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.

Moaning and Groaning: Publishers’ supporters get more hard line after being shot down by the DOJ

So I’m catching up on my reading of industry news and I noticed that, since the DOJ pretty much laughed off the anti-settlement brigade’s rhetoric, the tone in some circles has gotten even sharper, more filled with doomsaying than it was before, and it was already pretty severe. Personally, I found a lot to like about the DOJ’s response to comments, which is something I very rarely say about any government agency. I especially appreciate that they weren’t swayed by the 10 to 1 ratio against that the traditional publishing backers’ letter writing campaigns generated.

I still believe there was a fatal flaw in their logic. In encouraging people to parrot the anti-Amazon party line, it created a raft of letters that failed to address the principle matter of law in the case, worse yet, it may have vindicated it. Very few, if any, of the letters substantively refuted the claims of collusion, instead using unsubstantiated claims of Amazon’s predatory pricing as justification for the publishers’ actions. In this way, many of the comments, while attempting to defend the publishers, essentially admitted collusion took place. It’s like saying, “Yes, your honor, we did it, but we’ve got a really good excuse.”

It doesn’t surprise me in the least that this kind of approach carried no water with a group of prosecutors. If anything, the arrogance of it seems to have further emboldened and entrenched the DOJ in its beliefs. This could end up being extraordinarily bad news for Penguin, MacMillan and Apple if they actually force an annoyed DOJ into court.

But that’s an issue for a later date if the holdouts don’t come to their senses and settle before they end up spending absurd amounts of money defending a pricing scheme likely to be obsolete before the first witness is ever called.

I’ve got two articles I read this week that, I think, illustrates both the attitude of superiority and the over-the-top, end of days hyperbole that’s making the rounds now that the industry seems to be realizing Uncle Sam isn’t going to do their bidding, no matter how many campaign contributions they make to Chuck Schumer. It’s a sad commentary on the state of things these days when buying a congressman is an easier accomplishment than competing in the market.

I’ve taken five points from each of these two articles to discuss. The first is a particularly single-minded post by Dennis Johnson, co-founder of the publisher Melville House, a staunch traditionalist.

Before I begin, let me say that I find it odd that such a virulent supporter of publishers founded a company named after Herman Melville, a man who largely had a tenuous if not outright bad relationship with publishers. Most of his books had to be published in London initially because American publishers wouldn’t touch them, and even then, they were never able to generate significant sales despite the fact he wrote some of the greatest works in the English language.  Rather infamously, Melville was paid a grand total of less than $600 for his masterpiece Moby Dick. I’m sure if he were to rise from the grave today, Melville would have more than a few choice words for publishers, particularly considering his actually burnt the unsold copies of an epic poem he wrote after he couldn’t pay for them. Comforting to see some things never change, like publishers’ contempt for writers.

1. “At the start of agency, for example, Amazon controlled 90 percent of ebook sales. There’s nothing “highly speculative” about calling that a monopoly.”

Except for the fact that Amazon’s large share came about because they took a then-under utilized ebook market and drug it into the mainstream essentially by themselves. No major publishers paid much heed to it at the time, very few competitors showed any interest in jumping in before Amazon charted a course, and certainly none on their scale. Once Amazon started making real money, though, that 90% share dropped significantly, just as you’d expect a trendsetter would when a previously empty playing field started filling up. It wasn’t like Amazon entered a thriving ebook market and swiped that giant share of business from others. They essentially created the market when almost no one else had the interest, desire or the balls to do it. He’s right, though, partly. It’s not “highly speculative” to call Amazon a monopoly in that instance, it’s outright bullshit to do so.

2. “The Sherman Antitrust Act, and its descendent the Robinson-Patman Act, clearly define loss-leader under-pricing as a predatory tactic rather obviously intended to “drive out competition and obtain monopoly pricing power.”

So when does the DOJ actions start up against every retail business in this country? Loss Leader pricing is so commonplace we barely even notice it any more. Its use is far from being “rather obviously” about driving out competition, either, far more commonly used on a day to day basis virtually everywhere things are sold, as a means of bringing customers into your store.

