A Wolf in Agency Clothing Is Still Vertical Price Fixing

First off, I’m not a lawyer but with all the talk about monopolies, abuse of market power and antitrust violations going on in publishing these past few years, I thought I’d dig a little into the laws themselves and see if I can make sense of what’s what. Again, not a lawyer. This is an enormously complicated and often contradictory issue that’s bounced back and forth between various stages of legality and illegality, the enforcement of such dictated by a convoluted mess of legislation and court precedent. So here goes, down the rabbit hole as I best understand it.

Agency Pricing is basically a Resale Price Maintenance agreement where, in this case, the producers (publishers) want to take control of the pricing of their products at retail (Amazon, etc). It’s vertical price fixing because it occurs between layers of the chain, suppliers controlling prices at the retail level. It was banned in a Supreme Court decision in 1911, as the ruling stated, because these types of agreements are “economically indistinguishable from horizontal price fixing by a cartel.” Horizontal price fixing being sellers fixing prices amongst themselves to their collective benefit.

A series of laws and exemptions to The Sherman Antitrust Act were passed in the ’30s that allowed resale price maintenance agreements to again be legal, but that ended poorly as the results were so unpopular, they were later repealed. These agreements were then per se illegal (inherently illegal) from about 1980 until 2007 when another Supreme Court decision found that they could be allowed under the Rule of Reason and the circumstances surrounding their use are considered. Basically, the business justification and resulting economic consequences play a role in determining if they’re allowed, not simply outright banned automatically in all cases. As such, Agency agreements can happen. The DOJ settlement with the publishers in the ebook case openly admitted as much. But as SCOTUS ruled, only if the Rule of Reason is applied.

A big component in imposing the Rule of Reason standard was the notion that the absence of Resale Price Maintenance agreements could allow free riders, or some sellers to piggyback unfairly on the benefits of promotion done by larger sellers. I think this point is a particularly important one to make. Keep it in mind.

The above is just a summary, somewhat simplified, of what I think are the pertinent points in the background of Resale Price Maintenance agreements as it relates to the current state of things in the publishing industry as I understand it and am about to speculate on. It didn’t happen in giant leaps, but fits and starts; laws passed and repealed, court rulings made, overturned and overruled again. SCOTUS has weighed in on these matters more than a few times, and likely will again, maybe even in the Apple case. So before I do a little extrapolating, here are some links to some relevant readings. Look for the various links to the actual court rulings and texts of the laws involved if you really want to dive in deep.

Resale Price Maintenance
Sherman Antitrust Act
Price Fixing
Rule of Reason

First two disclaimers: Everything that follows is strictly my opinion as a suspicious, cynical guy who’s read too many Agatha Christie novels. And we have no idea if Hatchette or anyone else is pushing for another Agency-type deal. Everybody and their brother seems to be assuming it is, on both sides of the issue, including me to a point, but I think it’s important to remember that we just don’t know. Amazon’s statement a few days ago referenced a lot of things that implied the dispute was, at least in part, about co-op fees and such. And Hatchette’s kept repeating the matter as “Amazon’s demands for better terms.” It could just simply be a fight over co-op, much like the S&S/B&N dispute a while back.

I couldn’t find any direct info anywhere on who actually won that battle, but I’d be willing to bet Amazon knows, or at least thinks it does. Going after co-op might mean B&N got a bump there or at least Amazon thinks they could succeed where the bookstore chain may have failed. The question really seems to be is Amazon abusing it’s market position to push for that by doing things like stopping discounting, cutting back on stock and taking away preorders? Barnes & Noble took some of the same actions, so it’s not exactly unprecedented.

I would say that’s it quite possible that they are, with some heavy qualifiers. At the very least, they’re walking an extremely fine line in the actions they’re taking. Amazon, given the size of their market share, is in a position where, as they continue to grow, that line is going to squeeze in tighter and tighter on them. The more power they accumulate, the worse these actions will look. Some would say they’ve already crossed it. And they may well be right.

However, Amazon is extremely smart. They know the general judicial trend is to allow more latitude to larger entities wielding power so long as they can show some kind of valid business reason that isn’t simply “we will crush them!” I suspect that’s why a sizable portion of their statement was an explanation of their business reasons for what they’re doing. Even if they did cross the line, you need evidence. Amazon isn’t going to leave any lying around. I’d argue that if it hadn’t been for the bungling publishers, Apple never would have gotten caught either. For Amazon to get nabbed for this kind of conduct, provided the conduct is even illegal or aggressively monopolistic, neither of which we know without knowing the terms they’re fighting over, they’re either going to have to be a lot bigger and these acts much less legally defensible or escalate up into more openly egregious actions.

Now, my attitude on this changes completely if, in fact, Agency or some kind of Resale Price Maintenance agreement is in play. If you’re going to give the producers leeway in trying to fix prices vertically, I think you also have to give some leeway to retailers in using their power in dealing with it. You can’t just say, “We’re going to let your suppliers fix prices and we’re going to stop you from doing anything about it.” That would ultimately end up with exactly what the original 1911 SCOTUS ruling said, economcally indistinguishable from horizontal price fixing. So, when faced with an opponent seeking to limit their pricing ability, they have a strong business reason to act as they have, I think. Remember, Barnes & Noble just did some of the same things and nobody’s suggesting the DOJ ring them up, so the argument against isn’t the act itself but the market strength behind it, a variation on the Rule of Reason and consideration of the circumstances that would allow Hatchette or any publisher to seek a vertical price fixing arrangement in the first place.

