Publishers must become giants to take on Amazon

[Commentary] By forming a blatant cartel, the “big six” publishers and Apple botched their effort to resist Amazon’s dominance of e-books with the Kindle. It made the strangest antitrust cases of recent years -- the US government and the European Commission rushing to the aid of an emerging monopolist.

Despite its current tactics, Amazon has been a profitable partner to publishers -- bringing innovation to a business of custom and practice. But it appears disturbingly ruthless, with a hardly disguised ambition to force other suppliers and intermediaries -- including publishers and bookstores -- out of business. It is a machine for squeezing margins, including its own, to near-zero in order to cut prices. These margins include not only publishers’ profits but royalties and advances to authors, which have been falling. There lies Amazon’s advantage -- it need not form a cartel to squeeze its suppliers because it is already large. Amazon may trigger a legal challenge over its deceptive sales practice -- telling its customers that Hachette books in the US (and Bonnier books in Germany, where it is waging a similar campaign) are “unavailable” when they can be bought quickly from its competitors. In terms of antitrust law, however, the biggest force in books is secure.

There is a moral for publishers: get bigger. The question is less who wins the contest between Amazon and publishers than what benefits the reader and author, and wider society. The irony is that publishers’ efforts to set book prices themselves and treat Amazon as an agent were legal; it was the cartel that undermined them. The solution in US law is to grow into giants themselves. So much for craft industry.