On the other hand, what the publishers did with the agency scheme was retail price maintenance, which up until 2007, was illegal in essentially all its forms. A Supreme Court decision (which overturned damn near a century of precedent, by the way) granted a limited allowance for the behavior under the “rule of reason” which Apple and the publishers flaunted by colluding pretty much in public and gloating about how their plans were going to screw Amazon, inhibit the ebook market and raise prices on ebooks. The publishers are only in legal trouble today because of their egos, stupidity and total lack of discretion. That and, unlike Amazon, they actually broke the law.

3. “The DOJ cited arguments from David Gaughran, writing on behalf of 186 self-published authors who thanked Amazon for ‘creating, for the first time, real competition in publishing by charting a viable path for self-published books. But when was it, exactly, that publishers prevented authors from self-publishing?

Is he kidding? Certainly, anyone with the money could publish a book, but getting that in book stores or retail outlets dominated by traditional publishing was an entirely different story. Publishers’ entire business model was one of dominating the channels of distribution. What good was publishing a book if you were essentially locked out of the principle sales channels?

Preventing writers from having any access to the market was their stock in trade, creating a ready supply of material they could pay as little as possible for, which is why writers get such a low portion of revenues today when they are principally responsible for the product. And, really, anyone who thinks there was anything close to a viable path to self publish pre-Amazon is either dangerously ignorant of reality or purposely being disingenuous.

4. “The process of public involvement was, apparently, meaningless. But there are better things to remember right now. For one, take this for what it is: The DOJ has found its own case sound. The good guys, meanwhile, have yet to have their day in court.”

So the DOJ was supposed to take a vote and ignore the law because a large number of traditional publishing’s disciples said so? The truest thing in the DOJ’s response was that the overwhelming majority of anti-settlement comments came from people and businesses profiting directly from the price fixing scheme. Like I said, I’m actually impressed they saw through it.

In truth, I think the public involvement stage was very useful. It illustrated the biases of those supporting the publishers who, despite their numbers, produced no compelling arguments for a lessening of terms. It also showed that the truly independent voices who, not coincidentally, are finding success without the need to break the law, were heard even though they could have been swamped by traditional publishing’s comment generating machine. If anything, unlike many other areas of life these days, this looks like the powerful corporations flaunting the law will be held to task while consumers, innovators and legitimate competitors in the market will win the day.

5. “The ludicrous charges, the fact of such paltry and pitiful support for them, the wide variety of opponents — the entire industry and then some — roused to speak out — all provide reason for hope.”

Yeah, reason to hope you guys hurry up and go bankrupt. Seriously? Ludicrous charges? Pitiful and paltry support? No and no. The charges look pretty damn sound to me. And evidently, those of us who choose to disagree don’t matter. Hell, we’re not even in the industry, apparently, despite selling books professionally. For money. To actual readers. See, it’s not that public input didn’t matter, it’s that public input he disagreed with didn’t matter, and it certainly shouldn’t have mattered enough to beat back their superior numbers and unsubstantiated inflamatory rhetoric. How dare the DOJ side with the law and actually aggreived parties who have paid tens of millions more for ebooks than would have been possible without collusion! They sent 800 carbon copy, Amazon-is-evil letters, didn’t the DOJ get the memo? Won’t somebody please think about the culture?

Shortly after reading that piece, I read this one by John Barber of the Globe and Mail. The hits just keep on coming in this one, including cameos by everbody’s favorite bitchy traditional writers, Ewan Morrison and Scott Turow, proving that even the Atlantic Ocean can’t keep arrogance and stupidity apart.

1. “Authors are losing income as sales shift to heavily discounted, royalty-poor and easily pirated ebooks. Journalists are suffering pay cuts and job losses as advertising revenue withers. Floods of amateurs willing to work for nothing are chasing freelance writers out of the trade. And all are scrambling to salvage their livelihoods as the revolutionary doctrine of “free culture” obliterates old definitions of copyright.”

Being as he made several points here, I’ll address each in order. First, ebooks are only royalty-poor because publishers want them that way. And, to be fair, print books are pretty damn royalty poor in most instances, too. Next, do you know who’s not seeing pay cuts and job losses as advertising flees newspapers? The CEOs, who are “suffering” with giant bonuses and golden parachutes for all those job losses they’ve instituted while simultaneously playing the fiddle on any kind of digital transition as their industry segment burns to the ground.

