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Erosion of gatekeepers

Amazon-Goodreads merger unleashes a frisson in the publishing industry

Written by Pratik Kanjilal |
April 2, 2013 3:36:34 am

Amazon-Goodreads merger unleashes a frisson in the publishing industry

A merger and an acquisition in the US,both likely to be formalised in the second quarter,have the capacity to move the goalposts in English language publishing worldwide. It’s making writers antsy and when they think it through,readers may not be ecstatic either. Publishing companies and booksellers,the gatekeepers of the world of books,who compete financially,are trying to form monopolies in order to lean on each other harder. And two important stakeholders in book publishing,writers and readers,primary producers and consumers,feature only as interested bystanders in this arm-wrestling match. It’s almost enough to make them want to join hands and cut out the middlemen.

On Thursday,Amazon announced the acquisition of,a readers’ community which crowdsources reviews and ratings from 16 million members. The volume of the deal remains unspecified,but educated guesses range between $140 million and $1 billion. The US Authors Guild struck back immediately,calling the buyout a “truly devastating act of vertical integration”. Its president,Scott Turow,made a bleak public statement: “Amazon’s acquisition of Goodreads is a textbook example of how modern internet monopolies can be built. The key is to eliminate or absorb competitors before they pose a serious threat.”

Meanwhile,another monopoly-like deal has been slowly inching towards its conclusion. In February,the Department of Justice cleared the proposed merger of publishing giants Random House and Penguin. Now,the deal awaits clearance from antitrust regulators in Europe and Canada,which is unlikely to be denied. The merged entity will control perhaps one-third of English trade publishing and will leverage its volumes to secure better terms from Amazon,which dominates retailing.

M&As sometimes trigger cascades as industries reorganise their assets. When Random and Penguin announced their feelings for each other in October last year,Rupert Murdoch was expected to start cruising for a partner for HarperCollins. There was talk of a merger with Simon & Schuster in November but News Corp,which owns HarperCollins,was probably too preoccupied with the fallout of the phone hacking scandal in the UK to do a notable merger. But if a deal of any magnitude had been struck,the English language market would have been divvied up into two lions’ shares,leaving a wedge populated by smaller players and indie presses — the Third Front of the books trade. It was assumed that the battle would remain a straight contest between publishers and retailers,each seeking to gouge better margins out of the other. As the sharpness of Turow’s criticism suggests,a flanking manoeuvre like the Goodreads buyout was totally unexpected.

Amazon has made sizeable acquisitions in the past — IMDb,audiobook specialist Audible,the daily deal site Woot,the social buying site LivingSocial,the e-commerce site Zappos and Kiva Systems,which develops robotics for large scale warehousing. All these were straightforward decisions to improve market access and logistical efficiencies. But the Goodreads acquisition is an attempt to control consumer behaviour. Amazon has acquired the biggest source of credible crowdsourced reviews and ratings on the Net,and it will kill it to remove competition with its own user reviews. It will do this without even trying.

Product reviews are powerful marketing aids but they are distrusted precisely because they have commercial value. The credibility of media and industry reviews is lower than that of word of mouth publicity. The Goodreads business model was based on this distinction. The credibility of the site owed to its independence and its ability to build ever-expanding circles of trust among users who already knew each other. The site was acquired by Amazon because it can influence sales and had the potential to divert traffic to competing stores. But absorption into the very industry it critiques would probably lower the perceived credibility of Goodreads. In which case,rather than gaining a strategic asset,Amazon would have only eliminated competition.

Goodreads is an interesting example of the erosion of the traditional gatekeepers of the Anglo-American industry — publishers,booksellers,critics and agents — who are surrendering ground to the crowd. First,Anglo-American publishers transferred marketing roles to writers. Traditionally reclusive,they have turned performers in order to promote their work. Agents and editors used to be deeply involved in shaping the books of their writers,but that is now the exception rather than the rule. And then Goodreads crowdsourced opinion and crowded out the critic.

Eventually,perhaps mainstream trade publishers would like to get out of the way altogether? The industry has concentrated on financials rather than creativity and worked quite hard to convince writers that they would be better off publishing themselves,and thus triggered a self-publishing wave. Now,any agency which can join the dots between the writer and the reader,cutting out traditional publishing services,can establish a new market dynamic. It would do for the book trade what iTunes did for music — rattle cages very hard and chuck the goalposts way out of sight.

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