Some may suggest this is same argument publishers made in their defense only in reverse; “Amazon is behaving monopolistically so we had to do what we did to deal with it.” But there are limits. Amazon is a single entity, wielding only the power it’s managed to gather for itself, albeit a sizable amount. The publishers weren’t prohibited from pushing for price fixing to combat Amazon, which in and of itself is granting them leeway in their actions. Where they went off the rails is when they colluded together to do so. Price fixing situationally under justifiable conditions is ok, colluding to impose price fixing is another matter entirely. Nobody’s getting any antitrust latitude in the face of that.

The original seeds that ultimately became the reasoning behind shifting Resale Price Maintenance from per se illegal to overseen by the Rule of Reason was the notion that the absence of these agreements could create an environment where free riders benefit from larger sellers promotional activity. In the present environment, relatively free of Resale Price Maintenance agreements, there’s really nothing that, say, Barnes & Noble can do to free ride on Amazon. Install a vertical price fixing regime, however, and not only does it become possible, it seems to be what they intend to happen. Eliminate price competition among retailers, and with it, what they perceive as Amazon’s principle competitive advantage, and competitors like B&N can benefit from Amazon’s past and existing efforts to build and promote the ebook market without having actually contributed to them. They’re using a Resale Price Maintenance agreement to create the very conduct the court ruled we needed Resale Price Maintenance agreements to prevent.

Giving consideration to these circumstances, and the fact that, during the brief time Agency was imposed prior to DOJ action, one clear economic consequence we saw was higher ebook prices to consumers and considering this publisher and most of the others likely to push for these deals were just caught and punished for colluding to institute a vertical price fixing system in an attempt to attack one specific retailer, I don’t see how Agency deals should be allowed for any of these publishers, even under the Rule of Reason. I would go one step farther and say SCOTUS was mistaken to change them from per se illegal to begin with, especially since we’re possibly seeing their root reasoning for doing so directly contradicted in practice. There’s probably a damn good reason that vertical price fixing never stays outright acceptable for extended periods of time. It is price fixing, after all.

Which leads me to what I think might be the ticking time bomb in all of this, the 25% of net ebook agreements that very suddenly became almost inescapable industry standard. Check the dates on these two quotes:

“We’re confident that the current practice of paying 25% of net on ebooks will not, in the long run, prevail.”
From the Authors Guild, Dec. 15, 2009

“In a strongly worded message on its Web site on Sunday, Amazon said that while it disagreed with Macmillan’s stance, it would bow to the publisher’s plan.”
From NY Times, Jan. 31, 2010

We know now that the fight that Macmillan picked was the first strike in the collusion to install Agency that got them smacked down for antitrust violations. We also know the Authors Guild turned out, per usual, to be dead wrong. Do you think it’s a coincidence that this 25% of net rate became almost unilaterally imposed across most of the industry at the exact same time that most of the publisher’s pushing it hardest were colluding to fix prices at the retail level? That it was just a happy little accident for them that they managed to both fix retail ebook prices higher and impose ebook royalties to authors at a low level near simultaneously? This is a lawsuit and quite possibly another antitrust action waiting to happen. I can’t believe authors that got pushed into these aren’t looking at the breakdown of how bad a deal it’s turned out to be for them and how their publishers were colluding with one another to the point of attracting legal consequences at the same time and not putting their lawyers on speed dial. Look at the amounts they paid out in damages in the ebook case. If it were to be discovered that this was the result of similar collusion, that number would be much, much higher.

Ultimately though, I think these publishers would be insane to go anywhere near any kind of vertical price fixing deals right now. And if the strategy includes them having to do anything that even slightly appears like it’s being done in unison, they could be unleashing hell on themselves. If you get popped for drunk driving and as soon as you get off probation, go right out and get another one, the judge is going to throw the book at you. And, oh, if there’s this other DUI charge they were unaware of at the time they punished you for first one, too? I’m not totally sure how liability works in situations like this, but what’s the point, if there is one, where these things can go from being a civil matter involving corporate penalties and fines to somebody’s going to jail? Collusive vertical price fixing that extends to both retailers and possibly their own suppliers and then maybe a fresh collusive action at the first possible opportunity to top it off probably ought to be that point, in my opinion. Why even risk the appearance of such a thing, especially to pursue a strategy that is historically back and forth between legal and illegal that just happens to be mostly legal at this moment? How desperate are they, exactly, and how much is that desperation feeding Amazon’s negotiating position? You don’t walk out into the ocean with a big, bleeding wound and then complain when something tries to take a bite out of you.

Like I said, we have no idea if Hatchette is pursuing an Agency-type deal. And the ebook royalty looks suspicious as hell to me but it could be all above board. Amazon could be simply throwing its market weight around in ways that run afoul of antitrust law themselves. I hope they’re not. And I hope the publishers steer clear of vertical price fixing as a strategy. But even if they do, that ebook royalty is going to be a problem, I suspect. Upping that pretty quickly might be a good idea. Raving about the ebook profits you’re making while refusing to budge much, if at all, is going to piss someone off enough to start poking around. And who knows what they might find or what other bodies might be dug up in the effort?

Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron

Hatchette accidentally reveals concern for authors is bulls*&t

Hatchette released a statement today in response to an Amazon statement about their protracted and increasingly ugly contract negotiation. Here it is, with inappropriate commentary added by yours truly. And, yes, I’ve been so inspired by all the anti-Amazon hit pieces lately that I chose an intentionally inflammatory headline. Hyperbole for fun and profit!

“It is good to see Amazon acknowledge that its business decisions significantly affect authors’ lives.”

Yes it is. Now let’s continue on to see how Hatchette acknowledges its business decisions significantly affect authors’ lives. (Hint: you’ll be disappointed.)

“For reasons of their own, Amazon has limited its customers’ ability to buy more than 5,000 Hachette titles.”

From Amazon’s own statement: “These changes are related to the contract and terms between Hachette and Amazon.” Reasons of their own in a contract you signed. Reasons that you know damn good and well. Is Hatchette in the habit of not enforcing provisions in its contracts when it’s in their interest to do so? I didn’t think so.