Third, as conglomerates bought up any and every publication they could find during the acquisition rush years ago, many publishers began getting tight with freelance budgets. Even at the height of profitability before the bottom fell out, prices paid to freelancers were stagnant or negative. Once the advertising revenue started to fall, they used it as a convenient excuse to put the screws to writers even more than usual. The flood of free content he refers to was largely spurred on by publishers looking for ways to spend as little as humanly possible on content, quality be damned. The issue isn’t that there’s work out there available for free, it’s that publishers refuse to pay even modest wages for quality writing despite the fact that content is the only reason they have the ability to attract any advertising at all.

And, finally, who’s perverted the concept of copyright more, the “free culture” people, as he calls them, who advocate sharing and the rights of consumers or the media companies, who lobby for laws like DMCA and SOPA, and push through things like the Mickey Mouse rule that now has copyright extended to life of the creator plus 70 years?

The extensions and increasingly stringent punishments for even minor infringement has created an atmosphere where it makes a lot of sense to argue that copyright needs to be looked at anew. The parts of copyright law that support derivative works and allow creators to build off of the progress of those before, fair use and the first sale doctrine, and the public domain and furtherance of culture have all been imperiled by the steady rights grabs of media companies who have been engaging in a systematic effort at maintaining copyright in perpetuity for decades now. If you’re going to cry about copyright being broken, don’t do so while advocating for those who actually broke it.

2. “(According to best-selling UK author Ewan Morrison) The result will be the destruction of vital institutions that have supported “the highest achievements in culture in the past 60 years.” In short, he predicts, “There will be no more professional writers in the future.”

I’m sure when Morrison uses the term “professional writers”, he’s referring to people like himself. We can only hope for a future with as few of those kinds of “professionals” as possible. It’s not his writing talents I have issue with, I’ve never actually read any of his work, it’s that he has some ridiculously backwards, elitist ideas along with a generous helping of contempt for anyone who circumvents the traditional getekeepers.

Morrison has said some pretty crazy stuff, for instance, this piece in the Guardian where he argues against social media but makes some larger points about traditional and self publishing. Be sure to read the comments because he has numerous additional points there, including a rather entertaining discussion with Joe Konrath. My favorite part is when he excoriates Konrath for daring to encourage others to eschew traditional and embark in self publishing by saying, “It is unfair and cruel to propagate a model for others which can only ever work for the few.” After I stopped laughing and wiped the tears from my eyes, the full audaciousness of that comment really sunk in. After all, Konrath has a long, long way to go to rate with traditional publishers in propagating models that only work for the few. The sad part is that it seems Morrison doesn’t even get the rich, creamy irony.

These statements are what I’m talking about when I say the rhetoric has gotten more severe. The highest institutions of culture will crumble and working writers will totally vanish. Talk about self-important! Publishers largely gave up their mantle of cultural protectors, if they ever had one in the first place, when they became little more than profit engines for larger conglomerates. It’s pretty obvious, too, yet Morrison seems to believe that writers should willingly accept lousy royalties so these publishers can keep exploiting them to the benefit of their parent company’s bottom line. Being self published and actually keeping a fair share of what your work earns is selfish, according to Morrison. Of course, he just might see it that way because more and more writers earning outside of traditional may jeopardize his next advance. Besides, if publishers weren’t portrayed as purveyors of culture, then there’d be no moral argument for their survival, and that would make for even more specious rants, if that’s possible.

3. “(Author Scott Turow) has drawn heavy criticism from digital partisans for defending the diminishing rights of “legacy publishers” currently under U.S. Justice Department investigation for allegedly fixing ebook prices.”

Diminishing rights? I wasn’t aware publishers had the right to colluded and fix prices. Didn’t know they had the right to rip off authors through shady corporate finanglings like Harlequin just got sued for. Wasn’t aware they had the right to snatch digital rights from contracts signed 30 years before anyone had ever heard of an ebook. Most of all, I didn’t know they had the right to operate largely free of genuine competition.

