Snowflakes Need Not Apply: Publishing is a commodity business and Amazon built a better mousetrap. Get over it, already.

I’ve been anxiously awaiting the judgement in the Apple antitrust case because I knew the tech giant was going to lose (they deserve it) and I knew that, when that happened, there’d be some woe-is-publishing stuff popping up on the web that I could have a little fun eviscerating. Well, imagine my glee as I read this piece by Michael (no relation to Jason, I hope) Bourne on The Millions website. At first, I thought it would be a run of mill twitter link with a handful of argumentative tweets in analysis, but low and behold, this thing got so confoundingly ridiculous that I had little choice but to go all-in blog post on it.

In fact, I started writing this a few hours ago and that morphed into a totally separate blog post bemoaning the stunning lack of logic in believing Amazon’s potential monopoly is so scary we all should run straight back into the arms of the publishers’ old cartel. This one’s juicy enough I got two blog posts out if it. Here we go:

“…it is altogether possible that the government is right that Apple and publishers conspired to set prices higher than Amazon would charge, which would have forced consumers to pay more for e-books in the short term. But to see this case in this narrowly legalistic light is to completely misunderstand how the book business actually works.”

This is a pretty common theme in publisher-defending circles, either outright admit or strongly imply that the charges are accurate and they broke the goddamn law but then claim it’s not important. The simple fact is there’s no legal exception for breaking antitrust law, even if done in response to illegal activity. Amazon’s shipping boxes coulda been made out of corrugated baby skin and it still wouldn’t have given Apple and the publishers license to collude against them. They broke the law and have to be held accountable, regardless of their reasons. To do otherwise sets a dangerous prcedent that would definitely find its way into other industries and that would be extraordinarily bad for consumers of all kinds of stuff, not just books. I don’t know how many times or how many judges have to say there is no such thing as a special snowflake and you don’t get to pick and choose what laws you care to follow that best suit your business purposes. Don’t do the crime if you can’t do the time.

“…books are not bars of soap. When you go online to buy a book, you are not merely paying for a file full of random ones and zeros. You’re buying the original ideas and stories contained
within that book, and frankly nobody has any idea how much those ideas are worth until people start reading them.”

That doesn’t even make sense. I’m pretty sure somebody’s gotta buy the book before they start reading it. And I have a pretty good notion of what that book’s worth without ever seeing it: $27.99 hardcover, $17.99 trade paperback, $12.99 ebook and maybe an $8.99 mass market paperback, give ot take a couple dollars on any of the above. These big publishers collectively crank out tens of thousands of titles each year and they virtually all fall within the neighborhood of these prices. Books have never been priced by the material inside but by the cost structure of the format.

They most certainly are commodities in the purest sense. The newly merged Random Penguin is set to put out 15,000 books alone next year. To them, any one book is meaningless, even the high advance books. The totality of their 15,000 title catalog is their business model. Big name authors get considerably better terms than average writers, meaning the publisher’s margins are slimmer per book. They also get the benefit of marketing and ad dollars, slicing that margin a little more. Yet we’re also told that these big name books are what bank rolls the lesser selling titles, further gobbling up the publisher’s margins, in theory. More likely, the big name books aren’t really the lone profit centers but simply the lure that gets people into the stores where, hopefully, they’ll also pick up a few other books in their catalog on which the publisher is making very sweet margins. It’s a volume game at this level. The cost or success of one lone book isn’t the point, but the collective success of the full catalog taken as one, nearly all resting within a few dollar range of identical pricing regardless of the author. 15,000 similarly priced, interchangeable pieces…sounds a lot like commodities to me.

The part about not knowing what a book is worth until people start reading could be a reference to advances paid by publishers, but let’s glance at how that system works. There are certainly a handful of high advance books, but for each one of those, there are thousands more which get advances that are more like rounding errors on executives’ expense reports than sizable investments. The threshhold to profit for these books is very low and, once met, publishers bank considerably more money per sale than for superstar books that earn out. This advance system isn’t nearly as risky or speculative as it appears. Even if we take the commonly held belief that 80% of books fail to earn out as fact, Random Penguin, for instance, would be left with about 3,000 books next year alone that do, the vast majority of which on publisher-friendly contracts that earn them more per sale.

Books have been commoditized by publishers because they can’t consistently tell which specific books are going to hit ahead of time. So they built up a bulk catalog made up of mostly low risk, low out-of-pocket books as a hedge against those larger risks. They may not be able to tell which books will be the winners but they certainly have confidence that enough of the totality of their catalog will hit to provide profitability. Saying publishers can’t tell what a book is worth until it’s on the market is both true and misleading. It doesn’t matter how any individual book does, only that enough of them do well in totality.

“…like pharmaceutical companies, publishing houses have to charge above-market rates for their successful products to amortize all those failures. If you limit their ability to do this, books will indeed be cheaper, but they also will be lower in quality and variety because publishers will have less ability to finance experimentation.”

You really wanna compare publishers to pharmaceutical companies? What, you couldn’t think of a metaphor for publishers with war-profiteering arms dealers? Or the Indonesian child sex slave industry? I could buy the above-market price argument if not for the fact that essentially all these books are selling for the same damn prices, successes and failures alike. A book’s price doesn’t increase as it sells more copies. I’m also pretty sure books are indeed cheaper and exist in a greater variety than ever before right now. And publishers certainly aren’t the place to look for experimentation. The bulk of the really unique and creative stuff is being done on the independent writer side these days. Publishers may take risks but they’re generally minimal ones within a narrowly established range. They may occasionally venture out of the plastic wrap but rarely do they get all the way outside of the box it’s in.

“…what Amazon really wants to sell is not so much e-books as the delivery system of those e-books, called a Kindle.”

And what Apple really wants to sell is not so much ebooks as the delivery system of those ebooks called an iPad. You got a point here?

“Apple was offering to once again give the publishing industry the freedom to overcharge for all those e-versions of E.L. James’s Fifty Shades of Grey flying out the virtual doors to make up for the risks it is taking on thousands of other titles…”

Yup, because customers enjoy nothing more than happily giving billion dollar corporations the right to over-charge them. That always works out well.

“…at heart, the case asks a fundamental societal question: what, legally speaking, is art?”

No, the fundamental question in the case is did five of the six largest publishers and the largest tech company in the world hatch an illegally collusive conspiracy to fix prices at considerably higher levels and squash competition? The legal definition of art has no bearing here, only the legal definition of collusion.

“…in Article 1, Section 8 of the Constitution, the framers noted how important it is “to promote the Progress of Science and useful Arts” and thus created copyright protection for authors and inventors.”

That copyright protection is the reason there’s any market for artistic works at all. It was granted to give creators limited exclusivity to access to the market. Copyright wasn’t put in place to spare books from market forces, but so the specific creators could take advantage of those market forces. It’s since been perverted, largely by media lobbyists, into an effectively unlimited time frame of control. They didn’t push for life + 70 years to avoid market forces. Just the opposite, in fact, so they could reap the rewards of a century or more worth of access to those market forces. Copyright offers no guarantee that the creators profit from the work, only that they have the access to potentially profit. Publishers themselves have stood for years as a roadblock to that access, demanding those copyrights be turned over as a toll to the marketplace. By usurping the market access for creators provided in copyright law, publishers have undermined the very point of its existence.

“Books and other works of art aren’t widgets, and art does not now nor has it ever flourished in a truly efficient market.”

Bullshit. The publishing industry, at its base, is a multi-billion-dollar enterprise whose main product is creative output, just like any number of other industries. Questions of art are far too subjective to have any meaning in the actual business realities here. If it hasn’t flourished in a truly efficient market in the past, that’s because it hadn’t really had one in a long time, if ever. Publishers gradually monopolized both the supply of books and the distribution. Any inefficiencies in the market exist because publishers’ iron grip lasted basically uncontested for too long and they got complacent. Those inefficiencies shouldn’t be celebrated or vindicated in any way. They are precisely how Amazon managed to earn its position, by appealing to and improving the conditions of the people most squeezed by those inefficiencies, readers and writers. Oh, the irony of a company doing great things for readers and writers yet being pilloried for it by the existing industry who, all the while, claim to be supporters and nurturers of both those groups. And if you don’t like irony, hypocrisy is another term that will work.

If that’s not enough of a sign for you that the industry has lost its way, I’m not sure what would convince you. The interests of the industry and big publishers diverged over time from the interests of the two most important players in it. That foundation has grown so solid that many just presume what’s good for them is good for everybody. But that’s an extreme oversimplification that ignores the reality that publishers are but middlemen of the longstanding type that eventually shift from providing efficiency by connecting suppliers and buyers to squeezing both sides to the advantage of their own bottom line. That is not an atmosphere that screams for propping up the middlemen when the two parties it supposedly connects find ways to be more efficient without them.

This entire article was an odd combination of musings about the supposedly unique nature of publishing, how the standard rules of business–even the law–shouldn’t apply and some indefinable role of art within it juxtaposed by support for legacy businesses who have shown a history of anticompetitive behavior, cartel-like dominance and a decided lack of concern for the interests of readers and writers. Even the widget point he made multiple times is disingenuous. It’s easy to say books aren’t widgets but you lose a little credibility when you then defend publishers who produce large numbers of similarly priced titles in high volume as part of a business model that treats books suspiciously like widgets.

Publishing is not a special snowflake. It’s a business like any other. Publishers aren’t defenders of art but defenders of profit margins, usually at the expense of readers and writers. The law isn’t something you can willfully ignore just because you don’t care for your competition. It’s also not something that can arbitrarily be waived for the sake of art. The industry is bigger than publishers. It may be hard to see it that way since they’ve been in a position to make it look like they are for longer than most of us have been alive.

Arguing in favor of giant profit-driven conglomerates as the path to art for art’s sake just doesn’t make a lick of coherent sense. Modern publishers were a market response to conditions at the time. Even the most virulent Amazon hater has to admit that the conditions under which publishers thrived have changed. Change is hard, especially when your role is the one being mitigated, but it’s the way life, and the publishing industry at large, works. Putting a veneer of art and culture in defense of price fixing and collusive behavior is naive at best, willfully deceptive at worst.

Whether publishers live or die is immaterial to the matter of whether, and how, the industry on the whole reloads. It will carry on regardless, headlined by readers and writers which to my thinking is a far better development than one dominated by middlemen demanding onerous concessions in rights, control and money if you ever want your work to see the marketplace.

So enough with the high-minded talk about art, literature and culture. Those are great and valuable things, but the old system did little more than pay lip service to those elements while behaving as corporate profit-driven enterprises often do, the bottom line rules all. Amazon may one day become that, as well, but you’ll have to excuse me if I don’t buy in to the argument that we need to prop up the old publisher cartel in the hopes of preventing Amazon from becoming just like them.