“Authors, with whom we at Hachette have been partners for nearly two centuries, engage in a complex and difficult mission to communicate with readers.”

A complex and difficult mission to communicate with readers made so by publishers because it served their interests at the time. Or do you have some other explanation for why you’d create a system that essentially locked writers out of distribution unless they paid a toll of lifetime copyrights to a publisher to even reach the marketplace? If there’s a barrier between readers and writers, it’s because publishers put it there to better collect their pound of flesh.

“In addition to royalties, they are concerned with audience, career, culture, education, art, entertainment, and connection. By preventing its customers from connecting with these authors’ books, Amazon indicates that it considers books to be like any other consumer good. They are not.”

Oh, Jesus, more special snowflake nonsense. Weren’t you listening when the judge who reamed your ass for price fixing told you, precisely and in no uncertain terms, that publishers are not special snowflakes? Of course books are commodities like any other. You know who made them commodities? You did, and publishers like you when you priced them according to the format instead of the content inside. You seemed perfectly cool with that for the past 200 years. What’s changed now? Oh, that’s right, you’ve lost control of this particular commodity market.

“We will spare no effort to resume normal business relations with Amazon—which has been a great partner for years”

Of course they have been, they’ve made you a metric ton of money. Particularly on those 25% of net ebook deals that make writers a little bit and you a shitload more that you all totally didn’t collude to make industry standard almost simultaneously.

“but under terms that value appropriately for the years ahead the author’s unique role in creating books, and the publisher’s role in editing, marketing, and distributing them, at the same time that it recognizes Amazon’s importance as a retailer and innovator.”

Herein lies the rub. What, exactly, is the appropriate value of the publisher’s role now? Even Hatchette’s own phrasing admits the writer’s role is unique. We’ve all got a pretty good idea how valuable Amazon’s role as an innovator is. Who’s the weak link here? Nothing unique or innovative about the editing, marketing and distribution most publishers provide. Anybody can do that or find someone who can to affordably contract out. I suspect the root problem here is they don’t yet realize that the appropriate value of the publisher’s role has declined, perhaps dramatically. You know what happens in a negotiation when you come to the table with declining leverage? You don’t get as good of terms. Ask your writers about that, I’m sure some would have a few pertinent things to say on the subject.

“Once we have reached such an agreement, we will be happy to discuss with Amazon its ideas about compensating authors for the damage its demand for improved terms may have done them, and to pass along any payments it considers appropriate.”

“It’s ideas” because we sure as hell know it wasn’t Hatchette’s idea to compensate authors during this fight. If you didn’t know, Amazon, in its statement, offered to form a fund to help authors hurt by this situation and volunteered to kick in 50% if Hatchette kicked in the other half. This was their response, a big ol’ “fuck you” to their own authors who they just claimed to care so much about. Not only did they refuse, they attached any assistance to Hatchette getting what it wants first, making author assistance a negotiating tactic, and guaranteeing they will continue to suffer for as long as this lasts with no help forthcoming. Also guaranteeing that they’ll readily trot out and use that suffering to engender support and more Amazon hatred. More than that, “we’ll discuss it later” and “we’ll pass on any payments it considers appropriate” is just, “you can pay them if you want, but only after we finish our business, and we won’t be kicking in” just with different words.

Being that this is a near-explicit refusal to establish such a fund or contribute anything to it, the line about “the damage Amazon’s demands may have done them” looks like a total false denial of responsibility as they’re doing them damage right now. Seems to me like the discussion that needs to happen is between Hatchette and it’s authors about what the appropriate value of the author’s unique role is. Here’s an instance where they could have backed up their earlier glowing praise and concern for authors by putting their money where their mouth is but instead they pissed all over them trying some half-assed attempt at a clever quip at Amazon’s expense. They should leave the half-assed quipping to bored writers looking for big corporate hypocrites to bitch about. Just sayin’…

“In the meantime, we are extremely grateful for the spontaneous outpouring of support we have received both privately and publicly from authors and agents.”

Spontaneous, sure. Nothing at all to do with the coordinated astroturfing effort you all were talking about not too long ago.

“We will continue to communicate with them promptly as this situation develops.”

Yup, just like you communicated promptly with them the seven months this bullshit’s already been going on, right?

So, Hatchette accepts no responsibility for this at all, refuses to lift a finger to help their own authors this is hurting, and seems to be under some impression that their negotiating power hasn’t atrophied some over the past few years. So, for emphasis:

“It is good to see Amazon acknowledge that its business decisions significantly affect authors’ lives.”

When can we expect to see the same acknowledgement from Hatchette, because this sure as hell ain’t it. This is you intentionally putting authors in the middle of your fight and purposely extending and exploiting their suffering to suit your ends first and foremost, right there in your own words. Strange that Amazon’s statement was far more subtle in its implications than Hatchette’s. Maybe you should of hired a better writer.

Look, nobody wants to see Amazon get to be a dominant beast that lords over everyone. But these folks are not the right horse to back. They’re deluded, have an over-developed notion of their own value and readily blow smoke up writers’ asses while profiting in different ways from both their success and struggles. Even some of their own writers fully expect they’ll use the decline in sales against them in their next book deal. Amazon may be big and powerful, but these folks are just opportunistic scumbags.

Amazon broke the hold these publishers had on the industry, and it’s created more opportunities for more writers to make more money than publishers like Hatchette have in, well, pretty much ever. We need to move forward on the gains writers have made of late, and publishers like Hatchette are firmly entrenched in the past. Yesterday’s exploiters aren’t going to be tomorrow’s liberators no matter how many New York Times anti-Amazon hit pieces they encite.

