Authors, ABA to DOJ: Investigate Amazon’s Abuse of Its Dominance in the Book Market

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    On Monday, July 13, in an unprecedented joint action, U.S. booksellers, authors, and literary agents called on the U.S. Department of Justice (DOJ) to investigate the business practices of Amazon.com. The action comes as similar efforts are underway in the European Union.

    In a letter delivered to the Department of Justice on July 13, the group Authors United called for an investigation of Amazon’s “abuse of its dominance in the world of books.” The letter stresses that Amazon’s monopolization of the book industry has had a negative impact on free expression and the health of America’s book industry.

    On the same day, the American Booksellers Association also wrote to the Department of Justice, urging the department to give “careful consideration” to the letter sent by Authors United. (To read both letters in full, click here.) The Authors Guild and the Association of Authors’ Representatives also expressed their support of the action.

    Over the past year, many of Amazon’s business tactics have called into question the power the online retailer wields over the book industry — and whether it constitutes a monopoly that demands government action.

    In 2014, a dispute over e-book terms between Amazon and Hachette Book Group became public when Amazon appeared to delay shipping of popular Hachette titles and removed the preorder button for upcoming books in an effort to pressure the publisher into giving the retailer the terms it wanted.

    Amazon is also well-known for selling books as loss leaders (below cost) in an effort to sell other, more high-priced items and to increase its market share in the book industry.

    In the midst of Amazon’s publisher disputes, Franklin Foer, then the editor of the New Republic, wrote an article in which he argued that Amazon’s monopolistic actions needed to be addressed by a robust regulatory state. Soon after, economist Paul Krugman noted in his New York Times column that the online retailing giant is not so much a monopolist, but a “monopsonist, a dominant buyer with the power to push prices down.”

    The Authors United letter notes: “Today a single company, Amazon, has gained unprecedented power over America’s market for books. We are not experts in antitrust law…. [b]ut we are authors with a deep, collective experience in this field, and we agree with the authorities in economics and law who have asserted that Amazon’s dominant position makes it a monopoly as a seller of books and a monopsony as a buyer of books.”

    The authors point out that Amazon now controls the sale of more than 75 percent of online sales of physical books; more than 65 percent of e-book sales; more than 40 percent of sales of new books; and about 85 percent of e-book sales of self-published titles.

    In ABA’s letter, CEO Oren Teicher and ABA President Betsy Burton write: “A central tenet of ABA’s mission is to ensure that a broad array of books is as widely available to American consumers as possible. The greater the number of books, the greater the number of voices and ideas; the greater the number of voices and ideas, the richer are the lives of our citizens and the stronger our society.”

    Amazon’s business tactics, the ABA letter continues, threaten publishers’ ability to support new and lesser-known authors and publications, thereby hindering the diversity of speech. “We have already seen fewer titles published by the major publishing houses each year,” it notes. “And while it might be tempting to chalk this up to a changing economy, the truth is that these changes have been manipulated by one retailer, which uses scorched-earth tactics to extract concessions and kickbacks from publishers in exchange for offering their books for sale.”

    Authors United and ABA both conclude their letters by calling for action from the DOJ. “We respectfully request that the Antitrust Division investigate Amazon’s power over the book market,” Authors United writes, “and the ways in which that corporation exercises its power, bearing in mind the very special constitutional sensitivities that have historically been applied to any business that has established effective control of a medium of communication.”


    Authors United Letter to the U.S. Department of Justice

    July 13, 2015

    The Hon. William J. Baer
    Assistant Attorney General for the Antitrust Division
    United States Department of Justice
    950 Pennsylvania Ave. NW
    Washington, DC 20530

    Dear Assistant Attorney General Baer:

    From the beginning of our nation, Americans have understood the central role that open and competitive markets play in promoting freedom of expression and protecting our democracy. The country’s founders, Congress and the Supreme Court have repeatedly made it clear that a concentration of private power over any marketplace of information is incompatible with American ideals of liberty, free speech, and the unfettered flow of ideas.

    Today a single company, Amazon, has gained unprecedented power over America’s market for books. We are not experts in antitrust law, and this letter is not a legal brief. But we are authors with a deep, collective experience in this field, and we agree with the authorities in economics and law who have asserted that Amazon’s dominant position makes it a monopoly as a seller of books and a monopsony as a buyer of books. According to published figures, this one corporation now controls the sale of:

    • More than 75 percent of online sales of physical books.
    • More than 65 percent of e-book sales.
    • More than 40 percent of sales of new books.
    • About 85 percent of e-book sales of self-published authors.

