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Macmillan Has No Love Lost for Amazon, Less for DOJ

Stocks in this article: AMZNBKSAPPL

NEW YORK ( TheStreet) -- Macmillan CEO John Sargent may have learned to live with Amazon.com (AMZN) but he certainly has little fondness for the Department of Justice, which sued five of the six largest U.S. book publishers and Apple (AAPL) last year for allegedly conspiring to set the price of e-books.

"The DOJ was extraordinarily myopic," Sargent said Wednesday at BookExpo America, the industry's annual convention held at the Javits Center in New York. "Amazon was doing their best as a publicly traded corporation, and booksellers were trying to do best for their economic interests. The DOJ came in and sided with the guys who have 90% percent market share. This, on its face, was ludicrous."

"The senior guys who made the decision to win this case, Attorney General Eric Holder and all of them -- they're just incompetent."

Macmillan was the last of the five publishers to settle out of court, a decision Sargent said was made because the risks of an adverse court decision could have put the company's existence in jeopardy. In agreeing to the settlement, Macmillan said it would lift its restrictions on e-book retailers for discounting and other promotions.


As for Amazon, Sargent was careful not to say anything that could be portrayed as violating the settlement or hampering his ability to testify next week in the DOJ's case against Apple, which elected to go to trial.

"Clearly, there are issues if any one player in any market becomes too powerful for suppliers, that's a problem -- but I have nothing against Amazon," Sargent said in an interview following his speech before 500 people, many of whom were local bookstore owners.

Amazon did not reply to an e-mail and phone request for comment, and the Department of Justice couldn't immediately be reached.

Sargent and the country's four other large booksellers were sued in April 2012 by the DOJ which claimed that publishers were colluding in setting e-book prices. The publishers countered that they were simply trying to defend themselves from Amazon which Sargent said was selling books at "below cost," with many titles at $9.99.


Macmillan was the last of the five booksellers to agree to a settlement. HarperCollins, a unit of News Corp., Simon & Schuster and Hachette settled with the government soon after the case was filed; Penguin did the same in December, in part to facilitate its merger with Random House.

As the dust has cleared, Amazon has managed to retain its position as the linchpin of the book business while booksellers have come to try to learn to live with the 800-pound Seattle-based gorilla which posted sales of $91 billion last year.

Book sales have recovered somewhat from the initial shock of consumer demand for e-books, said Becky Anderson, president of the American Booksellers Association. Independently owned book stores have done more outreach to make clear to local communities that their survival depends on customers foregoing Amazon.

E-books accounted for 20% of publishers' net sales in 2012, or $15 billion, up from 15% in 2011, while revenue from brick-and-mortar retail stores dropped 7% to $7.5 billion, in part because of downsizing at Barnes & Noble (BKS) and the closing of Borders. Meanwhile, online book sales, chiefly from Amazon, surged 21% to $6.9 billion, according to statistics from the Association of American Publishers and the Book Industry Study Group.

"The country was overstored with Barnes and Noble and Borders," Sargent said. "We're now much closer to a sustainable level."

The more than three-year battle with the DOJ, Sargent said, required a lot of management time that wold have been better spent growing the business. Nonetheless, he said it was essential that booksellers be able to compete in the selling of e-books at a level which doesn't undercut the longterm viability of their businesses.

"The DOJ is very aggressive and they're good at intimidating," Sargent said. "We need not to be intimidated."

Written by Leon Lazaroff in New York

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