We do need to have a very serious conversation about competition and diversification and what direction things need to go in the future, but Hatchette and those like them have repeatedly shown that they have absolutely nothing to add to that conversation. Or are you one of the three people who don’t think every other major publisher is going to follow lock step down the path Hatchette’s setting right now? What I really want to know, though, is after they’re all done cutting their noses off to spite their faces, which body parts are next?

Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron

Amazon the Great and Terrible

So I’m sitting here this fine Sunday morning patiently waiting for David Gaughran’s promised blog piece on the PR campaign Hatchette may be running in its now six-month contract dispute with Amazon. (Warning: profanity ahead because some of this shit just pisses me off.) I, for one, am not buying the “poor helpless little Hatchette being bullied by big, bad Amazon” meme that’s so popular these days. It’s making the rounds everywhere, which I find fascinating due largely to the fact that nobody outside the negotiating wing of those two companies has any knowledge whatsoever about the dispute, and they’re not talking. Well, Amazon, per usual, isn’t talking. Hatchette isn’t talking about any of the issues at hand either, but they are going through great pains to play the wounded party, and igniting the entrenched Amazon hatred out there to do the rest of the heavy lifting.

I’d think people would be more suspicious of things like that. In my experience, when someone in a position like Hatchette is playing the victim card, without clearly backing it up, odds are, they’re conveniently leaving out the parts where they are anything but victimized. So my opinion, knowing nothing about the specifics of their negotiation but strictly looking at the outward actions of the participants, Amazon is going about its business and Hatchette is playing a totally different game. Are they justified? Possibly but I get a strong sense of Hatchette trying to control the narrative and I don’t much care for being manipulated.

“Scott Turow said that Amazon recently raised the price of his most recent book, “Identical,” a move that he said would depress sales.”
–From Washington Post, May 16

Ok, what? First off, that quote’s from the Washington Post, you know, the newspaper Jeff Bezos owns. So much for slanted coverage huh? The difference I see between the Post’s coverage and most other coverage is that the Post consistently uses phrases like “could be”, “might be”, “industry insiders suspect” and things like that when discussing the negotiation. They’ve presented the argument without validating it, which is exactly what all these papers should be doing, unless they actually have hard evidence to support it, then they should print that. But they don’t. It’s rumor and conjecture presented as fact when the people writing can’t possibly know if it’s true.

Secondly, WTF Scott Turow!?! You’re actually bitching that Amazon isn’t discounting your book? Didn’t you just spend two years telling us Amazon was destroying the industry by discounting books? Is there any coherence in your argument at all? Are you just going to complain no matter what Amazon does? Or are you, as is the case with many political pundits, just going to spout the party line regardless of whether it contradicts what you just said. “Amazon’s discounting is killing us” is so last month, I guess.

So here’s my assumption about you based on your own comments. You’re a writer and a lawyer, for God’s sake, so it defies credulity to me that you don’t see the obvious contradiction in your own statements. So I must conclude that you do see it, and just don’t care. You likely never gave a shit about other writers, the industry at large or Amazon’s discounting. You were playing a mouthpiece for your publisher because you thought it was in your best interest at the time. And you did it in defense of a criminal conspiracy by your own publisher and others to violate antitrust law. But now, Amazon’s not discounting and that may hit you in the wallet, so discounting suddenly is no longer destroying the industry but necessary, and you’re statements have shifted accordingly. Credibility all day long, I tell ya. My conclusion is that you’re full of shit, and acting out of your and only your own self interest. Let me ask you, what’s your statement going to be if we find out Hatchette’s trying to reinstitute Agency in some form, limiting or eliminating Amazon’s ability to discount? Actually, I don’t even need to ask, I already know. Assumptions are a bitch, aren’t they?

“Amazon has begun discouraging customers from buying books by Malcolm Gladwell, Stephen Colbert, J. D. Salinger and other popular writers, a flexing of its muscle as a battle with a publisher spills into the open.”
–From the New York Times

“Hachette has continually assured us all orders were shipping “in a timely manner” and Amazon was to blame for placing small orders. We’ve asked for copies of the purchase orders and confirmation of the shipment dates from my publisher but have been told, ‘It is not information we would like to be shared with any third party at the current time.'”
–From Digital Book World

The first quote, from the New York Times, contains no “could be”, “reportedly”, or “may be”. It’s “Amazon is”. They don’t know that, only that Hatchette is telling them that. Mightn’t they have an agenda? So does the Times, of course, but that’s a different article. The second quote is from an actual Hatchette author trying to get his publisher to prove what they’re saying. Look at the response again: “It is not information we would like to be shared with any third party at the current time.” No shit. Wonder why?

Here comes some assumptions again. Say I’m in a business arrangement with someone and they get involved in a dispute that negatively affects me, and they’re telling me “It’s not our fault. Those bastards over there are doing it to you.” My reaction is going to be exactly like this guy, “then you’ll have no problem proving to me you’re doing what you say?” If they come back with a response like he got, I can only conclude that they’re lying to me about something.

And are you telling me the writer is a third party in the distribution of his own fucking book? He’s not entitled to see proof that you’re not lying right to his face and actively harming what he contracted you for in the service of your interests elsewhere? Sales that, in the traditional world, operate in a very short time window and can have disastrous consequences on any future career? Fuck off with that noise. Whatever the negotiating battle is being fought over, this little tidbit of information may be the most important of all for writers. Hatchette doesn’t respect this guy, and they certainly aren’t treating him like a business equal. And their refusal to back up their attempt to escape responsibility for something that’s hurting their own authors even to those authors themselves, should be unacceptable. But writers, please remember, you all signed the contracts that made it this way. This Hatchette writer certainly does and is factoring that in to his future choices. So should we all.

