If you were to count up all of the earnest articles, blog entries, and even Colbert Report routines that have been dedicated to the Amazon vs. Hatchette dispute, well, you wouldn’t have an accurate number, because more would have been written while you were counting. Curiously enough, almost 100% of them miss the point of greatest concern to authors. The real issue isn’t whether the on-line retailer or the publishers win the current battle, but whether there will be any real competition in the marketplace in the future regardless of who wins. Right now, it’s very hard for me to see how there can be. Here’s why.
Authors today have only one real and one theoretical way to get their books in front of potential buyers. The real one (because it’s available to anyone) is to self-publish, and the theoretical one (because first-time authors have at best a one in a thousand shot at success) is to somehow secure a contract with a traditional publisher of any size.
Despite those odds, the existence of traditional publishers still matters, however. That’s because no matter how inept and unable to adapt they may have shown themselves to be in the face of Amazon, they still act as a brake on how much Amazon can cut prices. True, Amazon has been willing in the past to sell books below cost, but Wall Street has been losing patience with such practices, and the retalier has been under increasing pressure to start showing profits. You don’t have to go too far out on a limb to conclude that this is why Amazon is putting the screws to Hatchette right now, or that it plans to do the same with each of the other publishers as its contract comes up for renewal.
That brings us back to the contract negotiation, and what the likely consequences of the outcome, one way or the other, is likely to be.
If Hatchette and the other big publishers are successful in holding off Amazon, then it’s pretty safe to assume that not much will change with the way they do business. But if Amazon wins, the traditional publishers will be under severe financial pressure. Given the fact that they have steadfastly refused to innovate or change thus far, it seems more likely to assume that they will react by dramatically cutting overhead than by exercising creativity.
And they’re certainly not going to react by raising royalties for authors, so the already increasing movement of published authors to self-publishing can only accelerate.
If cost-cutting fails to maintain the profit margins of the publishers, one would expect that the conglomerates that own them will either sell them, or, if they aren’t happy with the price they can get, spin them off as independent public companies, distributing the stock to their current shareholders as a dividend. This isn’t speculative; it’s how corporations work. Just last month Time-Warner announced that this is what it would do with its magazine business. Next year, Time, Inc., the former crown jewel of the conglomerate, will become an independent public company instead of a drag on Time-Warner’s earnings. A list of sales of insufficiently profitable subsidiaries and divisions would run into the tens of thousands.
Should authors care which outcome occurs? The answer depends on whether you’re looking at the near or the long term.
The short term answer looks like this: if the publishers win, then Amazon will have an incentive to continue to innovate, making it easier and more profitable for authors to sell directly to Amazon. This will maintain incentives for more published authors to move to self-publishing.
On the other hand, if Amazon wins, publishers will be under further price pressure, and will presumably provide fewer, and not more, services to authors. As more and more authors shift to Amazon, and as more and more publishers go out of business or downsize or become even more selective in who they take on, Amazon’s control of the terms under which authors are paid will dramatically increase.
So in the short term, the answer is yes – it matters. But how about in the long term?
That, I submit, is a different story. The reason is that no matter who wins, the degree of competition in the marketplace is going to continue to decrease. The only question is how quickly the traditional publishers continue to lose authors, because it appears increasingly true that they simply aren’t offering a superior alternative to self-publishing. Either way, whether it takes two years or five, it seems certain that Amazon will end up with monopoly power, if only because the traditional publishers seem to be so incapable of taking any action to prevent it.
Once Amazon owns, say, 75% of book sales – or only eBook sales – or even just eBook fiction sales (assuming that it does not have this percentage already) – it will have exactly zero incentive to maintain royalties at a higher level than traditional publishers, or to offer any new services.
And why should they, if they will receive the same amount of revenue either way? Every dollar spent on behalf of, or paid to, an author decreases Amazon’s own profits. Always remember that first and foremost, Amazon’s business model, like Wal-Mart’s, is based on providing the lowest price possible to the customer. If you’d like to see what happens to product innovation when a company successfully acquires a monopoly, you might want to give a read to this: Why Johnny Can’t Format (a book).
So where does that leave authors?
In trouble, and if you want to see what trouble looks like, take a look at the music industry, where indie musicians make pennies when their songs are played tens of thousands of times on the streaming services that are now dramatically cutting into download sales as well as CD sales.
What authors really need is more competition in the marketplace, and it’s difficult to see where that will come from if Amazon ultimately succeeds in gaining effective control of prices.
