Amazon & Google Agree to Antitrust Consent Decrees

2018 Publishing Predictions

My 2013 predictions mainly concern the year 2018. Why?  It's easy to predict the near term (unless you are trying to accurately predict where the markets will go over the course of one year).  Also, the practical utility of a short term prediction is limited.  When the air raid siren has sounded, it's too late to build a shelter.  Predicting the mid term allows time to adjust behaviors and positions.  And, as a celebrity seer once said to me, "If you engage in fortune telling, foretell the mid-term.  That gives them time to forget your inaccurate or mistaken predictions."   His other advice was to "predict outcomes not details."  On that one, I've broken with accepted prophetic practice. 

[Suggested musical accompaniment:  Robert Plant & Alison Kraus' version of the late great Allen Toussaint's Fortune Teller.  Video embedded at end of post.]

Prediction 1

FTC Cuts Amazon & Google Down to Size

(New York) November 22, 2018.  The FTC concerned about

Depiction of FTC Attack on Google

vertical integration (control of content production and distribution) will prohibit Amazon and Google from having a monetary interest in content they distribute or display.  Amazon and Google will agree to consent decrees, whereby Amazon* is forced to spin off its Simon & Schuster, Avalon, Dorchester, Sony Records and Showtime divisions.  Likewise, in response to accusations it abused its market power, i.e. the ability to control price or reduce competition, in internet searches,   Google will agree to divest its Google Maps, JK Lasser Tax Institute, Automobile Club of America, Zagat and ESPN divisions. In a complicated formula to be worked out by FTC and European regulators, within 90 days of the decree, Google will be ordered to start sharing proceeds of revenues derived from sale of personal data of users who click a new "Monetize Me"  button.  Neither Google nor United Parcel Service (UPS)  will be willing to comment on how the  consent decrees will impact their proposed merger.  Lloyd Jassin will be quoted as saying, "Privacy is the new copyright."

"Protecting competition in the digital marketplace is a high priority for the FTC," will say Bureau of Competition Director Richard Feinstein. "This order will ensure that vigorous competition continues in the worldwide online market for entertainment and information products, and that consumers are not faced with reduced innovation as a result of digital favoritism and dwindling access to markets for independent publishers and other independent content producers." 

"The Internet is better served with less regulation," David Crane, a Google-friendly legal scholar will be quoted as saying. "This violates nearly every tenet of laissez faire capitalism.   What Google is doing is good business.  It's not exclusionary.  While Google is invaluable, it's not essential.  Stop complaining about your inability to compete. Start competing."   

*Why the FTC Took Amazon & Google Apart: An Antitrust Analysis: By 2016, the FTC determined that Amazon and Google had turned their backs on their original missions of openness and innovation. The platforms, via exclusionary tactics, have  become toxic to healthy innovation. Responding to real or perceived external threats, both companies had abused their market power by raising barriers to entry,  making it difficult for potential new entrants as well as large companies to compete.   It started in earnest in June 2012, when Amazon Publishing acquired category publishers Avalon and Dorchester. Four years later, Forrester Research reported that 70% of America's online shoppers began their search for a product at Amazon. Google which tied search to advertising, controlled 70% of America's advertising sales by 2016, and was rumored to be in talks with UPS about a possible merger. That same year, the EU fined Google $500M Euros for cooking search results, i.e., favoring its own content over the content of others. Book publishers and more so, film and television studios and the interactive gaming industry had become a threat to Amazon. They could withhold products, or, in the case of studios and the interactive gaming industry, increase license fees at the end of a license term. Google, now a mature business, simply lost its way. The FTC determined it was time to regulate the platforms. But they needed to make their case.  Amazon had shown an unsavory willingness to withhold technological innovations from suppliers and vendors for its own advantage. Using its position of dominance, it often disabled "buy now" and "buy" buttons to address threats from its publishing suppliers. But, it wasn't just about books. Similar tactics were used to punish suppliers and deny threats to entry in gaming, music, publishing, motion pictures, kitchenware, infant diapers and formula, and shoes. Hoping to mimic the trading template created by Amazon, Google eyed UPS as a way to fill in the gaps in creating a fully integrated trading company. Amazon and Google's entrepreneurial audacity were tolerated until they exhibited parallel habits of willful exclusion of others - otherwise known as conscious parallelism in the rubric of antitrust law. After being scrutinized for possible antitrust violations for several years, the FTC determined that they ceased to be the instruments  of innovation; so the FTC cut them down to size. Reflecting on the Apple "Agency Pricing" consent decrees of 2012 - 2013, a former Justice Department attorney (anonymously) observed that "Price fixing cases were easy to sell, both politically and as a coherent story. There were clear villains. Apple. Big publishing. The consumer felt it in their wallets. The price of eBooks went up. When former innovators go bad, those are the tough cases. When do you bring an enforcement action? It's a matter of timing. The FTC waited until they believed innovation and openness had taken a back seat to discriminatory practices."