What saddens me about this is that there are all these writers out there who see Amazon as a rival of sorts but don’t see the publishers that way. The Hatchette/Amazon dispute, and the ones like it certain to come, is a fight between billion dollar enterprises over staggering sums of money and that’s all it is. The Amazon haters are right about one thing, Amazon is not your friend. But neither are publishers. And if you’re looking for friends in a contract, anyway, you’ve got bigger problems. The best you can hope for in a business arrangement is that your interests and the interests of the other party align and flow in the same direction. You get into one where your interests diverge at some point, you may well find yourself screwed by your own signature.

I can cut off all business dealings with Amazon in the half hour it takes me pull my stuff offline. If I was signed with Hatchette or some other publisher, that type of action is simply unthinkable. I’m stuck with that contract maybe for the rest of my life, or 35 years at the least. And I don’t even have the right to verify they’re living up to their end of it. If the New York Times or Salon or the Wall Street Journal or Scott Turow want to talk about power imbalances, how about we address that one first? Who, exactly, is that man behind the curtain we shouldn’t be paying attention to?

Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron

Predictions

Prognosticating the future is always a tricky business. Easy to do, far less easy to actually be right. Fortunately, we don’t often call out folks for being horribly wrong in their Nostradamus impersonations after the fact. You can argue maybe we should but relatively few who make public predictions are going to jump all over someone else’s bad ones because they know only too well how many of their own are way off base. What goes around, comes around so don’t go around in the first place.

But predicting things is fun! Hell, I spent 40 or 50 tweets predicting the NBA season back in the fall, then used another 20 to predict the playoffs last month even though my regular season picks were so hit or miss as to be nearly random. The only pick I’ve got left is Indiana winning the title. I also may be the last person not named Larry Bird who’s riding that particular bandwagon, and I’m not too sure Larry didn’t tuck-and-roll his way outta there a while back, too. But if they win, you bet your ass I’ll be doing some gloating. Albeit without mentioning the other dozen predictions I made that didn’t come through, of course.

My point here is take any and all prognostications you see with the biggest grain of salt you can find. Not usually something you see a writer say in a piece about to make a prediction, I know. But I find the value in prognosticating doesn’t so much come from whether the final prediction is right or wrong, it comes from the process of evaluating circumstances and evidence and extrapolating that out to a conclusion. When I read predictive pieces, the reasoning why the writer is making the guess they’re making is more important to me than what that guess is. You could be completely correct with your prediction but the reasoning leading to it could be so flawed as to be useless, or you can be completely wrong in your prediction but dead on in the circumstances leading you there. You have to evaluate those circumstances and how they relate to your individual situation. It’s impossible to know for certain how things will turn out in a complex environment like the publishing industry, but it’s very possible to understand the conditions and act accordingly for your personal ends.

That being said, here’s my extrapolated prediction: book publishers, even huge conglomerate ones like Random Penguin, will be non-existent or so altered as to be unrecognizable as present-day publishers in less than 10 years time. Easy to say, no way to prove. In fact, you can’t even prove I’m wrong at the moment, only after the fact. You can try, and state evidence opposing my viewpoint all day long, if you like, but guess what? All you’re doing is making predictions to try and counter my prediction. The same flaw that makes my prognostication far less than a certainty is also making your counter-prognostication far less than a certainty. So my final word, as it were, isn’t really the point, only a guess as to where things are heading, exactly like your theoretical counter is really only a guess.

What matters is why I’ve extrapolated that publishers are screwed (or why you’ve extrapolated that they aren’t.) Here’s the basis for my reasoning, in five handy points: Hatchette is reportedly trying to reinstitute some flavor of Agency pricing in its deal with Amazon now that it’s prohibition against such is almost up. The other major publishers will likely take similar action as their DOJ-imposed limits expire. What does Agency pricing do? It limits discounting by retailers and raises the price of books. Point one.

One of the major arguments in favor of Agency pricing (and against, to be honest) is that it works to protect hardcover sales and sales in brick and mortar bookstores from ebooks that are “too cheap.” That’s great and all, but ebooks aren’t what’s hurting brick and mortar retailers, online commerce is. Doesn’t matter if someone’s buying a print book or an ebook, if they’re buying it online, that’s a sale a physical store didn’t make. Certainly, ebooks are native to online but trends show print sales are increasingly migrating there, too, for a number of reasons. Online commerce is exposing the inefficiencies of brick and mortar retail in virtually every business that doesn’t ask if you want fries with that. (I also predict it’ll be exposing their inefficiencies sooner than later, too, but that’s a different article.) Does Agency pricing affect that deeper societal trend in any way? No, not really. Point two.

The book publishing industry hasn’t had the classic disruption drop off in sales that all disrupted industries have suffered. Napster and it’s ilk exposed the holes in the music industry’s model and set off the demand for digital music that caused massive, rapid declines in cd sales. (Not that downloading killed cd sales, mind you, consumer demand for digital music did that.) Craigslist (and later, eBay) virtually wiped out newspaper classified advertising almost overnight. For those that don’t know, classifieds were the most profitable advertising per column inch in the newspaper business. The sudden loss of great chunks of it was catastrophic.

It’s tempting to say ebooks were that force and the industry avoided the huge losses. But think about it for a second. Ebooks have been a decided gain for publishers, the extra profits they reap from ebooks have made their bottom lines look better than they should. Ebooks didn’t work against publishers’ interests, they were extra money dropped into their laps. They were the best positioned of anyone to take advantage of this when a market was firmly established. And they did, albeit while bitching all the way to the bank. Ebooks themselves have never been a threat to publishers, so unless they were braindead stupid, they were bound to benefit from them like everybody else. The fact that they haven’t benefitted more from them is something they’ll soon come to regret, I believe. Point three.

