When Will the Justice Department Take On Amazon?
Hardly a month goes by without news of Amazon’s continuing assault on the publishing industry. Nearly two-thirds of all e-books are bought through the online retailer. Its share of all new books sold is 40 percent—a whopping increase from 12 percent in just five years. Peter Hildick-Smith, head of Codex, a leading book-audience research firm, declares that Amazon is “the most powerful book retailer today by far.” Traditional publishers are in an uproar, fearing that the Seattle-based firm will render them obsolete by enabling writers to end-run old-school “gatekeepers” by going directly to readers digitally.
The rise of the Internet was initially seen as a revolutionary boon, transforming a backward carriage trade into a modern engine of knowledge distribution, with a promise of democratizing literacy. Thus was the rise of Jeff Bezos’s Amazon celebrated in many precincts. No longer would readers be hostage to geography; books could be ordered from anywhere and swiftly delivered. Plus, the prices charged were the lowest to be had. Convenience, cost and excellent customer service won millions of readers, happy to throng in Bezos’ big tent.
Two years ago, The Nation took a close look at the behemoth that Amazon had become (see Wasserman, “The Amazon Effect,” June 18, 2012). While big is not always bad, there was much about Amazon that was troubling: its labor practices, for one; its cutthroat business dealings, for another. Bezos once joked that Amazon ought to approach small publishers “the way a cheetah would pursue a sickly gazelle”—a remark, we now learn, that led to an effort inside Amazon dubbed the Gazelle Project, designed to extract concessions from the weakest publishers (it’s since been helpfully renamed the Small Publisher Negotiation Program). Brad Stone’s revelatory book The Everything Store: Jeff Bezos and the Age of Amazon, as well as recent reports in The New Yorker by George Packer and in The New York Review of Books by Steve Coll, echo our original analysis and deepen our worst fears.
Today, Amazon so dominates the marketplace that it feels free to bulldoze the competition, dictating terms to suppliers and customers alike. With respect to publishing and bookselling, Amazon is increasingly a vertically integrated company, at once a bookseller, a reviewer, even a publisher, and as such it poses a uniquely disturbing threat. It has achieved a worrying hegemony, having successfully laid siege to traditional bricks-and-mortar bookstores not only in the United States but also in Europe. In Germany, Austria and Switzerland, Amazon has forced the media conglomerate Bertelsmann to shutter its core book clubs and retail stores. Sarah Simon, a media analyst with Berenberg Bank in London, says Bertelsmann’s bookselling business “has been largely superseded by online sales, where Amazon is the market leader.” Amazon is also going after other important publishers like Piper, Carlsen and Ullstein, all owned by the Swedish Bonnier Group. According to a recent report in Der Spiegel, Amazon is demanding that its share of the profit from every e-book sale rise from 30 percent of the retail price to 50 percent. Christian Schumacher-Gebler, the CEO of Bonnier Media Deutschland, worries that “Amazon is undermining our ability to survive.” Amazon is now engaged in a widely reported and increasingly bitter and potentially industry-defining struggle with Hachette, the French company that owns Little, Brown, among other American imprints. As a negotiating tactic to extract higher fees from the firm, it has refused to sell many Hachette titles. Amazon used a similar tactic with Time Warner’s Warner Bros. studio by refusing to take pre-orders for selected movie titles in an effort to get better terms for the sale of movie discs, which it sells for little or no profit in order to compete with stores like Walmart and Best Buy.
The entire ecology of publishing is at risk. Conglomeration proceeds at a dizzying pace: Random House and Penguin (which includes, among other imprints, the Viking Press) merge; Hachette buys the Perseus Group (which distributes Nation Books, among others). Little fish are gobbled up by bigger fish, and they, in turn, face even larger predators. There is blood in the water. But the Obama Justice Department, seemingly mesmerized by visions of a digital utopia, is oddly blind to the threat to publishing posed by Amazon’s growing monopoly. Attorney General Eric Holder and his staff seem to regard Amazon as a benign giant whose machinations, so far, offer more benefits than disadvantages. Amazon, for its part, insists that it has only readers’ interests at heart and is merely providing books at the lowest possible price, absorbing huge losses in order to do so. Increasingly, this claim is revealed as a self-serving stratagem; as Coll writes, “The more Amazon uses coercion and retaliation as a means of negotiation, the more it looks to be restraining competition.” Antitrust issues are not only about price and market share, but also the antidemocratic implications for both competition and the larger culture. When will the Justice Department wake up? There is precedent, after all. In 1948, the Supreme Court, in United States v. Paramount Pictures, Inc., ordered the breakup of the old Hollywood studio system.
Amazon is hardly an online bookstore anymore. Books are a small fraction of its overall business—just 7 percent. From the start, Amazon understood that books were a loss leader whose chief benefit was to induce millions to enroll in the online Walmart the company wanted to become. Today, even the CIA finds itself compelled to outsource some of its data collection by availing itself of Amazon’s powerful cloud servers, in a deal estimated at $600 million.
We remain optimistic that our species will continue to tell itself stories, for that’s the way we extract meaning from our otherwise unruly lives. But just as utilities are rightly regulated because they provide an essential service everyone needs—water, gas, electricity—so too, we believe, the time has come for closer scrutiny and regulation of a company that, like Standard Oil a century ago, provides an indispensable service for a modern economy and a healthy culture. As Amazon gains market share, we can no longer abide its self-proclaimed conceit that unfettered growth is invariably in the consumers’ interest. We resist a narrow definition of those interests. Just as a responsible energy policy must strike a balance between the benefit to individuals and the consequences to the environment, so must a similar calculus be applied to Amazon. (The French are exemplary here, having long recognized that books, like bread, are indispensable for any civilization worthy of the name; they subject both to price controls, thus permitting independent bookstores and bakeries to survive and thrive.) We support Amazon’s right to offer readers the widest array of books at the most reasonable price. But such a right is not to be exercised at the expense of the fragile and essential contributions of authors, editors and publishers to the general culture. Amazon ought no longer to be permitted to behave like a parasite that hollows out its host. A serious Justice Department investigation is past due.
Read Next: David Auerbach on privacy and data mining in the Internet age