Prediction 2 
 
Google Wins Fair Use Battle *

If you are looking for something short-term, something 2013'ish, I predict that Google wins (or The Authors Guild settles) the fair use litigation commenced in 2005; that Google does not seek attorney fees or otherwise act punitively.  Is the mass digitization of  books a good thing?  Yes, unless Google favors its own content over yours.  See, 2018 predictions above. 

*Update: Yep, it came to pass.  On October 16, 2015 the U.S Court of Appeals for the Second Circuit affirmed a 2013 lower court ruling that Google’s library book scanning project was protected by fair use and was not copyright infringement.


Resources 

Looking Back on My 2008 Predictions (blog post) (Lloyd Jassin):  I urge you to to look at the end of the post, where I score my 2008 predictions.  The growth of the independent book sector, which was predicted, as well as Google's search engine preference for its own content, are just two or four major predictions that have become reality.    

Three Versions of Fortune Teller

 

Looking Back: My 2008 Publishing Predictions

Amazon Changes the Digital Landscape

Published in the Summer 2008 issue of
 The Center for Independent Publishing newsletter

 

Recently, the industry was shaken by an announcement by Amazon that the company was changing its order fulfillment policy. In a nutshell, Amazon threatened to disable a book's "Buy Now" button if that book's publishing company did not subscribe to Book Surge Print, an Amazon owned print-on-demand (POD) printing service. Many called it a blatant attempt at a monopoly, because Book Surge is the only POD option available if one wishes to sell books through Amazon using its "Buy Now" button.

As the market evolves and embraces digital distribution options, we at the Center for Independent Publishing (CIP) find Amazon's move both troubling and exciting. Amazon wants to be active all the way along the digital supply chain from production to marketing to distribution. By force of will its Book Surge gambit will make Amazon the de facto virtual digital warehouse for hundreds of thousands of digital book files. What role will Amazon play in helping (or hindering) our members to make better use of their digital assets?

It strikes me that from Amazon's large and powerful river might flow not just POD books, but e-books, books disaggregated and re-purposed for mobile hand held devices, audiobooks and other digital derivatives -- whether now known or hereinafter invented. Our hope is that in the swirl of that digital river, we will see new digital revenue streams emerge for smaller and independent presses. If Amazon remains committed to the indie press segment, and acts as a bridge not just between publishers and traditional readers, but between publishers and digital readers, it becomes an enabler, and, perhaps, the best friend an indie publisher could have. However, Amazon's favoritism to Book Surge is a slippery slope that could easily decrease diversity. Amazon is steering consumers to books that are produced by its owned-and-operated press.

While it doesn't look like the cost of gaining access to the number one online bookstore has gone up (except for duplication costs associated with files formerly entrusted to other POD printers), the CIP is concerned about Amazon’s monopolistic intentions. The company’s claim that it is not seeking exclusivity (i.e., requiring POD titles be printed exclusively through Book Surge), seems to be a subtle bit of specious reasoning. Amazon's gain is the ability to monopolize the POD market. It is offering a single printer option. Just as Amazon deserves our praise for having been a good publishing partner for our publisher members, it deserves our scrutiny as it moves from online bookstore to what is beginning to look suspiciously like a celestial publishing house.

