Via Publisher’s Weekly

Here is a copy of the letter the American Booksellers Association sent to the Department of Justice asking them to investigate what they call “predatory pricing” of new hardcovers. Discuss below.

October 22, 2009

The Honorable Christine Varney
Assistant Attorney General
Antitrust Division
Department of Justice
950 Pennsylvania Avenue, NW, Suite 3109
Washington, DC 20530

Molly Boast, Esquire
Deputy Assistant Attorney General for Civil Matters
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue, NW, Room 3210
Washington, DC 20530

Dear Ms. Varney and Ms. Boast,

We are writing on behalf of the American Booksellers Association, a 109-year-old trade organization representing the nation’s locally owned, independent booksellers. A core part of our mission is devoted to making books as widely available to American consumers as possible. We ask that the Department of Justice investigate practices by Amazon.com, Wal-Mart, and Target that we believe constitute illegal predatory pricing that is damaging to the book industry and harmful to consumers. We are requesting a meeting with you to discuss this urgent issue at your earliest possible opportunity.

As reported in the consumer and trade press this past week, Amazon.com, WalMart.com, and Target.com have engaged in a price war in the pre-sale of new hardcover bestsellers, including books from John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, and James Patterson. These books typically retail for between $25 and $35. As of writing of this letter, all three competitors are selling these and other titles for between $8.98 and $9.00.

Publishers sell these books to retailers at 45%-50% off the suggested list price. For example, a $35 book, such as Mr. King’s Under the Dome, costs a retailer $17.50 or more. News reports suggest that publishers are not offering special terms to these big box retailers, and that the retailers are, in fact, taking orders for these books at prices far below cost. (In the case of Mr. King’s book, these retailers are losing as much as $8.50 on each unit sold.) We believe that Amazon.com, Wal-Mart, and Target are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers.

It’s important to note that the book industry is unlike other retail sectors. Clothing, jewelry, appliances, and other commercial goods are typically sold at a net price, leaving the seller free to determine the retail price and the margin these products will earn. Because publishers print list prices indelibly on jacket covers, and because books are sold at a discount off that retail price, there is a ceiling on the amount of margin a book retailer can earn.

The suggested list price set by the publisher reflects manufacturing costs – acquisition, editing, marketing, printing, binding, shipping, etc. – which vary significantly from book to book. By selling each of these titles below the cost these retailers pay to the publishers, and at the same price as each other, and at the same price as all other titles in these pricing schemes, Amazon.com, Wal-Mart, and Target are devaluing the very concept of the book. Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows.

What’s so troubling in the current situation is that none of the companies involved are engaged primarily in the sale of books. They’re using our most important products- mega bestsellers, which, ironically, are the most expensive books for publishers to bring to market-as a loss leader to attract customers to buy other, more profitable merchandise. The entire book industry is in danger of becoming collateral damage in this war.

It’s also important to note that this episode was precipitated by below-cost pricing of digital editions of new hardcover books by Amazon.com, many of those titles retailing for $9.99, and released simultaneously with the much higher-priced print editions. We believe the loss-leader pricing of digital content also bears scrutiny.

While on the surface it may seem that these lower prices will encourage more reading and a greater sharing of ideas in the culture, the reality is quite the opposite. Consider this quote from Mr. Grisham’s agent, David Gernert, that appeared in the New York Times:

“If readers come to believe that the value of a new book is $10, publishing as we know it is over. If you can buy Stephen King’s new novel or John Grisham’s ‘Ford County’ for $10, why would you buy a brilliant first novel for $25? I think we underestimate the effect to which extremely discounted best sellers take the consumer’s attention away from emerging writers.”

For our members-locally owned, independent bookstores-the effect will be devastating. There is simply no way for ABA members to compete. The net result will be the closing of many independent bookstores, and a concentration of power in the book industry in very few hands. Bill Petrocelli, owner of Book Passage in Corte Madera, California, an ABA member, was also quoted in the New York Times:

“You have a choke point where millions of writers are trying to reach millions of readers. But if it all has to go through a narrow funnel where there are only four or five buyers deciding what’s going to get published, the business is in trouble.”

We would find these practices questionable were they taking place in the market for widgets. That they are taking place in the market for books is catastrophic. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked.

We urge that the DOJ investigate and request an opportunity to come to Washington to discuss this at your earliest convenience.

Sincerely,

ABA Board of Directors:
Michael Tucker, President (Books Inc.-San Francisco, CA)
Becky Anderson, Vice President (Anderson’s Bookshops-Naperville, IL)
Steve Bercu (BookPeople-Austin, TX)
Betsy Burton (The King’s English-Salt Lake City, UT)
Tom Campbell (The Regulator Bookshop-Durham, NC)
Dan Chartrand (Water Street Bookstore-Exeter, NH)
Cathy Langer (Tattered Cover Book Store-Denver, CO)
Beth Puffer (Bank Street Bookstore-New York, NY)
Ken White (SFSU Bookstore-San Francisco, CA)

CC: Oren Teicher, CEO, American Booksellers Association
Len Vlahos, COO, American Booksellers Association
Owen M. Kendler, Esquire, Antitrust Division, U.S. Department of Justice