Top Bookseller, Distributor to Join Forces
By David Streitfeld
Washington Post Staff Writer
Saturday, November 7, 1998; Page A1
The country's biggest bookseller, Barnes & Noble Inc., announced yesterday
that it is buying the biggest book wholesaler, Ingram Book Group, which
supplies the bulk of books to its most feared competitor, Amazon.com Inc. --
as well as thousands of small booksellers.
Barnes & Noble's surprise announcement is the latest in a series of seismic
shifts in the publishing industry. The giant chain is threatened by the rise of
Amazon.com, which started selling books online three years ago and acquired
1.2 million customers in the third quarter of this year alone. Last month,
Barnes & Noble announced that Bertelsmann AG, the country's biggest
publisher, would become a partner in the bookseller's own online unit, the
struggling barnesandnoble.com.
Meanwhile, many small booksellers have been driven out of business, a fate
they often attribute to the rise of the superstores. Barnes & Noble and
Borders Group Inc. have built nearly a thousand of these sleek emporiums,
all featuring coffee bars, music departments and endless selection. Among
those squeezed out of the market has been Washington's once-mighty Crown
Books Corp. chain, which is in bankruptcy.
As booksellers of all types have begun emphasizing their ability to obtain any
book in print as quickly as possible, Ingram has become the one key source.
Hundreds of thousands of titles from tens of thousands of publishers are
available for immediate shipment from its 11 warehouses. The news that the
privately owned company is to be sold to Barnes & Noble for $600 million
came as a nasty shock.
The American Booksellers Association, which represents about 3,500 stores,
called on the Department of Justice and Federal Trade Commission to block
the acquisition.
"I find this to be blatantly anti-competitive," said ABA chief executive Avin
Mark Domnitz. "It threatens the diversity and availability of books to all
consumers, and will be challenged in every legal way possible by the ABA on
behalf of independent booksellers."
Attorneys said the deal was certain to be scrutinized by antitrust enforcers. In
the past five years, both the FTC and Justice Department have been
enthusiastic about blocking or altering transactions in which retailers try to
purchase large distributors in so-called vertical integration deals. The worry
is always the same: that the retailer will be able to squeeze rivals through
discriminatory pricing or by delivering less than the best service.
Even aside from the competitive ramifications, booksellers were troubled by
the symbolism of the deal. "We built Ingram brick by brick, and now they've
betrayed us," said Andy Ross, owner of Cody's Books in Berkeley, Calif.
Booksellers interviewed yesterday said they would rethink their relationship
with Ingram. Amazon.com said it would continue to diversify its supplier
base, adding that the acquisition "undoubtedly will raise industry-wide
concerns." A distributor has access to booksellers' most sensitive business
information -- what their customers buy and don't buy.
Said Tony Slagle, manager of the Cleveland Park Bookshop: "This stinks.
We've placed our last order with Ingram. Otherwise our money would be
going to help one of our biggest competitors."
Both Ingram and Barnes & Noble executives urged booksellers not to get
"emotional" about the deal.
"We anticipated there would be some people that might decide to discontinue
doing business with Ingram," said Barnes & Noble's chief operating officer,
Alan Kahn. "But that would be self-defeating. . . . We do not dictate anything
in the [book] business. We have no control over it."
John Ingram, chairman of the Nashville-based wholesaler, said, "I would
hope that the independents would understand we still want to serve them. This
will be the same people and the same company. They shouldn't hold it against
us that we're trying to make sure we survive into the future."
Worries about that survival sent Ingram, which wholesaled 150 million books
last year, looking for an ally or merger partner several months ago. It was
concerned that Bertelsmann, which owns Random House and Doubleday,
would now be selling directly to consumers through barnesandnoble.com,
with no need for a distributor.
At the same time, Barnes & Noble and Amazon.com were setting up or
expanding their own distribution centers around the country.
"The middleman was being cut out, and we're the middleman," said Ingram.
But booksellers yesterday had little sympathy. "I am sick at heart," said Ross,
the owner of Cody's. "Most independent booksellers are intricately tied into
Ingram. It is impossible for us to survive when we are so beholden to our
largest competitor -- and a competitor whose market plan is to destroy us."
Cody's is one of the largest bookstores in the country, which means it has the
volume to bypass distributors and deal directly with publishers. Nevertheless,
Ingram is its largest single account, supplying about 10 percent of Cody's
books.
"It would be very difficult for us to keep buying books from them," Ross
said. "They would have access to a huge amount of our private sales
information," ranging from what was selling well to how profitable Cody's
was. It's just the sort of information you don't want a competitor to have, he
said.
For the moment, some booksellers are pinning their hopes on the
government. "I don't know why this is not an antitrust violation -- the largest
book chain in America controlling the largest book distributor in America,"
said Philip Levy of Bridge Street Books. His Georgetown store, which is two
blocks from a Barnes & Noble outlet, gets about 40 percent of its books from
Ingram.
Regulators -- most likely the FTC, in this case -- will want to know whether
small booksellers have good alternatives if they don't buy from Ingram, said
antitrust experts. While other distributors exist, Ingram had so dedicated
itself to the small bookseller that it tended to be the first place they turned.
The others are slower or carry fewer titles.
The government is also likely to study Ingram's market share -- the larger it
is, the more aggressive regulators will be, these experts said. (The book
industry is so diffuse that even John Ingram said he wasn't sure of his
company's share.)
But even if Ingram is deemed an industry Goliath, the FTC could green-light
the deal. Regulators have approved similar transactions after demanding that
fire walls be erected between the buyer and the bought. In this instance, said
Kevin Arquit, a former FTC attorney now in private practice, that would
mean ensuring that Barnes & Noble is prevented from increasing prices for
competitors through Ingram and is blocked from gaining information about
rivals. |