Barnes and Noble is circling the drain. We all know it. It’s just a matter of when. I would argue that if not for the college bookstores (a different, less disrupted to-this-point market) they might already by a ghost. They just reported a 10% drop in sales the third quarter of 2013 over the year before. Immediately after, they suffered about a 10% drop in their stock value. This corresponds rather neatly with a recent U.S. Census report that shows bookstore sales in general have dropped by 10% from last year, illustrating that this isn’t a B&N-centric problem but an industry-wide issue. Their online commerce effort is an epic trainwreck. And, they’re a brick and mortar retail store at their core no different from Borders or Best Buy or Circuit City (remember them?) or Blockbuster or any number of other chains that used to be mainstays in strip malls everywhere. Those pressures aren’t going to go away and they really have nothing to do with ebooks or even the publishing industry itself. Higher education is in many people’s crosshairs as a ripe market to be disrupted. When someone finally breaks through, and they will, those college stores aren’t going to be life lining anything. Barnes and Noble is doomed. Point four.

Ebook sales are slowing down. The market is maturing, establishing a ground floor somewhere around 20% of the industry and is growing at a slower rate as its marketshare rises. Now you could argue if that’s even true, given the nature of the data available and the invisibility of many self published works in that data. But what’s not really disputable is that the data we have is unquestionably reflecting traditional publishers. So, while you can argue whether ebooks on the whole are slowing down, you can’t really dispute that they’re slowing down for traditional publishers. On top of that, inexplicably, many of those same publishers seem to be under some impression that this is a good thing. Point five.

So that’s the five elements I see as the present conditions I’ve made my prediction from: the biggest publishers are likely going to try to reinstitute Agency in some form; the results of that will handicap retailers and raise prices in a market struggling with online commerce already undermining brick and mortar retail; we’re still waiting for the classic steep decline in legacy product sales caused by disruption; Barnes and Noble is a dead man walking; and the growth rate of ebook sales for traditional publishers is slowing. Now that I’ve identified what I believe are the current applicable conditions publishers face, I’ve concluded that their long-term prospects aren’t particularly good.

Here’s how I think this goes: Say you’re a big pub CEO and you sit down at your desk one morning to headlines reading “Barnes and Noble files for bankruptcy. Remaining stores to be shuttered.” As you drop your head into your hands considering the 65 different ways this screws you, there’s a knock at your door. It’s Walmart, Target, Sam’s Club and the other warehouse stores.

“We’re so sorry to hear about Barnes and Noble. It’s a terrible tragedy. We’d like to offer our condolences. Here’s a cookie bouquet.” You nod solemnly and they turn to leave, but Walmart stops short, looks to you and says, “By the way, being that we now represent the last mass-market retail space you have, we’d like to have a discussion about the discounts you give us, when you feel better, of course.” He then leaves, closing the door behind him.

Your mind races. “Well, we can probably absorb a bit of an increase in discounting. Maybe we can hire more interns or move to more freelancers.” As you snatch up one of the cookies from the bouquet and start munching, feeling somewhat ok, your office door suddenly flies open and in storms Amazon. “Hey bozo, guess who’s responsible for 70% of your business now? I’d suggest you get ready to open that checkbook of yours or we might happen to have some technical difficulties with your buy buttons. See ya, loser!” Amazon storms back out, slamming the door so hard the picture of you and a smiling James Patterson falls off your office wall.

“Ok,” you think to yourself, “maybe if we cut advances by 30%, we can get through this. We’ll be alright.” Just then, there’s another soft knock at your door and a finely dressed, lawyerly gentleman strolls in. “Hi, I’m from the Independent Bookstore Alliance. We represent 1500 independent bookstores in the U.S. Given as we are now the last bookstore shelf space in the country, we’d like to discuss the types of discounts you can give to our members at your soonest possible convenience.” He softly lays his business card on your desk, next to the half-eaten cookie from the bouquet, and leaves.

You lean all the way back in your fine $10,000 Italian leather desk chair and mutter to yourself, “Oh fuck…”

Or something like that. B&N’s gone, brick and mortar bookstore sales start dropping 10-20% year-over-year, quarter after quarter for years until what was 50% of your business is now 15%. What’s worse is that the sales you’re still making, both online and physical, print and digital, are less profitable than they were before due to being squeezed by retailers of all stripes. Ebook sales growth, while inexorable, isn’t keeping pace with the losses that are mounting. It’s the book industry version of the print dollars to digital dimes problem. On top of that, you’re losing writers from two camps: the upper echelon superstars who you’re not producing results for like you were before, and the entry level writers who scoff at the increasingly miser-like contracts you’re foisting on them. Midlist writers would likely join them in the exodus, too, if they hadn’t already fled in large numbers by this point. Both groups of writers are moving on to either do it themselves, to better adapted publishers or to some new concoction of collaborative publishing or author collectives that cut you out altogether.

At that point, there’s two choices: change to become a different kind of company, one that can handle these new market realities where you and your ilk are no longer at the head of the food chain (a process you may already be too late for) or fade to obscurity in the corporate sell-off/bankruptcy/vanity buyer process that has chewed up most newspapers. Either way, what publishers are today, and especially what they were 10 years ago, will be largely no more.

So that’s my theoretical timeline. Am I right? I don’t know, ask me in 10 years. What I do know is that there are likely more protectionist actions coming from publishers that don’t actually protect anything. I do know that Barnes and Noble is struggling mightily from the same reasons in the same ways other similar businesses didn’t survive. I do know publishers have lost a great deal of their control of the distribution system, and with it, their principle means of discovery and a chunk of their leverage with retailers over discounts. I do know, for whatever reason, ebook sales growth is slowing for traditional players and maybe everybody. I do know that writers have more options to make it to market than ever before, many of them outright replacing the essential positions publishers were anchored in. Whether all this means what I think it means is open for debate. Whether you agree with all of my five points, a few of them, just one or even none at all, there’s elements within each that can have profound impacts on the choices we have to make as writers.