If You’re Not Moving Forward, You’re Falling Behind

So, maybe you heard, Apple lost? I wasn’t the least bit surprised given the case was so obviously apparent that it makes Michael Bay movies seem like masterpieces of unpredictability. Hell, even their most vocal supporters would often near or outright concede they colluded, justified, of course, because Amazon, conspiracy, evil, apocalypse, Bezos is a vampire, whatever. I stopped listening once it became apparent these folks wanted the mutually exclusive ends of some fondly mused about artistic utopia of literacy and culture, and wanted it achieved under the colors of the profit-seeking billion-dollar publisher conglomerate gatekeepers. Say what you want about Amazon, but if I’m truly not interested in the commercilized publishing industry, their system and the digital and print on demand publishing environment that’s grown with it, will allow me to carve out a place where I can do whatever I like to my artistic heart’s content and still reach the marketplace. The old publisher system would brook no such quarter. Arguing for artistic merit in literature and backing those who’ve largely been an impediment to it is a logical inconsistency I can’t get past.

From the time the Dept. of Justice first announced the investigation, then the charges, followed by the publisher settlements, the trial and now the decision, I read more than a few opinions in defense of the Agency Pricing scheme at the root of the matter. They all basically boiled down to the same thing: the DOJ doesn’t get how the industry works, books are not widgets and Amazon is a monster that, if we do nothing, will burn the Earth to ashes. The Amazon monopoly concern is founded in some truth. I share it myself, to an extent, mostly of the point when Bezos moves on. The next regime that takes over is my concern.

The difference between their opinions and mine is that I recognize how Amazon achieved their position in the market. They did it by breaking the monopoly publishers had established over several decades. The testimony in the Apple case painted a picture of publishing CEOs not at all unfamiliar with routinely meeting with their fellow executives and exchanging notes on competitive circumstances. The control they had may not have been a traditional monopoly, but it sure as hell looks an awful lot like a cartel. And that says nothing of the virtual monopsony they collectively held, due to their gatekeeper role, over their suppliers (writers). Amazon broke their hold by addressing those most disaffected by the cartel’s established structure, using technology to do it. The same disruptive conditions they used still exist and I am confident can and will be directed at Amazon in the event they change course into genuinely predatory waters. But please don’t ask me to back the old, more restrictive cartel as the better choice.

Often, there’s a “won’t somebody please think about the bookstores!” moment tossed in there, too, to pull on the heartstrings of nostalgia. But, again, there’s that same dichotomy of logic in what they claim to want and what they’re actually advocating for. The health of independent book stores is clearly a concern for many, but when you present the Borders and Barnes & Nobles of the world as victims in the same mold, you’ve lost the path to rationality. Barnes & Noble in its prime was a profit consuming monster that left a wake of boarded up independent stores behind its publisher-enabled bulk-level discounting. What’s good for B&N and what’s good for independent stores are completely divergent. B&N is no ally of the corner book shop.

This argument openly backs extraordinary leeway and support for entities with an established history of actually doing what they fear Amazon might do in the future. The intellectually honest argument would be to advocate for a third path that keeps the publishers’ cartel broken and restrains Amazon’s ability to have an out-sized influence on the market. The relative absence of that third path in the anti-Amazon rhetoric makes me wonder if it’s these people, so vigorously defending both the greatness of a diverse literary culture and the corporate bohemoths who have perverted that to the greatness of their profits, who are the one’s who don’t understand how the publishing industry really works.

Amazon is a corporate bohemoth, too, of course, one that presents some very real risks for the future. But, right now, they provide a ton of benefits to a ton of people who aren’t those guys, namely readers and writers. You can say an Amazon-led industry will turn out badly for those groups in the long run all you want, but that’s not the case today, or in the forseeable future which, admittedly, might be short.

You don’t like Amazon? Fine. Let’s talk about how we move forward from the progress and advantages Amazon’s made. But if you want to talk me into moving backwards into a situation that restrains me as a writer both creatively and financially, and as a reader, both in choice and higher prices, you can take that worn out nag of an argument elsewhere.

2012 Isn’t The End Of The World But It Is A Time Of Transition

For the past few months, I’ve laid back and soaked up the goings on in publishing, and the economy in general. Here are a few things I expect to see as we wrap up 2012 and head into the beyond.

1. Apple is in the process of cutting its own sizably profitable throat

I was once one of Apple’s biggest proponents. This was back when they produced the best computers going, especially when paired head to head with Microsoft’s crap-of-the-month they’ve spent the past 15 years cranking out. But no more. They are far too expensive in an atmosphere with downward pressure on device prices, and are showing far too many issues with signature devices like the iPhone. The iPad Mini is nothing if not a cannibal that has the potential to swallow the market for the full size (and pricier) model whole. Add to that the fact that, fairly or otherwise (I say fairly) Apple is a poster child for exploitative labor practices, offshoring of jobs and stashing large profits out of the country to avoid taxes, and I see a company who has reached its apex and is poised to begin the long decline down.  If Steve Jobs were still alive, I’d give them a shot to pull out of it, but he’s not, and Apple is in the process of becoming just another mega corporation focusing on profit at the expense of all else.

There’s a reason Apple is putting more and more resources towards patent lawsuits. It’s corporate complacency. Live off the value you have today, and do everything you can to stifle competition or progress beyond that point. It might work for a few years, but it’s a long-term loser bet. Much like Microsoft, the world will pass them by and they’ll learn that it’s much harder to play catch up than be the industry leader, especially after your corporate culture shifts from profit through new innovation to profit through exploitation of past innovation.

2. Consolidation amongst the largest publishers is a sign of desperation not forward-thinking strategy

Corporate consolidation and mergers come in many forms. Sometimes, they are aggressive, competitive moves, other times they are backs-to-the-wall defensive maneuvers. The Big Six mergers going on are in the latter group and, as such, are little more than time-buying exercises. The Disney purchase of Lucasfilm is just the opposite. The mouse didn’t snap up Star Wars to squat on the crazy-lucrative rights, they intend to use them. Publishers, on the other hand, are merging not as an aggressive bold move, but as a means of cutting costs and combining assets to add sheer bulk in some kind of misguided dick-measuring contest with the big retailer of the moment, Amazon.

I expect the Big Six will filter down to three, possibly even two within the next two years. The remaining giants aren’t going anywhere, they’ll still be raking in money, still produce bestsellers by the bushel, still be big name players, but while they get individually bigger, the overall share of the market once held by all six separate companies combined will decline.

While this consolidation will very likely appear positive on the accounting ledgers, in the real world, it means less skilled people employed in traditional publishing, less opportunities to get books published traditionally, less competition for authors between traditional houses, lower advances, lower royalties and more stringently pro-publisher contracts with increasing restrictions on writers. If you’re one of those people who still see a traditionally published book as something to aspire to, your work just got a lot more difficult and a lot less potentially lucrative.

If anything, I expect consolidation among the industry leaders will drive more writers to control their own destinies. In fact, I would not be the least bit surprised if, eventually, the bulk of the work coming out of the last of the giants winds up as work-for-hire ghost written material. Anonymous author-mills, basically.

3. Any improvement in publishing’s fate depends on a functioning economy

We just had an election that comes at a pivotal time for us and the one obvious problem that’s suffocating us went completely unaddressed. How, exactly, do we convince the corporate world to reinvest in its workforce through better pay and benefits, thereby investing in the market for its own products? Many corporations have become virtual crack-whores to ever-increasing margins, and the du jour move of the moment is to cut everything not nailed down from your employee base to improve the bottom line. We need to convince them to break that addiction, sacrifice some of those profits in the short term for the betterment of everyone, and mostly, their own long term bottom line.

The current system is clearly unsustainable. They need customers, and lots of them, which they’re not going to get if corporations en mass continue to bleed the workforce of any and all disposable income to pad their own criminally undertaxed capital gains. It’s doubly damaging condition because egregiously low wages also add to all of our tax bills. Walmart, for instance, made $15 billion in profit last year. Their employees, however, were paid over $2 billion in government assistance. That means we subsidized billions in Walmart profits with our taxes. But its the poor single mother on food stamps who’s the parasite, right? As things are now, obscene percentages of capital are being sequestered totally out of our economy, with more being drained every day. That has to stop, and it has nothing to do with tax rates. It’s a grab-the-cash-right-now strategy, and it’s sacrificing the future for everybody, rich and poor alike, to support gluttonous profits today.

It’s a common problem. Publishers suffer from it. They invest less and less into the actual productive areas of their business and more into their corporate structure. In doing so, the financial barons on Wall Street reward them for their stats on paper, which always look good right away but don’t reflect the long-term negative consequences of the cuts. Those come later, and inevitably lead to more cuts. It’s a death spiral writ large. Amazon, by contrast, does reinvest large chunks of profit back into its business, and Wall Street punishes them for it routinely. It’s a good thing Jeff Bezos doesn’t seem to care what Wall Street thinks or Amazon might never have been anything more than one of the online retail pack. Our financial system, where nearly all of our resources are controlled, rewards corporate behavior that is destructive to the real-world economy and punishes actions that help it. How a system that was originally intended to allow companies to raise money with which to expand business has been allowed to mutate into this self-sustaining casino game is one of the great disgraces of the late 20th century. Our ends are fundamentally at odds with the ends of the financial sector.

These things have to change, or our very basic social fabric risks being torn asunder. It’s not going to matter what ebooks cost if people can barely afford food. A severe rich/poor class system will rip itself apart in this country. And all it takes to fix it is if our corporate leaders give up a small percentage of profits in favor of better compensation for employees. Stop hoarding your money overseas, pay your damn taxes, and pay your employees a fair, living wage. Actually give something back to the market you’re getting filthy rich on. There’s nothing to harvest if you don’t plant a few seeds. I’m not sure how, or even if we can change our corporate culture from its current parasitical nature back into a sustainable one, but I do know that if we don’t, the changes we’ve seen the past few years are but small scratches on the surface of what’s yet to come.

4. I’m holding to my opinion that the smart money is for people to develop their own skills and use them entrepreneurially

We can no longer count on steady, good paying employment on a wide scale. Companies aren’t going to give up the exploitative profit margins they’ve grown used to without being strong-armed, and any means of forcing them will have immediate, very ugly consequences. So let’s not do that. People everywhere need to cultivate ways to make money outside of traditional employment. The get-a-job thing is becoming a worse and worse deal by the day for workers and unless we are all happy ending up as poverty stricken wage slaves, we need to start creating our own economic opportunities. For writers, this means get off the fence and learn publishing. “I just wanna write,” sounds great and all, but it’s becoming increasingly unrealistic. Not knowing the business side intimately isn’t going to be a matter of choice much longer, either figure it out or get stuck under the boot heel of a giant publisher. It’s not an intriguing little side-light to consider any longer, but a virtual requirement for your long-term survival interests.

And it’s getting to be the same with everyone else. Wide-scale employment is becoming a race to the bottom, creating bottom-rung, benefit-less, minimum wage level jobs in droves while shedding living wage jobs. Figuring out how to generate adequate incomes on our own is the next essential skill we’re all going to need. Getting started sooner than later is probably going to be a very good idea.

