Amazon Policy Concerns Many In Publishing Industry

April 10, 2008
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April 10 – April 17, 2008 Edition

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Amazon Policy
Concerns Many
In Publishing Industry

UPDATE: NEW YORK, NY/4/10/2008–The Washington Attorney General's Antitrust Division has advised Amazon.com of concerns it has received from several parties and has asked the company to respond. The Antitrust Division is also conducting an initial review of the marketplace and will respond to inquiries more full once the review is complete, according to Writers Weekly.

Authorlink spoke unofficially with a Lightning Source insider who said "It's business as usual at Lightning. There have been no changes in its relationship with Amazon. Amazon is still a Lightning partner and is still listing LIghtning-shipped titles for sale and accepting orders from Lightning. The source said the company doesn't anticiapte any changes at this time, but that it is unknown what will happen a few months from now. Lightning has not experienced a downturn in any orders and titles remain as they should be at Amazon. Authorlink will have a more detailed report soon.

NEW YORK, NY/4/10/08–Amazon.com's new policy–which apparently requires anyone who sells print-on-demand books on the Amazon site to also print those books with its subsidiary, BookSurge–has raised a storm of controversy, especially among organizations which represent authors.

Amazon has pitched the requirement as a "customer service matter" which will provide speedier delivery of print-on-demand books and allow for bundling of shipments with other items purchased form Amazon. However, leaders at the Author's Guild aren't buying the argument. The organization attributes the move to an effort by Amazon to dominate the entire supply chain and to drive out its chief POD rival Ingram Industries' Lightning Source.

"Once Amazon owns the supply chain, it has effective control of much of the 'long tail' of publishing — the enormous number of titles that sell in low volumes but which, in aggregate, make a lot of money for the aggregator," explained Author's Guild director Paul Aiken, in a message to its members. "Since Amazon has a firm grip on the retailing of these books (it's uneconomic for physical book stores to stock many of these titles), owning the supply chain would allow it to easily increase its profit margins on these books: it need only insist on buying at a deeper discount — or it can choose to charge more for its printing of the books — to increase its profits. Most publishers could do little but grumble and comply.

"We suspect this maneuver by Amazon is far more about profit margin than it is about customer service or fossil fuels. The potential big losers (other than Ingram) if Amazon does impose greater discounts on the industry, are authors — since many are paid for on-demand sales based on the publisher's gross revenues — and publishers."

Aiken said the Author's Guild is reviewing the antitrust and other legal implications of Amazon's bold move. The organization asked publishers and authors to phone 212 563-5904, or to e-mail staff@authorsguild.org with any helpful information.

Because Amazon will have the power to sell at deep discounts, publishers' gross revenues, upon which author royalties are paid, could potentially decline.

The PMA, the independent Book Publishers' Association, which represents 4200 small publishers and authors, also spoke out on the issue. “This policy imposes a significant financial burden on tens of thousands of small and independent publishers who can least afford it,” points out Executive Director Terry Nathan. “Without the opportunity to benefit from competitive pricing, small publishers risk at best an expensive and needless overhaul of their manufacturing process, and at worst, the loss of their livelihood.

“On behalf of all the small and independent publishers whose businesses are in jeopardy, we urge Amazon to reconsider its position,” continues Nathan. “Over the years, Jeff Bezos and his company have given small and independent publishers a level playing field to compete with the largest of companies. Suddenly, this magnificent playing field has been converted into a ‘members only’ club, to the detriment of those very publishers who have contributed to Amazon’s success. We will continue to monitor developments in the weeks ahead.”

"I think this is a brilliant, but troubling development, for a variety of reasons," said New York publishing attorney Lloyd Jassin, who serves in prominent roles with several publishing industry organizations. "Amazon wants to be active all the way along the supply chain from production, to marketing to distribution. With the recent acquisitions of Brilliance and Audible, they've shown their hand. They want to become a vertically integrated publishing company.

