Independents Score Victory Over Barnes & Noble

When placed next to each other, the two words "Barnes" and "Noble" rarely give independent booksellers a reason to smile. That is, until June 2, when Barnes & Noble finally dropped its proposal to buy Ingram Book Group, America's largest book wholesaler. The deal collapsed only one day after the Federal Trade Commission decided that it might block the acquisition -- a decision made in large part because of a grassroots lobbying campaign organized by independent booksellers. Now the independents aren't just smiling, they're celebrating."Great, great, great news," said one member of the American Booksellers Association (ABA), a trade group linking independents. "Gives me some renewed hope for the future."Emotions ran high among the independents in part because the FTC's announcement, and the consequent breakdown of the merger, was an unanticipated victory. Since Amazon.com began stealing away Barnes & Noble's profits, the retail giant has been fighting to but costs with a cheaper, more efficient distribution system. Purchasing Ingram, which currently distributes about two-thirds of America's books, would have given the Wal-Mart Of Literature just such an infrastructure. In today's climate of mergers, mega-mergers and super-mega-mergers, very few analysts believed that the FTC would oppose such a buyout -- especially because it wasn't a "horizontal" merger, in which a company buys a direct competitor, but a "vertical" one, in which a company buys multiple layers in one industry.Even Robert Pitofsky, chairman of the FTC, seemed surprised that Barnes & Noble gave up so quickly. "This would not have been a slam dunk case," Pitofsky told a New York Times reporter. "This agency hasn't won a vertical merger case in 20 or 25 years."On the other hand, the grounds for an FTC block were strong. Because Ingram distributes to two-thirds of America's booksellers, a Barnes & Noble takeover would have meant that thousands of independents would be forced to buy their books from their biggest competitor. And by controlling the speed of delivery, access to popular titles and pricing structures, Barnes & Noble could have further chipped away at the business of its struggling competitors. But even with these well-established claims, the FTC would have had to file a complicated, arduous lawsuit against the merger -- a lawsuit it easily could have lost.Why, then, Barnes & Noble's hasty withdrawal? Many independent booksellers cite their well-organized grassroots campaign as the cause of the deal's collapse. When it was first proposed last November, the ABA hailed the deal as a potential "death blow to thousands of independent booksellers." They immediately launched an anti-merger crusade, writing thousands of letters to the FTC, lobbying state and federal congressmen, and collecting over 125,000 customer signatures on a petition. The campaign was also bolstered by the help of Working Assets Long Distance, a telephone company that encourages social activism. About 40,000 Working Assets customers called or wrote the FTC to register their condemnation of the merger. The New York Times reported that the FTC's phones were so flooded that it had to set up an 800 number dedicated exclusively to recording calls about the Barnes & Noble deal.The campaign seems to have paid off. The ABA patted itself on the back in a statement released following the merger's collapse: "It was clear that the FTC ... heard the concern of booksellers, consumers and others about the threat that this proposed acquisition posed. The grassroots efforts of booksellers proved, we believe, invaluable to this process."The president of Working Assets, Michael Kieschnick, was equally pleased. "Working Assets was delighted to play a role in convincing the FTC to enforce its antitrust laws," said Kieschnick. "We were helping to maintain the vibrant and diverse world of independent bookselling."Even Barnes & Noble admitted that the grassroots campaign affected their decision -- though not in so many words. "I suppose the lesson I've learned," said Barnes & Noble CEO Leonard Riggio, "is that the decisions of the FTC are not always free of public opinion or emotional considerations." In a similar statement, John Ingram, the president of Ingram Book Group, told the Wall Street Journal, "The FTC staff's view of the market appears to be shaped by the loudest voices" -- presumably, the voices of the independents.Although the ABA has won the current battle, the future of the book industry is still up in the air. Barnes & Noble reports that it will put the $600 million it had allotted for the Ingram deal toward building its own distribution system, a move that will undoubtedly strengthen its industry control. Consolidation of the major publishing houses will surely have trickle down effects in the book industry. Online booksellers, lead by Amazon.com, will continue to eat away at brick and mortar store sales. Recognizing these industry shifts, the ABA has come up with its own technological advance: a collective e-commerce site, Booksense.com, that will allow customers to buy books online from their local independent. Whether Booksense.com can capture some of the $1.2 billion online book market, and subsequently lure people back to their local independents, will be seen when the site launches in August.Until then, independents have good reason to ride high on their victory. To observers both inside the industry and out, the collapse of this merger illustrated the potential of public concern and grassroots efforts to defeat corporate interests. In the words of Oren Teicher, chief operating officer of the ABA, "It shows that David can beat Goliath."[EDITORS: You can easily localize this article by inserting quotes from your local independent bookstores where applicable.]

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