So the moral of the story is this: it doesn’t matter whether Hatchette is “good” and Amazon is “bad” or the other way around. And looking into the future, it doesn’t matter whether Amazon has been “good” to authors in the past. What matters is to be clear-eyed in understanding what the future holds.
Amazon is a business, and it will act in exactly the same way that every other public company always has, and always will. If it can gain a monopoly through legal means, it will. And when it has succeeded in grasping that rarest of holy grails, it will take advantage of its monopoly power in every legal means available to it. That most assuredly will include lowering author royalties to the lowest price it can while maintaining the flow of new content.
Given the fact that authors always have, and doubtless always will, continue to write no matter how unlikely the prospect of financial success, you can decide how low those royalties will go. If you want my opinion, it will be lower than traditional publishers are paying now.
Can you come with a reason why I’m likely to be wrong? If so, I’d love to hear it.
Have you discovered The Alexandria Project?
Andrew Updegrove: Tales of Adversego 
Hi Andrew, very nice post, thank you 🙂
I’ve thought a bit about your post, and of the severe divide between many many people I respect, in the current on-going Hatchette / Amazon negotiation. And want to respond to your ending lines :
“Given the fact that authors always have, and doubtless always will, continue to write no matter how unlikely the prospect of financial success, you can decide how low those royalties will go. If you want my opinion, it will be lower than traditional publishers are paying now…
“Can you come with a reason why I’m likely to be wrong? If so, I’d love to hear it.”
Because I trust you, as a person of reason and civility, I’m going to play a muted semi-version of the devil’s advocate. My comment, like your own article, is also a yes-no answer.
First, I want to say that, in my opinion, the pricing similarity of the big publishers, reminds me of how many other current industries already operate in what seems like, at the very least, an unintended semi-monopoly: insurance companies, oil companies, banks, cable companies, phone companies – all with slight variations, but very very close in price and features at a glance. I’m sure there’s a lot of folk that can identify similar patterns of lack of price competitiveness in other businesses and industries.
That being said, saying Amazon may (or will) become a monopoly, is strange, when big publishers, for all intent and purposes for writers at my level, already are so similar as to already be monopoly-like.
It’s like saying take the devil we know over the devil that may be. But I don’t think you’re saying exactly that, rather that we, as content creators, need to also think in terms of ourselves as in business, and look out for ourselves.
Second – these won’t be as long winded 🙂 re “the retalier has been under increasing pressure to start showing profits” – true, but most reports I’ve read say that as soon as Amazon begins to finish building out the distribution warehouses it hopes it will need, huge amounts of cash flow become available to the bottom line. I think all else, squeezing this or that group, is icing, ie, not something they are dependent on.
Third, re ““Once Amazon owns, say, 75% of book sales, it will have exactly zero incentive to maintain royalties at a higher level than traditional publishers, or to offer any new services.” – Apple took advantage before of Amazon having lower rates, and there more and more new companies ready and willing to take advantage of drawing authors to themselves with higher rates: distribution companies like Smashwords and BookBaby and D2D, subscription services like Scribd and Oyster and several from Europe planning to soon come to the US, and libraries via OverDrive.
Fourth, re “The reason is that no matter who wins, the degree of competition in the marketplace is going to continue to decrease” – I don’t know if, even if true in the short run, this would remain true over time. An article at Passive Voice, http://www.thepassivevoice.com/07/2014/two-different-worlds/ , within the comment thread, has numerous references to how, as technology has developed, musicians are finally making enough to live on, enjoy making their music with. Only “regulating” the distribution of books, like the way cable services and phone services and electric services are, with territories marked out, could, I think, derail that continuing development in the music industry.
Fifth, re “4) “What authors really need is more competition in the marketplace, and it’s difficult to see where that will come from if Amazon ultimately succeeds in gaining effective control of prices.” – from where competition always comes from, if not regulated and licensed to create exclusion, from the tons and tons of folk with nothing to lose by trying. Most authors, even with greater and greater numbers making enough to quit their day jobs, would hate to see their once a month lunch or dinner splurge money disappear (myself included) – but that’s not enough to be afraid of not having one or another avenue of selling one’s work available.
Finally, my own personal response to this whole mess, is to continue to find meaning in my life through the people I care for, the creative work I’m capable of producing, plus, and this is my choice, register my copyrighted material with the Library of Congress and declare my creative material mine.
Authors with big publishing are most hurting because they don’t have control of their creative material. Indie / self-published authors do. “That” is what gives Amazon power. Authors in control of their copyrights and rights lend Amazon their creative weight.
Amazon may surprise, no, disappoint me, by going down the path of so many other giant corporations. But the power of creative content, unlike distribution of computers or the power grid or gasoline or so many other items in our lives, if it remains in author’s individual hands, gives its owner mobility, choice. Options. Like musicians are doing more and more now.