Sunday Randomness: Thoughts on DOJ suit, indie poaching and writer autonomy

Over the past few weeks, my mind has bounced around several issues relating to the book industry without settling on any particular one long enough to formulate a blog post, so I thought I’d patch a few thoughts together in semi-brief snippets.  Well, brief as much as I do brief, which is to say probably not very.  Here we go:

1. The defenders of the price fixing publishers in the DOJ antitrust case are totally full of shit.

On a few instances, I’ve directly broken down what I felt were the misguided defenses of the allegedly collusive agency pricing agreement of the largest publishers and Apple. At this point, it seems a futile exercise because the rationalities used to defend the action have become increasingly rigid and pertaining of such twisted logic that they’ve ceased to even make enough sense to try and honestly refute.  Just in the past week, I’ve read numerous letters from the Author’s Guild, the American Booksellers Association, the Association of Author’s Representatives, Barnes & Noble and numerous pundits to the DOJ decrying the proposed settlement terms for the three accused publishers who want to get this overwith and move on.  I’ve also read the responses from Apple, Penguin and Macmillan–the three principles left defending the case.

Somehow, no one involved in this case knew anything about the actions of anyone else involved yet they simultaneous knew that agency wouldn’t fly, and they personally wouldn’t have entered into it, if everyone wasn’t on the same page.  So we’re left to believe that all of these various large corporations independently took actions they knew required others to take identical actions to work, yet none of them knew what the others were doing.  Yeah, ok.  Totally reasonable.  I’m more convinced now than I was before that those who fight this all the way are screwed.

As for the settling defendants, how happy do you think they’ll be if all that impassioned anti-settlement rhetoric coming from traditional publishing interests works and they get thrust back into the roles of active defendants?  The folks arguing to kill the settlement may, in effect, be giving a death sentence to one or more of these publishers.  Besides, given the fairly obvious collusion, settling this and moving on seems to be the best possible approach.  Fighting this will be a long, drawn out, expensive war of attrition that Amazon and others will feast on by continuing to reshape the market while they waste precious time, coin and focus defending a failed price fixing scheme that, really, only served to benefit the upper, upper echelon writers and publishers anyway.

Those fighting the settlement are still harping on about the diverse literary ecosystem arguments, as well as the death of literature, choices for readers, copyrighted expression, vibrant competition and numerous other doomsaying phrases, despite the fact that there’s ample evidence that none of those things are true.  Somehow, according to them and some numbers from B&N that I find just slightly fishy, agency pricing has caused ebooks to drop in price now, even though it actually upped prices 30-50% in many cases, and despite the small matter that the scheme was put in place with the specific intention of raising prices. 

The part I like best, though, is the one where some anti-settlement mavens have decided it’s ok to punish the collusion (if any existed, of course) just so long as the DOJ doesn’t end the resulting agreements from that collusion.  This is a great precedent, and I say bring it on!  How awesome would it be to be able to rob a bank, get caught, be punished for the crime but you get to keep all the money?  Hell yeah!  I might even consider doin a couple years for auto theft if I knew the $150,000 Maserati I stole was waiting for me on the outside. 

This is an absurd argument. Agency in this case never, I repeat, never could have been instituted the way it was without the collusion of publishers.  It could not have happened.  In what alternate reality does it make any sense at all to let the results of an illegal conspiracy, that could not have existed without said conspiracy, stand?  Sorry guys.  I know you all are pretty desperate for someone to step in and check Amazon so you won’t have to be inconvenienced by, you know, having to compete or anything, but there is simply no logical reason for these agreements to be left in place.  Besides, they’re only locked out of agency for two years.  That doesn’t sound aggregiously irresponsible. Actually, it sounds like a fitting punishment to me, being barred for a time from the very actions you colluded to bring about.

Of course, I also don’t happen to believe that the death of their price fixing scheme will result in the dire consequences some predict. Actually, I believe just the opposite. Agency pricing, used as it was by the parties it was, had a negative effect on the ebook market as a whole. I think it slowed adoption, slowed growth in the sector, limited any pretense of actual retail competition, and took a pretty good sized chunk out of the wallets of readers unnecessarily. But again, all of that is what they wanted, and it’s exhibit A for how and why they had to collude to get it. Don’t buy the B.S. line about agency fostering competition or protecting a vibrant bookselling ecosystem. This was nothing more than a poorly executed scam to protect the print ecosystem they control by way of hindering the real competition from the digital side, nothing more.

As a side note, the DOJ has apparently been eating their Wheaties. Now, they are also pursuing an investigation into most favored nation clauses in cable tv contracts and looking into whether data caps instituted by ISPs, many of whom also sell cable tv, specifically target streaming services to protect their cable bundling packages. Yet again, here’s an industry–cable tv–that would rather keep its customers paying more to stay locked in to what they want (bundling) rather than give those paying folks what they want (unbundled pay to watch only what they want when they want.) The ebook antitrust suit along with this new effort are, alone, reason enough for me to vote Obama even though I’m not a big fan for many reasons. A Romney DOJ, I don’t hesitate to say, would drop these efforts like a bad habit and that would be an enormously bad thing for anyone not a corporate titan or busying themselves suckling at the tit of one.

2. I don’t really understand why indies would sign traditional deals once they start finding real success.

Call it the Hocking Effect, or the Fifty Shades of Greed, whatever, but it seems like the hot new thing in traditional publishing circles is to poach self published writers once they begin to show some serious sales. I understand why publishers are doing this; they’re struggling, losing ground, their power base is fading, and their ability to produce new literary superstars is failing. What I don’t understand is why the self published writers, having generated their own success stories, are turning around and handing that success over to a corporation under pseudo-exploitative terms before they ever realize the full benefits of their efforts. Upfront money is the obvious answer, but to me, that seems short sighted. There’s also the “I wanna be in bookstores” excuse, but that’s just as short sighted as the money angle, if not more so.

The only way this makes sense to me is if the writers in question didn’t really want to be in business in the first place, and only entered self publishing out of necessity. I’d just like to know what degree of low self esteem do you have to suffer from to hand over your own, independent, hard-earned success to corporations and bookstores who wouldn’t have given you the time of day before you busted your ass to earn your own way?

Now, I don’t want to begrudge anyone making this choice, everybody’s got their own reasons for the decisions they make, but if I get to the point where I’m finding enough independent success that publishers come calling, they’d better have hat in hand with contract terms where I’m in creative control, I make most of the profit, and my rights are only limited to the book(s) in question and then only for a limited time, five years tops. The industry is simply changing too much, too fast to sign lifetime copyright agreements. In short, I’m trying indie for real, not as a backdoor for a contract. My intent is to find success. The very last thing I’ll be doing is sacrificing my rights, my freedoms, my money for corporate free riders who wanna piggyback on my hard work. Not gonna happen.

There are some indie champions out there who’s work I respect very much, like Dean Wesley Smith, for instance, who believes the bookstore system can still thrive and ebooks will top out at about 30% of the total market. As much as I love his writing, and agree with much of what he has to say, this is one area I have a very different view. I just don’t see how bookshops have much of a life left. Digital isn’t going to stop at a third of the market. In the long term, I believe it’s going to be the market. If print somehow manages to hold on to 30%, I’ll be surprised. Technology is pushing hard in the wrong direction for purveyors of paper and ink. It’s really just a matter of time before print is winnowed to two categories–print on demand and the high end specialty craft books that are more display objects than reading material.

How far are we, truly, from book kiosks like redbox video rental machines? Yes, we have the Espresso machine today, but it’s still in the early stages and still very expensive. The cost of that is only going to fall. And once we can buy a print book or two at reasonable prices from a boundless catalog during a trip to the grocery store, what’s the point of dedicated book shops on a wide scale? Make no mistake, POD is the future of printed books. That makes the bookstore argument from indies ring a bit hollow to me. I’m not convinced bookstores on any significant scale will still exist in 10 years. From a business standpoint, the last thing I want to do is have my work locked up in a system designed and built to exploit a sales avenue that is on the way to obsolescence. Maybe I’m wrong and bookstores will be thriving for years to come, but that’s even more reason to limit the length of any traditional contract. I just don’t know. And if they’re still there in five or ten years, nothing’s stopping me from signing another contract. But if they’re gone, or severely diminished and I’m in a lifetime copyright contract, I’m screwed. I’d prefer not to be screwed.

The book selling market we have today was close to unimaginable five years ago. What will it look like five years from now? Can anyone say with any degree of certainty? Stay flexible, my friends, and don’t get locked into long term deals with anybody. Unless, of course, they’re handing you a truckload of no-strings-attached money. Then all bets are off. And when I say truckload, I’m talking well into seven figures, paid in full, up front. Probably not gonna happen, so my original point stands. Build for your own success, and when you find it, don’t sell it out for short term gain, especially in a market changing as rapidly as this one.

3. Does anyone represent the interests of writers?

The Authors Guild sure as hell doesn’t. Neither does the literary agent group AAR. Bookshops don’t. Publishers don’t. The DOJ antitrust suit is about readers not writers. About the only group that actually gives a damn about writers is readers, and then only so long as you’re producing work they want to read. For the one absolutely essential class of participants in publishing, writers sure do get shit on quite a bit. We’ve been turned into fodder used and tossed aside to provide a living for any number of middlemen. Yet somehow, we don’t get to benefit from our work until all these other groups get theirs. Whatever tablescraps are left over, then we might see some. Maybe.

We’ve been infantalized, conditioned to believe that we’re dependent on these hangers on or else our work would never be good enough to see the light of day. We can’t edit, we’re told. We don’t have the skills to recognize quality design, they say. We would never sell anything without a publisher marketing it for us, so I’ve heard. Many writers have even allowed themselves to be sold so far down the river that they actually accept the “validation” of being published as a badge of honor rather than the condescending slap in the face it actually is. Even higher education ingrains in us the belief that we don’t deserve or simply won’t earn a good living, perpetuating the starving artist model.

When so many writers simply don’t believe this is a business first, last and always, and that we are the fuel it runs on, and that we deserve fair treatment and to be paid on par with our level of importance to the industry, we’ll continue to be second class citizens, fresh meat for the publishers’ grinder, as it were. I can’t say this enough…digital has flipped the script. Writers and readers are all that matter, everyone else is in the process of being marginalized. They’ll fight it tooth and nail, of course, but that doesn’t mean we have to help.

Writers are the publishing industry, period. Everything else about it built up around us and our work. Over time, we became trapped inside this framework of termites that continued to eat away at our creativity, freedom and bank accounts to the point that many of us actually still believe publishers positions should be higher than writers in the ecosystem. They’re not and they shouldn’t be. The changes going on today have given us the opportunity to leap back to the forefront. We gave that position away once, we shouldn’t waste this second chance.

The fact that there really are no institutions that represent writers ahead of the ecosystem that exploits us should tell us all we need to know. There are none because we controlled ourselves, we willingly abdicated our proper position in the industry and allowed others to dictate how, or even if, we work, live and survive. Nobody’s looking out for us because we’ve never demanded it, and we stopped looking out for ourselves long ago. In the digital future, the cliche “Content is King” is more true than ever. And he who makes the content should be wearing the crown. We’ve got a chance to usurp the throne we once abdicated. Let’s not waste it.

Correcting My Mistake: Petrocelli tops Carr in battle for who can be more wrong about DOJ price fix suit

Last week, I read what, at the time, I thought was the most one-sided, absurdly inaccurate article that could possibly be written about the ebook Agency Model price fixing lawsuit the Dept. of Justice recently filed against Apple and five of the six largest book publishers in the country.  I went through some points on the complete and utter nonsense spouted by David Carr in the New York Times here. Today, being one to readily admit my mistakes, I have to say I was wrong.

