Pearson, REDgroup, Amazon and the Depository: The Market Concentrates
by Joel Naoum - July 5th, 2011
Big news the past couple of days! So very big that I’m still having trouble digesting it all. But here it is – Pearson, the parent company of Penguin Australia – have bought the online arm of the bankrupt REDgroup (that is, Angus & Robertson and Borders). That was a couple of days ago. And then in unrelated related news, Amazon bought the Book Depository – the only real international competitor they have for selling books.
This is big news for everyone in the Australian book industry (and possibly everywhere else). But particularly the Australian industry. The Book Depository represents only a small part of international book sales – and still only a small proportion of the UK book market, where the company is based. But in Australia? A massive chunk. Forget Amazon. The reason local booksellers are threatened by online bookselling is largely to do with the Book Depository and their loss-leading free-shipping tactics.
So what the hell is going on? Was there monopolistic Kool-Aid in the water supply over the past week? Or am I cynically bundling two vaguely related stories into one neatly packaged blog post? You be the judge.
Let’s start with Amazon and The Book Depository. The Book Depository was founded by ex-Amazon people, and I’ve always secretly thought they didn’t see the business model as particularly sustainable, and were waiting to be snapped up by Amazon at a later date and a decent profit, once they’d had off with as much investment money as they could garner (which, I should point out, they’ll pay off in spades with the sale of the company to Amazon). There’s no evidence I can find that they were profitable yet – though they may well have been eventually (or might have been already – I’m not one of their investors). According to some reports it appears that they were somewhat dependent on a massive discount from the Royal Mail – which they may not continue to get with Amazon in charge. At any rate, there is already speculation about investigation from various trade commissions into this new potential monopoly.
Either way it’s quite possible that the Book Depository will cease to be as good as it used to be at doing what it did best. And what the Book Depository was very good at doing was stealing market share from Amazon. That is without doubt a blow to competition. It’s certainly true that since the Depository has been around, books have been available more cheaply to readers – especially in Australia. But there’s also an argument to be had here that this was a bubble that was always going to burst – based as it was on investment rather than profit – and in the meantime it has contributed significantly to the decline of local booksellers (both on and offline).
Now to the Pearson–REDgroup Overmind. This is a real noodlescratcher. There’s a diversity of opinions here. Peter Donoughue over at Pub Date Critical believes that it’s a stupid move by Pearson. The intricacies and subtleties of running an online retailer are too great a burden for a mere publisher, he says. On top of that, it might be that the dual (and sometimes conflicting) responsibilities of being a publisher and a retailer will be too much for one company. But I guess if they run into trouble, they might ask Amazon for advice. It’s very likely that some publishers, as Donoughue says, will be deeply suspicious of Pearson’s intentions, and may refuse to work with them. Just as other book retailers have been unwilling to stock the books that Amazon’s publishing imprints are beginning to put out in print.
Once again, I’m of two minds about this. On the one hand, it seems to me that a massive corporation like Amazon needs to have competition from someone – and perhaps one day that’ll be from someone like Pearson. On the other hand, however, all this concentration of power into the hands of fewer owners doesn’t seem to me to be a good thing for anyone except the owners. Cultural diversity is a beautiful thing. Being flexible and nimble is also a good thing. Monopolies are traditionally not very good at fairness for their customers in the long run, nor at adapting to change. This has been the whole problem with publishing companies in the past few years – too slow to react, too massive and too conservative to change when a reaction is deemed necessary. You can see the Big Six publishers in the US (and Australia) are struggling under the same conditions now. Does it really make sense for Pearson and Amazon to be getting bigger and even more burdened by conflicting responsibilities in this climate? As always, I do not have the answer. But I’ll admit that this news makes me distinctly uncomfortable. Let me know what you think in the comments below.
Special thanks to Twittervirate @ryanpaine, @mrconnorobrien and @felicetherese for the long email conversation this evening. Most illuminating.