Maybe you don’t think publishers are in serious trouble but you agree B&N is, so you set up a short-sell deal on their stock. Maybe you agree publishers are heading for a period of great upheaval and don’t want to sign an open-ended contract with one, or go with a publisher willing to work with contracts with a 5 or 10 year expiration date. Maybe you’ve been considering striking out on your own and the struggles of publishers are the last push you need. Maybe you think reinstituting Agency will protect the print side of the industry and put your efforts there. Maybe you agree B&N is toast but you think it’ll lead to a resurgence of independent stores rather than the start of a deep brick and mortar downfall and seek out a publisher better integrated with that community. Interpretation is in the eye of the beholder and should always be based on achieving your own individual ends. Making my prediction led me through a long cycle of circumstances, patterns and considerations to reach what I think may happen. Reading this likely led you to consider the same things, even (maybe especially) if you were breathlessly hollering at your screen how full of shit you think I am as you read. Whether I’m right about the end result or not doesn’t really matter. There are several factors in play here that will impact what I ultimately choose to do, and that’s the real value in predictions. It’s not a right or wrong thing, but a process of understanding and examining smaller elements in order to extrapolate out to a conclusion. Progress doesn’t just happen in big, sweeping pronouncements. It occurs from within the smallest details. And nothing you choose to do will be very effective if you don’t have a better understanding of those diverse yet interconnected details. I predict that’s the case, anyway.

Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron

Do Editors Have Copyright Interests in Books They Edit?

“Our job is to partner with you on a journey to reconcile your vision of your book with the way your prospective readers will see it.”

–From Writer’s Digest

The relationship between an editor and a writer should be collaborative, we’ve all been told time and time again. It seems to make sense on the surface, almost to the point of common sense. The problem, though, is that it’s dead wrong. Even more than that, as a writer, it’s a potentially dangerous and expensive mistake to make. Let me explain…

“A developmental editor will take your manuscript and work with the content itself. If needed, they might reshape your work and rearrange sentences to make the book flow together better. This type of editor helps an author find their voice and help refine their vision.”

— from PBS Mediashift

So an editor of this type, or one that engages in this type of action, precipitates significant changes to the finished product. Do you think it’s fair to say the end result of such a relationship is a collaborative work? That the editor’s contributions are an essential component in the finished creative work for sale? So would I.

“Do editors have a copyright interest in the edited version of the manuscript? Maybe, maybe not, but it is a weapon in the editor’s collection arsenal that should not be ignored.”

–From An American Editor

This is from a blog for editors openly discussing whether editors have a copyright interest in the finished edit of a work. It’s not a theoretical construct, it’s an actual thing being openly advocated for amongst some editors. Albeit, editors in this case who have been stiffed by their clients, but I don’t think they’d be wrong in doing so under any circumstance. Although, I find the author’s stance that as little as inserting one comma would give an editor a copyright interest is maybe a little bit of an overreach. Appropriate stress due to “maybe” there. It well could. What I have no personal doubt of is that, if you’re making substantive content changes at the behest or recommendation of an editor, you most certainly are giving them a copyright interest.

So why aren’t we seeing courtrooms filled with editors making copyright claims? Because it’s something that was largely irrelevant in the past, and people’s perceptions haven’t quite caught up with reality yet. When most books went through publishers and most editors were employed by those publishers, the copyright interest of the work product of the editor belonged to the publisher. There was little reason for anyone to enforce it. Even after publishers started relying more and more on freelance editors, you can be sure their agreements with those editors contained work-for-hire language, meaning their work product, and any subsequent copyright interest, still belonged to the publishers.

The rights were there but everyone’s interests, as they were aware of them, generally flowed in the same direction so they were rarely, if ever, expressed. That’s why we think of editors as collaborative but not to the extent of a copyright claim, even though, particularly with deep substantive editing, it’s difficult for me to find a rational reason why they wouldn’t that isn’t based on the assumption that they’ve never had one. It’s not that it didn’t exist, but that the nature of the industry itself repressed their claim, likely without most of them even realizing it.

So what’s changed? Everything. Now we have independent writers hiring freelance editors and designers for all manner of tasks. We have writers selling print only rights to publishers and retaining ebook rights to publish themselves. We have the 35 year rights termination procedure passed into law in the ’70s only now coming into use. Everyone’s interests are no longer flowing in the same direction. Little things that were insignificant in the past because the system inherently suppressed them, like any potential copyright claim for editors, can now bubble up through the cracks these changes have opened in the industry’s very foundations. Just because we haven’t seen it doesn’t mean we won’t.

Self Publishers and Independent Contractors

Let me just say this, if you’re doing any freelance work yourself or hiring independent contractors for things with any copyright implications at all, you had better know the law relating to work-for-hire and the IRS and Agency definitions of “employee” inside and out. I see a ton of articles about how to pick an editor or how to pick a designer directed at self publishers. What I don’t see is nearly enough articles explaining how not to screw yourself on the contractual relationships with those contractors.

“(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. (17 U.S.C. § 101)”

–From U.S. Copyright Act of 1976

Work-for-hire is a fairly simple concept on the surface. If you are an employee, any work product of doing your job, and any resulting copyright interests, belong to your employer. “Employee” is a little more complicated than just if you’re on the payroll and they’re paying payroll taxes on you, although those are considerations. Whether you are legally regarded as an employee depends on the nature of the relationship. The more the employer controls the terms of your work; the times you work, the equipment you use, where you work, etc; the more likely you are to be deemed an employee regardless of how they’re paying you.