Anyway. Obviously your article’s good enough to elicit a humongous rant from me, Andrew 🙂
As always, I look forward to your posts and your thoughts.
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Felipe,
Even before I say thanks for the detailed and thoughtful comments (although I guess I just did), let me thank you for your ongoing interest in and attention to the thoughts I’ve posted here – both are appreciated, as are your kind words as well.
You have so many good thoughts here, I expect that I may miss a few in my responses, but here goes.
First, off, I’m influenced a bit by having spent my career as a lawyer, and during most of that time I’ve advised my clients on antitrust matters. So I’m perhaps more aware of the extent to which monopolies have been avoided or broken up only through direct government intervention, as well as of the pernicious effects that they have had when they have been successfully created.
Recall, for example, the days when the telecommunications industry was controlled in the U.S. entirely by AT&T, and how much things have changed since then. Or consider your television alternatives and pricing, before there were alternatives to the local cable monopoly (and indeed this still hasn’t changed as much as it needs to), or the fact that Microsoft Word has been largely stagnant since Microsoft overcame WordPerfect, or how little Microsoft Explorer changed before Mozilla gained market share, or what personal computers were like before Apple finally crept back into competition through the backdoor of the iPod, followed by the iPhone, followed by the iPad. The market share now enjoyed by Apple laptops isn’t due to their suddenly becoming better since the iPhone was introduced, but because so many customers, and particularly young ones, were introduced to Apple innovation through these newer products where Microsoft was not dominant.
There are multiple reasons for this. One is that monopolies have incredible inertia. Another is that vendors practice lock in whenever possible – that’s why Amazon makes a Kindle app available for every other vendor’s device, but doesn’t unlock the Kindle operating system to allow Apple or Barnes & Noble to sell books that can be read on a Kindle.
And finally there’s the fact that once a good or service has become commoditized, there is nothing to compete on besides service and price. In particular, where you are speaking of a service like Amazon’s, how, and from where, would someone come along to compete? Amazon’s prices are already rock bottom and its purchasing power enormous, and as you point out, it has already invested hundreds of billions of dollars in creating a stocking and delivery infrastructure that would be impossible for anyone to recreate at a competitive price. At the end of the day, a book is a book – the only differentiators are price and delivery time. And Amazon keeps adding more value all the time on top of that function to sweeten the deal.
That said, I do take your point about the other semi-monopolies you mention. But note that each of these has already been a “race to the bottom” experience, where all of the profits have been wrung out of the system, and there is rampant consolidation in these industries to have anything left over to make a business profitable. Note that small companies are almost entirely unknown in each of these industries. Highly consolidated, and often regulated, markets like these have no room for 70% royalties, much less the royalties that traditional publishers are paying today. Anyone trying to challenge Amazon would have to meet, or beat, its prices – so where would higher royalties be found?
I do agree that the current traditional publishers represent a collective monopoly, and that this reality has led to its own series of abusive behaviors: dropping advances, insistence on formula products, terrible treatment of authors and more. And I certainly am not in any way trying to say that they don’t deserve to be challenged.
Unfortunately, legacy industries have a terrible history of adapting to disruptive changes. One after another, traditional industries like steel have gone over like dominoes, and the predictable path has become a given in business school case studies. Sometimes, as with the clothing and shoe industries, the business can be lost forever to cheaper labor markets overseas. Other times, more often in the service sectors, new innovators will come along with new models that build new businesses on the ashes of the old.
This is what I hope will happen in publishing, and on this point I think we only differ in level of optimism. And also, to be clear, what I’d like isn’t traditional publishers OR Amazon, but new, more nimble, better publishers AND Amazon. And new distribution channels as well. In short, constant innovation from many sides that would provide new ways for authors not only to reach new readers, but to be able to spend more of their time writing as well. Because that’s what writers do best. What authors need is new partners to replace the old ones to do the supportive services that authors would rather not be bothered with, and often aren’t good at doing anyway.
So I did not in any mean to suggest that I am happy with the devil we have. I just don’t want a new devil to replace him that’s just as bad in its own way. What I’d like are a few new angels to join in the fun.
I’m also not confident that Jeff Bezos will be able to take the heat off driving product prices down when he finishes his warehouses. He’s now buying drone companies and buying local, rather than regional, distribution facilities, and there is an equal amount of money he can, and appears ready, to spend on the next decade driving these extensions of his business model. After twenty years of following the same approach, there seems to be little evidence of his being ready to flip his strategy and start reaping the harvest of what he has sowed. Instead, he seems to be trying to have it both ways, by continuing to spend prodigiously, and using more profits squeezed from existing business lines.