Now, I’m not about to suggest that my impressions of Carr’s piece have softened or that I’ve been convinced that he was right about any of it. He wasn’t.  It’s just that I read this piece in the Huffington Post by bookstore owner and former attorney William Petrocelli that, to my complete shock and dismay, somehow managed to reach a level even more misguided and inaccurate than Carr’s propoganda piece.  I guess the old adage really is true: don’t think things couldn’t possibly get worse because they certainly can. Here we go:

The Justice Department is hounding MacMillan and Penguin Publishers, even though those companies and other publishers have done nothing more than try to protect their business from the unfair tactics of Amazon.

This is a very early quote from the piece, but it sets the tone throughout. You can see pretty clearly that his take is Amazon is totally at fault and publishers were doing little more than defending themselves. Interesting take, particularly considering Amazon was the victim in this case, the admitted target of the pricing scheme that publishers (allegedly) illegally colluded to put in place.

News coverage of the DOJ’s case has been almost uniformly critical. When large publishers, small publishers, independent booksellers, Barnes & Noble, Apple Corporation, the American Booksellers Association, and the Authors Guild all agree that this case is terribly wrong, it’s time for the Justice Department take a step back and re-assess what’s doing.

Really? I’ve read more than a few defenses of the DOJ since this was filed, but then again, he might have a point. In the mainstream press, coverage has been generally critical of the case. But consider the sources. Most of the entities that own the mainstream press also own other business interests, you know, like book publishers, including some of the defendants in this case, under giant conglomerate umbrellas. Not exactly an unbiased position to report from, huh?

As for his list of groups inside the book industry that have been critical of the decision, they have one thing in common. They all have notable ties to the traditional industry, and therefore stood to benefit from the price fixing scheme. Without it, genuine adaptation is looking even more necessary, and that places every group inextricably tied to the traditional model at risk.

By the way, the big news this week is the DRM is on the verge of being killed off by some major publishers. Does anyone for even an instant think that would have happened if not for the DOJ lawsuit that stifled the price fixing racket? The lawsuit has already worked as it has compelled these publishers to actually compete rather than spend their time trying to squash competition they don’t like.

The DOJ has stepped into a business it doesn’t understand at all, and it is tilting the outcome against those who are trying to play by the rules.

Huh? I’m sorry, but even as cynical about government as I am, I just don’t see anybody getting sued for antitrust violations for simply playing by the rules. Collusion and price fixing are illegal actions that artificially hike prices and stop or slow down competition. If that’s considered playing by the rules, I’d hate to see what a publisher who was openly cheating looks like. Maybe Petrocelli needs to brush up a bit on what constitutes playing by the rules. Pretty sure breaking them doesn’t count.

What did the publishers do to bring down the wrath of the Justice Department? They did nothing other than what any rational business person would do in the face of unfair pressure from an over-bearing, dominant retailer.

So, according to a former attorney, the rational course of action for a business person faced with growing competitive pressure is to break the law? That’s the rational choice? Not to innovate or adapt? Not to find new ways to compete in a changing marketplace but to violate the law to manipulate market conditions to quash a competitor’s earned advantage? Sure, I guess that’s rational. This must be a line of thinking I missed out on by skipping law school.

If you read the Justice Department’s complaint , you’d get the impression that the publishers adopted the Agency Plan as a means of maximizing their profits at the expense of the consumer.

You know, he’s right. When I read the DOJ complaint, I did get that impression. You know why? Because that was their intent. And it worked. Remember all those stories a few months back about publishers’ profit margins increasing even in the face of declining revenues? How do you suppose that happened? Could it possibly have been consumers paying 30-50% higher ebook prices? And let’s not forget that a big part of the Agency strategy was to protect print profits, as well. Of course, this could just be a serendipitous coincidence for the publishers in question, right?

It is clear even in paragraph 30 of the DOJ’s own complaint that Amazon was engaging in predatory pricing — i.e. by selling e-books at $9.99, Amazon was selling them below cost.

It’s only clear if that’s what you want to believe it says. Here’s a direct quote from that same paragraph 30 that he seems to believe is so incriminating: “From the time of its launch, Amazon’s e-book distribution business has been consistently profitable, even when substantially discounting some newly released and bestselling titles.”

Predatory pricing is generally defined as losing money to run off competition, then recouping those losses later through unchallenged higher prices. But what happens if the supposed predator isn’t actually losing money? Isn’t it just as feasible that Amazon’s managed to develop a more efficient, consistently profitable mechanism for selling ebooks? Maybe they’re not really predatory at all, but actually have a sound, profitable business practice? Notice the emphasis on the word profitable there. Also, there’s the perplexing fact that in all of U.S. history, there’s never actually been a monopoly created through predatory pricing.

To top it off, here’s a quote from the SCOTUS in its 1993 case Brooke Group v. Brown & Williamson Tobacco , dealing with a predatory pricing allegation:

“The mechanism by which a firm engages in predatory pricing–lowering prices–is the same mechanism by which a firm stimulates competition; because cutting prices in order to increase business often is the very essence of competition. Mistaken inferences are especially costly, because they chill the very conduct the antitrust laws are designed to protect. It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high.”

Interesting that Amazon haters who toss around the predatory label seem to want antitrust law to do exactly what the Supremes in 1993 declared it shouldn’t; chill competition and keep prices artificially high. Even more interestingly, there hasn’t been a successful prosecution in this country for predatory pricing since this decision. That’s because (1) predatory pricing doesn’t work (2) the remedies end up more anticompetitive than the offense itself and (3) very few, if any, are actually engaging in it, not even Amazon.

While it is true the cost of producing e-books is somewhat lower than print books, there are large development, marketing, and other costs that publishers simply couldn’t recover if they were forced to drop their wholesale price significantly below $9.99.

This, to me, seems a little confusing. The market shifts, prices drop and publishers find themselves in a position where their established costs exceed the prices they can bring in. Ok, so that’s Amazon’s fault? It is, in a way, because they largely ushered in the ebook disruption, but other than that, this seems to be pointing out the necessity of publishers to change. Their business model isn’t working with current or sure-to-be future market conditions. Shouldn’t the point here be adapt before you go under? Rather, he seems to be using this point to justify publishers’ actions to stifle the changes in the market to support a status quo your own damn customers are walking away from! I just don’t know anymore. These people work with books, for god’s sake! Wouldn’t some knowledge and logic sink in just out of random chance once in a while?

To really see the disastrous effects of the DOJ’s action, we should probably listen to authors.

By authors, he really just means Scott Turow. Otherwise, you might actually run across some authors who aren’t all that fond of the traditional book business model, and they might even hold opinions that don’t truck with illegal collusion and price fixing. Can’t have that. Don’t these silly writers understand that if something isn’t good for old school publishers, then it must be bad for them, too? I mean, writing and literature–hell, the entire culture itself–will simply cease to exist if the so-called Big Six go under. I’m sure I read that somewhere.

With a new hardcover book, an author will typically get around $3.00 to $4.00 per copy in royalties — hardly an extravagant amount, when you consider the effort that goes in to writing a book. But if the print book fades away and the $9.99-priced e-book becomes the new norm, authors’ royalties would be reduced to a pittance.

If I started selling ebooks on Amazon for $9.99, I’d make $7 a book. I already make the $3-$4 per book he cites for an author’s royalty on a hardcover for an ebook priced at $5. Not that it’s possible to make that, mind you, I already have, virtually every day for several months now, and so have lots and lots and lots of other writers.

This is, again, a problem for the publishers and their business model. Writers get the pittance royalties, particularly on ebooks, because that’s what publishers want to pay. This may well become a problem for those chained to traditional contracts down the road, but the rest of us pretty much just shrug it off and go back to writing.

The entire end of Petrocelli’s article is a virtual point by point presentation of the failings of the traditional model. But unlike what most rational people would do, see the need to adapt, he seems to prefer sticking his fingers in his ears and yelling, “Nah, Nah, Nah, It’s all Amazon’s fault, Nah, Nah, Nah, It’s not fair, Nah, Nah, Nah!”

So, as I said at the beginning, I was wrong about David Carr’s piece being the worst possible. And to show that I do learn from my mistakes and know how to adapt, here’s my new take: William Petrocelli’s piece is the worst, most misguided, one-sided Amazon hating missive I’ve seen, so far. See, adaptation isn’t so difficult.

Bass Ackwards: NYT’s David Carr somehow manages to get everything wrong

Ever since the U.S. Dept. of Justice first dropped hints of taking antitrust actions against Apple and several publishers over what is quickly becoming the agency pricing debacle, there has been a noted increase in hit job articles ripping Amazon flooding the net. After the much-rumored lawsuit was actually filed last week, those efforts ramped up considerably. But perhaps the single worst, most misguided one of these missives came yesterday from David Carr in the New York Times. I thought I’d seen everything in this regard but when I read his piece yesterday, I was absolutely dumbfounded how someone with the skills to be a regular contributor to one of the most prestigious newspapers on the planet could get, quite literally, everything so completely wrong. About the only accurate thing in his article was the spelling of his name in the byline. Here goes:

That’s the modern equivalent of taking on Standard Oil but breaking up Ed’s Gas ‘N’ Groceries on Route 19 instead.

What? Five of the six largest publishers in the country (all six after Random House allegedly was threatened and coerced into jumping in) plus the largest tech company on the planet, one several orders of magnitude bigger than Amazon, colluding together to price fix is the equivalent of Ed’s Gas & Groceries? This is so completely absurd a statement that it almost doesn’t need to be refuted. Almost. Wow, what an amazingly disingenuous thing to say! Six companies with combined resources that far outstrips Amazon joining up to, openly and admittedly, stifle competition from the online retailer is no small thing to sneeze at.

Let’s stipulate that there may have been some manner of price-fixing here, perhaps even arranged in “private rooms for dinner in upscale Manhattan restaurants.”

Oh, okay, let’s do that. Let’s stipulate that there may have been some collusion and price fixing going on. Hate to break it to you, but those actions are illegal! What are we supposed to do, simply ignore it? Look the other way while a genuine innovator from outside the traditional industry gets attacked illegally (maybe if we keep pointing that out, it will sink in eventually) by companies who have largely sat on their hands, fat and happy with their “chummy little business” as Carr calls it? Sorry that it’s inconvenient to your worldview, but the entire point of the Sherman antitrust act was to prevent competitors within an industry from combining their market power to hamper competition. That is precisely what seems to have happened in this case, and the primary reason the DOJ got involved is because the publishers in question were too arrogant to keep their damn mouths shut about it!

(Amazon) leaned on the Independent Publishers Group in recent months for better terms and when those negotiations didn’t work out, Amazon simply removed the company’s almost 5,000 e-books from its virtual shelves.

