Report reveals OFT thinking on Amazon/TBD decision

Report reveals OFT thinking on Amazon/TBD decision

The Office of Fair Trading (OFT) rejected publishers' claims that the merger of The Book Depository with Amazon would reduce their margins, the full report into the OFT's investigation has revealed.

Amazon announced its intention to buy The Book Depository in July and the OFT concluded its investigation into the merger in October, finding it would not lead to a lessening of competition within the UK book industry.

Now a report has outlined the investigative body's findings in detail, revealing around 100 individuals contacted the OFT to complain about the merger, among them "six large publishing houses" and "five smaller ones".

Publishers complained the deal would see the route to market for some book titles inhibited; book prices would increase; the merger would make it more difficult for new entrants to compete in the market; TBD's free shipping would end; an important supplier of e-books would be removed; and Amazon's buying power would increase, resulting in reduced margins for publishers.

However, the OFT said evidence for the latter claim was not "compelling" after finding publishers' sales to TBD generally accounted for less than 5% of their overall sales, with only one small publisher reporting it accounted for 12% of its sales.

The OFT said: "Therefore, on the evidence submitted, the OFT does not consider that the merger itself would materially damage consumer welfare by any reduction in publisher margins."

Many of the 100 complainants were from outside the UK, the report said. Organisations such as the Publishers Association, The Booksellers Association, The Independent Publishing Guild, The Society of Authors and The Bookseller Group were also among their number.

One complainant expressed concern that Amazon would move into the market for
imprints, as it has in the US, and compete head-to-head with publishers, with the company's European base of Luxembourg potentially giving it tax advantages over UK-based retailers, but the OFT did not investigate this claim. "The party has not highlighted how these concerns are merger-specific and, having considered the arguments itself, the OFT has not considered it necessary to address them," the report said.

With competition on price, the OFT found both Amazon and The Book Depository used specialist software to price-match with their nearest competitor. The body's investigations found "evidence indicated that the parties were not close competitors in pricing terms".

In its investigations into whether the two booksellers competed significantly on supplying "long tail" books, The Book Depository increased prices on its own website and on Amazon Marketplace for one day, and found the number of book sales in both locations fell, with other third parties such as Aphrohead, Paperbackshop and Awesome Books experiencing a rise in share as a consequence. The OFT concluded "third party sellers on Amazon Marketplace are close rivals to The Book Depository".

The report also said TBD's UK sales growth had come from its sales on Amazon Marketplace. The OFT found no evidence to suggest TBD set its free delivery policy with reference to Amazon and therefore does not believe the merger will result in an increase of delivery charge, the report said.

The two companies told the OFT they accounted for around 50-60% of books sold online but the OFT found revenue figures supplied by other parties did not "accord" with their estimation. The report instead found Amazon's market share of the online books market was likely to be 70-80%, with The Book Depository accounting for between 2-4% of the online market for physical books.

At the time the OFT cleared the merger, Amelia Fletcher, OFT chief economist and decision-maker in the case, said: "We concluded that the UK book market has a significant number of bestseller and deep-range suppliers both online and off-line and that existing levels of competition will be preserved after the merger. Therefore the acquisition will not be referred to the Competition Commission for further investigation."

The Booksellers Association and The Bookseller Group has criticised the decision of the OFT to clear the merger, with the former saying it could put bookshops out of business and the latter calling it a "disappointment".

Richard Mollet, chief executive of the PA, said: "Whilst we respect the OFT's decision with regards to this acquisition, we would urge the competition authorities to keep a weather eye on the development of the whole book retailing market, particularly with regards to internet retailing."