The least favoured

I once wrote that 11th April 2012 was the day the book business changed. For those with short memories, it was the day that the US Department of Justice held a press conference to announce that it had filed a lawsuit against five US publishers, alleging collusion over the implementation of the agency model (fixed pricing for e-books) and had settled with three of them. We will not remember 24th January 2017 in quite the same way, but we should. This week the European Commission released the preliminary report from its investigation into the e-book market, finding that Amazon “may” have violated EU anti-trust rules, and abused its dominant position through its use of Most Favoured Nation clauses (MFNs) in publisher contracts. The clauses effectively put a straitjacket around the nascent e-book market, requiring publishers to inform Amazon about more favourable terms offered to competitors—and offer them similar terms too. Such clauses, said the EC, could make it harder for e-book retailers to compete with Amazon, reducing choice for consumers.

To avoid a fine, and appearance of guilt, Amazon has offered not to enforce MFNs for five years. It also delivered its own alternative facts, saying “the provisions in question helped to deliver great selection and lower prices to customers—the notion that they had the opposite effect is simply wrong”. The reality is that there is no credible competitor to Amazon in the e-book space, and little (if any) innovation. Were it not for the strange quirk in the e-book market that has seen growth tail-off—partly but not wholly a consequence of agency prices—I would fear for the competition provided by high street booksellers too. Publishers (or authors) can still thrive in the e-book sector, but only on Amazon’s terms. Readers, meanwhile, only have an illusion of choice.

Even after the EC ratifies the five-year break agreed to by Amazon, the e-book market will remain locked in the Seattle giant’s jaws, with its position enforced by the accrued market power rather than contract. The Publishers Association and Booksellers Association are right to call for a continued and wider probe into the situation, conducted either by the EC or the UK’s Competition & Markets Authority. History may be written by the victors but the job of the regulators is to make sure the future is not dictated by them too—they have done a poor job up to now.

The EC’s judgment should also lead to another look at the original inquiry into agency. The big publishers (and others) argued at the time that the move to agency was in part prompted by Amazon’s growing dominance and their fears over how the retailer would abuse its powerful position. On 24th January—five years too late—the EC showed that they were right.