June 12, 2015
The European Commission announces antitrust investigation into Amazon’s ebook contracts
by Alex Shephard
Yesterday, the European Commission, the EU‘s executive body, announced that it was launching a formal antitrust investigation into Amazon‘s dominant role in the European ebook market. The investigation itself will focus on Amazon’s contracts with publishers—specifically its use of the “Most Favored Nation” clauses, or MFNs. MFN clauses require “the seller to provide the buyer the lowest price offered to any rival purchaser.” Amazon currently has the right to be informed when other retailers are given better terms from publishers; in the instance that a retailer is given better terms, Amazon then has the right to equal or better terms.
The European Commission will investigate whether these terms are “stifling” competition in Europe, where Amazon dominates the market for ebooks. MFN clauses can result in a stable, adaptive marketplace that encourages long-term relationships and discourages “bargaining delays,” according to the Wall Street Journal, which posted a very helpful MFN explainer shortly after Apple‘s antitrust trial, in which it was convicted of colluding with five major publishers, in 2013. When utilized by corporations with dominant marketshare, however, they can result in price increases and decreases in competition.
Despite its dominance in America and Europe, Amazon has shown no interest in raising prices on ebooks in any market, or any consumer good—low prices and “customer satisfaction” have always been the two most important pillars of Amazon’s identity and the company has shown no interest in leveraging MFN clauses to raise ebook prices. Instead, the European Commission will investigate whether Amazon’s contracts with publishers have resulted in an ebook market that discourages competition and innovation—whether or not Amazon is using its might to scare off potential competitors. (In the U.S., Amazon has occasionally used MFN to punish publishers and authors who make deals with other retailers.)
According to the New York Times, “Amazon has been estimated to sell about eight out of every 10 e-books in Britain. In Germany, the percentage is just under half. In the United States, Amazon has an estimated two-thirds of the e-book market.” For particular subsets of the publishing industry, that percentage is much higher—the publishing industry is not a homogenous entity and that percentage differs depending on the imprint, what it publishes, and who its audience is—most publishers I’ve spoken with put Amazon’s ebook marketshare somewhere well north of 66.6%.
For those who followed U.S. v. Apple (and the various rulings and investigations of Apple’s ebook distribution practices in Europe), MFN clauses should be familiar— after Apple was found to have colluded with five major publishers, the company was banned from putting MFN clauses in its contracts with publishers for five years. (In fact, Amazon seemed to have instigated the antitrust investigation of Apple, after it send a white paper to the Department of Justice.) In her ruling in U.S. v. Apple Judge Denise Cote wrote “[The MFN] eliminated any risk that Apple would ever have to compete on price when selling e-books, while as a practical matter forcing the publishers to adopt the agency model across the board.” Amazon’s marketshare and its contracts with publishers were brought up with some frequency during the proceedings—the publishers colluded with Apple because Amazon had what effectively amounted to a monopoly on the American ebook market—but Cote brushed them aside. U.S. v. Apple was about Apple, after all. Now, the spotlight is on Amazon.
As in America, publishers, retailers, and consumers across Europe have complained about Amazon’s dominant marketshare for years. Still, while there have been rumblings, yesterday’s announcement was still a surprise. As The Bookseller‘s Philip Jones wrote on Twitter, it “doesn’t get much bigger than this in book land.” (Jones, in my opinion the sharpest observer of the British book trade, is someone to keep an eye on as this story develops.) This is a story with huge implications and the Commission’s report, which will initially focus on the major ebook markets in England and Germany, could change the face of electronic bookselling in Europe—or it could cement a status quo that many inside and outside of the publishing industry loathe.
Unsurprisingly, publishers and booksellers in the U.K. celebrated the news of the investigation. The Bookseller spoke to a number of people in the trade yesterday, including Richard Mollet, c.e.o of The Publishers Association, who said, “For some time now we have been calling on competition authorities to look in to the imbalance in the book retail market. Today’s announcement from the Commission is therefore a welcome development,” and Nicola Solomon, chief executive of the Society of Authors, who said “it was a case of “the biter bit”, considering it was Amazon’s complaints about MFN’s that led to Apple and five American publishers being charged with e-book price-fixing case in the US.” The best quote, however, came from friend of Melville House Sam Jordison:
While Sam Jordison, co-director of Galley Beggar Press, said the investigation was the “right step”, he added: “I hope it’s only one step out of many too. Anything that enables publishers to sell competitively on a diverse number of platforms is good for the industry, good for consumers and good for authors. So too is anything that claws back a bit of power from Amazon and allows other companies to distribute on more even terms. Amazon’s virtual monopoly has done tremendous damage to publishers, authors and to the world of literature. It has become harder to publish and to make money for anyone other than Jeff Bezos. That isn’t healthy.”
Alex Shephard is the director of digital media for Melville House, and a former bookseller.