This piece is part of a series of articles summarising the key topics discussed at the workshop “Book publishing in the age of platforms” held on 29 November 2022 hosted by Möbius, a Horizon 2020 project focused on innovation in digital reading involving prosumers (consumers that generate content themselves) The workshop, marking the midterm of the project, gathered a panel of experts from different disciplines to reflect on the future of publishing and the role of Möbius in this process of transformation. For those interested, a complete recording of the workshop is available here. Readers interested in knowing more about Möbius should not hesitate to contact the Möbius team at Möbius – The power of prosumers in publishing (mobius-project.eu)
At Möbius’ workshop “Book publishing in the age of platforms”, Mr Gianpaolo Scacco (Policy Officer – Regulatory aspects, digital policies at DG EAC, European Commission) gave an overview of regulatory developments in digital policies relevant for the relationship between book publishers and platforms. Overall, he identified the policy priority of the European Commission as the creation of a positive environment for creators and CCIs (cultural and creative industries). The digital agenda of the European Commission aims at a fair digital environment – and a proper framing of platforms is key in this, as these are nowadays essential to many citizens and businesses in their day-to-day life. From the point of view of users, they broaden choice, and allow connections between creators and even the smallest of producers, which in turn have access to larger, possibly international, audiences.
However, as we already saw, platforms raise several challenges and pose several issues to the delicate creative environment: for example, platforms act as a haven for illegal content, especially IP-infringing content. This is clearly an issue for publishers, in addition to the fact that platforms rely on economies of scale, thus cumulating benefits and becoming gatekeepers. In this regard, platforms manage to match demand and supply at an incredibly fast rate, securing more and more their dominating position, and increasing their bargaining power and overall economic dominance – at the cost of smaller players. Publishers have historically been damaged by this approach.
As a response, the European Commission has investigated abusive practices impacting publishers and other players, focusing on the imbalance in bargaining power between players in an uneven scenario – given that publishers are now forced to go through platforms to access the digital marketplace. For example, Apple was investigated in regard to its Appstore and the rules forcing third-party app creators to rely on its in-app purchase system exclusively, which forbid them from informing users of cheaper purchasing possibilities outside such proprietary environment.
Similarly, the European Commission was concerned about Amazon’s parity clauses regarding ebook distribution agreements. Publishers interested in distributing their ebooks through Amazon had to inform the platform of more convenient conditions offered by other distributors, not only in terms of cover prices, but also in regard to elements such as distribution models and anything that could differentiate them from Amazon (distribution models, promotions, etc). This would have made any competition virtually impossible, as this sort of clauses would have severely damaged any attempt at differentiation and innovation. To address the Commission’s concerns, Amazon offered some commitments that were made binding by a Commission decision after some reviews.
Aside from these specific instances, the institutional approach to the digital space has essentially changed in the past years: rather than dealing with case-by-case responses, European institutions are enforcing a more systematic approach to prevent the emerging of dramatic imbalances – as it was the case with Amazon. Such a change in perspective began from the previous political mandate and continues with the current one. in this regard Mr Scacco recalled some of the key legal developments towards the present state of affairs:
- The EU copyright legal framework has been upgraded and key in this process has been the Directive on copyright in the Digital Single Market, adopted in 2019. The directive’s main impact was the introduction of more legal certainties and remuneration for commercial exploitation of protected works, rebalancing the bargaining power of creatives against platforms. Article 17 of the Directive has been pivotal in this process, as it introduced liability regimes for content sharing on platforms. In this regard, the implementation of the directive by Member States has been of the utmost importance for the Commission – as expressed for example with the production of a Guidance on the same article (COM/2021/288 final) in June 2021. Furthermore, The Court of Justice of the European Union has confirmed the validity of the provisions of article 17 in last year’s spring.
- The EU legislator intervened in more general terms to regulate the relationships between platforms and business users – as many are now dependent on platforms to carry out their activities. The goal was to ensure more fairness among players: the Platform to business regulation, adopted in 2019, gives business users more transparency and options for remedy when problems arise –while safeguarding the innovation potential brought by platforms. This regulation has been accompanied by the setting up of an expert group – an observatory to monitor and analyse platforms economy; in this regard, businesses users can give their input on a dedicated website.