Traditionally, bookselling was separated from publishing, with booksellers (including Amazon) realizing the benefit of combining the wares of many publishers. Now that Amazon has the ability to perform all of the activities that take place between delivery of an edited manuscript and delivery of finished books to readers, the publishing industry needs to take a hard look at its current business model. Publishers have the potential to get squeezed on both ends. For example, there is the Barnes & Noble - Sterling combo with an increasing number of book sales being titles self-published by B&N. It is the same deal with Amazon, which is actively going after new product to self-publish with Createspace as well as original audiobook projects from Audible. To the extent publishers covet virtual shelf space at Amazon (with one-click ordering), Amazon's move should give indie publishers pause.

What if this virtuous publishing partner determines that it is profoundly profitable to publish their own books? If Amazon does not use its great size and ability to bring its own books to the attention of readers, we will be very surprised. When Amazon does this, we fear it will be at the expense of independent publishers whose distinctive personalities are reflected in the books they publish. To date, Amazon has been a good partner, but operating under the aegis of a publicly traded company who has shown the ability to act arbitrarily is disconcerting to the CIP and our publisher members. Publishing is a competitive business. It is likely to become more competitive if Amazon starts favoring its own self-published books

So, as a general proposition, vertical integration is a bad thing. Perhaps, the market will correct itself, as publishers move over to www.barnesandnoble.com, and other digital asset distributors and e-retailers pop up. Likely, that won't happen. Book distribution is not sexy enough, and Amazon is like the slightly abusive partner we tend to tolerate for the benefit of the kids. If the industry doesn't get an order of protection from the Justice Department, then perhaps we need a Plan B.

Physical distribution of books is largely the preserve of large conglomerate publishers and a handful of large independent distributors. It’s not a pretty business. It employs the equivalent of Yankee peddlers who hand-sell books to brick and mortar stores, with full return privileges for oversold books. If we extrapolate, the Book Surge gambit may be seen as a relatively painless first step in managing the digital distribution of titles to e-tailers and licensees. Amazon has the amazing ability to manage and organize content. It also offers a painless online experience for the consumer. Instead of Amazon merely being the recipient of digital assets, it’s easy to imagine Amazon providing comprehensive consultancy services to our members, helping them prepare their content for digital distribution for and beyond the traditional Amazon platform. Is the Book Surge gambit a disguised opportunity for indie publishers? Perhaps. Indie publishes are the small furry mammals scurrying around the legs of large dinosaur publishers. The digital meteor has hit. To survive, indie publishers need to be able to present content in a variety of digital formats. Is Amazon a friend or a foe? Only time will tell.

If I had to guess, I'd say in the next 24-months Google buys Ingram (Googlegram?) for its digital group assets (including Lightning Source), and it out-Amazons Amazon by creating the ultimate digital warehouse/distributor in the sky.

If Google were to exhibit digital favoritism, it would steer book buyers to its wholly owned and super- efficient Lightning Source imprint. Amazon owns the online store. Google owns the web. Amazon merchandises books. Google sells them contextually. Balance is restored to the planet.

The short- to mid-term changes in trade publishing are going to be dramatic. Large publisher dominance is shrinking in the new media economy. When the change comes, we believe the main winners will be independent publishers. They music industry taught us that. Amazon has confirmed it.

Lloyd J. Jassin
Chair, Executive Committee
Center for Independent Publishing

Postscript / Scorecard

Welcome to 2016! Glad you could make it.

It's time to assess my fortune telling abilities. So, how did I do in predicting the future of publishing? As predicted, Amazon's was the catalyst for profound changes in the publishing industry.  

These are the five publishing predictions I made in 2008: 

Prediction No. 1: Amazon acquires book publishing companies.
Verdict: Correct. In 2012 Amazon acquired Avalon and Dorchester.

Prediction No. 2: Google skews search results to favor its own content.

Verdict: Correct. As of this writing (late 2017), Google is appealing a record €2.4bn (£2.2bn)fine levied by the EU over search engine results. 

Prediction No. 3: Amazon will crush the competition. 
Verdict: Correct. In 2015 Amazon controlled 74% of the eBook market. 

Prediction No. 4: Google Acquires the Ingram Content Group.
Verdict: Okay, not yet. Give it time.