No, Amazon was in negotiations for a new contract when the old one was up. They failed to reach an agreement, so they had to pull the books because, I repeat, the contract was up! If Amazon had continued selling their books with no contract, that would have been illegal. Besides, IPG isn’t a publisher, they’re a distributor. Distributors are still somewhat useful in the print market, but in ebooks, they represent an unnecessary and inefficient expense that increases prices and little else, something Amazon didn’t want because, you know, they seem to actually give a shit about not gouging their customers. How useful is IPG in the ebook market? Well, combined, the publishers in their membership earn, on average, about 10% of their revenue from ebooks. The rest of the industry is more than double that and growing. Did Carr ever consider that maybe Amazon wanted better terms because they actually wanted to sell some damn books!

The Seattle Times just published a series with examples of how Amazon uses its scale not only to keep its prices low, but also to keep its competitors at bay.

The only thing I’m going to say about this is of course he referenced the Seattle Times. Over the past few weeks, they’ve made one-sided hit pieces on Amazon a virtual art form. At this point, I’m almost curious to find out if the Times has gotten any large donations or influxes of cash from any particular Manhattan addresses recently.

Remember that it was only after agency pricing went into effect that Barnes & Noble was able to gain an impressive 27 percent of the ebook market.

No, Barnes & Noble earned that marketshare once they actually decided to genuinely compete in the ebook segment. The Nook device was generally well received, they smartly leveraged their physical stores to push devices and ebook sales to customers, and generally made a real effort. Funny how much easier it is to gain marketshare when you actually try!

If the decision to charge the publishers was good for competition, why has the stock price of Barnes & Noble dropped more than 10 percent since Wednesday?

This is another easy one. B&N is still inextricably linked to the print ecosystem. Agency pricing, at its core, a point Carr has apparently missed entirely, was a protectionist racket to slow digital growth and artificially prop up print. So B&N stood to benefit from the illegal collusion. This model goes away, and there’s nothing to stop ebooks from quickly jumping up to 50%, and very likely much more, of the industry’s revenues.

B&N is still saddled with a ton of physical stores that can quickly become an albatross around their neck when (not if) print sales continue to decline. That’s why there’s been rumors floating around that they will soon be spinning the Nook portion of their business off, so it doesn’t get dragged down with the stores. There’s also the little matter of B&N allegedly taking retaliatory action at the behest of Penguin against Random House to pressure them into joining agency as well. At this point, they’re lucky they aren’t named as a co-conspirator. Any of these are perfectly understandable reasons for their stock to decline.

Amazon views e-books as cheap software sold to animate device sales, in this case, the Kindle.

Here’s my favorite piece of pretzel logic making the rounds of Amazon haters these days. Apparently, they don’t care about losing money on ebooks because it drives kindle device sales. But wait, I’m pretty sure I’ve read somewhere that Amazon is taking a loss on device sales. So, apparently, Amazon is selling ebooks at a consistent loss in order to drive device sales at a consistent loss. And conversely, depending on who you ask, they’re selling devices at a loss to drive further ebook sales at a loss. At some point, you’d think someone would realize how absurd this logic is. I don’t care how much money Amazon has, they have to make a profit on something!

The problem is they aren’t really selling ebooks at a loss, only select ones (NYT bestsellers in the pre agency days, for instance) as loss leaders to get customers into their system and buy any of the hundreds of thousands if not millions of other books that aren’t discounted below cost. They might be selling devices slightly below cost today, but the tech is only going to get cheaper. Besides, some of the cheaper Kindles are ad supported which mitigates some if not all of those supposed losses. And that’s not to mention the profits on all those books that aren’t priced below cost they sell on those devices.

Publishers are pissed because, while they sat on their hands and had fancy dinners discussing ways to undermine ebooks, Amazon identified and executed a rather impressive retail plan to attract tons of customers, sell lots of devices and boatloads of books, all while keeping prices low and raking in the cash. Sorry for your luck, but I’m pretty sure this qualifies as “you snooze, you lose.”

The counterargument to the publishers’ position runs like this: why should consumers be saddled with paying an extra few dollars just to keep competition alive?

I’ve made bunches of counterarguments to the publishers’ positions over the past couple years, and read bunches more. Never once have I seen that one. If he changes the wording to read “to keep certain competitors alive” then he has a point. Why should we, as readers be saddled with artificially high prices so Macmillan’s outdated and inefficient business model can survive, for instance? We shouldn’t. In reality, the agency deal was all about stifling competition by forcing all ebook retailers to homogenize pricing at high levels across the board and protect print sales from erosion at the hands of ebooks. It’s all about picking winners and losers on the retail side, and on the product side. In the end, customers get to pay extra to have a cartel of publishers decide for them what they’re allowed to buy and from whom. Agency has stopped untold numbers of retail pricing models and experiments from happening, from package deal, group offerings, subscription services, and who knows what else could have been developed?

It has very effectively stifled competition in the retail market. Don’t believe me? Look at Google. They were gung ho to get into ebook retailing in a big way before the agency debacle. Now, they’ve dropped out of the market altogether very likely because of the restraints agency placed on real retail competition. When everyone uniformly has the same products at the same prices, it becomes an enormous barrier for entry to anyone who doesn’t already have an established ebook store and associated device. So agency really only served to lock online ebook retail to a select handful of players already in the game–Amazon, Barnes & Noble, Apple, and to a lesser extent, Kobo and Sony. Agency didn’t increase competition in ebooks, it hindered it.

Richard Epstein, a professor at the New York University School of Law, pointed out, “It is not clear that lower prices are necessarily in the long-term interests of the public at large.” He said that lower prices work both ways, spelling “low costs to consumers and low royalties to authors.”

No, it is clear that low prices aren’t in the long term interests of publishers who still insist on expensive, outdated and inefficient products. It is also clear that lower prices are in consumers’ interests, both now and in the future. And as to his second point, here’s a slight illustration to how wrong he is. In strictly the current traditional model, he may be right that lower prices lead to lower royalties for authors, but that’s only because publishers want it that way. On a $15 agency ebook where the author gets a standard 25% net, that author makes $2.62 per sale. On a $4.99 ebook sold directly through Amazon, the author gets $3.49 of each sale. That is a rate $0.82 more than the traditional author on a book 1/3 of the price. My math skills may be a little rusty, but that kinda looks 67% lower price to the reader and a 25% higher royalty at the same time per sale.

Robert F. Levine, a lawyer with an extensive practice in publishing, said, “There is not a drop of new capital coming into this business. The margins are low and there is almost no growth, so you end up with a rather small industry, with a handful of companies and a handful of players.”

Is this guy looking at the same industry everybody else is? Ebook sales have been growing in triple digit percentages the past few years. Sales of devices have exploded. The whole DOJ lawsuit stems from the manner in which Apple brought its weight and resources into the market. There are hundreds if not thousands of independent authors selling their wares now that never could have before, and many more of them than the mainstream industry and its defenders will ever admit are making money doing it that’s nothing to sneeze at. Publishing is a growth industry again, for the first time in a long time. If anything, the agency model actually slowed that growth slightly, but that’s pretty finished now, however the suit ends up. The only way it worked in the first place was if all those publishers colluded to make it happen. They’ve already fragmented with three settling, and will stay that way for at a minimum two years. But by then, it may be irrelevant what any of these companies wants to do. Besides Apple, Penguin and Macmillan could all still be tied up in court at that point, too.

The problem with this line of thinking is that, prior to digital, publishing already was an industry dominated by a small handful of players; the so called Big Six, the few big box retailers, and two or three distributors pretty much called the shots. There’s more diversity in book publishing right now than there’s been in a long time and, despite all the hand-wringing over a theoretical Amazon monopoly, that diversity seems poised to continue expanding.

I’d be lying if I said I didn’t get a little thrill when I found out on Amazon that I could get an e-book version of “Fifty Shades of Grey,” the No. 1 book on the New York Times best-seller list, for just $9.99. But after a week of watching the Justice Department and Amazon team up, I’ve learned that low prices come with a big cost. Maybe I’ll order it at my local bookstore instead.

Interesting example. An essentially self published ebook and POD paperback that grew out of fan fiction that traditional publishing never would have touched in a million years before the DIY way spearheaded by Amazon produced a bestseller. In addition, in the past, you’d have had to order it specially because, being DIY, the local bookstore almost certainly would never have considered stocking it. And even if they did, it would have ended up spine-out on a back shelf somewhere, virtually out of sight, out of mind.

So what was all that Carr was saying earlier about Amazon wiping out competition and the publishers championing it? Seems to me, he’s got that all ass backwards.

Them’s Fightin’ Words! Even publishers’ statements on DOJ antitrust suit sound like they were written together

So the other shoe finally dropped and the U.S. Dept. of Justice filed the long-rumored antitrust suit against Apple and five of the so-called Big Six publishers for their alleged collusion on a price fixing scheme using the agency pricing model. According to the DOJ, the publishers and Apple (allegedly) conspired together to raise the retail prices for ebooks and stifle competition in the growing ebook market, specifically targeting one particular competitor–Amazon. Immediately after the suit was announced, three of the six parties named in the suit agreed to a settlement, leaving only Apple, Macmillan and Penguin left standing.

While Apple has been silent on the matter thus far, the heads of the two publishers in the DOJ’s crosshairs released statements indicating their positions on the matter and why they intend to fight what they claim is the good fight. Interestingly, both publishers’ statement dismiss the notion that any collusion took place, each taking great pains to clearly state the decisions they made on agency pricing were taken totally independently. What struck me immediately after reading both statements was how absolutely identical they each were in form, justifications and even wording in some places. Odd that two companies who vehemently claim such independent thinking on the matter manage to crank out virtually indistinguishable responses to accusations of collusion, don’t you think? Not proof of a conspiracy by any stretch, but pretty telling nonetheless.

My beliefs on the agency issue have been pretty well on record both on this site and on my Twitter feed. I do think these publishers and Apple illegally colluded, and I think the DOJ is right in pursuing this. I believe they intended to use the agency model to institute significantly higher prices across the online retail landscape for several reasons. One, to handicap Amazon’s (and, in consequence, anyone else’s) ability to discount ebooks on the retail level. Two, to use the higher prices to slow the growth of the ebook segment and the rate of digital adoption in consumers. And three, most importantly, to insulate their much more favored print products and the physical bookstore and distribution ecosystem they largely dominate from digital competition. Taken together, the agency price fixing scheme put in place was, in my opinion, a conspiracy amongst several supposedly competing entities to hamper an emerging market that was disrupting their preferred and long-standing business models.

To be clear, I don’t think there’s anything inherently wrong or illegal about the agency model. The problem in this case rests with the way agency was used by these (allegedly) collusive businesses. A similar result could have come about if, instead of agency, these publishers had all agreed in unison to force a 50 or 60% increase in wholesale prices. Even Amazon would be hard pressed to discount books to $9.99 if they were paying double that or more for them. The pricing model isn’t the problem here, it’s the collusion amongst competitors that is at issue. Agency was the model used simply because that has been Apple’s preferred system on virtually all other forms of digital content it sells.

Anyway, I thought I’d run down a few points from the two publishers’ responses, starting with John Sargent, CEO of Macmillan. Click here to read his full statement.

We felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

The bold emphasis on that comment is mine. Apparently, according to Sargent, physical bookstores are the only folks who sell books for a living. To hell with the numerous online book sellers, or the many, many hundreds of thousands of independent writers who are now selling books for themselves as well. I think he gives their underlying motivations away a bit with this statement. They wanted to protect bookstores and the physical print business model. The damage inflicted to the emerging digital markets wasn’t a strict concern, nor were the growing ranks of self published authors outside of their traditional control. Far from creating competition in the ebook segment, this arrangement tried to stifle competition by attempting to remove the most important weapon in the retail arsenal, price.

