The publishing industry is all screwed up, and whose fault is that? Perhaps at least partly the fault of all the publishing execs who are stepping down right around now, blogger Agent Orange suggests in a post on FutureBook entitled “The Elephant in the Graveyard.” While they did great things in their time, they were too inculcated in the culture of bricks and mortar to be able to adapt to the potential of an electronic world.

When the paradigm shifted, which significantly predates the global recession – Amazon first turned a profit way back in 2002 – they comprehensively and continuously failed to understand the challenges of the new world. Why should they – they were schooled in the old and had already presided over one paradigm shift – the end of the net book agreement. Is anyone capable of presiding over two?

And so they got distracted by the threat of piracy and the apparent panacea of DRM, “which has wholly played in to Amazon’s hands and has suicidally helped them create their monopoly.” Not only has this ended up with publishers getting hit with huge fines in the wake of the price-fixing scandal, but it’s also led to rampant consumer mistrust and the very erosion in the perceived value of books that publishers wanted to prevent. (Yes, I know: only five of the “Big Six” actually colluded in the price-fixing ring. But all six publishers were guilty of all the obnoxious behavior that led up to that point, including Random House.)

As you’ve gathered by now, I like to harp on how utterly and completely the publishers have failed to understand and take advantage of the e-book market, and worse, also failed to find common ground with consumers. They’re some of my favorite things to talk about, because they represent the accrued frustration of fifteen years of watching publishers consistently screw the pooch, and I don’t know if I’ll ever get catharsis enough that I’m not ready to go off into another rant at the drop of a hat.

Publishers made the perfect storm of mistakes in failing to recognize what the future could hold. In fact, they did pretty much what Mike Masnick describes Kodak and Blockbuster doing in this Techdirt piece that I quoted in my article about Route 66 and film cameras. They misjudged the speed of the trend toward e-book adoption (because apart from the lack of a suitable display technology, their own prices were all that was standing in the way of it taking off), they didn’t get the hands-on experience necessary to learn to innovate, and they tried to protect their cash cow instead of cannibalizing it. And Amazon proved the truth of that EDS commercial about the running of the squirrels—it’s not the big lumbering companies you know about that you have to worry about, it’s the quick little startups that come out of nowhere. And with Jeff Bezos at the helm, Amazon was nothing if not nimble.

The interesting thing is that it seems like only in recent days have publishing-industry insiders actually begun to acknowledge this. I read with interest in Andrew Albanese’s The Battle of $9.99 that an executive from Penguin actually admitted Penguin was “not very focused on e-books.” And here Agent Orange, whose identity I do not know but who is apparently enough of an industry insider to have been at last year’s HarperCollins summer party, is saying much the same thing. The retiring generation of publishing executives, respect their more positive accomplishments as he might, nonetheless did screw the pooch.

What should publishers have done? It’s easy to Monday-morning quarterback, and of course it’s all easy for me to say given that I wasn’t the one making the decisions at the time. But publishers, taking the stick at least partway out of your butts would have been a good beginning.

You could have priced e-books lower than print books, for starters. Not necessarily as low as Amazon, but knock a few bucks off to show you’re trying at least. (Though even as late as the imposition of agency pricing and MFN, publishers still didn’t get this—just look at how they felt even Apple’s proposed $13 and $15 price points were too low for e-books, and they wanted to price them at $18 to $20!) Start preparing to wind down print early so you can make a more orderly transition. Even if you didn’t price e-books lower, just pricing them consistently would have been enough.

It would have gone a long way toward easing frustrations if you’d just lowered the e-book price at the same time as the print book price lowered from hardcover to paperback, for crying out loud, even if you kept paper and e- at exactly the same with no e-discount! I mean, seriously, we understand prices fall over time—or at least they’re supposed to. Letting the e-book price stay hardcover-high just showed your contempt for e-book lovers. Not too surprising they’d start holding you in contempt right back. That’s when the whole e-book piracy thing got started, you know, even if you didn’t notice it until the Kindle made e-reading popular—at which point, gosh wow, it was “suddenly” everywhere.

You don’t have to look any further than Baen to find a publisher who handled every aspect of e-books and the transition absolutely right. Jim Baen, God rest his soul, saw more clearly than most the potential of e-books. He also saw that very few people actually wanted to bother with them at the level of display technology they had back then, which was either reading off a computer screen or off a hand-held device with about the same resolution as a pocket calculator—but the ones who did want to were by and large fanatical about them.

