By Porter Anderson, Editor-in-Chief | @Porter_Anderson

A Marketplace ‘at Risk for Serious Damage’

For years, many in the publishing industry of the United States and other parts of the world have wanted to see Amazon examined by American governmental regulators for potential anti-competitive practices.

And, as various elements of Washington’s apparatus now address issues in terms of the major tech platforms, the Association of American Publishers (AAP) today (June 27) is filing a 12-page statement with the Federal Trade Commission (FTC), urging the commission to more closely scrutinize the behavior of dominant online platforms that “pervade every aspect of the economy.”

As we mentioned in our coverage on Tuesday of this week’s reporting on Amazon from David Streitfeld at The New York Times about counterfeit books on its retail platform—and Amazon’s extensive response—antitrust oversight of Silicon Valley majors has been divided between the Federal Trade Commission for Amazon and Facebook, while the Justice Department is to examine Apple and Google, investigating practices that could potentially be ruled anti-competitive.

And while we find 12 references to Google in AAP’s commentary, it will surprise few in the book business that Amazon is mentioned 33 times.

Today’s filing from the Washington-based AAP, in fact, references that Streitfeld article from the Times’ June 23 edition, though not the Amazon answer, and is responsive to the FTC’s hearings near the close of a long cycle called “Competition and Consumer Protection in the 21st Century” and frequently touching on privacy concerns—often, of course, the entry point to debate and examination relative to tech corporations’ focus on consumer data. Today’s filing is to the “final comments” sequence to the process and meets the commission’s June 30 deadline.

A distinctively international element is engaged at points in which AAP relies on the European Commission’s investigations and action on Amazon’s use of “most favored nation” clauses (MFNs)and the May 2017 acceptance by the EU of Amazon’s commitment to stop using those clauses in distribution agreements with book publishers in Europe.

Today, in a prepared statement drawn from the commentary and released to the news media last evening for publication this morning, AAP president and CEO Maria A. Pallante is quoted, saying, “Unfortunately, the marketplace of ideas is now at risk for serious if not irreparable damage because of the unprecedented dominance of a very small number of technology platforms.

“In order to mitigate this crisis and protect the public interest, AAP urges the FTC to exercise much-needed oversight and regulation, particularly as to circumstances where technology platforms stifle competition and manipulate consumer outcomes.”

‘Primary Areas of Concern’

The formulation used by AAP in setting up its commentary rests in two key areas: book distribution and search.

Regarding search, Google is naturally the key interest and AAP’s messaging to the media flags this, saying, “AAP notes that Google’s complete and untouchable dominance is highly problematic [quoting now from its own FTC filing] ‘because its business model is largely indifferent to whether consumers arrive at legitimate or pirated goods.’”

But in reference to book distribution, of course, it’s Amazon that comes in for the lion’s share of complaint. The association in its media announcements finds something of a thesis statement in its commentary, writing: “No publisher can avoid distributing through Amazon and, for all intents and purposes, Amazon dictates the economic terms, with publishers paying more for Amazon’s services each year and receiving less in return.”

But we find this line from the filing itself to be even more succinctly descriptive of the scenario in which publishers and other industries operate in the digital dynamic today: “Some platforms operate at a scale that makes it impossible for suppliers to reach their consumers without them.”

The association delineates five “primary areas of concern” for structuring its commentary this way, we’re quoting here:

• “Platforms exercising extraordinary market power in the markets for book distribution and Internet search
• “The threat to competition when platforms act as both producers and suppliers to the marketplaces they operate
• “Platforms’ imposition of most-favored nation clauses and other parity provisions that stifle competition, market entry, and innovation
• “Platforms’ use of non-transparent search algorithms and manipulated discovery tools that facilitate infringement and deceive consumers
• “Platforms’ tying of distribution services to the purchase of advertising services.”

‘In the Marketplace for Information and Ideas’

In its introductory comments, AAP asks the FTC to consider ways in which tech platforms differ from other players in dominant market operation. It’s here that the association starts grappling with the traditional idea that if prices are low, then anti-competitive harm to the consumer isn’t a factor.

“First,” the association writes, “the assumptions that consumers will purchase goods at the lowest available price and that competition for market share will exert downward pressure on market prices depend on consumers receiving timely and accurate information about prices and quality. … That is often not the case in markets in which one or a handful of platforms use proprietary search algorithms and manipulated discovery tools to tilt the playing field toward particular suppliers or their own distribution channels or products.