If publishers are diminishing, it’s likely for two reasons; writers have other choices now and are sick of being treated like chattel and paid slightly worse; and they’re clinging to a business model that is servicing a shrinking percentage of their customer base. But that’s the common denominator in the anti-Amazon camp, the stark refusal to admit publisher’s culpability for their own problems because it’s so much easier to make excuses for your own failings when you can pretend to be a victim.

4. “Nor is self-publishing profitable for the majority of authors, according to a recent British survey. It found that half of the writers – many no doubt lured by well-publicized tales of spectacular success achieved by a handful of fellow novices – made less than $500 a year for their efforts.”

No one was ever lured into traditional publishing by the tales of success of other writers, right? I’m sure that’s never happened. And let me just reiterate an earlier point: Herman Melville made less than $600 in total on Moby Dick. Using dollar figures in this way, especially with no context in comparison with traditionally published writers, makes for compelling soundbites while providing very little actual insight. Besides, there are a whole lot of self published writers. That survey means half of them made more than $500 a year. I’d be willing to bet that percentage isn’t far removed from traditional but I’m sure we’ll never hear about it.

5. “The livelihoods of serious writers will continue to depend directly on the health of traditional publishers, “the venture capitalists of the intellectual world,” according to Turow.”

So only writers with traditional contracts are serious? The rest of us are just dicking around out here then, huh? Writers like Turow and Morrison may have their livelihoods depend on the health of traditional publishers, but there seems to be a large and growing infrastructure that’s circumventing their control. That means the health of said publishers isn’t really a major concern in that segment. In fact, it may be just the opposite.

With fewer market obstructions from the traditional end, and less product from that side, it could well increase opportunities for success amongst those who aren’t dependant on them. But that doesn’t matter because those people won’t be serious, of course. Everyone knows you can’t be a serious writer unless you give up most of the proceeds, all creative control and any conceivable rights to your work until your great, great grandchildren are old and gray. It’s just crazy talk to say otherwise.

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.

Letters From The Front Lines of the ebook Wars

Earlier today, I read this piece on paidContent.org about some of the letters sent to the DOJ relating to the proposed settlement for three of the five publishers who, along with Apple, have been placed in the government’s crosshairs for (alleged) collusion and price fixing of the emerging ebook market. The piece contained excerpts from both pro-publisher and pro-DOJ contributors in a pretty balanced manner. However, I would like to take this opportunity to point out one or two things I find disturbing in the letters of support for the accused.

Just to be clear, I’ve made it no secret that I believe they did illegally collude (you don’t order your employees to double delete emails if you honestly believe you’re on firm legal footing) and I do fully support a serious DOJ smackdown. In fact, I believe these major publishers have been colluding on various matters for some time now, and have used their combined cartel-like influence to dominate the industry in a manner that exploits writers, overcharges readers and has created enormous barriers for entry for viable competition.

The emergence of ebooks, particularly spearheaded by Amazon, is the first true encroachment to the publishers’ gated community of competition in my lifetime. To me, that makes it even more crucial that the DOJ does what I believe it should and pursues this case to the fullest. In my opinion, agency pricing served only a few purposes; to raise prices on the digital versions of the largest selling ebooks to protect their preferred print market, to slow ebook growth and stifle the digital transition at a manageable (for them) 20-30% of the book market, and to handicap Amazon, the one company that truly is driving the industry-wide changes that threaten their long-standing dominance. That also says nothing of Apple’s interests in the deal, which had little to do with being a competitve ebook retailer and much more to do with heading off Amazon’s efforts to enter the tablet market and potentially swipe marketshare out from under the infinitely more expensive iPad.

In my mind, this entire enterprise had nothing whatsoever to do with creating and fostering competition in the industry subset of the ebook market and everything to do with stifling genuine competition across the entirety of the book publishing spectrum. The bigger the ebook market gets, and the faster it gets that way, the quicker the house of cards that is the legacy publishers’ cartel-driven dominance of the industry collapses. So to stop it, I believe they colluded to put the price fix in.

Anyway, here are a few excerpts from three of the pro-publisher letters listed in the piece. I’ll start with literary agent Simon Lipskar, whose full letter can be read here.

