Breaking news! ABA Letter to the Department of Justice!!!

[MikeH]

This was in the PW daily e-mail-- the ABA is crying foul against Amazon, Wal-mart, Target:

October 22, 2009

The Honorable Christine Varney
Assistant Attorney General
Antitrust Division
Department of Justice
950 Pennsylvania Avenue, NW, Suite 3109
Washington, DC 20530

Molly Boast, Esquire
Deputy Assistant Attorney General for Civil Matters
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue, NW, Room 3210
Washington, DC 20530

Dear Ms. Varney and Ms. Boast,

We are writing on behalf of the American Booksellers Association, a 109-year-old trade organization representing the nation's locally owned, independent booksellers. A core part of our mission is devoted to making books as widely available to American consumers as possible. We ask that the Department of Justice investigate practices by Amazon.com, Wal-Mart, and Target that we believe constitute illegal predatory pricing that is damaging to the book industry and harmful to consumers. We are requesting a meeting with you to discuss this urgent issue at your earliest possible opportunity.

As reported in the consumer and trade press this past week, Amazon.com, WalMart.com, and Target.com have engaged in a price war in the pre-sale of new hardcover bestsellers, including books from John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, and James Patterson. These books typically retail for between $25 and $35. As of writing of this letter, all three competitors are selling these and other titles for between $8.98 and $9.00.

Publishers sell these books to retailers at 45%-50% off the suggested list price. For example, a $35 book, such as Mr. King's Under the Dome, costs a retailer $17.50 or more. News reports suggest that publishers are not offering special terms to these big box retailers, and that the retailers are, in fact, taking orders for these books at prices far below cost. (In the case of Mr. King's book, these retailers are losing as much as $8.50 on each unit sold.) We believe that Amazon.com, Wal-Mart, and Target are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers.

It's important to note that the book industry is unlike other retail sectors. Clothing, jewelry, appliances, and other commercial goods are typically sold at a net price, leaving the seller free to determine the retail price and the margin these products will earn. Because publishers print list prices indelibly on jacket covers, and because books are sold at a discount off that retail price, there is a ceiling on the amount of margin a book retailer can earn.

The suggested list price set by the publisher reflects manufacturing costs - acquisition, editing, marketing, printing, binding, shipping, etc. - which vary significantly from book to book. By selling each of these titles below the cost these retailers pay to the publishers, and at the same price as each other, and at the same price as all other titles in these pricing schemes, Amazon.com, Wal-Mart, and Target are devaluing the very concept of the book. Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows.

What's so troubling in the current situation is that none of the companies involved are engaged primarily in the sale of books. They're using our most important products- mega bestsellers, which, ironically, are the most expensive books for publishers to bring to market-as a loss leader to attract customers to buy other, more profitable merchandise. The entire book industry is in danger of becoming collateral damage in this war.

It's also important to note that this episode was precipitated by below-cost pricing of digital editions of new hardcover books by Amazon.com, many of those titles retailing for $9.99, and released simultaneously with the much higher-priced print editions. We believe the loss-leader pricing of digital content also bears scrutiny.

While on the surface it may seem that these lower prices will encourage more reading and a greater sharing of ideas in the culture, the reality is quite the opposite. Consider this quote from Mr. Grisham's agent, David Gernert, that appeared in the New York Times:

'If readers come to believe that the value of a new book is $10, publishing as we know it is over. If you can buy Stephen King's new novel or John Grisham's 'Ford County' for $10, why would you buy a brilliant first novel for $25? I think we underestimate the effect to which extremely discounted best sellers take the consumer's attention away from emerging writers.'

For our members-locally owned, independent bookstores-the effect will be devastating. There is simply no way for ABA members to compete. The net result will be the closing of many independent bookstores, and a concentration of power in the book industry in very few hands. Bill Petrocelli, owner of Book Passage in Corte Madera, California, an ABA member, was also quoted in the New York Times:

'You have a choke point where millions of writers are trying to reach millions of readers. But if it all has to go through a narrow funnel where there are only four or five buyers deciding what's going to get published, the business is in trouble.'

We would find these practices questionable were they taking place in the market for widgets. That they are taking place in the market for books is catastrophic. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked.

We urge that the DOJ investigate and request an opportunity to come to Washington to discuss this at your earliest convenience.

Sincerely,

ABA Board of Directors:
Michael Tucker, President (Books Inc.-San Francisco, CA)
Becky Anderson, Vice President (Anderson's Bookshops-Naperville, IL)
Steve Bercu (BookPeople-Austin, TX)
Betsy Burton (The King's English-Salt Lake City, UT)
Tom Campbell (The Regulator Bookshop-Durham, NC)
Dan Chartrand (Water Street Bookstore-Exeter, NH)
Cathy Langer (Tattered Cover Book Store-Denver, CO)
Beth Puffer (Bank Street Bookstore-New York, NY)
Ken White (SFSU Bookstore-San Francisco, CA)

CC: Oren Teicher, CEO, American Booksellers Association
Len Vlahos, COO, American Booksellers Association
Owen M. Kendler, Esquire, Antitrust Division, U.S. Department of Justice

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[crystalwizard]

Let's hope that the DOJ does investigate.

