Publishers, Amazon, and competition: Three points of view
June 1, 2014 | 11:00 am
There’s a theme in the triad of Amazon/Hachette articles I found this morning, and the theme is…competition.
First of all, here’s a rare op ed in favor of Amazon that originally appeared in CNN’s “Fortune” section. (Though it seems to have vanished from there; the link no longer works and the author reposted it on his own blog.) Len Sherman rebuts an earlier anti-Amazon piece by Adam Lashinsky and argues that Hachette’s background as an illegal colluder suggests it is more interested in keeping prices high, whereas Amazon wants to keep them lower for consumers.
Turning Lashinsky’s argument around, I’m trying to understand what strange universe he lives in to believe that consumers won’t come out ahead if Amazon wins this fight. Lashinsky may be conflating author interest with consumer interest, and I can understand his disappointment in being collateral damage in this fight. But as he notes, consumers have alternative choices to buy his book (as I already have). After the dust settles, if Amazon wins, he will wind up selling more books at lower retail prices and probably earn higher royalty payments.
I think Lashinsky should redirect some of his wrath on Hachette, who, like other major publishers, pays only a 25% royalty rate on e=book sales, compared to 50% from native e-publishers like Open Road Media or 50%-70% from Amazon (depending on ebook price).
Next up is David Gaughran (found via The Passive Voice), who discusses the “discoverability” problem in publishing. For years now, publishers have been complaining that the shift in book sales to the Internet has made it harder for readers to “discover” new works. However, most readers Gaughran spoke to didn’t have any problem finding more books they wanted to read than they had time to read—especially given the explosion in self-published works lately.
Large publishers have proved adept in one area: getting their message out. Sometimes it feels like they spend more on corporate PR than breaking new authors, and you need a bullshit dictionary to parse their statements.
So when large publishers say that the discoverability puzzle hasn’t been solved online, they are really expressing despair at retailers recommending books not published by them.
And when large publishers say that online retailers haven’t matched the experience of buying in physical stores, they mean that they wish there was some way to relegate all that stuff from small publishers and self-publishers to the warehouse, and have tables piled high with James Patterson and Snooki.
I would add that you even see some of those publishers come right out and say it openly, as when Kensington Books CEO Steven Zacharius said:
In a perfect world (okay, in my perfect world) there would be a separate section on Amazon or B&N.com for self-published e-books, maybe even separate websites. I truly believe that it would help the reader distinguish the books as well. Readers don’t purchase books based on who the publisher is and don’t necessarily care. As a result, they might not even know if they’re buying a book that was professionally edited versus one that was self-published. Publishers are devaluing their own content as well by even adding to the confusion. All publishers will discount the first title in a series, and these get mixed in with the other less expensive books and just add to the clutter.
Gaughran blames the failure of Bookish, the supposedly “completely independent and autonomous” book recommendation site (that nonetheless managed to recommend only books from the Big Three publishers who backed it), on this mentality. (Of course, that spectacular failure hasn’t stopped its erstwhile CEO, Ardy Khazaei, from being quoted and probably highly paid as a publishing-industry “consultant,” another great sign of just how far the industry has its head up its own butt.)
Conversely, Amazon hasn’t tried to make its Goodreads subsidiary favor only books it sells, it stocks products from its own competitors, and it even welcomes bad reviews of products against all conventional wisdom. Nor has it tweaked its recommendation algorithms to push its own products ahead of anyone else’s.
So, Gaughran posits, the real reason publishers hate Amazon is that for the first time they’re actually facing real competition from Amazon in publishing, and from those self-published authors in market share.
And expanding upon that theme is the last article in our trifecta, by self-pub celebrity Hugh Howey. Like the publishers, Howey wants to talk monopoly, though in this case he starts out with an analogy to the board game of that name, discussing the cutthroat tactics used by a past employer who liked to play the other players against each other. The publishers, Howey posits, are playing the book industry game the same way.
I am told, without exaggeration and in all seriousness, that Amazon wants to “crush their competition.” I hear that they want to “put everyone else out of business.” Two things are true, both of which make these statements ridiculous: The first is that Amazon most certainly doesn’t want all of their competitors to go out of business, because then they’d be the only game in town and the government would have no choice but to break them up. The second is that of course they are acting as if they want to put their competitors out of business. That’s how you improve your business practices. You try to out-do your competition.
Unless . . . you don’t understand at all what it means to compete. Which I think explains the righteous indignation. But I’ll get to that in a minute.
The thing about Amazon, Howey says, is that it actually set out to disrupt itself. It made its name as the place to sell physical books on the Internet—but it saw that it could become the place to sell e-books on the Internet, too. (Much like Apple did, and much like Eastman Kodak didn’t.) Customers loved it, while publishers vilified it. Meanwhile, chains like Barnes & Noble and Borders, who used to be the big villains for knocking out indie bookstores, have been suffering in competition with Amazon, causing a minor renaissance for indie bookstores who can outcompete the chains on personality every time.
At the same time, the big publishers grow ever bigger—most recently with the merger of Penguin and Random House, who combined now account for half the total revenue of the Big Five put together in just one company. And those publishers have a history of not really competing with one another even when they weren’t outright illegally colluding.
Their contracts are functionally identical. Their e-book royalties (and most others terms and clauses) are lockstep and are not negotiable. They have a history of working together in a noncompetitive fashion in order to raise prices for their customers (prices that they would love to set at twice what mass market paperbacks formerly cost). Conferring by phone or email in this culture is considered polite, not illegal. It wasn’t long ago that top editors at the major houses would meet on Wednesdays to discuss the bestseller list, to congratulate one another on acquisitions, and to discuss business plans and practices. All completely normal. Celebrated, even.
Kristine Kathryn Rusch discussed this back in November—it used to be a common thing for the publishers to get together and agree to stagger release dates for their major books so they could all have a little time in the best-seller list limelight. Since the increased scrutiny resulting from the anti-trust trial, they haven’t dared to resume this practice.
Howey brings up the example of Simon & Schuster innovating with print-only publishing deals and getting slapped down by all the other publishers. He also mentions “most-favored-nation clauses”—not the ones that enforced agency pricing, but the ones in book contracts that require publishers to raise royalty rates for certain specific authors if they dare to raise them for one.
Unable to tolerate a move toward democratic literature, where any voice is free to publish, where authors are paid 70% of list price instead of a mere 17.5%, they rely instead on appeals to litigation, on a public relations campaign within the press, and on collusion.
As David Gaughran said, the publishers really don’t like watching their market share dwindle as customers flock to that nasty, trashy self-published competition. And now they’re doing their best to shut Amazon down, blacklisting Amazon-published works from brick and mortar stores and rallying their authors and anyone they can get to regurgitate their propaganda. Howey wonders why these people are so easily fooled:
Why show support for a corporation that may lower royalties to 30% in the future when you can celebrate a corporation that pays 17.5% today? Why show support for a corporation that may raise prices in the future when you can champion a corporation that colludes to raise them today? The groupthink and absence of reason is baffling.
Well, the game goes on; the competition and collusion continue. It feels kind of like we’re at a turning point in history, and in years to come we’ll look back at today as the time when it all changed—or else when it all stayed the same.
Just think what the book and e-book market looked like just eight years ago, before the Kindle, and before Amazon opened the floodgates to e-self-publishing. Oh, sure there were self-published print-on-demand and e-book titles, as people had already discovered how the Internet could be leveraged to sell their own books, but they didn’t have nearly the market share they do today. Now they take up a huge chunk of the overall book market, and every bit of that has been gouged out of the Big Five nee Six publishers’ share. No wonder they’re running scared.