“The price of the average bestselling ebook has decreased significantly, from approximately $10.20 in Q3 2010 to $8.29 on April 27 – a decrease of 19% in the two years since the introduction of agency pricing – and that, furthermore, the average price today is in fact lower than it was before the introduction of agency pricing. (As a side note, it’s also clear that even agency-priced ebooks themselves are now cheaper than they were shortly after the introduction of agency.)”

These numbers are clearly false. I won’t get into specifics on the figures because Joe Konrath already has here, using Lipskar’s own methodology to show that, particulary, agency released bestsellers have increased in price dramatically since the introduction of the agency pricing scheme. It also strikes me as somewhat disingenuous to include self pubbed or independently pubbed bestsellers in the average price he sites for a couple of reasons. One, the six publishers involved in the agency scheme control something like 85% of the bestselling books in the U.S. To clarify, that’s referring to books that sell more copies than any other books. So the prices of nearly 9 out of 10 books that sell more copies than any other books have gone up significantly, yet Lipskar somehow believes this doesn’t constitute harm to consumers? Secondly, if you take a $14.99 agency book and a $0.99 non agency book and average them, you get $7.98. That might look good on a stat sheet, but it doesn’t change the fact that the agency book is way over priced and could only get that way through collusion of the six companies that control 85% of all bestsellers.

“It is impossible to look at today’s ebook marketplace – from a price perspective alone – and not see that, rather than causing a general increase in prices, instead the agency period has evidenced a remarkable explosion of competition, with new publishers, self-publishers and retailer-owned publishers providing consumers ebooks at lower prices than the agency publishers and taking significant market share from them in the process.”

One more time, these six publishers control 85% of the most frequently purchased titles. Agency pricing specifically stopped price competition on those books. Nothing agency did created the lower priced competition or the growth we’ve seen in the ebook market. In fact, I would argue that the recent slow down we’ve seen in ebooks is more attributable to the effects of agency pricing than any of the growth we’ve seen. That’s because this is specifically what the scheme was designed to do, stifle ebook growth.

As for all the extra competition Lipskar claims came about because of agency, that’s somewhat wishful thinking as well. As much as higher priced agency ebooks have helped Indies find marketshare, and it has, though not nearly as much as he suggests because the books in question were already several times more expensive than indies under the previous wholesale model, let’s remember that the ebook market has only been a major player for about three years now. Agency has been in effect for two of those three. As the ebook market grew, it was inevitable that other competition was going to enter the game whether agency existed or not.

What this actually means is that the agency publishers seriously overestimated the power they wield over the industry. It means that this shift isn’t about reasserting control but changing and adapting. Whatever their intent, agency was doomed to fail from the get go. At best, it’s an historical speedbump in the digital transition. Just because their efforts were an inept failure and steeped in entitled arrogance, that doesn’t mean we should ignore illegal collusion or the damage done to readers who’ve spent tens of millions more than they would have on these ebooks had no collusion taken place, and the damage done to their own writers, who’ve seen the pittance royalties these publishers deign to throw their way shrink even more with agency pricing.

On a somewhat related note, here’s a truly perplexing point made by independent bookstore owner Peter Glassman:

“Publishers have never sold ebooks under the wholesale model. Rather, they have sold them under the consignment model. Amazon and other ebook sellers never purchased or took ownership of the ebooks they resold. Rather,they advertised the product, handled the transaction, and only after they had received payment and concluded the transaction did they pay the publisher for the ebook. That is consignment, not wholesale. Amazon never placed any buy orders or made any commitments to purchase specific quantities of any ebooks.”

What? I’m pretty sure they did buy wholesale because, you know, that’s how the publishers sold the ebooks to them. Not sure I’d call it consignment because part of the transaction includes Amazon electronically delivering a copy to the buyer’s device. I may not be a tech wizard, but I’m pretty sure Amazon would actually have to have a copy of the work in their possession in order to do that. As for the last sentence there, it’s gotta be on my short list of the most absurd, ignorant statements I’ve seen yet. Amazon didn’t make any buy orders? Why would they? They already had what they needed to sell 10 copies or 10 million. And I can’t even come up with a smartass quip for the “specific quantities of ebooks” line. Does this guy even have a rudimentary knowledge of what ebooks are? You don’t suppose he really thinks publishers have bunches of individual copies of each ebook on their servers and every time someone buys one, Amazon gets it from the publisher, then sends it to the reader? He can’t possibly believe that, can he? That would be just silly!