I do like your reference to Apple, and if there is hope to be drawn from the rather dire picture that I painted, it will be that both Apple and Google get more serious about cranking up their content businesses. If they were to go head to head with Amazon, and put in place their own versions of CreateSpace and Amazon’s other supporting services, that would be outstanding.
But as I’ve written at other times and places, that is not a sure bet, and indeed their efforts thus far have been unimpressive in the case of books. Apple’s primary business is selling devices, and it sells content solely for the purpose of driving more hardware sales. And music and video seem to be more than adequate to drive hardware sales. While the profits generated from content are not miniscule, they’re still in the rounding error of profits from core sales. So also with Google, which makes money by selling advertising. The only reason that it is selling content at all (and that as an afterthought) is to provide greater value to its Chrome browser and OS, which in turn make it easier for it to display and sell advertising.
Amazon, on the other hand, makes the vast majority of its revenues selling goods – like books, music and videos. The Kindle is a loss leader to that business, rather than the other way around. So it will always be both able and incentivized to undercut Google and Apple to maintain dominance in content, because that’s its core business, rather than a sales adjunct. And it will also have superior advantages, such as its enormous one-stop shopping capabilities.
I fervently hope that you are right when you point to enterprises like Smashwords and BookBaby. But too often, Amazon simply buys companies like this when they become threatening or attractive, as it did with GoodReads. And so far, the vast majority of startups in this area have been more focused on making money on authors than providing superior avenues to market success.
On the topic of musicians, note that they have a significant advantage that authors don’t: they can make money performing live, and they can also sell copies of their music at those performances. That’s a far cry from doing the occasional book reading for a handful of people and selling a few copies of your book.
I do agree that nothing lasts forever, including monopolies. But I also worry about the knock on effects in the meantime of what is counted as “success” today. How many of those who have been able to quit their day jobs are writing something other than multiple titles per year in a genre series? That’s fine for genre series writers that enjoy cranking books out, but it doesn’t represent a new horizon for those that want to take a year writing the best book they can, or writing non-series fiction, or non-fiction. Unless and until writers like that have a way to do well, we as a society, as well as they as authors, have a problem. And if Amazon does gain sufficient market share and lowers royalties, many of the folks that have quit their day jobs (even) to write genre fiction are going to be reading the want ads again.
I certainly do agree that there is much to celebrate about self-publishing, including the ability to take control of one’s work, and again, I stress that unlike so many other articles and blog entries, I am not arguing for big publishers and against Amazon. I’m merely taking a dispassionate look down the road, and saying that what’s good now will not necessarily be good tomorrow.
I think that whatever happens, there will be room for people like you and I that can enjoy the ability to write and are lucky to live at a time when they can control their own work. But I also believe passionately that the world will be a better place if full time, committed authors of every genre, and on every topic, can find a way to make a living doing the best work they can. And I’m having a hard time seeing that in the future, at least for the next ten or fifteen years.
Hopefully your crystal ball will prove to be clearer than mine. And in the meantime, please keep visiting my blog and challenging my ideas.
Best regards,
Andy
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What a great response Andrew (didn’t realize you’re an attorney & your background, ie, antitrust) – but have to admit right off, what crystal ball I have is more a marble, with quite a few nicks and a few cracks in it 🙂
Interesting, your point about musicians having other outlets and opportunities authors don’t; it’s amazing how each field finds avenues fitting that creative work.
re “Note that small companies are almost entirely unknown in each of these industries. Highly consolidated, and often regulated, markets like these have no room for 70% royalties, much less the royalties that traditional publishers are paying today. Anyone trying to challenge Amazon would have to meet, or beat, its prices – so where would higher royalties be found?” –
My best guess, and best experience so far, would be via the subscription services. Blockbuster and Hollywood Video (not sure I got the name right) used to dominate the per video cost market, and, despite early assurances it wouldn’t work, Netflix slowly but surely took over.
I personally think, much like Apple is losing music downloads and moving toward streaming (at, from what I understand, better rates for musicians than the dominant current models), that self-publishing outlets themselves will face their biggest challenge from businesses like Scribd and Oyster and even OverDrive (via libraries), at rates far better than 35% or less (they’re currently at around 60% and 45%, for libraries, respectively).
I’ve read that books make up less than 10% of Amazon’s sales. So again, I don’t think squeezing the margins there is critical for them. But having that door (books, music, video) open, as an entry to buying diapers (we have), cameras (we have), toys for grand kids (we have), and much much more, is where the big margins and money’s at (the other 90%).