So Baen Webscriptions and the Baen Free Library were born, which treated e-books as promotional and we darn well knew it—charging essentially a pittance for all the Baen e-books we could ever want, DRM-free, as well as giving scads of them away free—either in the Free Library or via CD-ROMs bound into hardcover books. Jim knew that even people who didn’t care to read whole e-books might be willing to try one out free or buy one for a few bucks to start reading to see if they liked the story—and then they would buy paper copies to read with less eyestrain.

It was the original “loss leader” strategy that Amazon would later employ to such devastating effect, except Baen did it with all its books—brand new hardcover and paperback alike. And since Baen treated the e-books as promotional, not charging them a huge share of the fixed costs of creating the print book because they would have made the print book anyway, they were considered profitable even at those low prices.

And did it help? By God it helped. Baen had the sales figures, and they didn’t lie. Even as early as 2001, a New York Times article made it clear that Baen was seeing a substantial paper sales benefit from its e-book program:

It is a striking puzzle: the more e-texts Baen Books makes available cheaply or free, the more it has been able to sell the most expensive kind of printed book. ”We are drifting from being a paperback house to a hardcover one because of the Net,” Mr. Baen said.

The view that Baen’s electronic-publishing efforts have improved its market for printed science fiction books is shared by Charles N. Brown, a observer of that category. ”Baen has shown that putting up electronic versions of books doesn’t cost you sales,” said Mr. Brown, publisher and editor in chief of Locus Magazine, a monthly publication that closely tracks science fiction. ”It gains you a larger audience for all of your books. As a result, they’ve done quite well.”

Why couldn’t you big publishers have done the same thing, huh? And perhaps reaped the same benefits?

Of course, we Baen Barflies always knew that this situation could only last as long as the majority of people didn’t want e-books as their own “thing,” but rather as a gateway drug to paper. Every so often, someone would pose the question to Jim Baen in the Baen Bar forums: what happens when people actually do want e-books? Alas, I no longer have a citation for his exact response, but as I recall it was usually something noncommittal, to the effect of crossing that bridge when they came to it, but that he didn’t see any reason they wouldn’t be able to keep selling e-books inexpensively and DRM-free even when everyone was reading them instead of print.

And the day finally arrived at the end of 2012, at which point Baen had to make some changes to the way it sold books in order to cut deals with Amazon and other vendors. And, overall, Baen handled the transition about as well as any publisher could have hoped to manage: prices went up across the board on backlist and frontlist titles (though only as far as $9.99 for any new hardcover-equivalent e-book, not just bestsellers), a lot of Free Library titles vanished at least temporarily, and the Webscription bundles were now only available for a limited time each.

A lot of Barflies grumbled (especially since Baen did a piss-poor job communicating the changes in a timely manner to all its customers), but Baen managed to keep enough of the old good things that other publishers didn’t—the relatively low prices, the bundles for as long as they were available, the lack of DRM—that few people were seriously put out. And that’s how you do it, publishers. Baen went from using e-books as a throw-away marketing tool to selling e-books at all major e-book stores across the board as smoothly as a silver medal Olympic athlete dismounting from the parallel bars. (I’d have said gold medal, but there were those communication problems…)

Of course, Baen only had the flexibility to do that because it was its own company; it distributed through Simon & Schuster, but didn’t answer to them. The Big Six were in the pockets of megacorporation conglomerates with far too many cooks to make a good broth. The one time one of them, Tor, tried to meet Baen halfway, it was able to sell its titles DRM-free in the Baen store for about one day before a horrified stuffed-shirt executive shut it down.

But what would the world look like if all the publishers could have gone Baen’s route—selling e-books cheaply and DRM-free to promote their print sales? There would have been a lot more e-books available, for one thing—and more impetus for research into e-ink and better readers, so perhaps we could have had a Kindle equivalent several years earlier. Perhaps the publishers could have taken more of a role in that and come out with their own readers before Amazon ever got the chance, gaining the experience they needed to sell e-books aptly. Maybe they could even have figured out how to partner with bookstores to cut them in on e-book sales early rather than frantically trying to poke thumbs into Amazon’s dike to protect them later.

It’s all academic at this point, of course. We know what you publishers did do—you hemmed and hawed over DRM and high prices—keep those uppity e-books below half a percent of the market, don’t rock the boat. You didn’t even pay attention to the e-book market; you went haring off after Google for having the audacity to scan all your books to provide you with the service of letting people search them. Never mind that they were going to help you sell more books, they were going to make money from it too and nobody has any right to make money off of your content but you!