I’m hoping he was just trying to make a point that digital sales resemble consignment more than wholesale, but it wasn’t particularly effective. To me, he just looks like someone far too stuck in the print book ecosystem to see the realities and efficiencies of digital. His comparison makes no logical sense whatsoever. That is the first and only time I’ve ever seen the term “quantities of ebooks” used in that way. I certainly hope he understands that Amazon only needs the one file to sell them to infinity. I also wonder if there’s not a bit of envy in there, being a purveyor of print books, for having to actually buy quantities of books and hope they can resell them or return them later. Of course, being the owner of a small bookshop, he might not want to see the reality. That has to be a bit like standing on the beach watching a 200-foot tsunami heading your way, I suppose.

Finally, here’s a pair of points from industry consultant Mike Shatzkin, whose full letter can be read here:

“My first concern is that there is a failure of recognition of the necessity for price-setting of individual titles across the ebook supply chain. Indeed, only by eliminating price as a basis of competition can we ultimately have
balanced competition in the real world of publishing as digital change has remade it.”

So we can only have competition in ebooks by eliminating the principle means of competition? I’m sorry, I do like Shatzkin’s work generally, even though he’s a little pro-publisher sometimes, but he’s really wrong here. Taking price out of the equation means that publishers themselves would then represent the only truly viable means for competition. Excuse me if I don’t find that a particularly compelling notion, given that the largest and most powerful among them are currently on trial for colluding together to fix prices. That, and the fact that many of them still appear clueless on how to actually compete in ebooks in any way other than trying to cram them into the same molds they’ve always used with print. Given that these same publishers have openly talked about things like windowing and higher ebook prices to protect print sales, increasing friction on the reader in the ebook acquisition process, and steadfastly attempting numerous rights grabs from authors while refusing even modest royalty increases, what reason does Shatzkin have to believe that these old guard publishers will give us anything even remotely like competition? The retail competition should be left right where it is, in the hands of retailers. Unless, of course, these publishers want to become retailers themselves. He also touches on that:

“The publisher of the future must be able to sell direct. With Amazon as their single biggest wholesale customer, that puts publishers in a Catch-22. If they sell direct at full price, Amazon will undercut them and make them look foolish to their customers.”

I understand Amazon is the biggest shop on the proverbial block, but as far as I can tell, there’s no law that says publishers have to sell through them. If they do set up a direct retail mechanism and they don’t like Amazon undercutting them, then don’t sell through them. Or cut a deal with them so that they won’t undercut you. Or offer books with special editions or bundles or what have you that Amazon doesn’t have. You know, actually figure out how to compete and take advantage of the opportunities of the market! Nothing’s stopping them but themselves.

To me, this sounds like the publishers want all the benefits of the retail giant Amazon’s built but only on their terms. Life doesn’t work that way, so sorry. They could have pioneered ebooks, and online retail book sales, but they didn’t. Amazon did. You don’t get to bitch and moan how unfair it is when you dropped the ball. Don’t like it? Too bad! Deal with it or find a better way. That’s how Amazon got where they are right now.

It all comes back to competition. These publishers didn’t have any for the longest time, then Amazon and ebooks came along. Now, they must compete to survive, but the best they can come up with are protectionist schemes like agency pricing that either stifle it or try to control it.

We’re past the point where they can control this industry like they used to, no matter what they believe. Crying to Uncle Sam that a better, more nimble, more efficient competitor is stealing their customers while they were out back napping in the hammock will get them nowhere. The quicker they realize this, and move on with some actual adaptive, genuinely competitive efforts, the better off everyone in the industry will be.

Bile-Soaked Spite and Vitriol: Why traditional publishing should shut up and adapt already

After reading a week’s worth of steaming recriminations of the antitrust lawsuit brought against Apple and a handful of super large publishers, I thought, in the service of clarity, that I’d like to make a statement:

If the players on the traditional status quo side of the publishing industry had put as much time and effort into figuring our how to adapt and compete in the changing book marketplace as they have in bitching, moaning and complaining about Amazon and the Dept. of Justice lawsuit, maybe the publishers in question wouldn’t have had to (allegedly) illegally colluded to put the price fix in and stay afloat in the new order of things. 