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[nathan]

Oh man, nothing would be better than the DoJ getting their curious little fingers into distrubution and then publishing in general.


I read this and my heart started beating faster with hope.


VIEW IMAGE
"Writing the wet dreams of teenage boys" - Lindsey Llyod, Tangent Reviews

"I promise that you will not FOR ONE SECOND be bored during one of my movies. You won't learn shit about the human condition, or feel a collective connection with the brotherhood of man. But if you give me $10, I will**** an explosion while a Slayer song plays."

[Ropespor]

I sure hope they get on this. Whenour nation's literature isdetermined by Walmart, the last vestiges ofcivilization are finally done.


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[lin]

Hmm.... Well.... Are Walmart, et. al. dumping the books at below cost? I doubt it. What they're apparently doing is selling them at the same markup they apply to other products. In other words, letting their own business policies AND THE MARKET determine the value of a book.

Instead of allowing publishers to determine an artifical value for them by basing off discounts from their own idea of what retail price should be.

It wouldn't be that hard to make the point that in fact, the publishers have been guilty of price-fixing, rather than anything illegal being done by retailers who are simply employing the same yardstick to books they apply to everything else.

Speaking as a reader, I just don't think a novel is worth $35 retail. And if WalMart can sell it at ten bucks and make out, it proves my point.By the way, the largest retail of books in the US is already Walmart. So if that means "determining literature", it's already happening.

LINTON ROBINSON.com</font>

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[erazmus]

That would be true, if they didn't send back the remainders for reimbursement. Wal Mart sells books on commission just like B&N and your local independent bookstore. They just don't need much of a commission, or any, since they can loss leader the books.

That actually is part of the business plan for them, especially with their Super Centers located in small communities. They sell everything cheap, many items below cost, until the local retail outlets, none of who have the sheer mass of offerings, fold up. Then the price on things goes back up to their regular, low markup deal. This works on furniture stores, grocery stores, butcher shops, small co-op department stores, mom and pop clothing stores and yes, book stores.

Mike

Michael D. Turner
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'Dutchman Rescue'in Continuum SF #6
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'An Incident at Black Tongue Tavern' in _Bash Down the Door and Slice Open the Badguy_ from Fantasist Enterprises:

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'Pink Plastic Flamingos''What Smitty Saw' 'Elvis's Space Alien Lovechild' 'Two Ravens''Rejection' (forthcoming) in Big Pulp
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'Morning Coffee''Happy Landings''Teller of Tales''Silver Shells''I'm tired of Bombs, and my dog is dead' 'One Dark Night'in Every Day Fiction
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Read 'Silver Shells' In The Best of Every Day Fiction
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[lin]

Come now.

First of all, if publishers are getting socked because they do returns, instead of running to court, they could just discontinue returns. It's a stupid policy, anyway.

What's going to happen, the big outlets will stop selling books? If so, end of problem.

They are trying to force retailers to accept their 'suggested' prices. I smells much more to me of industry price-fixing than of retail evil.
Not even touching the idea of it bringing prices down for the public.

The idea about selling at a loss is not quite an urban myth, but close to it. Examine it a minute. How long are they going to take a loss on books? If it's a temporary thing, it's a temporary problem.

Thing is.... are the publishers getting their wholesale price, or aren't they? If they aren't then they need to examine the equally idiotic system of selling at discount of retail and wholesale like everybody else.

These are weak arguments and I think a few of my mentions here stand up pretty well:

1. Cheaper for consumers
2. Disparity of workable price and the attempted manufacturor-dictated dream price.
3. If they're getting hurt so bad by working like other industries, either modify policies or cut out the big boxers and sell to outlets who price it higher. (Thus supporting book stores and such)


I have a REALLY hard time seeing the publishing industry as being some poor, abused victim here.

LINTON ROBINSON.com</font>

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[Ropespor]

Well, there is a wider creative issue here. Walmart is so huge that what they will (or will not) carry begins to shape what publishers will or will not publish. There's a parallel in the music industry. Because Walmart is a "family" business, they will not carry music with controversial lyrics. Fine. But when most independent music retailers have been run out of business, music labels are far less likely to produce music that Walmart won't carry. How many artists, behind the scenes, are never picked up because they don't fit the Walmart model? I could see this potentially becoming an issue with publications as well.


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[lin]

Different issue, isn't it? And doesn't the NYT Bestseller list do as much (or more) to compress literary availability as WalMart?
Actually corporate number-crunching does as much to eliminate midlist and small imprints as anything else.

But if it's a problem, like I say, the publishers don't HAVE to sell to Walmart, do they? And you can't go get a restraining order telling people not to buy at WalMart, but instead go to their neighborhood bookstore and see more diverse titles.