Prediction No. 5: The big winner will be independent book publishing. 
Verdict: Correct. "[N]on-traditionally-published books now make up nearly 60% of all Kindle ebooks purchased in the US, and take in 40% of all consumer dollars spent on those ebooks," according to a 2015 report by the AAP (Assoc. of American Publishers).

Amazon Subscription Service Will Rewrite Book Contracts

The Economics of Book Publishing Just Changed Big Time

“[T]he dirty little secret of the media industry is that content aggregators,
not content creators, have long been the overwhelming
source of value creation.” 

--  Jonathan A. Knee, The Atlantic

It comes as no surprise that Amazon is exploring a Netflix-like subscription service for digital books. But what might Amazon's subscription book service actually look like for subscribers, authors and publishers?  And how will the definition of “Subscription Revenue” impact authors and publishers financially?   I believe how Amazon and the "Big Six" ultimately define the term "Subscription Revenue" will be the subject the next great digital book debate.  Subscription book services are on the march. They make sense for both publishers and readers for reasons discussed in an earlier post.  But with regard to authors, what their financial rewards will be is cloudy.  A royalty based on subscription revenue is a complex formula, and what trickles down to the author, ultimately, will be defined by both the Subscription Revenue definition hacked out of Amazon and the Big Six, and pre-internet author-publisher agreements that may not have contemplated this new business model.  .  

Below is a snap shot of subscriber terms gathered from allied industries which was compiled for a digital rights publishing course I taught at New York University this summer.  Looking at it, what's clear to me is that the new metric of an eBook’s financial success is not just the number of books purchased and stored on devices, but revenue from advertising and other sources.  It's about monetizing readers.    

In order to launch a subscription service offering downloads or streaming books, in addition to entering into terms of service agreements with subscribers, Amazon must obtain rights from publishers.  In this blog, I intentionally sidestep the rights issues in order to focus on the term “Subscription Revenue.”  

In book publishing, Net Revenue generally means gross proceeds from defined revenue streams minus enumerated expenses.   However, only a portion of subscription revenues will actually be attributable to subscription fees for downloads and streaming of books.   The obvious sources of revenue that make up the subscription revenue stream will include advertising and sale of information about subscribers. What percentage of advertising revenue attributable to a particular book is fair or reasonable?   If anyone is able to negotiate a viable Internet music-style (not Netflix) subscription model, it’s Amazon.   My best is on them..  Subsidiary issues then become the mechanics for ensuring the accuracy of reporting, which no doubt will be challenged.  

With regard to Jonathan Knee's assertion that content is no longer king (see the above epigram), I'm not convinced.  Cable television, which is a classic subscription model, suffers from annual rate increases because cable companies are at the mercy of their content providers.   As such, provided publishers negotiate wisely, Amazon will be a most excellent partner. 

Here's the comparison of business models prepared by Adam Ness for my NYU class:      

Compare Subscription Business Models

• Service-Subscriber Terms
• Unlimited content model
• In exchange for a periodic fee, the subscriber receives access via streaming to unlimited content.
• Examples
• Netflix[i]: Unlimited on-demand streaming of movies and television shows for $8/month.
• Rhapsody[ii]: Unlimited on-demand streaming of music for $10/month.
• Sesame Street[iii]: Unlimited e-books accessed via a computer or “widget” for $4/month. 
• Disney Digital Books[iv]:  Unlimited e-books accessed via a computer or iPad app for $9/month or $80/year.
• Advantages
• Many consumers like the idea of unlimited content.
• The consumer can become tied to the service because if the consumer discontinues the service they lose access to their content.
• In the book context, there may be less interest in retaining a copy of an e-book than there may be in retaining a copy of a particular song, so consumers may especially be drawn to an unlimited content e-book subscription model.
• Disadvantages
• Consumers may not like the idea of paying for something that gives them nothing to keep permanently.
• Bundled content model
• In exchange for a periodic fee, the subscriber receives a pre-determined number of downloads which become the member’s to keep.
• Examples
• Audible[v]: 1 downloaded audiobook per month for $15/month or 12 downloaded audiobooks per year for $150/year; 2 downloaded audiobooks per month for $23/month or 24 downloaded audiobooks per year for $230/year.
• Advantages
• Subscribers are able to keep their content. 
• The content can be played/viewed on more devices.
• Internet connection is not required to play/view content.
• Disadvantages
• Consumers have less incentive to continue their service because they can keep the content they downloaded.
• Consumers may be interested in a limited number of works, and once they have downloaded them all they can cancel their subscription.
• License fees may be higher for this type of service because it competes with the e-book market instead of being complementary to it.
• Hybrid model
• Combination of unlimited online content and either a limited number of downloads or discounted downloads.
• Examples
• Napster[vi]:  Unlimited on-demand streaming music on computer and home theater devices for $4-5 per month (depending on length of commitment); adding streaming on mobile devices doubles the price.  With the mobile plan, the member can save up to 100 songs on their phone for off-line listening (access to the saved songs is discontinued if the plan is cancelled).
• Safari Books[vii]: Online access to 10 books per month for $23/month or $253/year; or unlimited e-books access via a computer for $43/month or $473/year.  Members also get 5 download tokens per month which can be used to download PDF versions of books.
• Advantages
• “Best of both worlds”

