boost digital book prices and hurt rivals such as Amazon. Conversely, Apple's attorneys are counting on Cue to reinforce their defense that Apple's actions simply were standard negotiation tactics.

"Nailing him down to certain facts is really critical," said Chris Sagers, a law professor at Cleveland State University who has been following the case but isn't directly involved. "He's obviously not just going to say what the government wants him to say."

The Justice Department, which initially sued Apple and a handful of the nation's largest publishers, contends that Apple forced publishers to move to an agency model, in which publishers set the prices, and away from the traditional wholesale business, which typically results in lower prices for the consumer.

Apple executive Eddy Cue in February of 2009 suggested Apple pursue a deal with Amazon to split the music and book markets. U.S. Department of Justice
During the course of testimony over the past several days, Apple executives and publishers have discussed the process for reaching deals for the iBookstore, and Amazon and Google executives also have talked about their own negotiations with publishers. Apple has attempted to draw parallels between itself and Amazon, showing that the different nuances of their respective deals are par for the course in the industry, and not a conspiracy to inflate prices.

Cue, who described negotiations with publishers as difficult, on Thursday said he didn't believe publishers worked together to change pricing and reach deals with Apple.

"They argued different points," Cue said. "If they talked together, I assumed it would be easier to get the deals done."

He also noted that he "wasn't trying to negotiate" for the entire e-book retail market or trying to resolve publishers' issues with Amazon's pricing.

Updated at 2:50 p.m. PT with information from the defense's questioning.

 

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