Monday, May 19, 2014

Is Amazon Engaging in Predatory Behavior?

In light of both its legal victories and underwhelming earnings reports, it should come as no surprise that retail giant Amazon would seek to increase revenue and profit in its core bookselling business. One element of that has been to negotiate a better deal from publishers. Yet it has, just as predictably, faced resistance from major publishers—most of which have their own financial problems. Recently, an impasse in negotiations between Amazon and Hachette has apparently led the former to sanction the latter.

This has created a firestorm. The great bulk of commentary has blamed Amazon for employing “bully” tactics. Writers in particular have been up in arms, alleging that Amazon’s tactics target them unfairly. But how predatory is Amazon being? I’ll break down its individual practices and assess each one as either “fair practice” or “predatory,” and score appropriately.

Moreover, in the spirit of our “math-based” analysis, I’ll add scores for how fair or how predatory each practice is, according to the following scale:

1.00: Completely Fair
0.75 – 0.99: Highly Fair
0.50 – 0.74: Fair
0.25 – 0.49: Predatory
0.01 – 0.24: Highly Predatory
0.00: Completely Predatory

The Individual Practices

1. Eliminating discounts on Hachette titles

Assessment: Fair/predatory: 0.75

Reason: Amazon is not obliged to discount anything. It does so to spur sales, but at the expense of profit per unit sold. If it doesn’t discount new releases, well, that just puts its prices on par with those you might find at the local bookshop. While Hachette books may lose sales relative to those from other publishers, all Amazon is doing here is selling them at the price recommended by Hachette.

Suggesting customers look at books sold at a lower price instead (from rival publishers) is a bit below the belt, but it’s not all that different from a bricks-and-mortar store having a special display shelf for discounted books. A bit different, but not completely different.

2. Making customers wait 1-4 weeks before shipping Hachette books

Assessment: Fair/predatory: 0.33

Reason: Amazon has claimed to at least one author that this is Hachette’s fault, but I don’t believe that for a second. After all, Hachette is more dependent on Amazon than Amazon is on Hachette. It’s far more likely that Amazon is just not making the same effort to get Hachette books into customers’ hands as they would with, say, Macmillan.

In one sense, this is just as fair as eliminating discounts—after all, Amazon doesn’t have to get you books quickly; you just expect them to, because they usually do. On the other hand, this practice is hurting authors, as well as customers in areas that aren’t well serviced by bricks-and-mortar shops.

3. Click-baiting customers seeking Hachette titles only to present them with #s 1 and 2

Assessment: Fair/predatory: 0.00

Reason: Say you want to buy Michael Sullivan’s Theft of Swords. Google it and guess who turns up as search result #1? That may be innocuous in and of itself, but at one point, if you clicked, you'd come to an Amazon page that promptly asked if you'd prefer to buy something discounted. And published by someone other than Hachette. The banners appear to have been taken down now, which is a good thing. But who knows for how long...

To be fair, Amazon does have its defenders on this front, most notably author and self-publishing evangelist Hugh Howey, who argues that Amazon is behaving no differently from other companies embroiled in contractual negotations, citing a Barnes & Noble directing to cease stocking Simon & Schuster products (Howey’s publisher).

But as David Strietwell writes in the New York Times:

There is, however, a big difference between those earlier incidents and what is happening now. Independent bookstores broke with tradition in 2012 and decided not to sell books published by Amazon. That was their choice. And if customers chose as a result not to shop there, that was their choice. It’s a free country.

But Amazon is not saying it is dropping all Hachette books. Instead, it’s as if Barnes & Noble had run ads for Mr. Howey’s “Wool” last spring and then, when an eager customer came in to buy it, said there were no copies available but how about a copy of Philip K. Dick’s “The Penultimate Truth” — another dystopia about a community living underground — instead?

That sounds like bait and switch, something the Federal Trade Commission frowns on as deceptive.

Final Tally

Fair/Predatory Quotient: 0.36.
Conclusion: Predatory.

There’s no doubt in my mind—Amazon appears to be engaging in predatory behavior. And it’s not the first time or the only area in which they act that way. As our indie publishing columnist Dean pointed out last year, Amazon can be as difficult to deal with for independent authors as those published by conglomerates Amazon has disputes with.

Besides, there’s no doubt it hurts authors more than anyone. When I asked popular fantasy author Michael Sullivan (published by Hachette imprint Orbit Books) how he felt about the whole situation, he had this to say:

Of course I wish it wasn't going on, it's not good for anyone—Amazon, Hachette, the readers, or myself. The hard facts are Amazon bullies the publishers, and the publishers bully the's all about who has the power, and the end result is the author always gets the short end of the stick. While there is a lot of speculation about what is at stake, I'm afraid that ebook royalty share is probably one of the things on the table. If this is true, I'm looking at a pay cut if Amazon negotiates a better margin (ebook royalties are based on net paid to the publishers, whereas print royalties are based on list price). I wish the ecosystem were structured to reward the content creator, but that's just not going to happen. The big boys will always take the lion's share, and the authors will always get the leftover crumbs. We (authors) are just caught in the middle and powerless in such situations. The only thing we can control is how our future books will be released. For books already signed, we just have to sit and wait to figure out what our new cut will be...I fear it will be lower.

In a sense, this incident is an almost inevitable result of the U.S. Department of Justice siding with the category-killing behemoth over the financially vulnerable cartel that is Big Publishing (something I warned about way back when). I mean, why not force your supplies to tow the line if you have the means at your disposal?

Anti-trust legislation is supposed to disincentivize that kind of thing, and once the DOJ took sides all those disincentives went out the proverbial window. This incident is just an unfriendly reminder of what Amazon’s unchecked growth in market share means for the publishing industry. But you can’t really blame Amazon for wanting to keep growing, and to do so with the fewest encumbrances possible. That’s what profit-seeking entities do.

That just serves to remind why it’s so important that competitors—independent booksellers, Powell's, Barnes & Noble, Waterstones and ebook venders like iBooks, Kobo, Weightless and Smashwords, among others—remain financially viable. A monopolized market is an unhealthy market for everyone other than the monopolizing entity, where terms can be set exclusively by it and everyone either goes along or suffers. And if the DOJ is really committed to ensuring healthy competition, it might just want to take a closer look at what's happening right now, which does kinda sorta look at an anti-trust problem. 

So as much as I love Amazon Prime—and I do—I’m pretty disgusted by their role in this affair, and like most others who want publishing to remain financially viable, call on Amazon to disavow predatory tactics and seek leverage in less destructive ways.

UPDATE (5/23/14): From the NYT:

[Amazon] began refusing orders late Thursday for coming Hachette books, including J.K. Rowling’s new novel. The paperback edition of Brad Stone’s “The Everything Store: Jeff Bezos and the Age of Amazon” — a book Amazon disliked so much it denounced it — is suddenly listed as “unavailable.”

In some cases, even the pages promoting the books have disappeared. Anne Rivers Siddons’s new novel, “The Girls of August,” coming in July, no longer has a page for the physical book or even the Kindle edition. Only the audio edition is still being sold (for more than $60). Otherwise it is as if it did not exist.