When Macmillan changed to the agency model, we did so knowing we would make less money on our ebook business. We still believe in that future and we still believe the agency model is the only way to get there.

So these publishers knowingly enterered into a business arrangement expecting to lose money in the short term in order to better position themselves for the future? Really? That’s funny because it sounds an awful lot like Amazon losing money on discounted ebooks to grow marketshare and better position themselves for the future. But when Amazon did it, we were told by these same folks that they were evil, despicable and destructive. Apparently when publishers behave similarly, they become defenders of culture and literature. See how that works?

The difference here, of course, is that Amazon’s loss-leader practices were undertaken on their own and directly led to lower prices for consumers. Publishers’ efforts in this regard, however, required (allegedly) illegal collusion amongst a critical mass of the largest competitors, and directly led to significantly higher prices for consumers. There might be a clue in there somewhere for why Amazon keeps chugging along nicely, and these various publishers will have DOJ lawyers all up in their business for the forseeable future. Just maybe.

I hope you will agree with our stance, and with Scott Turow, the president of the Author’s Guild, who stated, “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support”.

Antitrust lawsuits make strange bedfellows, apparently. Here we have a publisher being sued by the U.S. Government for a (alleged) price fixing scheme that, by their own admission, raised ebook prices and cost publishers (and by association, their authors) real, tangible dollars and he quotes the head of an organization called the Author’s Guild to justify his actions. I discussed Turow’s rather shortsighted take on this issue a while back, so I won’t rehash that, but if I were a member of that group and I saw his statements used in support of an act that both cost me money and tried to stifle competition and emerging market opportunities, I don’t think I’d be very happy. Turow seems to be supporting the publisher apparatus when he should be looking out for the interests of writers. His statements being used in this way by a publisher is awkward at best, and a serious conflict of interest to his position as representative of writers, at worst.

As an added problem for the publishers wrapped up in this, there are numerous civil lawsuits that will very likely result in many tens of millions of dollars in damages above and beyond whatever penalties the DOJ will look to extract. In fact, it’s already been reported that the three publishers who agreed to a settlement with the DOJ have also agreed to settle a civil suit with several state attorney generals that will result in damages that somehow filter down to consumers who purchased high priced agency ebooks during the time this practice was in effect.

My question is, if I’m an author under Simon & Schuster’s banner, for instance, and they end up paying a percentage of damages for each of my books sold under agency terms, is that money going to be backed out of my future royalties? After all, they theoretically paid me royalties on the initial full sale price, miserly though it may have been. If they’re forced to refund a few dollars of each sale back to the customers, am I going to be forced to give back my percentage of the refunded price? How thrilled would Turow’s membership be if all the agency authors he speaks for suddenly had future royalties docked to cover part of a legal settlement for a questionable practice he defended so openly? Sure, its hypothetical, but would it surprise anyone if publishers took this action?

Now it’s on to Penguin Group Chairman John Makinson. You can read his full statement by clicking here.

The decisions that we took, many them of them costly and difficult, were taken by Penguin alone.

I already addressed this point a bit, but for added clarification, no, they didn’t make this decision alone. They and four of their largest competitors all made this decision at the exact same time, with the exact same justifications. The DOJ’s complaint details a nice long list of instances where these publishers were in communication on this matter with one another and Apple in the lead up to this decision. There’s even an allegation that the publishers issued strict instructions to double delete emails and to leave no papertrail. Does that sound to you like businesses acting independently and behaving like they’re doing nothing wrong?

One of the allegations in the DOJ complaint I find most interesting relates to the one member of the so-called Big Six who initially stayed away from the agency scheme, Random House. According to the DOJ, Random House was actually gaining marketshare during the year in which they stayed out of the agency agreement. Allegedly, they were then pressured by the other publishers to get with the program, including an overt threat of retaliation against them by a large print and ebook retailer made by none other than Penguin’s U.S. CEO David Shanks. Sure, Penguin made that choice to go agency all alone. So did the other four, obviously. How could anyone think otherwise? It looks as though, according to the DOJ, that the one member of this group that actually did make a decision alone was pressured and/or threatened into changing their mind later. No collusion there, nope. Totally above board all the way, right?

The decision we took in January 2010 to move Penguin’s e-book business to agency pricing has been vindicated by the very rapid subsequent growth in the volume of e-books sold by agency publishers, and by the benefit to consumers of the steep decline in the price of e-book readers that that has resulted from this open competition.

Does he mean the rapid growth of ebook sales by everyone in the market, agency publishers or otherwise? That growth happened because the consumer demand is there. The agency pricing scheme had nothing to do with it. In fact, I would argue that these so-called agency publishers actually left a ton of money on the table they otherwise would have made if not for this pricing scheme. I think this shows that not only was this arrangement destructive to those involved because now they have to deal with the DOJ, compliance requirements and numerous civil lawsuits and probable steep damage claims, it didn’t even have the desired effect. The ebook market continued to grow, the print market continued to stagnate and decline, Amazon’s market position has remained strong and Jeff Bezos hasn’t exactly been crying himself to sleep over this matter.

This may ultimately end up as one of the most futile and expensive mistakes in recent business history by the time it all shakes out. Publishers have taken what was a difficult and trying circumstance in the teeth of a major technological disruption and made things exponentially worse for themselves. Good job, guys! I hear the local Waffle House is looking for a new manager after you’re finished running your respective companies into the ground. Have your resumes ready!

And perhaps I’m mistaken, but wasn’t the steep decline in device prices he mentions spurred almost entirely by Amazon? One of the accusations in the DOJ complaint was that Apple’s involvement in the conspiracy was driven by their desire to undercut Amazon’s ability to enter the tablet market as a legit competitor to the iPad. That would seem to me to indicate Amazon was well into the process of developing cheaper tablets long before this agreement ever came about. It seems Makinson just enjoys pointing out things that were inevitably going to happen, agency deal or not, and ascribing those results to the model they undertook. This, too, despite the fact that these results were precisely what the (alleged) collusive arrangement was supposed to prevent. I really wish I could find a job where I could fail upwards so magnificently.

We reasoned that the prevention of a monopoly in the supply of e-books had to be in the best interests, not just of Penguin, but of consumers, authors and booksellers as well.

Just a brief addition on this. I don’t doubt that they believed they were preventing a monopoly in ebook sales. But, to be clear, they tried to do so in a manner that propped up their own ogliopoly of the physical print book market. This wasn’t some selfless act undertaken for the greater good of the little guys, this was a fading cartel of major publishers desperately trying to hang on to the glory days in any manner possible. They pushed the envelope of legality because, apparently, actual innovation and adaptation to the changing environment was too difficult, and they got caught. No more, no less.

Amazon is no saint, and there are some significant, perfectly valid concerns with some of their business practices, but, at this point, it’s these publishers and Apple who’ve (allegedly) crossed the line into violating the law. Kind of hard to stake a claim to the moral high ground by crawling through the sewers to get there.

Anyway, here’s a link to a pdf of the full 48 page DOJ complaint. It’s definitely worth a read. This problem is not going away, though it remains to be seen what the far-reaching effects will be on the ebook market and book publishing in general. Keep in mind, too, that there are still a few civil lawsuits and an EU antitrust investigation hanging out there as well. This really has the potential to get a whole lot uglier for those involved before it gets better.

Scott Turow, Whitley Streiber And Legacy Authors Quest For That Elusive Clue

The Author’s Guild, a group that theoretically exists to represent the interests of writers, has recently been cranking out a bunch of statements fresh out of the legacy publisher, Amazon is super evil and will destroy the industry, wipe out civilization and eat your children playbook. Guild president Scott Turow, of Presumed Innnocent fame, has himself authored a couple of these disruption-hating diatribes, but perhaps none more clueless than the one that hit the web on Friday. I had to read it twice just to be sure it was real and not an elaborate hoax given the fact that it reads almost like something The Onion would have written. I suppose I expect too much from a group who’s priciple players are steeped in the legacy model of bookselling that’s quickly meeting its demise at the hands of technology and the culture shift we’re all undergoing.

The point of his letter, appropriately titled “Grim News” because what could be more grim than discovering that the president of an organization that represents you has his head buried so far in the sand that only the tips of his toes remain visible, challenged the validity of the Justice Department’s threatened antitrust action against Apple and five of the Big Six publishers for their (alleged) pretty obvious illegal collusion in agency pricing for ebooks. By all means, read his full statement. It’s good for a laugh, if nothing else. Of course, if I were actually a dues paying member of the Guild, I certainly wouldn’t be laughing. Maybe asking for a refund, or sobbing uncontrollably, but not laughing.

The entire piece is pretty astounding, honestly, for its shortsightedness, and I could write a full volume reciting its many, many fallacies but I won’t. Plus, there’s the fact that that the web has already been peppered with several long refutations of Turow’s misguided tome. I’ve picked out a half-dozen high spots that seem worthy of addressing. Here goes:

Amazon was using ebook discounting to destroy bookselling

Really? The largest book retailer pretty much on the planet was discounting ebooks to destroy bookselling? A business that dumped tons of money into developing tablets designed to provide a quality reading experience and then sold them at or below cost to increase the pool of potential ebook customers was trying to destroy bookselling? A company that built the best consumer interface for browsing and buying books online wanted to destroy bookselling? The place that essentially created the self publishing boom, making it possible for many, many more writers than ever before to earn from their works was actively trying to destroy bookselling?

I’m giving Turow the benefit of the doubt and say this was just a poorly worded statement. Of course they weren’t trying to destroy bookselling. Trying to grab a bigger marketshare, absolutely, no question. Of course there is also the possibility that his bias is showing a bit here. Amazon’s actions could be seen as an attack on physical bookstore selling. Maybe to Turow, that is the only type of selling that really matters and that digital sales don’t really count as bookselling.

Five of the largest publishers jumped on with Apple’s (agency) model even though it meant those publishers would make less money on every ebook they sold

Here we see that Turow does really understand what publishers were doing with agency pricing, that is using it as a protectionist weapon for the benefit of print against digital sales growth. How else does it make any sense at all for publishers to collude together to force a pricing model where they actually make less money? The entire point was to keep ebook prices high, even at the expense of their own bottom line, to artificially prop up the fading print product against market forces.

Of course, he obviously thinks that’s fine and just, but think about it for a second and you’ll see why the Justice Department is getting involved. Five of the six largest publishers going and the largest technology company in the world collectively designed and implemented a system to keep ebook prices higher than the market had any interest in specifically to stifle the growth of the ebook segment of the industry and hamper digital competition against their preferred print products. That’s not the obvious, good business decision Turow claims, it’s illegal collusion, anti competitive behavior and price fixing to support the quasi monopoly position they maintain on physical print book distribution. Allegedly. I always forget that part, especially when “obviously” or “blatantly” seem much more fitting to this particular situation.