The second part of work-for-hire, and the one you really need to pay attention to, is that the work must fit into one of those categories listed in the quote and be expressed in writing. The and is the crucial part there. If you are an independent contractor and there’s no written work-for-hire agreement, it doesn’t exist. This means whoever contracted you has limited use of the work per the terms of the contract and all copyright interests remain with you. The written agreement is not optional. No contract, no work-for-hire. And believe me, as someone who’s done my share of independent contractor work, it’s extremely useful to be aware of its absence in your agreements. Here’s a link to a pdf of the U.S. Copyright Office circular that explains work-for-hire, and the criteria for employee determination. If you don’t already know it forwards and backwards, read it now.

The point of this is, simply, don’t be stupid. Know the law and protect yourself. Understand that everything is different about the nature of your relationship to an editor you contract versus one you work with who was also contracted by the same third party publisher. And I mean everything, right down to the legal implications of the structure of your business arrangements.

Do editors have a copyright interest? I think they do but I don’t know absolutely. That’s for a judge to decide at some point. But do you want to be the one standing in court across from that judge when he tells you they do? I sure as hell don’t. Simple work-for-hire language in your agreements with any independent contractors who are contributing anything creative to your final work for sale will make it a moot point. Even if a clear ruling is made that they do, you, through the work-for-hire language, would own that copyright interest in the work they did for you.

If you go around leaving holes in your agreements with people, you’re going to fall into one. Know the law, use it, protect yourself and your interests. You can be damn sure others will.

The 35 Year Termination Rule

We’re just now entering an era where authors can have their rights reverted 35 years from publication just by filing some paperwork. This applies to any work after January 1, 1978, so we aren’t very far down the road on what this will mean. I expect we’ll see publishers inundated with these things in the coming years and, eventually, we’ll see some long-term lucrative works they really don’t want to give up in the firing line.

In the past, rights reversions were generally one of two things; done through an out of print clause for a book the publisher’s been getting nothing from, or a buy back where the author pays the publisher for the reversion. This new termination rule is different in that it clearly forces publishers to give up rights against their will with no recourse. If you don’t think they’ve got lawyers pouring all over their contracts and the various intricacies of copyright law to find a workaround, you’re kidding yourself.

Here’s another place where a copyright interest for editors might turn up in the future. Publishers never had any reason to acknowledge such an interest, particularly since they owned all those interests anyway through work-for-hire. But now, faced with losing money-making properties for nothing, they very suddenly find themselves with such an interest. But it shouldn’t matter because the rights are reverting at 35 years, anyway, right? Well, no, not really.

Where a typical copyright term is life of the author +70 years, work-for-hire is different; 95 years from publication or 120 years from creation. More than that, work-for-hire is not eligible for the 35 year termination. Yes, you may get your rights reverted but the publisher, through the work-for-hire work product of editors, may still retain a copyright interest in the final product you’ve been selling for over three decades. With that, they could potentially stop you from publishing that version, or licensing the rights to that version to another publisher. More likely, I’d expect they’ll use it as a nuclear option to negotiate a new deal with them at better terms.

Termination may not be what we think it is, all because folks weren’t paying enough attention to small little contract provisions like work-for-hire. You know who was paying attention? Publishers. Or do you think it’s just a coincidence they happen to own all the rights to any possible editor copyright interest for damn near every single significant book of the past 40 years? Harper Collins just won a lawsuit claiming to have bought ebook rights in 1971, for God’s sake! Their contracts may be onerous but they’re not a leaky ship full of loopholes by any means.

This may be something to keep in mind for future negotiations; provisions that keep any work-for-hire copyright interests created in producing the work attached to the rights for the purposes of any reversions. It’s something to consider.

Print Only Publishing Deals

When I first heard about Hugh Howey’s print-only deal a couple years ago, the first thing that popped into my head was, “how is that going to work?” I have questions and maybe Howey, who’s been very forthcoming in a lot of ways, or someone else out there who’s cut one of these deals can answer at some point at their leisure. Enquiring minds want to know…

What’s the deal with editing? Did the print publisher do an edit of their own? Did they just use your final edit you’ve used in your ebooks? If they did do an edit, did you use that in your ebooks, and if so, is there language in your contract that allows that? Or are there two separate edits out there, their’s for print and your’s for ebook? What happens when the rights revert at 10 years or whatever the time limit is? Does the final edit revert too or just the rights to the original before the edit? Does the contract address this at all? I could probably think of a few more but that about sums it up.

The print-only deal where you publish the same material in a different format simultaneously on your own didn’t exist even five years ago. It’s added a layer of complications to what was a fairly simple process. Who knows what kind of holes may open up? There’s no possible way we can foresee all the potential risks such arrangements may bring about. Unintended consequences are a bitch.

If we presume for a moment that editors, especially of the deep, substantive variety, have a copyright interest, then someone owns that. It’s either the editor themselves, the publisher or the author through work-for-hire. It might be a good idea to know who, and a better one to make sure, iron-clad in writing, that it’s you.

One of the great selling points of self publishing is that you keep control, you retain your rights. That’s true, so don’t encumber them unnecessarily through lax independent contractor agreements or because you don’t fully understand work-for-hire or copyright law. It may be that all of this, even the very concept of editors having a copyright interest, is speculative and will never come to pass as a significant issue. But as I look at what role editors are increasingly asked to play, and as I read the particulars of the law, I’m fairly convinced that they do, at least in some circumstances.

This could ultimately have implications reaching much farther than self publishing. We, as independents, can solve this problem by inserting clear work-for-hire provisions in our contractor agreements. But what about the matter of that copyright interest being owned by the publisher through their agreements independent of us? That’s a different kettle of fish, and much harder to protect from. Especially if most of us don’t even realize it’s a danger.

Intellectual property is the 21st Century gold rush. What they found back then was the rush very quickly was followed by claim jumping. Some of it was criminalized, but not all. I’m in favor of protecting myself at every possible angle. You just never can tell where those claim jumpers might look next.

Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron

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