June 4, 2014

The DOJ’s messing with publishers again. Is this a power play by Amazon?


Letter from DOJAt the Wall Street Journal, Jeffrey A. Trachtenberg reports that the U.S. Justice Department “has gone back to the publishers asking about any recent pricing discussions they may have had with others in the industry.” Inquiries were made by letter to the three publishers who settled first in the DOJ case of 2012: Hachette, HarperCollins, and Simon & Schuster.

Uhhhh, wait a second. Where did this come from? And what would a letter like this even say? “Hey, publishers. Your pal the DOJ here. What have you been up to lately? Book Expo America and some nice lunches, right? So, have you been colluding with other corporations or anything? Just checking! Thought we settled that a couple of years ago, but IDK! We can go back to court if you want, LMK.”

If the settlement was completed two years ago, why is the DOJ following up with a letter this week just to check in to see if they’re discussing prices with other publishers?

“The inquiries reopened a sensitive and costly issue that publishers thought they had resolved, and raised the possibility of additional constraints on how they do business,” Trachtenberg reports.

You may have read that Hachette and Amazon are going head-to-head over terms right now, notably about ebook prices. Each of the publishers that settled (that’s all five of the big publishers except Random House, in a settlement that cost the industry $166 million) were given a different time to renegotiate terms with Amazon.

Hachette drew the short straw, so they’re the first to renegotiate. To keep publishers from “colluding” (more on that here), they will each wrestle with Amazon at a different time. In theory, this is supposed to “restore competition.” In practice, everyone in the industry is watching Hachette’s opening moves to see how the rest of the industry should proceed.

Amazon is suspending preorders and raising prices of Hachette ebooks during the negotiations, which they try to justify in a cryptic post in their own Kindle forum. Hachette is doing its best to reassure its authors while gritting its teeth through lost book sales, and CEO Michael Pietch was written up in the New York Times like a hero. Authors like Malcolm Gladwell and John Green have spoken out against Amazon’s “bullying,” and Tom Scotta at Gawker is calling for an Amazon boycott.

(Dear John Green, please write a blog post about Amazon for us. Love, MobyLives.)

Amazon’s business philosophy is to push as far as they can, just to see how far they can go. The arrival of these three DOJ letters might just be a coincidence, with unintended perks for Bezos & Co. But is it possible Amazon is flexing a little legal muscle this week to intimidate Hachette?

As Brad Stone wrote in The Everything Store (p. 284):

A day after the standoff with Macmillan [in 2010, read more here], according to court documents, Amazon set a white paper to the Federal Trade Commission and the U.S. Department of Justice laying out the chain of events and its suspicion that the publishers and Apple were engaged in an illegal conspiracy to fix e-book prices.

Many publishing executives suspect that Amazon played a major role in provoking the legal brouhaha that resulted.

That’s right: a piece of white paper from Amazon set off the whole case against publishers. But Amazon shouldn’t have this power in the first place. The blame for that falls on the Justice Department, L. Gordon Crovitz argues in the WSJ:

In the clash between Amazon and Hachette, book fans and authors blame Amazon for its tough tactics. But the fault lies with the Justice Department and a federal judge for making the bullying possible….

Instead of letting the market decide whether the wholesale model or agency model should prevail, Judge Denise Cote dictated the outcome by ruling against Apple. She acknowledged that the agency model is common in many industries but insisted publishers be subject to Amazon’s wholesale approach anyway, ordering book publishers to negotiate new deals with Amazon, with Hachette coming up first.

Amazon is happy to use its court-mandated leverage to re-establish control over pricing and the retailer-publisher relationship.

The DOJ has put Amazon in a remarkably good position, not to mention the money the company raked in from the anti-trust payout from publishers, reimbursements for ebooks that could only be spent in the Amazon store.

Given the history here, it’s hard to believe that a note from the DOJ this week is merely a coincidence.


Kirsten Reach is an editor at Melville House.