I do think, though, that offering an increasingly more attractive Prime (subscription style) service, that includes as many creative outputs as possible “and” providing free or reduced shipping for physical goods, is something Amazon wants to keep vibrant. And only high or higher royalty rates (for authors) will, I believe, keep their offerings from being “token” instead of inclusive.
Because Scribd and Oyster and OverDrive aren’t the only Netflix-hopeful-wanna-be’s – more are coming from here and other countries, Txtr ( https://us.txtr.com/ ) and Entitle ( https://www.entitlebooks.com/ ) and 24symbols ( http://www.24symbols.com/ ) just to name a few.
Amazon already has a children’s books subscription service (which I told my oldest girl about and she’s trying it out I believe for her 3 girls). And Epic (also for kids) ( http://www.getepic.com/ ) seems to be starting out well.
So what I think I see happening to both the big publishers and Amazon, is their own attempts to keep what they have (can’t blame them) and position themselves within these new models and create their own.
I think some of the fear big publishers already have about these services and ebooks best shows in how they restrict libraries in terms of lends per purchase, forcing libraries to repurchase certain titles to be able to lend to more than a few dozen folk. Another is the way big publishers opening talk about the list of self-published titles needing to segregated (as in OverDrive) like a ghetto.
Amazon doesn’t speak much, but is rushing to integrate its new Fire TV and Fire phone and Prime services to offer the best subscription service it can.
Either way, there’s tons of competition.
Now whether and how it’ll work out, well, I’m back to my tiny cracked crystal ball marble 🙂
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Felipe,
Thanks for your continuing thoughts and for this interesting holiday conversation.
I confess that you’re ahead of me on some of these alternatives (such as Oyster, Scribd and OverDrive, the names of which I recognize but I don’t know a lot more than that). So I’ve got some studying to do there, and hopefully I’ll be cheered by what I find. I believe that you’ve got the economics backwards on streaming, though. If some buys a CD, or even an MP3 download, both the band and the songwriter get a meaningful piece of the action.
With streaming, though, they get almost nothing. There are many articles on line you can read, with the title of this one telling it all: My Song Got Played On Pandora 1 Million Times and All I Got Was $16.89, Less Than What I Make From a Single T-Shirt Sale! http://thetrichordist.com/2013/06/24/my-song-got-played-on-pandora-1-million-times-and-all-i-got-was-16-89-less-than-what-i-make-from-a-single-t-shirt-sale/ Can you imagine being paid only that much if a million people read your book through a subscription model?
Hopefully it wouldn’t be that bad, and in this case the history is different, as streaming has been compared to radio, and due to a number of unique historical developments, radio stations pay nothing to the band when they play a song. But still, who knows which way it will turn out? A hopeful sign is that Amazon pays a meaningful amount to Kindle Select authors each time a book is borrowed from the Kindle subscription library, but if I’m right on my initial point – that Amazon would lower the royalty rate – then the loan royalty would surely follow as well.
On this point:
“I’ve read that books make up less than 10% of Amazon’s sales. So again, I don’t think squeezing the margins there is critical for them. But having that door (books, music, video) open, as an entry to buying diapers (we have), cameras (we have), toys for grand kids (we have), and much much more, is where the big margins and money’s at (the other 90%).”
Of course, Amazon could decide to use books as a loss leader. But I guess the question is why would they, and have they ever made any public statements in the past indicating that they view books as being entitled to separate treatment? And regarding the Prime program, Amazon’s latest move has been to offer music and some video for free to Prime members. It’s hard to believe that Amazon would want to pay high royalties or subscription payments to authors for content they’re giving away for free – indeed, you’d assume that this would be an incentive for Amazon to push authors in the opposite direction. Again, I would be delighted to be proven wrong on this.
The real driving force with this trend, I should hasten to point out, isn’t Amazon – it’s the way in which Internet based services and content have evolved over the last twenty years. With the exception of the Wall Street Journal, virtually everything else has become available either for free, or for increasingly low prices. Even where there are subscription services, such as with Pandora and its peers, only a small percentage of people actually pay a fee. So Amazon isn’t the devil in this process, they’re just better and more successful at riding the wave.
Perhaps the real concern authors should have isn’t that there won’t be enough competition, but that the economic models have changed that even with competition, the overall direction of Internet sales and subscriptions will still drive royalties towards the floor.
Clearly I’m seeing this from the gloomy end of the telescope, so once again I hope that you’ve got the right one.