“Second, modern technology platforms benefit from—and in some cases depend on—network effects. The larger the network, the greater the competitive advantage over rivals and potential rivals and, once entrenched, the platform has a greater ability to preserve and extend its market power in ways that are not available in markets that are not characterized by network effects.

“Third, in markets dominated by modern technology platforms, an analysis of consumer welfare must not overemphasize retail price levels relative to other critically important factors. The analysis of consumer welfare also must account appropriately for factors such as decreases in quality, consumer choice, and innovation, and a corresponding rise in consumer deception. Nowhere are these considerations more important than in the marketplace for information and ideas.”

On its complaints against Google’s search dominance, the association writes:

“Google’s complete and untouchable dominance in Internet search is no less problematic because its business model is largely indifferent to whether consumers arrive at legitimate or pirated goods. All too frequently, Google displays the links to legitimate sites only below a long list of links to unauthorized ones.

“With respect to Google’s advertising models, it neither controls nor apparently educates its advertisers, which in any particular case can result in advertising being attached to infringing products, including books.

“Given what otherwise amounts to direct profiteering, there is no good reason that Google cannot choose to diligently direct consumers away from a pirated or otherwise unauthorized copy in response to search queries. Since publishers have no effective recourse to check Google’s direct role in facilitating consumer confusion, and because said confusion in turn facilitates counterfeiting and infringement, AAP believes it is appropriate for the government to address these issues through regulation.”

‘Dominant Platforms’

“The Federal Trade Commission should use its regulatory and enforcement authority under the federal antitrust laws to address platform market dominance and related anti-competitive practices [and] address unfair and deceptive trade practices.”Association of American Publishers

Here are several one- and two-line keys to some of the issues more thoroughly explicated in AAP’s full 12-page statement to the FTC:

• “Dominant platforms … can use the vast amounts of data they collect about what consumers are buying and searching for on their site not only to manipulate search or target ads on their platforms, but also—with unique access to what search words are used on their own platforms—can purchase those search words as keywords for advertising on other platforms as well.”
• “Dominant platforms have inside advantages regarding rival suppliers’ forthcoming products and marketing strategies that they would not have if they competed only as suppliers.”
• “Dominant platforms do not need to make money on the sale of products they produce because they can make their money in other ways. In some markets, this forces suppliers to compete with below-cost pricing.”
• “Dominant platforms are effective at manipulating search algorithms and other discovery tools to steer consumers to their own branded products or away from those of rival suppliers, degrading the quality of their consumer search offerings and stacking the deck for competition for product sales.”
• “AAP and its member companies, like others, are just beginning to understand the extent to which platforms’ proprietary algorithms have been influencing everything from purchasing decisions to political choices.”
• “Platforms can and do manipulate consumers’ product searches in multiple ways. For example, if a consumer is searching for a new book, the platform may use an algorithm that generates search results that do not yield discovery of convenient means to purchase an authorized copy of that book, but instead steer the consumer to a counterfeit copy or to a substitute product offered by the platform itself.”
• “The brazenness of” platforms’ tying of distribution and advertising services “ranges from manipulating discovery tools to make a supplier’s products more difficult to find without a required level of advertising, to conditioning the maintenance of existing levels of distribution services or ‘vendor status’ on increased spending for advertising services, to refusing to provide distribution services at all without the purchase of advertising services. All are harmful. Amazon in particular has used tactics of this nature to require publishers to pay significant sums for services that used to be free, are provided for free by others, or where the actual cost of delivering the service is far below the fees demanded.”

And the overall message from AAP to FTC is, of course: “AAP respectfully submits that the commission should use its regulatory and enforcement authority under the federal antitrust laws to address platform market dominance and related anti-competitive practices, as well as its authority under Section 5 of the Federal Trade Commission Act to address unfair and deceptive trade practices, both by unscrupulous third-party sellers on platform marketplaces and, where appropriate, by the platforms themselves.”

The full text of the Association of American Publishers’ filing has been made available this morning and can be found here (PDF).

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More from Publishing Perspectives on Amazon is here, more from us on the Association of American Publishers is here, and on bookselling is here.