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The Book Merger About Amazon

    Amazon is not on trial over major books. But its strength is.

    The US government is filing a lawsuit to stop Penguin Random House publishing house from buying a competitor, Simon & Schuster. The government says the merger, which will shrink the number of major US mass-market book publishers from five to four, will hurt some authors by reducing competition for their books.

    A lawsuit in the government lawsuit began this week, and my colleagues wrote 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 merits of well-known authors, is another example of the debate over how to deal with the big corporations — including the biggest digital forces — that shape our world.

    The elephant in the room is Amazon. Book publishers want to get bigger and stronger, in part to have more influence on Amazon, by far the largest seller of books in the United States. One version of Penguin Random House’s strategy boils down to 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 could, in theory, send people to titles that bring more revenue to the company. If authors or publishers don’t want their books to be sold on Amazon, they could be forgotten, or counterfeits could spread. But if the publisher is big enough, the theory goes, it will influence Amazon to stock books at the prices and terms the publisher chooses.

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

    Penguin Random House doesn’t say it wants to buy a rival to beat Amazon in the power game, which is legally irrelevant in the government’s lawsuit. But Lynn told me that if Amazon’s dominance hurts book publishers, readers, authors or the American public — and he believes it does — it’s counterproductive for a book company to get more muscular to bully Amazon. The best approach, he said, is to limit Amazon with laws and regulations.

    We know that a few tech companies — including Amazon, Google, Facebook and Apple — have a huge impact on entire industries and our lives. We are all trying to figure out the ways their power is good or bad for us, and what any government policies and legislation should do about the drawbacks. This controversial merger of book publishers is an example of the reckoning on these vital issues.

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

    And ten years ago, when the German conglomerate Bertelsmann bought a competitor to create Penguin Random House, that merger was a response to Amazon’s influence on book sales.

    Today Penguin Random House says a new acquisition would make book publishing more competitive and help authors and readers. In a twist, it cites Amazon’s burgeoning book publishing company as an example of stiff competition in its industry.

    Lynn’s critique of both Penguin Random House and Amazon reflects an influential view, especially among left-wing economists, government officials and lawyers, that America has screwed up its approach to big business, especially digital ones. The criticism is that the increasing consolidation of industries such as airlines, banks, digital advertising, news media and meat packaging is hurting shoppers, employees and citizens.

    Some Republican politicians agree with leftists that they want more government restraint from digital superstars. Congress has also debated a bill that would potentially require extensive business changes for Amazon and other tech giants, though it’s unlikely to become law right away. Similar laws have been passed elsewhere in the world.

    Chris Sagers, a law professor at Cleveland State University who wrote a book on a previous government antitrust case in the book industry, told me the outcome of this case probably doesn’t matter much. According to him, the book industry already overcharges readers and underpaid authors. He believes that both Amazon and book publishers have become too big and too powerful.

    This book publishing lawsuit is a window into deep-seated problems in the US economy that have taken decades and will take a long time to change.

    “There is really substantial consolidation in markets all over the place,” Sagers wrote in an email. “Once you let an economy get that far, there’s very little an antitrust law (or any other regulatory intervention) could hope to do.”

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

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