Books that hit WalMart are ALREADY 'compressed'. And the thin top slice they get is determined in part by sales (affected by things like NYTBS or if they're about vampire teens or Paris Hilton) and partly about the titles the publishers decide to package for them.

LINTON ROBINSON.com</font>

MAKE YOUR OWN BOOK PROMO VIDEOS FOR FREE</font>

[lin]

We're just lucky they don't have Chinese writers churning out cheap English novels from prison.

LINTON ROBINSON.com</font>

MAKE YOUR OWN BOOK PROMO VIDEOS FOR FREE</font>

[nathan]

[quote]

lin said...
Hmm.... Well.... Are Walmart, et. al. dumping the books at below cost? I doubt it. What they're apparently doing is selling them at the same markup they apply to other products. In other words, letting their own business policies AND THE MARKET determine the value of a book.
The idea about selling at a loss is not quite an urban myth, but close to it. Examine it a minute. How long are they going to take a loss on books? If it's a temporary thing, it's a temporary problem. Wait. Before we even get into anything about the pricing of novels: You think the concept of a corporation who is able to absorb the cost of underpricing thenusing that tactic to attackcompanies who can'tin order todrive them out of businessis "close to an urban myth?"

Certain free market tactics are illegal--which is why they invented the laws and created the language to identify, describe, and legislate such underhanded tactics.

Wal-Mart, Target, etc simply add 0.5-cents to a box of tampons, toliet paper, motor oil, etc* to off-set the cost of something that is a very small part of their overall profit (in this case books). They absorb the loss because they can drive competetion out of buisness (B&amp;N, etc not having motor oil or tampons) until competetion is gone.

This, along with simply purchasing and merging with smaller businesses, is a rather ancient practice designed to create chokepoint strangleholds on the market or even monopolies.

These activities aren't alligators in the sewers, or alien abductions or saying Bloody Mary 3x's in a mirror.




[*] used for simplified illustration, not as an instruction in accounting.

VIEW IMAGE
"Writing the wet dreams of teenage boys" - Lindsey Llyod, Tangent Reviews

"I promise that you will not FOR ONE SECOND be bored during one of my movies. You won't learn shit about the human condition, or feel a collective connection with the brotherhood of man. But if you give me $10, I will**** an explosion while a Slayer song plays."

[crystalwizard]

>You think the concept of a corporation who is able to absorb the cost of underpricing then using that tactic to attack companies who can't in order to drive them out of business is 'close to an urban myth?'

We just had that very thing happen here.

happened with 2 community newspapers

Newspaper #1, the Times Record, had been the only community newspaper for many years. you had to buy copies, it wasn't free. Wasn't expensive, but wasn't free. Provided solid news.

enter newspaper #2. Community newspaper #2 was started by large metropolaton newspaper in neighboring city. It was free. First mailed to every home within the area once a week, then thrown to people, still free, once a week.

People stopped buying newspaper #1. why should they buy it? Newspaper #2 was free, delivered right to their door and had color pages. Newspaper #1 had only black and white pages and was available only at certain locations. Lots of those but you still had to go get it if you wanted it.

Newspaper #1 folded. it took less than a year for newspaper #2 to drive it out of business and ALL they did was simply provide a similar product for a lower cost and better access to it.

Apply that to the Big Box stores such as Walmart. It is a proven fact. When Walmart, Target and other giants go into a place, the mom and pop stores close up and go away. Walmart doesn't need to do anything on purpose to drive them out of business, either. But it happens anyway. Walmart provides better access to goods for a lower cost than mom and pop can.

Are you going to pay 1 dollar for something that you can get for 50 cents just because the people selling the item for a buck happen to have had a store in your town for several years? You might, I doubt too many people in your town will, however.

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[lin]

You are right Crystalwizard, big box stores drive existing stores out of business. Just as Chinese goods are driving Mexico out of business and severely damaging American manufacturors.

But you are also right that they 'don't need to do anything on purpose'. All they have to do is show up.

The idea that they dump, then raise prices is, of course, possible. But it's not a reality. And nobody has been able to pin it on them, when you know there are many who are dying to.

So yeah, an urban myth.


BTW, pretty much every American city had free weeklies pop up in the Seventies. It's not a case of dumping to run people out of business: it's a new, workable business plan that proved successful. The money is not in circulation (and it costs a LOT to collect those pennies) it's in advertising. The weeklies demolished the old concept you'd hear (during my experience as a newspaper/magazine editor, publisher and startup consultant) of 'don't give me readership, what is your certified circulation'.
Just as television and radio and much internet provides concent for free in order to get advertising.
And yes, weeklies have been bad for urban dailies, part of the 'perfect storm' of factors that is driving them out of business.

But obviously this isn't some big plot like the old days of gas wars and Standard driving out independents by underpricing.

But, hey, if somebody wants to show me some sort of evidence, where investigators have show pricing shifts at WalMart over a peried of establishment, I'll revise my views. Yammering about alligators is nothing more than the saloon sureness that spreads myths.

LINTON ROBINSON.com</font>

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