Google's $125m settlement with authors/publishers is an excellent window into how Google intends to anti-competitively extend its de facto search advertising monopoly market power to other content markets.
- Think about it; if Google only has to pay a penalty of less than a penny on the book-selling dollar, why wouldn't Google be emboldened to steal all the entertainment property of others, and just settle for less than a penny on the dollar like it has with books?
- What a cheap and easy way to extend and cement one's monopoly market power in search advertising into other content markets.
Kudos to Professor James Gibson and his op-ed in the Washington Post today, "Google's New Monopoly" where he spotlights the anti-competitive effects of the Google-book settlement because a deal cut with no competition can embed barriers to entry so that competition can never emerge to compete with Google going forward in digitized books.
- I made a similar point in my post "Google proves crime does pay -- if you have enough market power."
More on Google extending its monopoly market power:
Google claims the settlement is not an extension of market power because Google is not requiring an exclusive arrangement from authors or publishers. This is brilliant misdirection. Google doesn't need a formal exclusive because their Machiavellian scheme grants them a practical exclusive arrangement.
- How? Google knows it has created a classic "Catch 22" dilemma for potential competitors.
- This settlement is with Google not competitors.
- That means that competitors would still have legal liability, if they tried to scan millions of books like Google did, in order to be able to compete with Google's current scale of 7 million books scanned.
- Google also knows any competitor could not ever catch Google if it followed the slower, but legal digitization route.
- So Google is safe in its dominant market power in digitaized books, because it knows its competitors can't mount an alternative because they would either have to break the law with impunity like Google did or they would have to adopt a slow painstaking effort to get approval from authors/publishers.
The use of the term "registry" in this settlement is also misleading because it implies that it could be used by other potential competitors, when in fact this is practically Google's registry. Consider these facts why it is really Google's registry:
- The $45m to pay authors/publishers in the settlement practically only applies to Google since they are the only entity scanning at scale.
- The $34.5m to set up the registry practically only pertains to Google.
- The rights clearance mechanism in the registry is practically limited to Google since their are not other scanners involved.
The settlement is paltry compensation/penalty for brazenly breaking the law.
- Of the $125m settlement only $45m goes to aggrieved authors and publishers (the lawyers got $30m.)
- This is peanuts given that the Author's guild represents 8,000 authors and the Publishers Association has 300 members.
- This is also peanuts given that consumer book publishing is a $23b business in 2007 per Veronis Schuler's forecast; this means that the $45m settlement represents a paltry 0.2% of the consumer book market alone and less if you consider this pays for infringement over the last few years.
- The top three book sellers alone, Barnes & Noble, Borders and Books-a-Million, had almost $10b in sales in 2007.
Another part of this untold story is the international component.
- This settlement only applies to the U.S.
- We don't know how many of the 7 million titles Google has copied without permission are foreign works subject to foreign copyrights and court jurisdiction.
- At a minimum, this is the beginning of Google settling its liability over book digitization -- this story has legs its not going away.
Bottom line:
Google is learning that its copyright crime does pay.
- The monetary penalty Google is paying for what is the most comprehensive copyright theft ring in history -- the digitizing of over 7 million books without the permission of their creators/owners, is a miniscule 0.2% of annual sales and the same of Google's revenues.
The lesson here is that if the penalty for stealing others content is 0.2 percent -- why not steal other industries content like the whole entertainment industry (TV, home video, box office, videogames and music)? Veronis Shuler estimated the entertainment industry to be an $86b business in 2007.
- If one applied the 0.2% settlement rate for creators of book content to other entertainment content, Google would only owe the entire entertainment industry $170m which is 0.8% of Google revenues, and only 1.7% of Google's gross profit.
Google is learning the lesson, why obey the law, why respect property when it is so profitable not to? Crime does indeed pay for Google.
