In parts one and two we discussed Amazon.com®’s growth into a true giant of the publishing industry – not simply in terms of content, cost or delivery, but in size and strength – and its past history with Apple and its rival publishers (who are also its suppliers). As part three of this series, we consider whether Amazon’s size and hardball tactics are anticompetitive or procompetitive, and whether their effect on the dissemination of literature is relevant to an antitrust analysis.
Against this backdrop, Amazon’s “corporate bullying” once again moved into the spotlight in early 2014. The retailer entered into a very public contract dispute over pricing with Hachette, the U.S.’s fourth largest publisher, whose oldest and perhaps best known line is Little, Brown. Faced with Amazon’s demands for lower margins, Hachette contended that it needed greater control over the downstream pricing of its books to support its traditional publishing structure. In this system, which has been used by Hachette and other publishers for decades and which still supports the majority of the best-read authors in the U.S. In traditional publishing, publishers bankroll writers in return for a cut of the proceeds and editors help writers craft their finished product by polishing prose and checking facts. Amazon, by contrast, took the position that “gatekeepers” such as Hachette were becoming increasingly irrelevant as e-books allowed for self-publication. To encourage Hachette to capitulate to its demands, Amazon allegedly interfered with Hachette’s books sales by not taking preorders, delaying shipping, eliminating discounts, and using modified search engines to redirect readers to non-Hachette books on Amazon.com. Amazon’s tactics hurt the sales of Hachette books and the accompanying profits of approximately 3,000 authors.
In response to the Hachette standoff, a group of authors—many, if not the majority, of which were not published by Hachette—formed a group called “Authors United” to publicly protest Amazon’s actions. Led by thriller writer Douglas Preston, the group included literary heavyweights such as Salman Rushdie, Philip Roth, Orhan Pamuk, Milan Kundera, Jennifer Egan, and Ursula LeGuin, as well as the estates of Norman Mailer, William Burroughs, and Allen Ginsberg, among others. The group condemned Amazon’s suppression of books by Hachette authors in an open letter to The New York Times in August 2014. It then began two related efforts—writing to individual Amazon board members in hopes of aiding in the resolution of the Hachette dispute and slowly drafting a letter to the U.S. Department of Justice asking it to examine Amazon for possible antitrust violations.
Amazon and Hachette resolved their dispute in November 2014. Although Hachette won the ability to set its own prices for e-books, neither side provided many additional details of the negotiation. By the time the standoff concluded, however, Hachette’s sales in the U.S. were down 18.5% over the previous year. Authors United vowed to continue its protest against Amazon.
Call to action
Last month, the European Commission announced that it was launching a formal investigation into Amazon’s trade practices in Europe. The announcement came after hundreds of writers from Austria, Germany, and Switzerland wrote an open letter to Amazon accusing it of manipulating its recommended reading lists and lying to customers about the availability of books in retaliation over a dispute it was having with Bonnier, a leading German publisher. The Bonnier dispute echoed Amazon’s troubles with Hachette in the United States.
Perhaps inspired by the EC investigation, Authors United finalized its position statement to the DOJ on July 13, 2015. The Authors Guild, American Booksellers Association, and the Association for Authors’ Representatives, together representing thousands of authors, agents, and independent retailers, joined Authors United in writing the DOJ and encouraging it to initiate an antitrust investigation against Amazon. The position paper is available here. The statement lists a series of actions by Amazon that the groups allege may violate U.S. antitrust law, including buying out competitors; using its control of the book market to force publishers to publish on the Kindle format rather than on competing formats; free-riding on competitors by using Amazon’s “Price Check” app to take advantage of value-added services provided by physical bookstores; and misrepresenting to customers that Hachette, rather than Amazon, had caused some of the delays in shipping Hachette books during their contract dispute when in fact Amazon itself had caused the delays.
While using antitrust allegations as a platform for its plea to the DOJ, however, the overriding concerns of the groups appeared to be as much cultural as they were legal and economic:
Amazon has used the digital revolution in book publishing to exercise control over the marketplace of ideas in ways that threaten not merely open markets but free speech. While Amazon contends that its goal is to serve consumers by eliminating middlemen in publishing (which it calls “gatekeepers”), Amazon’s executives have also made clear they intend to make Amazon itself the sole gatekeeper in this industry. But what’s at stake here is not merely monopoly control of a commodity; what is at stake is whether we allow one of the nation’s most important marketplaces of information to be dominated and supervised by a single corporation . . . As Amazon extracts an ever larger share of revenue from book sales, the publishers’ shrinking revenue base is already curtailing the diversity and quality of carefully written, well-edited books available to the public.
So, the question now becomes: has Amazon violated U.S. antitrust laws? Or is it simply revolutionizing the way information is obtained and disseminated in the United States? The legality of Amazon’s actions is now in the hands of the U.S. Department of Justice and we will continue to monitor whether the DOJ decides to investigate and subsequently initiate any legal action against Amazon.
Regardless, the broader cultural debate that Amazon has triggered by flexing its corporate muscle will likely continue. Is Amazon improving access to books by allowing more authors to self-publish and more consumers to cheaply obtain information? Or is it using its power to manipulate the perspectives that reach the open market, lower the quality of the publications that do, and dis-incentivizing publication by decreasing authors’ profit margins? Only time—and perhaps some intervention by the DOJ—will tell.