• Service-Copyright Owner Terms

• License for a term
• Negotiate the license for unlimited use of the works within the service for a set term.
• Netflix reportedly negotiated 3-4 year terms with film studios
• Advantages
• More predictable because the fees paid to the copyright owners will not fluctuate based on access.
• Disadvantages
• The service has limited bargaining power when it comes time to renew the license.
• Licenses for new works can be costly.
• Per-download/per-access license
• The copyright owner is paid a fee each time his or her work is downloaded or access.
• On-demand music streaming services account for the songs they play and pay the Performing Rights Organizations accordingly.
• Advantages
• Less commitment up-front.
• Allows the marketplace to determine the value of a work, which can be a negotiating chip with the copyright owner.
• Disadvantages
• Service runs the risk of an unpredicted high rate of access, and could potentially operate at a loss if the access fees exceed the membership fees.
• This is risk is more limited with a bundled content model because members can only access a certain number of works

---

[i] http://www.netflix.com

[ii] http://www.rhapsody.com

[iii] http://ebooks.sesamestreet.org

[iv] http://disneydigitalbooks.go.com

[v] http://www.audible.com

[vi] http://www.napster.com

[vii] http://www.safaribooksonline.com

Related CopyLaw articles:

Will Amazon Launch a Cloud Based Book Service?

How the Cloud, Expensive Hardcovers, Free eBooks & Windowing Can Save the Big Six

Amazon's New Imprint: Publishers Should be Scared. Very Scared.

I want to thank attorney Adam Ness, a former Master of Law Intern at Benjamin N. Cardozo School of Law,  for his assistance in research involving subscription models in allied industries. 

Amazon's Evolving Role in Publishing: A Decade of Change

Introduction

On May 1, 2011, the publishing industry was shaken by the news that Amazon intended to use its enviable market power to launch its fourth publishing imprint. At the time, I commented that Amazon could perform all of the activities between the delivery of an edited manuscript and the delivery of finished books, thus bypassing the role of traditional publishers.

Now, over a decade later, it's crucial to revisit these observations and examine how the landscape has shifted. This updated article combines insights from 2011 with a fresh analysis of the current state of publishing, demonstrating both the prescience of earlier concerns and the emergence of new challenges.

Amazon's Evolving Role in Publishing: A Decade Later

The publishing industry has undergone significant changes since 2011, but many concerns about Amazon's market power and its impact on the book industry remain relevant. Let's revisit these issues and examine how they've evolved over the past decade.

The Consolidation of Amazon's Power

In 2011, we worried about Amazon launching new publishing imprints. Today, Amazon Publishing is a major player with 16 imprints across various genres. As of 2024, Amazon Publishing has expanded to include 17 imprints, releasing over 1,000 titles, everything from nonfiction, to fiction, to children's books.  

Amazon's power now extends beyond just books:

• Audible dominates the audiobook market
• Kindle Direct Publishing is the go-to platform for self-published authors
• Amazon Web Services (AWS) hosts many publishers' digital infrastructure.

