DOJ Gives Amazon the OK To Kill Publishers With Hammers, or So You'd Think

By Paul Bradley Carr , written on April 12, 2012

From The News Desk

This morning, like all other Hachette UK authors, I received an email from Tim Hely Hutchinson, the company's CEO.

In it, THH (as he's known to almost everyone too lazy to say his whole name) explains that, despite Hachette being "not involved in a conspiracy to illegally fix the prices of ebooks," the company was willing to settle the Department of Justice's suit against them, other major publishers, and Apple.

In a nut, the US government's case is this: Scared of Amazon's dominance in the market, Apple colluded with a bunch of publishers to fix the prices of ebooks. They were able to do this because Apple, like Amazon, allows publishers to sell via an "agency" model, where publishers sell the books through iBooks (and the Kindle store) at whatever price they like, with Apple (and Amazon) taking a 30% cut of the cover.

By colluding to keep prices artificially high across both iBooks and the Kindle Store, publishers -- or so the claim goes -- can prevent Amazon from using loss-leading tactics to build a monopoly position, which they will then surely use to fuck publishers hard up the ass in future. (That last line, "fuck publishers hard up the ass," comes direct from the DOJ's filings.)

Now. It's important to note that none of this has been proven. Tee-Aitch-Aitch says his company is settling to avoid a costly legal battle, which the division of the $8 billion-annual-revenue Lagardere SCA can ill afford. HarperCollins and Simon & Schuster have also settled. Penguin and Macmillan, on the other hand, are still in the fight, as, of course, is Apple.

Weirdly, though, the wider publishing industry (and a fair number of tech pundits) don't seem too fussed about whether the allegations are true or not. Rather, like Hachette et al., they're far more concerned that, now the DOJ has told them to play nice with Amazon, publishers are going to be forced to accept Amazon's price-slashing tactics.

Sure enough, Amazon responded to the settlement by announcing plans to start slashing their prices on ebooks, so far as they are able. The settlement gives publishers a two-year "cooling off" period, after which they have to accept a modified agency agreement, which gives publishers less (read: no) price-setting power, but equally restricts Amazon's ability to deep-discount. Enjoy your two years, publishers! Après la, the ass-fucking.

As an author and occasional publisher, I suppose I too should be reaching for a second pair of trousers. Amazon is a billion pound gorilla. It uses loss-leading tactics to muscle down wholesale prices; it brutally punishes publishers who cross it; and, just for giggles, it recently began publishing its own books, paying huge advances to lure the industry's cash cows over to its own pastures.

But here's another thing Amazon has done: It made buying books easier and cheaper than at any other time in human civilization. The Kindle created the consumer ebook, just as the iPod created the consumer market for downloadable music. But unlike with digital music, the vast, vast majority of ebooks on the Kindle are paid for. Even in the paperback realm, Amazon has done more for getting books into the hands of the common man than Allan Lane.

And so, reading all of the coverage this morning, my only thought was this: Good for the DOJ. And good for Amazon if, as is rumoured, they had an invisible hand in the investigation.

The notion that, having sewn up the market, Amazon will use their dominance to drive niche voices out, or to otherwise reduce customer choice, is ludicrous. Amazon is a product of the Internet and has achieved its dominance precisely by ensuring the widest possible choice at the lowest possible price. Their strategy has been to welcome any book by any publisher, regardless of how niche.

And their success has continued because, generally speaking, they're the cheapest. It doesn't matter how many Kindles are in the wild. If Amazon stops offering that advantage, a competitor will appear to take its place.

Moreover, books are not a commodity. Unlike, say, eggs, Amazon can't pick and choose who supplies its JK Rowling books. There is some price elasticity, for sure, but way less than in most other industries. That's how publishers were able to force Amazon to adopt an agency model in the first place.

Moreover, unlike with print publishing, ebook sales are not dependent on physical positioning and in-store promotion, which means it's way easier for publishers to promote and sell directly to readers, if they have to, than it is in most other industries. Okay, so they'll have to do without the Kindle. But at least that's a fair fight. If a major publisher pulled its support for the device (and as it owns the IP of the books, it can), then that would be just as much of a blow to Amazon as the reverse would be to the publisher.

I mean, seriously, a two year cooling off period? To figure out how to compete with an Internet retailer? That's two billion years in regular time. If publishers can't figure that out, they deserve to die.

Ultimately, the argument comes down to whether any given publisher -- or book retailer -- has a right to exist. They don't. A free market means Amazon is free to charge what it likes for its books, and to demand whatever lawful terms from suppliers they like. Publishers, likewise, are free to do business with Amazon or not to do business with Amazon.

The two big threats to a free market are monopolies and price fixing. As long as Apple keeps churning out iPads, it's hard to make a case that Amazon has a meaningful monopoly on ebook sales. As for price-fixing, despite today's pleas of innocence, it's times like this -- when an industry is on the ropes -- when governments have to be especially vigilant that desperation doesn't drift into illegality.

Of course, like anyone with a soul, I hope today's publishers continue to survive and thrive. But, as a voracious reader -- and buyer -- of books, I have no sympathy for publishers wailing about how unfair mean old Amazon is. If they can't figure out a way to adapt their business model to the realities of the market, then they need to die and be replaced by publishers who can. That's the way business, even the publishing business, is supposed to work.