Will France's New Book Law Hurt Amazon (AMZN)?

Michael Teague  |

In July, a US district court judge found “compelling evidence” that Apple Inc. (AAPL) had been guilty of conspiring with no less than five major book publishers to raise the price of e-books, in an effort to take a bite out of the dominance of leading online retailer Amazon.com (AMZN) .

The ruling was based on evidence of close contact between a top Apple executive and a number of publishing houses prior to the tech giant’s official entry into the e-book market in April of 2010. Indeed, records showed that Apple’s Eddy Cue had been in contact with some of the biggest publishing houses such as Penguin, HarperCollins, Simon & Schuster, Macmillan, and the Hachette Book Group in what appears to have been a collaborative effort to raise the process of e-books in order provide a more level playing field on which to compete with Amazon’s highly successful and relatively inexpensive operations.

But while the ruling was a victory for Amazon, it may only have been a temporary one. The company’s strategy of offering extremely competitive prices on all manner of products, but particularly books, has been incredibly successful, and has cemented its place as the leader in that category, much to the chagrin of not only publishers but also what’s left of the brick-and-mortar booksellers in the US.

The passing of Borders, and the apparent death throes of Barnes & Noble, the only major brick-and-mortar book selling chain left in the US, have both been largely attributed to the success of Amazon’s book sales, as well as more or less accepted as a fact. But across the Atlantic Ocean, Eurozone countries have not taken this lightly.

This was most recently on display last Thursday, when lawmakers in the French National Assembly voted unanimously to amend the country’s 1981 “Lang Law” that sought to fix prices on new books. One of the law’s stipulations is that book-sellers may not offer new books at a discount of greater than 5 percent. The amendments passed last week took this a step further, saying that such discounted books may not be offered by online retailers operating in the country with free shipping.

Subscribe to get our Daily Fix delivered to your inbox 5 days a week

In the US, where unregulated free-markets are part of the ideological norm regardless of party affiliation, this may appear to be a prime example of the sort of trifling socialism that stubbornly remains on the European continent. And it is certainly true that the European Union has been more than willing to use anti-trust laws against major US tech companies and online retailers such as Google (GOOG) and Apple in an attempt to prevent their total dominance of the European market.

However one may view this sort of government intervention into the consumer economy, in this particular instance one must also keep in mind France’s proud book-reading culture. The country’s 65 million citizens are served by up to 3,000 independent book sellers, specializing in all manner of reading material, and often found in the most delightfully unexpected, yet practical, of places, such as the back room of the local Laundromat.

And these sellers have some cause for concern. According to French government data, book sales in 2012 were down nearly 5 percent from the prior year, and online sales have come to take up about 17 percent of all book purchasing. While most of this is dominated by Amazon, there is also the popular French online retailer FNAC.com that also holds a significant share of the market (indeed, Amazon has no similar competitor in online book sales in the US).

France's book culture hails from its long and rich tradition of artistic, literary, and philosophical production, as well as the proud publishing culture that has accompanied it. Companies like Hachette and Gallimard garner the type of respect and brand recognition that would seem alien for a book publisher in the US. However, the industry is worried, and since the beginning of the year has been working with the government to subsidize the nation's book sellers to the tune of some $12 million in order to help them better compete.

For its part, Amazon was not slow in responding to last Thursday's move by the National Assembly, and has said that the move will only hurt consumers: "Any measure aimed at raising the price of books sold online would hurt French people's ability to buy works of culture, and would discriminate against online consumers," 

Still, it is hard to see how the law will hurt Amazon in any substantial way. Once it passes the French Senate, a safe assumption, the ammended Lang legislation still only covers new books, those published in the last year. Amazon will still be able to offer free shipping for used books, or new books over one year old, to say nothing of the all of the other items it sells online, new or used.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Market Movers