April 13, 2012
How do you respond when the government not only protects a monopoly, but prosecutes its opponents?
by Dennis Johnson
The book industry was abuzz yesterday with discussion of the decision by the Department of Justice to sue five of the Big Six publishers for their effort to stop Amazon.com.
It wasn’t exactly a day of constructive conversation, though — most everyone was unable to get beyond the perversity of the move by the government. As Author’s Guild head Scott Turow put it, “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support.”
As one (supposedly objective) analyst told David Streitfeld for a front page New York Times story, “Amazon must be unbelievably happy today. Had they been puppeteering this whole play, it could not have worked out better for them.”
As Oren Teicher, head of the American Booksellers Association put it, “Today’s DOJ filing is baffling…. For the Department of Justice to challenge a business model that played an essential role in fostering a more competitive, diverse retail environment seems to turn logic on its head and is not in the best interest of consumers.”
As those of us who put things more bluntly put it, it was as if the government not only sanctified the Amazon monopoly, but they made sure it’s going to get even more dominant. It does indeed seem collusion took place — between the government and Amazon.
(Apple, by the way, according to most analysts, is likely to get out of this scot-free, says a New York Times report by Nick Wingfield.)
Some of the most in-depth and insightful reporting of the decision and its fall-out appeared in a lengthy Shelf Awareness report by John Mutter. Beyond a meticulous detailing of the case, Mutter also makes some trenchant observations:
So, in the name of antitrust, the level playing field of the past two years–agency model e-books were priced the same whether sold by Amazon, Barnes & Noble or independent bookstores–will likely revert to a situation where a near-monopoly power determines pricing and most other retailers see their already-smaller market share shrink. Although Apple and the publishers may have cooperated in ways that violated the nation’s sometimes contradictory antitrust laws, for the Justice Department to single this matter out and not address other issues in the book industry or in business in general seems misguided.
He also notes that settlements arrived at with three of the publishers have “many very specific requirements, some of which appear exceedingly petty, punitive and a sizable waste of money, energy and time,” and his listing of those requirements makes a convincing argument:
- Within 30 days, publishers must designate an “antitrust compliance officer” whose duties will include, among other things, giving a copy of the settlement to all company officers and directors and all employees engaged in the sale and distribution of e-books and ensuring that those people receive at least four hours of training annually “on the meaning and requirements of this final judgment and the antitrust laws” from an antitrust attorney; conducting an annual antitrust compliance audit covering all company officers and directors and all employees engaged in the sale and distribution of e-books; providing to the Justice Department quarterly a log of “all oral and written communications, excluding privileged or public communications,” between the publisher and anyone at another settling publisher relating to “the distribution or sale in the United States of books sold in any format,” including descriptions of the communications, “the date, time, and duration of the communications, the medium of the communication,” ad nauseum; and an annual written statement addressing the publisher’s compliance with the settlement agreement.
- Within 60 days, all company officers and directors and all employees engaged in the sale and distribution of e-books must certify that they have read, understood and will abide by the settlement and are not aware of any antitrust violations–with certifications repeated annually thereafter.
- Publishers must notify the Justice Department in writing at least 60 days in advance of “the formation or material modification of any joint venture or other business arrangement relating to the sale, development, or promotion of e-books in the United States” with other e-book publishers–and the Department specifies a series of questions to be answered. Within 30 days after that, the Department may ask for more information, in which case the publisher cannot proceed with the project for at least another. In a nice Orwellian touch, the Department said that if it doesn’t ask for more information or challenge the project, that should not be considered approval.
Meanwhile, a smart report by of the situation by Ryan Chittum for the Columbia Journalism Review gives a concise history, and some witheringly sharp analysis:
While this may look like price-fixing, and the DOJ has some damning-looking meetings and timelines (that Penguin’s CEO says contain “material misstatements and omissions”), it’s ultimately about companies being forced to do what the government wouldn’t do: Take on a monopolistic competitor that abused its market power to dictate how they do business.
How do we know this? Because the publishers sued here made less money under Apple’s agency sales model than they did under Amazon’s loss leader policy. As Macmillan CEO John Sargent, who is fighting the DOJ suit, says:
When Macmillan changed to the agency model we did so knowing we would make less money on our e book business. We made the change to support an open and competitive market for the future, and it worked.
What kind of sense does it make for companies to fix prices to make less money?
Another report, by Barry C. Lynn for Slate, says, “To understand how the DoJ got this issue so spectacularly wrong requires a look at how our anti-monopoly laws were watered down over the last generation.”
But Lynn seems to share our hope, voiced in yesterday’s MobyLives coverage of this story, that John Sargent’s resistance, and that of Penguin, too, are signs of hope, and with even larger ramifications than for the book industry alone: The fact that they appear “ready to continue this fight in court …” he says, “will hopefully extend this debate long enough for the American people to relearn how to make a market in America that works for all books, physical and electronic. And indeed enables us to relearn how to remake our other markets as well.”
Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives