Publishing trade bodies have welcomed advice from the Competition & Markets Authority (CMA) that a new pro-competition regulatory regime "fit for the digital age" be rolled out to hold the most powerful tech firms to account through a new enforceable code of conduct.
If implemented, a new dedicated Digital Markets Unit (DMU) will govern companies with "strategic market status" (SMS)–those deemed to have "substantial, entrenched market power"–and have the power to impose fines. And it has been argued by the Publishers Assocation and Booksellers Association that such an SMS classification should apply to Amazon.
The advice to government, published on Tuesday (8th December), was produced by the Digital Markets Taskforce, as commissioned by the government in March and led by the Competition & Markets Authority, working together with Ofcom, the ICO and the FCA. It recognises the need for new regulation, reinforces the role that the DMU would have, and sets out the criteria for "strategic market status" to be awarded and enforced.
Companies designated as SMS companies will extend to those with "substantial, entrenched market power and where the effects of that market power are particularly widespread or significant". The Digital Markets Unit "will ensure the 'rules of the game' are clear up front, and work with powerful tech firms to ensure they comply with them", according to the CMA.
The three key proposed pillars of the regime for SMS firms are: "a new, legally binding code of conduct, tailored to each firm and to where the evidence demonstrates problems might occur, designed and overseen by the DMU"; "pro-competitive interventions, which can be used to address the sources of market power, allow competition to flourish and unlock the potential for transformative innovation by others in the market"; and "enhanced merger rules, which would enable the CMA to apply closer scrutiny to transactions involving SMS firms".
The Publishers Association and the Booksellers Association have broadly welcomed the report as a positive step forward.
They do so after submitting evidence to the taskforce, as part of which the PA advocated measures limiting what Amazon can do with sales data and compelling the retailer to share consumer data with third-party business suppliers on its platform. The PA said the SMS classification and an associated code of conduct would be "invaluable", referencing the removal of pre-order buttons on forthcoming titles "as a result of a stalling commercial negotiation" to argue other forms of competition enforcement may not happen quickly enough.
The BA said it was "self-evident fact that Amazon holds Strategic Market Status" and that "there should be mandated data separation to limit organisations’, such as Amazon’s, ability to leverage that market status". It said that "this should go some way to putting an end to Amazon abusing its market position to the detriment of independent retailers, including booksellers, on its Marketplace."
On the heels of European Union regulators bringing anti-trust charges against Amazon last month, the trade bodies asked that issues be looked at connected to the retailer's "buy box" and more broadly also.
Amazon in its submission said the existing competition rules are "sufficiently flexible to catch all new forms of conduct that could pose a threat to competition" and it cautioned against a "one size fits all" approach to regulation, asking the Digital Market Taskforce "to proceed with care": "Introducing new rules in a pre-emptive fashion, and without a detailed examination of sector-specific harms and underlying causes would likely be ineffective, have a detrimental impact on innovation, give rise to significant legal uncertainty, undermine business confidence and ultimately result in UK consumers losing out."
Commenting on the resultant report from the Digital Markets Taskforce, Stephen Lotinga, chief executive of the Publishers Association, said: "We welcome the advice of the Digital Markets Taskforce on the Competition &Markets Authority's proposed pro-competition regime for digital markets.
"Digital markets have supported readers during this difficult year. However Amazon, as the dominant player in the UK's digital book market, should be assigned Strategic Market Status and be subject to a new legally binding code of conduct, enforced by a new Digital Markets Unit. Amazon’s involvement in the book market has determined the rules of the game. Our hope is this new regime will level the playing field and encourage a vibrant digital marketplace that will allow businesses of all sizes to thrive."
Laura McCormack, head of Policy & Public Affairs at the BA, said: "The BA welcomes these first recommendations from the Digital Markets Taskforce to increase competition between large online companies and smaller businesses, and to improve the situation both for consumers and for competitors to these enormous multinationals with unquestioned ‘Strategic Market Status’.
"The BA has been lobbying for a fairer playing field for many years and it is good to see the CMA finally turn its attention to the market dominance by a very few key players in the digital market. Setting up the Digital Markets Unit will give a welcome clarity of purpose to the scrutiny of these companies. We are hopeful that the government will move quickly to pass the required legislation meaning the unit can take steps to designate Amazon as having 'Strategic Market sStatus'. This should finally bring to an end years of unfair practices in its marketplaces and in relation to its use of consumer data, amongst many other examples cited in the report. While relatively few booksellers are actively participating on Amazon Marketplace, we know from our submission research that the landscape is currently very much biased against the smaller traders, and towards the platform – we know this has had a hugely detrimental impact on some booksellers using the platform.
"However it is not only action from the Competitions & Markets Authority that is required. In order to truly level the playing field we also need to see steps taken by the Treasury to ensure that large online companies pay their fair share of tax to remove the systemic advantages they currently enjoy, and to help deliver other high street and online booksellers the opportunity to thrive.”
The government has committed to consult on proposals for a new pro-competition regime in early 2021.