Bookstores are critical to modern bookselling

I guess the meaning in this statement all depends on one’s understanding of the word “modern.” If by modern, he means the post Civil War era then, yes, he may have a point. But anyone who believes physical bookstores are going to be critical entities in the bookselling process from this point forward (how I would define modern) is simply not paying attention to the changes in technology and consumer spending habits.

Bookstores have more in common with CD stores than the Apple stores Turow sites in his piece. Print books aren’t going completely away any time soon, but they are losing ground to digital alternatives every day. Very soon, we will reach the point where there is simply not enough foot traffic to support more than a select few brick-and-morter book retailers. Even Barnes & Noble, legacy publishing’s current most favored son, is being forced into allocating more of its floor space to non-book items like toys and games just to pay the bills. Tablets, increasingly better smartphones and ereader devices are further saturating into the consumer market and more and more people are becoming digital only or primarily digital customers. Another year or two of double digit declines in print book sales, a reality even the most conservative analysts begrudgingly admit is nearly a certainty, and a sizeable number of the remaining bookstores will simply be no more.

Far from being critical to modern bookselling, they are almost certain to become little more than a quaint afterthought or a specialty nook within the industry. What’s actually critical to modern bookselling is for publishers to develop and cultivate online retail replacements for the real-world shelf space they will soon inevitably lose. I can understand being sentimental about bookstores, nostalgic even, but just because you want to believe they are still critical doesn’t make it the case.

In bookstores, readers are open to trying new genres and new authors: it is by far the best way for new works to be discovered

This one has much in common with the previous notion that bookstores are critical to the future of bookselling. Again, just because you really, really want something to be true doesn’t make it so. The notion that physical bookstores are, as Turow put it, “by far” the best way for readers to discover new authors is so absurd that it almost doesn’t need to be refuted. But I’ll try anyway.

The emergence of book superstores like Borders and Barnes & Noble, giants helped along greatly by legacy publishers, virtually gutted the independent bookstore ecosystem years ago, wiping out many of the small, eclectic bookshops that genuinely stocked unique and original works outside of the mainstream. Many of the survivors morphed into smaller versions of the superstores, filled with little more than a lesser variety of the works of big name, famous authors. There are exceptions, but they are few and far between. The superstores themselves, particularly B&N became basically big publishing’s warehouses where all the biggest, high profile books received every premium spot in the store, and virtually all the promotion. If smaller, little known writers and their works made it into these stores at all, they were packed away like sardines, spine out, on the out of the way rows of shelves, not exactly what I consider prime real estate for discovery.

Online, you can browse through a virtually endless supply of works, grouped by whatever search terms your heart desires; big legacy books, small press books and independent self published books all interspersed together by their content, not who published them. Apparently, Turow missed the study a few weeks ago showing about 2/3 of the top 200 science fiction books were independently published. Most all of them had little or no access to the bookstore sales chain, yet somehow, readers in large numbers managed to discover them. A look at any of the Amazon top seller lists shows them peppered with relatively unknown indie writers, whose works are either ebook only or maybe including a print on demand trade paperback. If Turow is right in his presumption that bookstores are the best place for discovery, where are all the reams of new-found star writers coming out of the legacy system that dominates the bookstore sales space? That’s a rhetorical question because everyone but Turow and his ilk, it seems, already know the answer to that one.

Publishers won’t risk capital where there’s no reasonable prospect for reward. They will necessarily focus their capital on what works in an online environment: familiar works by familiar authors

Arrogance bleeding through here a bit, I believe. What works online is only familiar works by familiar authors? Well, that’s pretty obvious because they are familiar, they already have a built in sales hook. But I suspect there are more than a few indie authors collecting regular checks from Amazon and various other online retailers who might argue the point that only familiar authors work in an online world. There was also a distasteful moment in Turow’s piece where he tosses the poor, unwashed hordes of unknown writers a bone by feeling sorry for them and their quest because he’s a big, famous author and his book sales are an inevitability. The only things certain in life are death, taxes and big sales of Scott Turow’s books apparently.

To me, that line came off as detached and somewhat condescending. It seemed to show Turow stating that he, and other name authors, sit above this fray, that the seismic shift in the industry doesn’t apply to them because they’ll sell books regardless of any changes in the industry. To some extent, at this very moment, he has a point, but if he really believes the risks don’t apply to him, he may be in for a very rude awakening. Besides, as publishers’ revenues continue to decline, where does he think they’ll turn to make up those losses and save themselves? Maybe the big name authors under their control who are still bringing in revenue?

Our government may be on the verge of killing real competition in order to save the appearance of competition

This may be the most laughable one of all. Illegal collusion amongst the largest publishers and tech company in the world constitutes “real competition”? And the legacy print system Turow so adamantly defends was, need I remind anyone, a long standing ogliopoly that thrived on providing nothing more than the mere appearance of competition itself. Amazon, among others, has brought real and genuine competition to the game for the first time in all of our lifetimes, challenging every aspect of the industry from the way books are written and produced to how they are sold and distributed. There is not a single portion of the industry that hasn’t had to either reassess, adapt or defend its position in the value chain. That has led to more innovation and opportunity in the past two years alone than in the previous two centuries.

Is it a good thing if Amazon becomes a dominating monopoly? Of course not, but legacy publishing’s quasi-monopoly wasn’t a good thing either. Certainly, some like Turow were more fortunate than others, but the vast majority of writers had gradually become nothing more than fodder for a bloated, lazy and entitled industry.

Change is a good thing. But to allow yesterday’s monopoly to blatantly collude illegally in an effort to squash tomorrow’s business model can’t possibly seem like a good idea. Amazon isn’t perfect, and there are very real risks to their ascendancy, but much like they’ve used better products, terms and consumer relations to break legacy publishing’s market stranglehold, I am confident if they go overboard, someone else will emerge very quickly to do the same to them. That’s the nature of the disruption economy we live in today; no one can dominate for long and when the king gets fat and lazy, the lean, strong-willed up and comer will be poised to have him for lunch.

Turow wasn’t alone in his beliefs. After reading the “grim news”, I scrolled down through the comments underneath and found this one from author Whitley Streiber:

I am very much afraid that Justice is pursuing this, and that, if they succeed in proving that publishers colluded in the adoption of the agency model, they could strike a blow that would devastate the publishing industry–unless, of course it compels them to do what they should have done from the outset, which is to hold back ebooks like they do softcovers, which is the one choice that will certainly save our business.

I’m so glad you pointed out the importance of the bookstore to our industry and our livelihoods. The first job of every publisher and every writer is to save the bookstore. Without bookstores, we will spiral down into an entirely different and far less viable part of the culture. In the end, writing will become a hobby.

A simple idea: let’s revise the recommended contract to write in that we will not allow ebooks of our work to be published until at least nine months after hardcovers. If we the writers do this, we will save our livelihoods, our industry and this crucial foundation of our culture. And there is no question of our right to do it. No lawsuits will result.

Now, as with some of Turow’s work, I enjoy some Whitley Streiber on occasion. But this comment really gets me as much or more than Turow’s. First, he also far too easily dismisses the (allegedly) illegal acts commited by publishers to institute Agency in the first place. And he should realize, if Justice finds publishers guilty in this case, they won’t be the one’s responsible for the devastation to the industry he fears. Publishers will be responsible for it by commiting the illegal acts in the first place. Backwards logic, the publishing industry is going to be destroyed because the Justice Department is going to force us to follow the law, who the hell do they think they are?

He also repeats some of the same glorified nostalgia for bookstores and takes it one step farther, claiming that our culture and the very profession of writing will suffer irrevocably without them. And the first job of every publisher should be finding a business model where they’re still relevant in five or ten years, not trying to save another business model that technology has made somewhat obsolete. I always thought the first job of every writer, by the way, is to write the best material you can. The second job of every writer is to find a market for that work. If bookstores are no longer viable, then find somewhere else to hock your wares. Streiber seems to be missing the key point in much of this, that far from bookstores being the end-all, be-all of booksales, there are many, many more potential markets for writers today that ever before, across a variety of mediums.

It’s not the act or prominence of writing that’s changing, it’s simply the medium of delivery. Technology is making it easier, cheaper, more convenient and efficient for readers to acquire, consume and discuss more material across a broader spectrum than ever before. Couple that with a before-impossible ability for readers and writers to interact, and I believe it’s far more likely we’re entering a new golden age of reading rather than the dark age Streiber is describing here.

His suggestion of windowing ebooks for nine months after initial print publication is, bluntly, assinine. He is correct that there would be no lawsuits resulting from such a practice by authors and publishers, unless, of course, you want to count the suits filed by publishers to fight the rampant copyright infringement such a policy would surely instigate. The film industry engages in this behavior all the time, and I feel confident that it will soon be their downfall.

People like to complain that Netflix and similar streaming services don’t have a good enough selection. Well, blame that on the studios who either withhold titles altogether or window their release to support DVD sales in much the same way Streiber is advocating withholding ebooks to support print sales. The flaw in these policies is that technology has irrevocably changed the conditions of the consumer/ content provider relationship. Denying your primary customers what they want, when and how they want it to prop up fading mediums of distribution is a long term loser. Far from saving the industry, as Streiber seems to believe, it could very likely expedite their decline.

The film industry still brings in tons of box office money every year. But look closely. That money isn’t being generated by an increasing audience, it’s coming from a shrinking number of customers paying ever increasing prices. They don’t yet seem to get that there’s a tipping point coming. Nearly everyone has a theater right in their own homes now, with large, affordable high definition screens, more than ample surround sound systems, much more comfortable accommodations and access to refreshments you don’t need a small personal loan to afford. Make no mistake, there is a serious reckoning coming to the film industry very soon. Following their windowing policies will only help make publishing’s current troubles even worse.

Windowing films and DVDs against streaming and print books against ebooks forces your customers to come to you when all signs point to a world where people’s preference is that their entertainment be available to them when and where they want it. Pushing against the desires and capabilities of the folks that pay for your wares is never a good business strategy.

So what we seem to have here are two legacy authors who are unaware, or unwilling to truly see, how things have actually changed. Their combined opinions speak to a protectionist strategy for both print books and physical bookstores at a time when technology is creating legitimate, and in many ways, far superior replacements. I love print books, and I’ve always liked bookstores, but I’m not about to ignore the reality and benefits of what has and has yet to come.

I’m more than a little disturbed that they seem only too willing to excuse what looks, for all the world to be anticompetitive collusion amongst Apple and publishers, shamelessly so in some cases, because it suits their particular interest in rolling back the clock on technology and progress. But when you possess the names and reputations of these guys, they do a great disservice to the industry and writers everywhere, past, present and future, when they make little attempt to inform themselves on reality rather than simply slanting arguments to defend a backward thinking model that is soon to be supplanted.

If I was a member of The Authors Guild, I would demand more from those supposedly representing my interests. Now, perhaps more than any time in a century, the interests of writers and publishers have been disintermediated in many ways. Shilling for legacy publishing does the writers you supposedly represent no real good and, quite possibly, significant harm.

Note: I wrote this in bits and pieces on a fairly busy Saturday. By the time I finally finished, I noticed that a few others have made many of the same points, plus many more, far more eloquently than me. Here is author Kevin McLaughlin’s take. This is David Gaughran on the subject. And here is another wildly entertaining double team from Joe Konrath and Barry Eisler.