Best regards,
Andy
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Yes, this has been a nice holiday conversation; I appreciate you felt that way, thanks Andrew –
And I can see, from my layman’s pov, and the logic flow, you must be quite an attorney 🙂
The thread re music royalties swung from more opportunities for musicians to an example of someone making less than I make per month on my tiny sales!
I think the problem re music royalties has been more toward “who” is getting the bulk of monies paid by subscribers and radio stations ( see : http://music-mix.ew.com/2014/02/21/american-idol-lawsuit-sony/ ) – via the classification of the content being streamed as either a sale vs a broadcast – and whatever other terms have been legally construed to corral profits one direction rather than another 🙂
And other articles point to efforts to either re-organize who represents musicians and collects data to distribute royalties, or re-do current arrangements.
I don’t think Amazon has to use books as a loss leader, though it has (as per big publ) done exactly this in isolated cases. Breaking even, or making a tiny amount on a product worth 10% of your income, to boost the other 90%, is not a big problem. And if royalties were to be cut to the bone, there’s many many other entities willing and able to offer better terms to be able to start being in this business. But I don’t think Amazon feels it even needs to get to that point. People, myself often included, will sometimes prefer to pay them a small reasonable amount for an ebook that can downloaded free elsewhere – that’s the value of trust, and trust if more fragile than the spin of the earth around the sun 🙂
I think between our two perspectives, not too optimistic (kinda gloomy) to sorta optimistic (maybe dreamy) – things will bounce between the borders of the two and, as usual, come up with something different.
Thanks Andrew, happy Fourth of July weekend – isn’t it grand we can talk openly about this stuff and not fear a knock at the door? 🙂
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Pingback: The Future of Competition in Publishing: Be Very Afraid | The Passive Voice | A Lawyer's Thoughts on Authors, Self-Publishing and Traditional Publishing
Here’s my own response to this post, which is long-winded enough it made a better blog post then a comment. 🙂
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Here’s the response that I added at the Robotech site:
“It seems like we’re in violent agreement, then. I said that the big publishers won’t change and that they will therefore die, and you say exactly the same thing. The only difference between what you’ve written and what I’ve written is that you then go on to say let’s kill the publishers sooner rather than later, and I say that the same result will occur either way, it’s just a matter of timing. It seems that you’re reading my blog to say that we therefore need to help the publishers, but if you go back and re-read it you’ll say that no where do I say any such thing.
There seems to be an incredible inability of people writing on this issue to get away from calling one side the good guys and the bad guys, and that anyone that doesn’t make this their central thesis must be pro-publisher – which, as you can tell from my blog entry, I’m obviously not.
The point of my post is that authors should think about what happens after the big publishers lose. If some other force doesn’t come into the marketplace to provide competition to Amazon, authors will end up being paid even less than before. That’s not an argument to help publishers. It is a call to start worrying about the next battle after that.
So let me say it one more time: people need to think what the value of competition and get past just being vindictive about how much they hate the publishers. Everyone would be much better off if in fact the publishers had some gumption and decided to go head to head with Amazon. If they did, we’d all be better off. Unfortunately, as I say in the out take you include above, I predict that this won’t happen.
Authors better start thinking about what life is going to be like after the big publishers are gone, and Amazon has exactly *no* reason to pay authors more than 5% royalties, because they’ve won the war and achieved monopoly status. Once they’re the only game in town, it will be take it or leave it.”
It astonishes me how difficult it is for people to look at this issue dispassionately. When someone does, as I did, they automatically get lumped into supporting one side or the other, even when they haven’t.
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Whereas I think it has ample reason to keep paying good royalties because if it doesn’t, someone else will come along and start paying better ones, and the self-publishing authors will have considerable incentive to get out and network and move all their readers over to those better-paying sellers. Never underestimate the power of self-publishing authors to get the word out. That’s what they’re good at, because it’s how they sell their books in the first place—they don’t rely on publishers to do it for them.
(For example, there’s that petition/letter of Hugh Howey and friends’, which gathered over five thousand signatures in a matter of days—enough so that it outright forced major media, who had solely been reporting on Hachette’s side of the dispute, to pay attention.)
Sure, competition has value. It would be nice if the publishers actually would compete. But they haven’t been. They can’t. They won’t. They’ve had fifteen years, and only started showing any interest in it after Amazon suddenly started eating their lunch. Their idea of “competing” is to break the law. I don’t think they even know how to compete anymore. It sure would be nice if they would, but I’m not holding my breath. But sooner or later it’ll reach that tipping point where they have to, or outright go out of business. I think it would be nice, and do less damage in the long run, if that tipping point could be reached sooner rather than later.
