Merging books about Amazon

Amazon is not a litigator in the big book court. But his power is there.

The US government is suing to stop book publisher Penguin Random House from buying rival Simon & Schuster. The government says the merger, which will reduce the number of major U.S. publishers of mass-market books from five to four, will hurt some authors by reducing competition for their books.

The trial of the government’s lawsuit began this week, and my colleagues have written a helpful explanation of the legal issues and what’s at stake for the companies, writers, and book lovers involved.

This case, which is about much more than books and the income of famous authors, is another example of the debate about how to deal with the big companies – including the biggest digital powers – that shape our world.

The elephant in the room is Amazon. Book publishers want to become bigger and more powerful, in part to gain more leverage over Amazon, the largest seller of books in the United States. One version of Penguin Random House’s strategy is this: Our book publishing monopoly is the best defense against Amazon’s book selling monopoly.

As the dominant way Americans find and buy books, Amazon can, in theory, direct people to titles that generate more revenue for the company. If authors or publishers are unwilling to sell their books on Amazon, they may fade into obscurity, or counterfeits may abound. But if a publisher is big enough, the theory goes, then it has leverage over Amazon to sell books at prices and terms the publisher prefers.

“Their argument is to protect the market from Amazon monopolizing, we’re going to monopolize the market,” said Barry Lynn, executive director of the Open Markets Institute, an organization that wants tougher antitrust laws and enforcement.

Penguin Random House is not saying it wants to buy a competitor to beat Amazon in the power play, which is not legally relevant in the government’s lawsuit. But Lin told me that if Amazon’s dominance is hurting book publishers, readers, authors or the American public — and he believes it is — giving the book company a more muscular take on Amazon is counterproductive. The best approach, he says, is to limit Amazon with laws and regulations.

We know that several technology companies—including Amazon, Google, Facebook, and Apple—have an enormous impact on entire industries and our lives. We are all trying to figure out in what ways their power is good or bad for us, and what government policy and law should do about the downsides. This contentious merger of book publishers is one example of the calculation of these essential issues.

It’s not uncommon for companies to justify acquisitions by saying they need more power to level the playing field. When AT&T bought a media and entertainment company called Time Warner a few years ago, one of the company’s explanations was that it wanted to become an alternative to digital advertising powerhouses like Google and Facebook. Music companies have consolidated over the past 15 years, in part to have more weight, as digital services like Spotify transform the way we listen to music.

And a decade ago, when German conglomerate Bertelsmann bought rival Penguin Random House to create the merger, the merger was one response to Amazon’s influence on bookselling.

Today, Penguin Random House says another acquisition will make book publishing more competitive and help authors and readers. In addition, he cites Amazon’s fast-growing business in book publishing as an example of stiff competition in his industry.

Lin’s criticism of Penguin Random House and Amazon reflects an influential view, especially among left-leaning economists, civil servants and lawyers, that America has messed up its approach to big companies, especially digital. The criticism is that the increasing consolidation of industries such as airlines, banking, digital advertising, news media, and meatpacking is harming shoppers, workers, and citizens.

Some Republican politicians agree with the left in wanting more government restraint from digital superstars. Congress has also been considering a bill that would require potentially sweeping business changes at Amazon and other tech giants, though it is unlikely to become law immediately. Similar laws have been adopted elsewhere in the world.

Chris Sagers, a Cleveland State University law professor who wrote a book about the previous administration’s antitrust lawsuit against the book industry, told me the outcome of the case probably won’t matter much. In his view, the book industry is already overpaying readers and overpaying authors. He believes that both Amazon and book publishers have been allowed to grow too big and powerful.

This book publishing legal case is a window into deep-rooted problems in the US economy that took decades to build and will take a long time to reverse.

“There is indeed significant consolidation across the markets,” Sagers wrote in an email. “When you let the economy get that far, there’s very little that any antitrust law (or other regulatory intervention) can do.”

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A classic scene from the movie “Singin’ in the Rain,” but Velociraptor instead of Gene Kelly. (Thanks to my colleague Jane Coaston for sharing this tweet.)

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