With the consolidation of digital audio and now text files at Amazon, they have become, by default, the digital asset warehouse & distributor of choice. This gives Amazon the amazing ability to manage digital files for all manner of use, not just for POD books. To the extent their digital asset distribution creates new revenue streams for authors and publishers, that's a very good thing. However, their blatant favoritism toward Book Surge is problematic. By steering consumers to books that are produced by their owned and operated press it smacks of vertical integration. To the extent smaller POD publishers covet virtual shelf space at Amazon (with one-click ordering), Amazon's move makes them the leading POD option. And, as an aggregator or digital files, they have an opportunity to act as the distributor for a other digital platforms, including e-reader, iPhone and other selling opportunities. With regard to their claim that they are not seeking exclusively (i.e., requiring POD titles be printed exclusively through Book Surge), it looks a lot like a single printer option to me. If you place your digital files with another POD printer, there's a tariff of sorts, since you have to pay up-front printing and transportation costs to get your non-Book Surge books to Amazon's warehouse.

"I'd be concerned if I were a book publisher looking to get books to market through retail partners like Amazon and B&N. Why? The B&N acquisition of Sterling means B&N is self-publishing more books, with less shelf space for non-affiliated publishers. Taken together with Amazon's moves into self-publishing, you have to wonder whether selling through third parties will remain a viable way to sell books in the mid- to long term.

"Likely, this will escalate with Google exhibiting its own form of digital favoritism. Perhaps, in alliance with Ingram. Google will steer book buyers to books produced by Lightning Source. Amazon owns the store. Google owns the web. One merchandises books. The other sells them contextually.

"Bear in mind, this is my personal opinion. It's not the opinion of any of the trade groups I'm associated with," he concluded.

Interestingly, Steven Kessel, senior vice president for Amazon's worldwide digital media, told The New York Times April 7 that a sense of urgency now underlies the company's digital efforts. “We wake up every day thinking about digital,” said Mr. Kessel, who reports to Jeffrey P. Bezos.

The Times reported that "In general, Amazon’s digital team expresses urgency but does not appear to be in a rush. Mr. Kessel noted that it took the company five to seven years to build many of its businesses ­ books, consumer electronics ­ to maturity. He expects digital offerings to follow the same path."

Kessel told The Times : “One of the assets of Amazon, we believe, is a culture that supports investment in future businesses,” he said. “You have to be patient and you have to be relentless as a company to be able to do that.”

Many are concerned that Amazon's "relentless" strategies are violating antitrust laws.

Antitrust refers to government policy to regulate or break up monopolies in order to promote free competition and attain the benefits that such competition can provide to the economy and to society as a whole.

According to The Linux Information Project, "monopolists frequently attempt to use their market dominance for one product to extend it to other products, which is termed abuse of monopoly power.

"Thus, there are very compelling reasons for establishing and vigorously enforcing antitrust legislation. However, at the same time, it can be very difficult for governments to establish, and particularly to enforce, such legislation because of the great political power of monopolies, a power which is attained in large part by the vast amount of funds that monopolists usually have available to use to influence politicians because of their typically large profits. This power is also the result of the influence that monopolists have over other companies, which they can persuade to lobby politicians on their behalf. Such companies include, subsidiaries, customers and suppliers as well as companies that are connected through interlocking directorships2 (i.e., an executive from the monopoly sits on the board of directors of some other company, often a company in an unrelated but strategically important field). . .

"The first federal legislation in the U.S. with regard to trusts was the Sherman Antitrust Act of 1890. . ."The application of the Sherman Act with possibly the most far reaching consequences occurred in 1911, when the Supreme Court found Standard Oil Company of New Jersey in violation because of its excessive restrictions on trade, particularly its practices of eliminating competitors by buying them out directly and by driving them out of business by temporarily slashing prices in a given region."

Amazon.com, the world's largest online retailer with nearly $15 billion in annual sales in 2007, is one of the largest companies on the Internet. It was founded in 1994 by Jeffrey P. Bezos, a former financial analyst for the New York hedge fund D.E. Shaw & Company who, legend has it, set out on a drive from Texas to Seattle with his wife, writing an ambitious business plan for an online bookstore along the way. The company, which went public in May 1997, did not show a profit until 2002. Today, Amazon sells everything from jewelry to golf gear on Amazon.com.

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