- Lastly, the legislator has tackled the issue of illegal content dissemination ensuring more effective cooperation with platforms by issuing recommendations in 2018.
At this stage, the main goal of the legislator is to address the need for a level playing field. At the end of 2020 the European Commission initiated a legislative process to clarify and upgrade EU rules for the digital space, resulting in the Digital Markets Act – the DMA – and the Digital Services Act – the DSA.
The DMA aims to ensure a fair and open digital market, setting rules for gatekeepers to limit their power, and allowing European institutions to tackle behaviours damaging publishers and other players (e.g., Amazon in regard to consumer data access). The DMA establishes dos and don’ts, and sets fines for infringing behaviours, as well as structural remedies where fines aren’t enough (e.g., the possibility of banning acquisitions). Furthermore, the DMA is futureproofed by the fact that it ensures the European Commission can supplement existing obligations on the basis of market investigations.
The DSA tackles illegal content online at a framework level. It sets binding obligations for intermediary services and sanctions for non-compliant platforms, and will also enable institutions to address operators not based in the European Union. Very large platforms will have additional obligations, such as carrying out risk assessments for potential online harm using their services, including exposure to illegal content. They will also have to set up suitable mitigation measures subject to independent auditing. The European Commission will have power to supervise these platforms and is setting up a centre for algorithmic transparency to support its supervisory role in risk management.
The DMA and the DSA entered into force just last November; for them to be effective there is now the need to designate specific platforms as gatekeepers, according to the criteria set by the DMA, as well as determining which ones correspond to the definition of large and very large platforms as defined by the DSA. Just recently (April 2023) the first Very Large Online Platforms (VLOPs) and Very Large Online Search Engines (VLOSEs) have been designated according to the DSA criteria. The first VLOPS are: Alibaba, AliExpress, Amazon Store, Apple AppStore, Booking.com, Facebook, Google Play, Google Maps, Google Shopping, Instagram, LinkedIn, Pinterest, Snapchat, TikTok, Twitter, Wikipedia, YouTube, and Zalando. The first VLOSEs are instead Bing and Google Search
Quentin Deschandelliers (Legal Advisor at the Federation of European Publishers) gave an in-depth look at the impact of big platforms on the publishing industry, to then focus on the role that the Digital Markets Act –DMA in particular will have on the digital publishing ecosystem towards a rebalancing of the situation.
Mr Deschandelliers highlighted how the European Union has in the past decades prided itself as the world’s first digital regulator – as for example with the GDPR or its latest copyright directive.
The DMA aims at making platforms follow the EU rules, especially in terms of fair competition; in short, it aims at ensuring that if platforms want to operate in the European Union, they will have to do it under EU rules. In the book sector, Amazon is the typical example of a platform that would be addressed by this approach.
First and foremost, Mr Deschandelliers pointed out the reasons that called for the DMA in the first place, starting from the reason why publishing has been impacted so strongly by big players. Contrary to popular belief, publishers explored digital trends very early, before many other sectors did. This is the reason why Amazon itself, the paradigmatic big platform, began as a book shop: when Amazon launched, the book sector already had a standardised identification system for its products, robust metadata structures, and other infrastructures in place. In short, Amazon reaped the publishing sector’s readiness for digital integration.
Amazon’s structure is emblematic of the tactics that big platforms employ to take advantage of their position online. Amazon acts as a retailer by buying books from publishers and then selling them to consumers, thus becoming a major player on the market and weakening its competitors. At the same time publishers and booksellers need to be present as sellers on Amazon due to its importance on the market. Furthermore, Amazon does publish and sell books. There are therefore three main scenarios on Amazon:
- Booksellers/publishers acting as sellers and Amazon as an intermediary.
- Publishers selling books to Amazon that Amazon then sells as retailer.
- Amazon acting as publisher and seller of its own books.
It is almost impossible for consumers to distinguish between these different scenarios, and as Amazon is the dominant player on the book market, it is impossible for publishers not to be on Amazon; this situation therefore reinforces the platform against publishers, which are forced to compete on Amazon’s turf and under Amazon’s terms– a situation damaging local booksellers as well, further harming the publishing ecosystem. As a result of its position, Amazon can act as gatekeeper and has the power to impose incredibly taxing rules and terms on publishers and sellers (as well as other players) on the platform. Some include or included:
- In terms of logistics Amazon imposes incredibly tight delivery deadlines almost impossible to respect.