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Hi! I’m a longtime small press publisher, hybrid author, and former Big 5 author (more than 30 novels, including an NYT bestseller.) My press does business with Amazon as a publisher/vendor. First of all, thank you, Andrew, for a perspective that illuminates what I know first-hand as well as from my extensive research about the current publishing climate, both short term and long term.
Amazon absolutely uses books as loss leaders to get customers through the door to purchase other merchandise; this is no secret. Amazon discounts titles heavily — pays the publishers full price for that option — and eats the difference. Thus it has slowly but steadily undermined not only the publishers’ ability to sell directly to readers at a competitive price, but also booksellers and other online retailers’ ability to compete.
While we publishers had glorious times in the “gold rush” of the early Kindle years, those days are over, and now a contract-terms noose is tightening around *all* of us, not just the big houses. I believe that noose will eventually surround the indie authors, as well.
There’s no place else to go. Amazon effectively controls the major avenue of distribution for print and ebook sales in this country. Customers are avidly loyal to its system — and rightfully so — I myself shop at the Big A because of is reliability, scope and convenience. That’s why other bookseller options have failed and even the Big 5′s efforts to launch a massive online bookselling platform fell flat.
Amazon has built a juggurnaut that is very close to having a choke hold on the bookselling industry — and soon, the publishing industry, too. Keep in mind that Amazon is *not* a publisher, though people often equate it to the Big 5 that way. Amazon is a distributor–and everyone from indie authors to publishers merely pays Amazon to deliver their goods to their customers.
Amazon provides NO publishing services to indie authors, invests NO capital in their books, and takes NO risks on their behalf, unlike publishers. Amazon has little to lose from its KDP program and everything to gain — if nothing else, all those indie authors are, first and foremost, Amazon customers, adding shoppers to the system. Their content, whether wonderful or dreadful, lures more customers to buy the toasters, the jeans, the sex toys, the everything at the Everything Store.
If the royalty rates are cut, most of those indie authors will keep writing, and others like them as well. A few will make a lot of money based on luck and volume and talent. The rest will believe the dream can come true for them. The dream that’s being sold to authors currently will continue to be oversold to them even as KDP terms fall below the standards of traditional publishing. There won’t be any other choices.
I doubt that the Big 5 will fail, no matter what. More likely, they’ll become the Big 3 or even the Big 2, luring the cream of the crop in terms of authors who can produce the new tentpole franchises and top bestsellers.
The rest will end up fighting for scraps at KDP or at its smaller cousins, like Smashwords, with their content highjacked into lending programs and subscription services that make money for the owners (Amazon and others) but very little money for the authors.
Whatever it takes to keep that future from happening, to spur competition, to keep the traditional houses not only in the mix but acting as bellweathers, and to inspire more fair and reasonable opportunities for authors, whether indie or traditional, I vote “Yes” to that plan. ,
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Deborah, needless to say, I’m delighted you took the time to leave your detailed comment. I haven’t read everything that’s been written out there, but I’ve seen virtually nothing that seeks to look beyond the current battle, and that’s surprising.
I agree that traditional publishing won’t disappear. But I am gloomy, as it sounds you are, too, that it will retain enough of a presence to stop Amazon from lowering royalties once the footprint of traditional publishers is minimized. While I’d love to see new business models arrive on the scene, I’m rather gloomy about that as well. If I were to put my money on anything right now, it would be that at some point the regulators in the European Union will intervene, and I wouldn’t call that a perfect solution.
What I keep hoping for is that small Indie publishers can figure out a way to gain ground, as my version of an ideal world would be where good authors could find publishers to partner with that could be successful with promotion. It’s great that it’s now that it’s possible for authors to be their own publishers and buy the services they need a la carte, but speaking from personal experience that’s still tough and time consuming. And even if it were easier, there will always be authors – presumably the majority – that would be happy to get a lower royalty in exchange for having a real partner to do everything else.
You’ve clearly got far more experience than I do. From your perspective, do you see any way for that to happen? is there a direction that authors should be channeling their energy into rather than just Hatchette bashing?
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Andrew, I’m hoping the international markets are putting up some firewalls Amazon can’t cross. There’s a lot going on there, with recent efforts by the British, French and Germans to seriously fight Amazon’s encroachment. That doesn’t mean those markets are unfriendly to American writers — just to Amazon. So small presses and indie authors may get opportunities to put their ebooks into English-speaking foreign bookstores. Here at home, however, I don’t see any easy way to bypass Amazon. Although I can fantasize about indie authors and small presses forming co-opts to create direct-to-reader online bookstores focused on highly targeted genre niches and shared reader communities.