You also didn’t bother to think about the fact that Amazon, who’d ballooned up from a cheeky little monkey into an 800 pound gorilla as if it was made of latex and someone stuck a bicycle pump in its mouth, was going to come out with a $400 dedicated e-book reader, treading the same tired old ground as Sony and countless others have before. This was the company that had already been giving you fits discounting your print books to just a couple bucks above wholesale and damaging print bookstores’ business. Did you honestly think they were dumb enough to try to sell a $400 device just so people could pay the same prices for your “hardcover” e-books? If they wanted to pay that much, they’d just buy the books. Amazon was certainly selling them cheaply enough.

Of course, you know those are all rhetorical questions—because of course you thought that. You threw Amazon right into that briar patch where it wanted to be more than anywhere else in the world. And it ended up sitting so pretty there that the only way you could think to root it out again was to collude with each other and Apple and break the law of the land.

You publishers are so lucky that the DoJ let you settle for, effectively, a slap on the wrist—a temporary return to status quo, plus having to give out a few e-book coupons and put up with a nanny for a while. Your executives are lucky they didn’t end up with prison sentences. I suspect what happens to Apple may end up showing you fully just what kind of bullet you dodged.

What have you learned from this, publishers? Have you learned anything? Anything at all? You’d damned well better. If you keep making mistakes like you have been, the last few years, you may not be long for this world.

Here’s what you should learn. First: We want e-books now. Maybe not all of us do, or even the majority of us yet, but I can guarantee you that, as old people die [Update: at least, those ones who cling stubbornly to the “smell of books” rather than whole-heartedly embracing e-reading as many elderly do] and young people grow up, the percentage of e-book readers is only going to go up from here. Stop trying to protect the print bookstores. If we want e-books, you’re probably not going to be able to sell us a print book by making the e-book cost more. We’ll check it out or pirate it just to spite you, and you’ve lost a sale. Do you want that? And we have our own ideas about what a “reasonable” price is—we’re not some simpletons you can “convince” to want to pay more money by forcing the prices to go up.

Second: Ditch DRM. Take control of your fate the same way the music companies did, the way Baen did, and the way Tor (finally) has. Make your e-books platform agnostic, and break the shackles that tie consumers to Amazon. Do you really want someone to be able to compete with Amazon without having to resort to breaking the law? Unlock consumers’ bookshelves so they can take their libraries with them somewhere else.

This is the only way you’re going to be able to salvage something out of this Amazon mess—do like iTunes did and replace your DRM-locked books with unlocked versions. Because, by now, it’s too late for another competitor to come along and challenge Amazon if you don’t. Most of the people who love e-books have already gone with Amazon, and they’re not going to want to jump ship unless they can take their books with them. Of course, the more tech-savvy already can, thanks to Calibre and Apprentice Alf, but they’re the same minority that e-book adopters were in general before Amazon came along.

And that’s another thing. Do you know how drop-dead simple Calibre and Apprentice Alf make breaking your DRM? (Three words: “drag and drop.”) It might as well not be there at all for all the good it does to stop piracy. Sure, it keeps the average user from sharing books with his friends…but is annoying your paying customers while letting pirates flourish really a good move for you? And I guarantee you that, even if very few people are tech-savvy enough to know how to set up those cracking tools, you don’t have to be that tech-savvy to download the copy that someone else cracked for you and put on peer-to-peer. So fight piracy by making your work more attractive to buy than pirate. Or at least as attractive, so that people’s better nature can win out for you.

And third: Eliminate inefficiency. I know, this is easier said than done, thanks to the same inertia that kept you from taking advantage of e-books to begin with, but you’re going to have to do it sooner or later. This isn’t the Great Depression anymore, so get rid of over-orders and returns. There have got to be better ways of estimating demand and figuring out shipping quantities by now. Use them. Invest in print-on-demand systems like Espresso to fill shortfalls. It wastes money, gas, time, and CO2 offsets to print more books than you need, ship them out, ship them back, destroy them. Stop it. Save yourselves some money, so you don’t have to price your books as high.

I don’t know. I’m probably talking to myself here, fooling myself that anyone from the major publishers cares what I have to say. I’m just so sick of sitting by and watching the publishers screw things up. Seeing publishing-industry insiders like Agent Orange start to acknowledge the issues is heartening (they say that the first step is admitting you have a problem), but it’s going to take more than that. So old executives are retiring, how do we know the new ones aren’t going to be their carbon copies?

Still, I can hope Agent Orange and others like him (or her) will work to steer the publishing industry in a better, brighter direction. I will await future developments with great interest.

Update: The Passive Voice has posted an interesting response to the above.