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Some author groups ask DOJ to target Amazon

Several groups of authors, booksellers and authors' agents wrote the Department of Justice, asking it to investigate (AMZN) for allegedly harming the book market, consumers, and authors. But while claiming that the retailer has "unprecedented power over America's market for books," it is unclear whether there has been any activity that is illegal, or even if, ultimately, Amazon is hurting authors, at least in the short- to medium-term.

A group of authors, many high profile, sent a letter under the name "Authors United" to William Baer, assistant attorney general for the DOJ's antitrust division. Backing the letter was another writers' organization, the Authors Guild, as well as the American Booksellers Association and the Association of Authors' Representatives.

According to the groups, Amazon is responsible for an overwhelming percentage of book sales, including 75 percent of online paper book sales, 65 percent of e-books, 40 percent of new books, and 85 percent of self-published titles. Because of this, the groups claim Amazon is effectively a monopsony, controlling commercial book buying the way a monopoly can control the sales of products. For example, the organizations pointed to last year's negotiations between Amazon and publisher Hachette Book Group. Amazon pressed for better terms and, after a period during which Hachette continued to insist on a different approach, the retailer made it impossible to buy some of the company's books and allegedly slowed fulfillment of orders.

"The point that we're making is ... saying, 'Look guys, we have a problem here,'" Mary Rasenberger, executive director of the Authors Guild, told CBS MoneyWatch. "We have one company that is virtually controlling the terms of publishing in many, many ways. They have the power to force publishers to accept their terms."

The letter argued that Amazon has used its market dominance "in ways that we believe harm the interests of America's readers, impoverish the book industry as a whole, damage the careers of (and generate fear among) many authors, and impede the free flow of ideas in our society."

But perceived market dominance and that recognized by the law are two different things. In the U.S., a company is considered a monopsony if it drives down its purchasing prices so low that fewer of the goods in question are produced, because the monopsony becomes the only game in town and many producers can't stay in business at the offered rates.

"There are lots of different [ways] of getting books from the authors to readers," said Roger Dennis, dean of the Earle Mack Law School at Drexel University and a former special assistant to the assistant attorney general for antitrust policy during the Carter administration. Government lawyers claiming that Amazon controls the market would face the following factual hurdles:

  • Self-publishing has continued to grow according to Bowker, which tracks book publishing. The number of traditionally published books has been relatively flat.
  • There are multiple outlets that buy and sell books and e-books, including Barnes & Noble (BKS), Apple (AAPL), independent stores, and other retailers.
  • Amazon does not appear to have close to the historical legal rule of thumb of two-thirds of the overall book market share to consider it a monopoly.

Claiming that Amazon had the power of a monopoly or monopsony would be a difficult legal threshold for government lawyers to meet.

"A lot of the conduct seems like hard bargaining and taking a hard line, like Walmart: Squeezing where it can squeeze but providing low prices to consumers," said Eleanor Fox, a professor of law at the New York University School of Law and an expert in trade regulation. "What it did to Hachette a year ago was really outrageous, withholding books for sale. It was to me definitely an abuse because it was using its power to get a better price on its contract by holding off the market books that people wanted to read. But what I thought it went under more than anti-trust was use of a superior bargaining position."

And, according to Fox, making use of a superior bargaining position is not a violation of U.S. anti-trust law, even though it could be in some other countries like Japan. If it's not technically illegal, the Department of Justice has its hands tied.

Author Joe Konrath, who has extensive experience in both traditional and electronic publishing, says that instead of focusing on Amazon, authors would be better served by looking critically at the "Big 5" print publishers.

"Amazon has allowed more writers to reach more readers than any other company in history," Konrath told CBS MoneyWatch in an email exchange.

"They've done this by innovating, giving readers what they want, and working with authors to offer us much better terms than any publisher ever has, in the past, or the present. The Big 5 are a price-fixing cartel who want to charge readers high prices," he charged. "They had an oligopoly over paper distribution for decades [as] the only way to reach readers was through bookstores [and] the only way to get into a bookstore was through those publishing gatekeepers. Because they controlled who got published, they could get away with giving authors take-it-or-leave-it unconscionable contract terms."

And when prices to consumers drop, someone under the traditional author-publisher-retailer model has to make up the difference with lower income or profits.

Even as Amazon has driven down consumer prices, an author-run website that analyzes e-book sales data says that independent authors continue to do better working through the company. The percentage of e-book units and dollar sales continues to rise. However, that is in total, so it is difficult to tell whether individual authors in general are making more or if there are a growing number of independent authors creating greater total volume but not necessarily higher personal profits.

"Readers don't like paying $12.99 for a non-tangible e-book," Konrath wrote. "So a lot of mid-list authors don't sell well. When they do sell, they only earn $2.27 on that sale. I earn $2.74 on the sale of a $3.99 e-book on Amazon, and I keep my rights." One of the difficulties authors face is that publishers demand extensive exclusive rights to works, typically for the length of copyright, which is 70 years past the death of the author.

Rasenberger says that while "everyone loves low prices," the result is to eventually devalue books. "You're causing long-term harm that will be very difficult to recover from," she said. "Publishers have less money so they have less money (for) authors, they buy fewer books, and they offer lower advances." But Rasenberger does agree that publishers, too, can pose problems.

"It's a complex world we live in," she said. "The causes for it being more and more difficult for authors making a living writing are multi-fold. We're attacking it on all sides. We have never said publishers good, Amazon bad."

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