Publishers are searching for a sustainable market. Sustainability for who, exactly?

I was reading a piece this morning on Alan Mutter’s Reflections of a Newsosaur blog.  It’s ostensibly about a new survey that, like many before it, purports to show that people under 40 see little to no value in newspapers, where people 40 and up still retain a certain, if declining, appreciation for the dead-tree media platform.  It’s not a new or surprising conclusion, and it’s not unlike any of hundreds of articles I’ve read over the past few years.  In fact, it’s an argument I’ve largely lost interest in long ago because of the obvious nature of the debate.

Nostalgia for newspapers will still exist for some time yet, particularly among the older set who have used them as a primary source of information virtually their entire lives.  The younger generation, having never been fully indoctrinated in the mystique of the paper, and having been reared on new technology, quite understandably sees newspapers as stale, limiting platforms from a bygone era.  To me, the argument is moot.  Today’s technology, and what is still yet to come, will no doubt end the era of newspapers.  To fight that simple fact is basically pissing directly into the fierce headwinds of progress.

That’s not to say that the organizations that produce newspapers won’t be able, at some point, to successfully transform to fully digital platforms, although it might have been helpful to start that transition a decade or so ago before a lot of the best ideas at the moment were snapped up by tech companies or other independent parties.  But you can’t cry over spilt milk now. 

The part of Mutter’s article that drew my attention was, as is frequently the case these days, the comments section.  One reader quite correctly points out that while the under 40 sampling in the survey seemed to have little use for newspapers in physical forms, the questioning failed to differentiate between print and online news content. While they may never buy a paper, they may also be making use of online content from the very same sources.  An interesting point, and undoubtedly true, but I would argue that even if it is the case, those people might not even realize where the content originated. 

I am as guilty of this as anyone.  I don’t buy newspapers any more.  They don’t play to my interests any longer, at least not in a significant enough way to coerce me to lay down any cash for one.  As I wrote a bit ago, I use Twitter quite extensively these days, and have cultivated a group of people and organizations to follow across a broad spectrum of subjects.  I check it two or three times a day, scrolling through the tweets, opening up any links that seem interesting on different pages in my web browser.  Then I sit down and go through them, reading what in effect has become an individualized newspaper tailored to my interests.  I do this a couple times a day, creating what is, in essence, morning, afternoon and evening editions of the Dan Times, the equivalent of a newspaper made for just me.

There are, unquestionably, articles that appear in these streams that originate from newspaper sites, but frequently, I’d be hard-pressed to tell you which papers.  I absorb the information readily enough, but the source sites slip right on by with very little awareness.  And you know what else slips by?  Any and all ads that happen to be on these sites.  I finished my morning edition just a little while ago, reading in full about 12 articles on a variety of subjects.  I can’t name one single ad I saw on any of them.  Not one, despite the fact that they were almost certainly there in droves. 

The dirty little secret about online advertising isn’t that they’re cheap because of an abundance of space online, it’s that they’re cheap because they are so very easy to totally ignore.  I will never believe that ad-supported online newspapers will work because the ads themselves will never be useful enough to support pricing that makes any sense in the long term.  And if anyone out there is paying high dollar for them, here’s a little free head’s up–you’re getting ripped off, no matter what their elaborate metrics might say.

Now that we’re over a year into the supposed tablet revolution, there does appear to be some positive signs for publishers.  As tablets are proliferating, and getting cheaper almost by the day, there have been reports that revenue generated by publishers is increasing.  This is probably one of the more optimistic signs I’ve seen in a while that an actual sustainable model for publishing can be found and is, in fact, possible.  The problem, though, is sustainability for who?

I’ve long held that the market for paid digital content for publishers won’t really kick into high gear until there’s a somewhat platform neutral device in the $100 range or less.  These devices need to become ubiquitous in everyone’s homes, and they need to be as open as possible.  The iPad is a very nice piece of equipment, but it’s too expensive and it’s too locked into it’s own little world.  I have two ebooks available for sale in the ibookstore, but lacking the device, I can’t even see the listings for my own books, let alone buy one.  That’s a big problem, one that Apple may not care about at the moment, but it’s a hindrance to reaching customers that will be an issue over the long haul.

Amazon exists in a somewhat locked down world as well, but they are driving device prices in the right direction for market saturation.  The new Android-based Kindle Fire tablet will debut later this year at $199. Still not the fully platform neutral device we need, but it’s closer to that magic $100 price point.   On top of that, they’re dropping the price of the base-model Kindle ebook reader to only $79!  To me as an ebook publisher, that is extraordinarily good news.  It is an ad supported model, which can be an inconvenience, but the ad free version will still be only $109.  Keep in mind, this is the start of a race downward in price.  I am more certain than ever that, as the market for digital content matures, standards will open more and prices will drop into the range where every home, hell, every individual can have one without having to save up to do so.  The movie industry has made loads of money on dvds, and the means for doing so was greatly helped along by cheap, widespread dvd players.  The device is great and all, but it’s the content itself where the real money is to be made.

All this brings me back to the notion of sustainability.  When, and indeed if, digital content brings in real money for publishers, where is that influx of cash going to go?  Will it return writers, designers and content creators to living wages again, on the whole?  Or will it be used to support the corporate infrastructure and exorbitant management salaries?  Take Gannett, for instance.  Their CEO Craig Debow is stepping down due to health concerns. Now, I do wish him well, I don’t want to criticize someone suffering from health issues, I wouldn’t wish that on anyone.  But he’s walking away from the company with a $37 million good bye check.  I’m sure all the former Gannett employees who lost their jobs to the massive cost cutting of Debow’s tenure are thrilled that he’s receiving such a generous going away present.

That amount of money would pay 1,000 writers $37,000 salaries, or pay 250 writers that same amount annually for the next four years.  Isn’t there a better use for resources in what is, at it’s heart, a content company?  I’m not saying he doesn’t deserve anything, but for a guy who’s base salary was $1.2 million, and who has already collected millions in stock options and bonuses over the past five years, that seems really exorbitant.  Most people are lucky if they get a couple months pay leaving a job, Debow’s collecting 30 years worth of his base pay. 

The popular conservative mantra these days is that if the corporations are doing well, its employees will benefit from that.  That argument had merit at one point, but in this day and age, any objective long-term analysis is going to show that corporations have been improving their bottom lines at their employee’s expense for quite some time now, long before the recent economic downturn.  So the question remains, will digital revenue create sustainable models for content creators or for the organizations who have been, and will continue to exploit them?

If the creators benefit, then this can be good for everyone.  If only the organizations benefit, it’ll be good for almost no one.  Except of course, for CEOs who can preside over nearly $2 billion in annual revenue declines over five years and still walk away with a one-time parting gift roughly 20 times more than most of us will see from an entire lifetime of work.

Sustainability is great, and what the industry should certainly be striving for, but we need to make sure that what gets sustained by our money as consumers in the future is truly the most deserving of it.

Grasping At Straws: Large Book Publishers Likely Collude to Jack Up ebook Prices

So, a lawsuit has been filed against Apple and five major book publishers over their alleged collusion to force a shift to an agency pricing model that has caused the cost of new ebooks to jump, sometimes as much as 50%.  I find myself in the unusual position of both agreeing with the lawsuit and agreeing with the publishers. Here’s why:

The gist of the problem stems from Amazon’s ebook pricing structure, which the online retailer set the price point for new, best selling ebooks at $9.99.  The major publishers balked at this, claiming it was unprofitable to sell ebooks at that price and that it undermined sales of hardcover books. 

So a few of them got into bed with Apple and the ibookstore and effectively forced Amazon to change to the agency pricing model or lose access to their catalogs, what some people estimate as being 85% of the most popular, best selling authors.  That’s nothing to sneeze at if you’re a book seller.

As a consequence, ebook pricing for this material has jumped to $15 or so, a 50% bump.  In fact, the publishers have been pretty upfront in their belief that ebook pricing has to be determined in a matter in which it correlates with physical printed editions so as not to rob Peter to pay Paul, as it were.

From the publishers point of view, I get it.  It’s their product, they should be able to sell it for whatever they like.  They have long-standing legacy businesses based on physical print products through which they’ve made oodles of money over the years.  Willfully undermining that business probably isn’t the best idea.  And if Amazon won’t play ball on pricing, then they have every right to pull their material and go with a platform that will.  Whether that’s wise or not, I’ll get to in a bit, but they are in business to make money and how they go about doing that is their own business.

I also agree with the premise of the lawsuit, however. Undoubtedly, collusion amongst the major players took place in forcing this shift to higher pricing.  Apple willingly helped out because they are trying to eat into Amazon’s Kindle business.  Five companies controlling 85% of the most popular material colluding together to force a major price shift upward across the industry really deserves some sort of legal smackdown.  Just one of these companies going this route wouldn’t compel the systemic change, nor would two or even three.  It had to be a critical mass of best selling material to generate enough leverage to pull this off, and that means five publishing giants, ostensibly in competition with one another, yet all agreeing to an effort to drive prices up industry-wide.  If that’s not collusion, then I don’t know what is.

Ultimately, though, this is a pointless discussion.  Much like the music industry before it, publishing’s content pricing structure is built around two things:  one is the actual physical costs of production- printing, shipping, etc- and two is the costs of the publishers themselves, the middlemen, as it were, who manage the  production, distribution, marketing, et al.  The real long term problem for the industry is that both of those principle costs are shortly going to be significantly smaller, if not non existant.

The key issue I see is tying the ebook to the print product.  The music industry tried to do it unsuccessfully with digital music and cd’s.  The news business has tried umpteen variations of tying the print product to the digital, some spectacularly unsuccessful.  The reality is that physical and digital products can’t be truly conjoined because the root cost structure is so vastly divergent.

Are paperback books profitable?  Of course they are or else they wouldn’t make them.  So how is it that an ebook, with almost zero costs of replication and distribution, according to the publishers, isn’t, even at their hated $10 price point, which is still in excess of the average cost of a paperback?  It strains credibility to believe so. 

The problem here isn’t that the ebooks aren’t profitable, I have to believe they would be even at far less than $10, its that they serve to undermine the profitability of the physical print products that make up their long standing business.  The legacy businesses have built their pricing structures around large, somewhat inefficient processes based on a soon-to-obsolete model.  No matter the price collusion today, the changes brought to the industry by digital advancements can’t be stopped.  Locking in pricing on the industry’s future to prop up its expensive and inefficient past is a path doomed to failure.

The barriers to entry in the ebook market are negligible, especially when compared to the barriers to entry to the print book market.  Nothing in the world can stop competitors without the massive infrastructure costs from selling ebooks at half, a third or less of the agency model and still find profitability.  Even currently controlling that previously mentioned 85% of popular material, this pricing structure will put them at a major, potentially catastrophic long-term competitive disadvantage.

So call this what it really is, a protectionist effort to prop up business models that worked well yesterday but have little, if any tomorrow.  Oh yeah, they also very likely had to illegally collude to even get this far.  Not a good sign for the future prospects of the giant legacy publishers.

Published in: on August 19, 2011 at 11:40 am  Leave a Comment  
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