    With its traditional imprints and its near-total control of self-publishing, Amazon has also become the largest publisher and distributor of new books in the world.

    In recent years, Amazon has used its dominance in ways that we believe harm the interests of America’s readers, impoverish the book industry as a whole, damage the careers of (and generate fear among) many authors, and impede the free flow of ideas in our society.

    • Amazon, to pressure publishers over the past 11 years, has blocked and curtailed the sale of millions of books by thousands of authors;
    • Amazon, during its dispute with Hachette in 2014, appears to have engaged in content control, selling some books but not others based on the author’s prominence or the book’s political leanings;
    • Amazon has used its monopsony power, and its ability to threaten punishment, to extract an ever greater share of the total price of a book from publishers, which has resulted in less revenue to support midlist authors and certain kinds of books, effectively silencing many voices;
    • Amazon routinely sells many types of books below cost in order to drive less well capitalized retailers — like Borders — out of business. This practice, known as “loss-leading,” also harms readers by reducing the amount of revenue available for publishers to invest in new books.
    • Amazon routinely uses its market power to steer readers toward its own books and away from books published by other companies;
    • Amazon dictates pricing to self-published authors, requiring them to price their books within a specific range or be subjected to a 50 percent cut in royalties.

    The present inaction by regulators is not in keeping with the history of government response when a single company has come to dominate a venue for communication. In the 20th century, Congress repeatedly passed laws that prevented a concentration of ownership in vital informational markets, including newspapers, radio and television.

    But the thinking is evident well back into the 19th Century. In 1866, long before the creation of antitrust law, Congress passed the Telegraph Act, which blocked a private company from gaining monopoly control of this very first electronic medium of communication.

    The courts have regularly found that existing antitrust laws can and should be used to protect information markets from private monopoly. Justice Anthony Kennedy, in the 1994 Turner Broadcasting v. FCC case, articulated the reasons why. He wrote: “Assuring that the public has access to a multiplicity of information sources is a governmental purpose of the highest order, for it promotes values central to the First Amendment… The First Amendment’s command that government not impede the freedom of speech does not disable the government from taking steps to ensure that private interests not restrict, through physical control of a critical pathway of communication, the free flow of information and ideas.”

    Americans are just as opposed as ever to seeing private interests gain control of any marketplace of information. In February this year, the FCC, responding to the strong consensus view of the American people, ruled that no private interest should be allowed to manipulate the flow of information across the Internet, and established rules for “net neutrality.” Only a few months ago, your Division was reportedly among the regulators who opposed excessive consolidation of ownership in broadband Internet, which halted the merger of Comcast and Time-Warner. As recently as 1998, the FTC made clear that such principles also apply specifically to the book business, and blocked the purchase of Ingram Book Group, the country’s largest wholesale book distributor, by Barnes & Noble, the country’s largest retail bookstore.

    For two centuries, America’s book business was the freest, fairest, and most competitive in the world. More than a business, it was a marketplace of ideas, with publishers acting as venture capitalists, advancing funds to give authors the freedom to write books, and thereby hoping to make a profit. In this way the profit motive was put in service of a vital national interest and our fundamental rights. “The best test of truth,” Oliver Wendell Holmes wrote in 1919, “is the power of the thought to get itself accepted in the competition of the market.” What Americans seek, Holmes said, is “free trade in ideas.”

    Over the years, Amazon has benefitted readers and authors in many ways. But no temporary price cut can compensate for the costs to free expression and the health of America’s book industry that have resulted from Amazon’s abuse of its dominance in the world of books. Accordingly, we respectfully request that the Antitrust Division investigate Amazon’s power over the book market, and the ways in which that corporation exercises its power, bearing in mind the very special constitutional sensitivities that have historically been applied to any business that has established effective control of a medium of communication.

    Sincerely,

    Authors United


    American Booksellers Association Letter to the U.S. Department of Justice

    July 13, 2015

    The Hon. William J. Baer
    Assistant Attorney General for the Antitrust Division
    United States Department of Justice
    950 Pennsylvania Ave. NW
    Washington, DC 20530

    Dear Assistant Attorney General Baer:

    On behalf of the American Booksellers Association, a 115-year-old national trade association representing America’s independently owned bookstores, which do business in more than 2,200 locations nationwide, we are writing to urge that you give careful consideration to the letter sent to you on July 13, 2015, by Authors United.