Most times, I take the whinings of the disrupted with a grain of salt but after a few days of reading pronouncement after pronouncement of the end times for literature and the twists, contortions and generally pretzel-shaped reasoning that somehow manages to justify collusion and price fixing as the right and proper path to open competition, I’ve gotten a little tired of it. 

Coming from newspapers, I totally understand how disturbing it can be to have the manner in which you’ve earned your living thoroughly torn asunder by disruptive change.  But in that circumstance, I saw who was to blame and it wasn’t the disrupters.  They found new, unique and innovative ways to do the tasks we always had, and used the new technologies at their disposal to do so ever more efficiently.  That’s called progress.  It’s called innovation.  It’s the very engine that has always run our economy.  No, the blame for the newspaper industry’s catastrophic collapse doesn’t rest with the disrupters, it lies at the feet of those at the helm of the industry itself.  They refused to even acknowledge there was a problem until it was far too late.  They fought innovation every step of the way. They ignored the clear and certain handwriting on the wall screaming for change, and instead laid off everyone not nailed down, clung to a steadily declining revenue base and pissed away pretty much any and all opportunities to successfully transition. 

The reason there aren’t more jobs in newspapers today isn’t because the disruption wiped them out, its because of the pig headed obstinance of those in who’s care the industry resided.  They didn’t want to admit that their business model was fading, and didn’t want to put in the time, effort or resources necessary to save themselves or all of those that depended on their leadership to earn a living.  The problem I have with the insistent rhetoric coming from the traditional book publishing segment is that it contains heaping helpings of the same obstinance, the same refusal to see the cracks developing in their business model, the same tendency to throw blame and vitriol on the disrupters without looking inward at those who should be leading the way but instead choose only to cling to a fading past, reassuring those depending on them with false platitudes about their importance to intangible ideals like culture, heritage or literacy.

I’m not a prophet of Amazon ranting out of blind devotion. They are an enormous corporation who sometimes engages in some pretty hardball business practices. There is a risk, however minor I happen to think it is, that if they consolidate too much of the publishing industry under their banner, they may well exploit that position unfairly. But consider for a moment, the one big, constant complaint about Amazon is that, if and when they gain a dominant monopoly position within the industry, they’ll use that position to jack up prices and squeeze percentages on writers. Well, even before Amazon went to the 70% royalty from 35%, they were still paying nearly double the rate to writers that traditional publishers were. Today, in many cases, they’re paying three or four times the average ebook royalties. What’s the risk here? That Amazon will screw writers by dropping royalties to the level that traditional publishers already pay right now?

As far as hiking prices goes, correct me if I’m wrong, but isn’t the whole point of the DOJ suit that publishers got together to push a model on Amazon that forced them to significantly raise prices? See the hypocrisy here? We’re being told by traditional publishers and their supporters that an Amazon controlled market will be virtual Hell on Earth because they’ll pay pittance royalties and jack prices way up at the same time those very same publishers are, at this moment, paying pittance royalties and openly taking actions intended to jack prices way up.

There are risks involved with a company the size of Amazon, but there are also advantages like the single best online bookstore by a long shot, massively increased selections of books of all stripes, and a platform that has ushered in a new era for writers where we can do an end run around the gatekeepers of old and get our wares into the marketplace quickly, efficiently and affordably. I haven’t seen traditional publishers bring anything remotely as positive as those three changes to the table in my lifetime. Amazon isn’t a saint by any means, but they’re not a devil, either. And they’re certainly not an old-guard cartel throwing propaganda bombs and desperately clinging to a fading business model by any means necessary, legal or otherwise.