- Regarding returns, Amazon tends to return high quantities of books in a degraded state, making them unsellable.
- Amazon applies stringent infringement clauses that greatly damage publishers with fines – and more and more these fines are becoming part of its business model.
- Publishers were forbidden to sell ebooks at better conditions than those offered on Amazon (Most-Favoured-Nation clauses – MFN), or to discuss the issue with public authorities.
- Amazon refuses to share data on book sales with publishers, while using the same data to boost its own book sales, thus gaining an unfair advantage; this is further emphasised by their native e-reader -the Kindle – having been originally designed as incompatible with other formats, thus adding another layer of inaccessibility to sales data.
Until the DMA and DSA, the framework in dealing Amazon has been defined by the EU competition procedure. Through competition procedures the European Commission managed for example to stop Amazon from using MFN clauses. MFN clauses prevented booksellers and publishers from selling their ebooks both on Amazon and other platforms under better conditions or with more profitable business models. The same clauses also imposed to publishers the duty to inform Amazon of the conditions granted to competitors. As a result, some publishers couldn’t even sell ebooks on their own website due to the limitations imposed by MFN clauses.
While competition rules have been the go-to for settling competition issues between stakeholders in Europe, this approach has two major problems. First, the threshold before a practice can be judged anticompetitive is extremely high, and this leaves several situations of clear unbalance outside the reach of competition procedures; second, competition procedure rulings take a long time to redress situations that harm markets. As a result, rulings often become effective only when markets have already been damaged beyond repair.
The DMA has been designed to address this situation. Being applicable from 2023, it does not substitute competition rules, but complements them with ex ante obligations on players. In short, operators are forced to undertake by default specific actions, thus preventing damage to the markets they operate in and limiting the need to rely on competition law. In this sense, 5 key obligations and outcomes of the DMA seem to hold the potential to positively impact publishers and the publishing sector as a whole:
- Most favoured nation clauses preventing publishers from selling on marketplaces other than the platforms’ cannot come back – the DMA confirms their ban.
- Similarly, platforms will no longer be able to prevent publishers from raising issues with relevant authorities.
- Self-preferencing is gone – platforms cannot give unfair privileges to themselves, showcasing their own products more than those of their competitors.
- Platforms will not be allowed to use the data generated from book sales to give themselves an unfair advantage when competing with publishers.
- Platforms will have the obligation to share data on third-party titles they sell when requested.
Furthermore, if platforms do not comply with the obligations set in the DMA, they will have to pay very high fines (1 to 20% of their annual turnover depending on the severity of their infringement), and in case they wouldn’t comply, the European Commission now has the power to intervene more radically – e.g., demanding a restructuring of infringing companies.
Yet, all these improvements do not mean that the DMA is a perfect solution to all the ills of the internet; there are in fact at least three main issues that limit the DMA and its implementation:
- The DMA applies to very few platforms, namely gatekeepers (which are at the moment to be identified).
Gatekeepers might include social networks, search engines, marketplaces, and other platforms identified through very tight criteria: they have to have at least 45 million active users per month in the EU, they have to be present in at least in 3 Member States, and their annual EU turnover should have been at least 7.5 billion euro for past three years (or they should have a market capitalisation of at least 75 billion). Famous big players would most certainly fit the description (Amazon, Facebook, etc) – but there won’t be many others.
- The DMA doesn’t cover everything – it primarily focuses on business-to-consumer (B2C) protection rather than business-to-business (B2B); therefore, some pivotal subjects are outside its scope (e.g., logistics).
For example, the DMA doesn’t completely cover the topic of interoperability, which is extremely relevant for the book industry; it covers – partially – interoperability between messaging apps, but there are no mentions of addressing the issue with Amazon’s Kindle, to name one. Limitations to interoperability are clearly detrimental both to consumers (having to buy several devices) and publishers (having to produce e-books in several formats).
- The DMA implementation is expected to be complex, and it is easy to foresee that platforms will strenuously oppose it.
However, while this is true, as players such as Amazon gained their strong foothold, a legal re-balancing of the sector became needed and expected by many smaller, yet essential players in the sector.