[See update for link to a post from a former FTC economist who explains the concept of an "illegal tie."]
I’m just now catching up on the news about Amazon.com forcing print-on-demand publishers to use its printing and distribution service, Book Surge, if the publishers want their books to be sold on Amazon.com. The news was covered on Friday by the Wall Street Journal. Later on Friday, O’Reilly’s Andrew Savikas wrote a detailed post explaining the kinds of lock-in Amazon.com is attempting with this move.
And yes, there is a Nashville angle to this story as one of the on-demand printing services that is being targeted by this move is Ingram Industries subsidiary Lightning Source.
Quote from WSJ.com:
“Amazon’s decision means that any of those publishers who want their books sold on the giant Web site will have to use BookSurge. Not only will that squeeze rivals like Lightning Source, it will reduce publishers’ bargaining power. Publishers will “have to abide by Amazon’s pricing,” said Bob Young, CEO of Lulu Inc, a print-on-demand publisher based in Raleigh, N.C. Mr. Young said he believed BookSurge’s prices to be “slightly higher” than other printers. An Amazon spokesman declined to comment on that issue.”
I guess it’s somewhat ironic that this year marks the 10th anniversary of the attempt by Barnes & Noble to acquire Ingram Industries’ Ingram Book Group, a move that was withdrawn later after the Federal Trade Commission indicated it would contest the transaction. The transaction, which was blasted by independent booksellers because it merged the largest wholesaler with the largest retailer of books, was seen as a bold grab by Barnes & Noble to vertically integrate a competition-stiffling segment of the book distribution channel.
I say ironic, because at the time, Jeff Bezos was one of the most outspoken opponents of the B&N, Ingram deal, issuing a message to Amazon customers in which Bezos said, “To our customers: Worry not … Those who make choices that are genuinely good for customers, authors, and publishers will prevail. Goliath is always in range of a good slingshot … Our long-term strategy has been to diversify our supplier base and to increase our direct purchasing from publishers.”
So, in 1998, the concentration of book distribution and book retailing was opposed by Amazon. In 2008, at least when it comes to the print-on-demand segment of the book industry, Amazon apparently now likes playing Goliath. However, I’m sure Amazon will see it another way — as in, they are still just trying to cut out the middle guy. That spin worked ten years ago. I wonder if it will now. I wonder if it will when all those independent booksellers realize they’ll have to purchase books from Amazon?
Update: Luke Froeb, a former chief economist for the Federal Trade Commssion posted some insight into the legality of what Amazon is doing and asks, “Is it an illegal tie?”
“Here the tying good would be on-line sales of books and the tied product would be BookSurge. If the plaintiff could show that Amazon has market power in the sale of on-line books, the plaintiff would have a pretty good chance. (This requires a market definition that excludes brick and mortar stores.) Also, if there is a dangerous probability that competition [is lessened] in the tied product market (“POD books”), the plaintiff could very well make a case that this is a per se violation.
Bonus link: Rafat Ali posts a follow-up piece regarding Amazon’s damage control on this issue that includes some great comments by some Amazon and book-publishing insiders.
Update: More on Amazon’s response to the criticism at PublishersWeekly.com, including coverage of a response from John Ingram:
In his statement, John Ingram said that while â€œthe questions that are being raised about Amazon.com and its Booksurge division don’t directly relate to Ingram – either Lightning Source Inc. or Ingram Book Group – it clearly is alarming many of our publisher partners.â€ According to John Ingram, â€œpublishers are telling us they feel Amazon.comâ€™s actions are not appropriate.â€ John Ingramâ€™s statement adds that the company has been unable to get a direct response from Amazon about its pod shift. â€œWe all live in a world where decisions are made about insourcing and outsourcing, and free choice is important,â€ the statement continues. â€œAt Ingram Book and Lightning Source, we are going to work really hard to continue to be the compelling choice as publishers make their outsourcing decisions. Our breadth of distribution channels including the online retailers remains the same, and Ingram still provides one day turnaround in the fulfillment of orders for books including print on demand titles.â€
(Thanks, Lewis Pennock, for several heads-up related to this post.)