    A central tenet of ABA’s mission is to ensure that a broad array of books is as widely available to American consumers as possible. The greater the number of books, the greater the number of voices and ideas; the greater the number of voices and ideas, the richer are the lives of our citizens and the stronger our society.

    As with our author colleagues, we are concerned that the mega-book-retailer Amazon.com has achieved such considerable market power with such questionable business tactics that it is undermining the ecosystem of the entire book industry in a way that will be detrimental, especially to mid-list authors, new authors, and minority voices. A May 2014 study from the Codex Group, a respected industry research organization, found that Amazon has a more than 65 percent market share of e-book sales and a more than 40 percent market share of all new book sales.

    Given Amazon’s dominant market share, no publisher — regardless the size — can afford to not do business with them, whatever the cost. And no one knows this better than Amazon, which has ruthlessly cut off the sales of publishers large and small when they have not yielded to Amazon’s strong-arm negotiating demands. 

    While independent bookstores have done well the last few years by becoming vital centers of their communities, and by providing literary experiences and personalized service that cannot be replicated online, their continued viability and growth will only be possible if they can continue to offer their customers the unparalleled opportunity to discover new authors, especially debut authors and authors from smaller publishing houses.

    We fear that Amazon’s business tactics directly threaten publishers’ ability to support these authors and publications, which take time to identify, edit, market, and support — business activities previously supported by publishers’ profits on bestselling works sold by mega-retailers such as Amazon. We have already seen fewer titles published by the major publishing houses each year. And while it might be tempting to chalk this up to a changing economy, the truth is that these changes have been manipulated by one retailer, which uses scorched-earth tactics to extract concessions and kickbacks from publishers in exchange for offering their books for sale.

    Last year’s dispute between Amazon and Hachette, pursuant to which Amazon decimated Hachette sales and author royalties in order to extract its preferred payment terms, is but one example of the company’s misuse of its extraordinary market power. Other examples include:

    1. Predatory Selling: Huge numbers of book titles appear to be sold below cost, and indeed it is not clear whether Amazon makes money on its book sales at all, or simply uses the category as a loss leader to entice sales on other segments of its websites. Discounts of 50 percent or more on leading new titles are the norm in circumstances where the wholesale price is typically 50 percent of the recommended retail price.

    2. Abuse of Monopsony Power Over Publishers: In addition to the Hachette dispute, Amazon has engaged in various punitive tactics designed to force major and smaller publishers to do as Amazon dictates. Measures include delisting books, delaying delivery, removing books from pre-order, discriminating by saying a specific title from a particular publisher is not available but similar titles are available from others, etc.

    3. Closed Kindle E-book System: Unlike other e-readers, Kindle e-readers and the Kindle app are configured to allow readers to only read books sold by Amazon and using its proprietary format. E-pub and PDF formats, which are industry standard formats widely read on other devices, cannot be displayed on a Kindle, further enhancing and perpetuating the retailer’s 65 percent e-book market share.

    4. Free Riding: Amazon is the classic free-rider. Amazon has long enjoyed three major competitive advantages over its brick-and-mortar counterparts: Without any physical stores, Amazon has low fixed costs, which enables it to offer lower prices than brick-and mortar stores, even when not selling below cost. Amazon can and does free ride off the sales and promotional efforts of brick-and-mortar stores (consumers browse the books at brick-and-mortar stores and then purchase them online at lower prices), greatly encouraging “showrooming.” Showrooming is the phenomenon whereby customers go to a physical bookstore to make a purchasing decision but actually purchase the item from an online retailer, in most cases Amazon. Amazon has even created an app to facilitate this practice, which allows customers to scan the barcode of a book in a brick-and-mortar shop and complete the purchase from Amazon’s website through their smartphones. Multiple industry research studies demonstrate that this is occurring, and publishers themselves have noticed increased Amazon sales during author events at bricks-and-mortar bookstores. State governments have subsidized Amazon with sales taxes avoidance. (Unlike bookstores, Amazon does not have to collect sales taxes in many locales.)

    We are pleased to join with our colleagues from Authors United in urging that these matters receive the attention of the Department of Justice.

    Sincerely,
     

    Oren J. Teicher, CEO
    American Booksellers Association

    Betsy Burton, President
    American Booksellers Association
    The King’s English Bookshop
    Salt Lake City, Utah