I’m probably most disturbed by the lack of understanding of the law used by defenders. If even half of the facts laid out by the DOJ are true, there won’t be much debate, if any, that the publishers in question illegally colluded. And far from creating a fair and open competitive market for ebooks, they were attempting to create a flat, uniform, highly priced ebook market to slow its growth and prop up print sales, which is their bread and butter. The ebook boom, and digital disruption in general, is possibly the best thing that could have happened to this industry. Prior to this, reading for pleasure was a declining activity, looking a lot like yesterday’s news heading for a much smaller level of importance in our society. Today, however, people are reading more than ever, buying books at rates I never thought we’d see. Digital and ebooks have brought reading back from a slow decline to an industry segment that is potentially poised to grow like wildfire over the next few years. And what do we get from traditional publishers as a response to these developments? Nothing but doomsaying and protectionist scams, legal and (apparently) otherwise intended to stifle this coming boom period and prop up a model that was fading before digital reignited widespread consumer interest.

The traditional industry did nothing to reignite interest in reading. They were responsible for precisely zero of the innovations that have come to pass in the last few years. And now that consumer interest, demand and the money that goes with that is growing again, they are trying to shove their way back to the head of the industry table, pretending to be defenders of culture when, truthfully, they are little more than late-comers and former pseudo-monopolists trying to swipe the profits away from the businesses who took all the risks and actually did create an atmosphere of growth around publishing again. Amazon CEO Jeff Bezos says their primary goals are to provide the best possible shopping experience for the consumer. The head of Penguin in the U.S., John Makinson, recently said in his response to the DOJ lawsuit that their primary goal is to make money for their shareholders. See the difference in corporate culture there?

I don’t implicitly trust Amazon to always do the right thing. They are a giant corporation, after all, and we need to watch them closely. But traditional publishers are far, far worse. I find it interesting that the term “predatory pricing” has become almost synonymous with Amazon in some circles, despite the fact that their pricing strategies were anything but. Amazon never lost money on ebooks. They priced some ebooks below cost as loss leaders and recouped those losses and then some on the vast bulk of their catalog of offerings, which weren’t priced below cost. If that conduct is illegal, as so many seem to suggest, then so is the behavior of virtually every store, physical and online, on the planet. When I go to the grocery store later today and pick up some buy-one-get-one-free deals, do you think they’re turning a profit on those? Is the ACME going to wipe out orange juice suppliers because they selectively sell some at a loss to get more customers into their stores? Of course not.

What’s at issue here isn’t a giant company wiping out a long standing industry by behaving unfairly. It’s an industry that simply must adapt, they have no choice, but are extremely reticent about doing so because it would entail an entirely different culture where, more than anything else, even the best, most successful publishers who make the transition will lose a significant amount of the power they’ve grown far too comfortable exerting over writers, readers and retailers. Agency pricing is about keeping that control. It’s about stifling competition from digital retailers they don’t control to the perceived benefit of the print ecosystem they do. The saddest part to me is that, in doing so, they’ve not only damaged themselves and their writers, it wasn’t going to work anyway.

One particular positive thing that could come from this, and one that affects Amazon as well, is the rebuke of the most-favored-nation clause. Without that enforced, we actually all gain more control of our pricing across all platforms. This can only mean that pricing will become even more important in the post MFN world. It also could mean that those who backdoor free books into the Kindle store by listing them free somewhere else and waiting for Amazon to price match them down will have to shift strategies.

That is the nature of business, particularly in a highly disruptive, constantly evolving market like ebooks. Things change, we adapt and make the best use of those changes for as long as we can until they change again. What the publishers have done here is the exact opposite. Things changed, but they didn’t want to adapt. So instead they joined forces in an attempt to undermine those changes and lock in their preferred status quo. That wasn’t good business, as some have said, and it was doomed to failure anyway because these changes can’t be stopped. On top of it all, if the DOJ is right, it wasn’t even legal.

I would like to think that those on the traditional side will take a lesson from this. Don’t ignore the changing landscape around you, find ways to use it to your advantage. If individual writers in large numbers can figure out how to benefit from the new market that’s been established, I find it hard to believe that giant publishers with all the resources at their disposal can’t. The only way that makes sense is if they really don’t want to. So instead, we get illegal collusion, protectionism of fading markets under the guise of literary culture and tradition, and an over-willingness to condemn those truly leading the way to the future, and much more effort put into throwing roadblacks in their path than exploiting the new possibilities on the trails they’re blazing.

As I said, I’d like to think they’d learn something from this, but based on the increasingly dire rhetoric coming from those quarters, I’m not holding my breath.

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.

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