The Evolving Bookselling Landscape

The "showrooming" effect predicted in 2011 has become a reality, with many customers browsing in physical stores but making their purchases online. However, the landscape has evolved in unexpected ways. Many large bookstore chains have faced significant challenges, with some closing their doors.

 Notable closures include:

• Borders Group, which liquidated its remaining 399 stores in 2011, just before the original article.
• Family Christian Stores, which closed all 240 locations in 2017 after 85 years in business.
• Book World, which shut down its 45 stores across the Midwest in 2017.
• Hastings Entertainment, which closed all 123 stores in 2016.

While many brick-and-mortar retailers have struggled or downsized in the face of e-commerce growth, Barnes & Noble has found success by focusing on local communities and smaller store formats. Under the leadership of CEO James Daunt, the company has revamped its business model, allowing individual store managers more autonomy in selecting books and creating a unique customer experience tailored to local tastes. Similarly, between 2020 and 2021, independent bookstore sales have grown 31.6 percent, to $633 million. 

Antitrust Concerns

Antitrust scrutiny of Amazon has intensified. In 2021, the company faced lawsuits alleging anticompetitive practices in e-book pricing. While no major regulatory actions have been taken against Amazon in the U.S. book market, the conversation around big tech's market power continues.

Data and Privacy

The concern about Amazon monetizing reader data has only grown more relevant. With the rise of e-books and Kindle devices, Amazon has unprecedented insight into reading habits. Publishers and authors should continue to advocate for reader privacy and transparency in data collection practices.

The Rise of Subscription Models

Kindle Unlimited, launched in 2014, has become a significant player in how readers consume books. This subscription model presents new challenges for publishers and authors in terms of compensation and discoverability.

Looking Ahead

As we move forward, publishers and authors should focus on:

• Diversifying distribution channels
• Leveraging direct-to-consumer relationships
• Advocating for fair competition and transparent practices in the digital marketplace
• Exploring new technologies like blockchain for rights management and royalty tracking

The publishing industry must continue to adapt to the digital landscape while working to ensure that no single entity wields excessive control over the marketplace of ideas.

The Electronic Rights Dilemna

What Jerry Garcia & Ted Turner Can Teach the Publishing Industry

A Legal Footnote to the Andrew Wylie E-Book Controversy

Penguin R

andom House has its own self to blame for the electronic pickle they find
themselves in today. When drafting the original, pre-internet, publishing contracts for Cheever, Nabokov and Updike, they left out the future technology clauses.  To be clear, it's not that they didn't know how to draft future technology clauses.  They left them out.   As such, they just weren't thinking much about the future.  Likely, they were doing what was expedient, i.e., signing up books in "book form."  

What Was Random House (Not) Thinking?

As early as 1909, publishing attorneys have been thinking about e-books.  In 1909, they even included a "future technologies" clause in Mark Twain's publishing contract for his soon-to-be published (as in 2010) autobiography.  The "future technologies” clause, which acts as a catch-all for technologies and media not yet invented, has been around for a long while.  Narrowly drafted (out of respect for the author's rights and the publisher's legitimate interests), such a clause would have snagged verbatim e-book reading rights.

What the Publishing Industry Can Learn from Captain Trips & Captain Outrageous

What once seemed trivial (i.e., drafting a contract clause), is now upsetting the balance of power in the publishing industry.  It's a classic case of an ounce of prevention.   Happily, America has a long history of entrepreneurs taking undervalued opportunities (e.g., Turner's purchase of the old -- much undervalued -- MGM/UA film library in 1986) and leveraging them to create great value.

There's a Jerry Garcia/Phil Lesh/Robert Hunter lyric that neatly sums it up:  "One man gathers what another man spills” That was Turner's modus operandi, when he acquired the pre-1986 MGM, and pre-1950 Warner movie libraries.  He dusted them off, colorized them, and started profitable new media ventures.   He looked for and found undervalued opportunities and created great value. That's the American way.  Is Andrew Wylie a latter day Ted Turner?  Is he creating value or merely nibbling away -- unfairly -- at Random's backlist?  You be the judge.