That would take leadership on a level with the battle to rule Westeros on Game of Thrones, lol, and raise the specter of gatekeepers curating content.
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So you are saying “meet the new boss, same as the old boss.” Fine. You could be right. Probably not, no one can predict this sort of thing with any real accuracy.
What I do know is that you greatly overestimate the value of the service a publisher provides. They were only able to charge what they did and lock authors into contracts because they were the only game in town, not because they added much value. Indies are doing just as good a job at a fraction of the price and keeping their control. And many many people who would never have had a chance are now having a chance.
This is not because of Amazon. This is because of the internet. I remain optimistic. Worse case is that writers go back to getting shafted by yet another seller/publisher monopoly.
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Jo, I might not have been as clear as I thought I was that I believe that today’s big 5 publishers are giving very poor value to authors. Certainly it seems that a lot more authors are reporting that they’re having very bad experiences than those that are reporting good ones, and some of the most successful authors are voting with their feet. It also seems like the contracts that publishers expect authors to sign are getting worse rather than better, and that the publishers are not bending on royalties. So no argument on the value proposition as it stands today.
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What I don’t understand, though, about the current debate is that people don’t seem to have much of an appetite for trying to fix the publishing model instead of abandoning it entirely. The argument seems to assume that a new breed of publishers would automatically be exactly like the old breed. But would that necessarily be so? Let’s assume you could find a publisher that operated as follows:
– once they agreed to take you on, you could meet with several editors, and you would mutually agree on who would work with who.
– let’s assume editorial turnover was low, and you could have a multi-year, multi-book relationship with your author
– let’s also assume that the publisher had high quality staff at all levels, so that instead of having to get recommendations on proof readers, editors, cover designers, promotional campaign advisers, social media people, book tour arrangers (or doing a lot of this yourself), you could rely on the reputation of the publisher to know that you’d get good people in all of these categories working for you, and that someone would orchestrate the whole process
– let’s also assume a fair contract, that allowed the author to part ways taking their copyrights with them, didn’t have exclusivity, and so on
– let’s also assume the publisher had a great reputation, which added cachet to your books
– finally, let’s assume a fair split on profits.
Personally, I’d take that deal over having to contract for each piece separately and spend as much or more time on promotion as I did on writing. Of course, others would prefer to do things entirely on their own, and that’s all good, too.
There was a time, not all that long ago when publishers and authors had a pretty good relationship. A lot of people have been saying that a new breed of entrepreneur will rise up to provide competition to Amazon. I hope that’s true, and I also hope that some of them will be providing the type of one-stop publishing services to authors that authors would actually welcome. And they’d have to, because now sefl-publishing offers authors an alternative, so the publishers would have to provide superior value, or they wouldn’t succeed.
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You know, the whole point of the blog post I linked above is that we really do need to fix the publishing industry…or force it to fix itself. Because the traditional publishers have had had all this time to watch e-books go from the demesne of early adopters to a serious threat to the possible ruination of their entire business model and yet didn’t change that model one whit. They saw that freight train coming all the way from when it was just a tiny little glimmer of light and puff of smoke in the distance, but didn’t step off the tracks. Because there’s a huge amount of inertia, and change is hard.
By this point, I’m starting to think it’s probably going to take some or all of them getting forced out of business, or more likely divested from their megaconglomerates as no longer a good investment, pour encourager les autres, to get them to wake up and start fixing things. If things are even fixable at this point. The bookstores take advantage of the returns system, too, and they’d probably fight just as hard to keep it as the publishers have. Maybe we need Barnes & Noble to go out of business, too, to make room for a replacement built on a different model,
Whatever the case, Amazon and self-publishers are showing that the returns system isn’t strictly necessary for print books to sell, and of course e-books don’t even have them to begin with. So it’s pretty clear writers can get by without it. The problem is figuring out how we get from here to there.
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“Thus it has slowly but steadily undermined not only the publishers’ ability to sell directly to readers at a competitive price,”
When was the last time publishers made a real effort to sell direct to consumers? They took a stab at it with Bookish.com, selling books with little or no discount, and it failed dismally.
Your scenario where Amazon reduces royalties below those offered by traditional publishers — 10 to 15%, gradually escalated according to sales (although most books never sell well enough to earn more than 10%, and publishers have found a way to cut that down with the high-discount sales clause in contracts to screw authors) — is implausible. If Amazon sets royalties so low that practically no one can make any real money writing books, the supply of books dries up and Amazon has no new books to sell.
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Peter,
First, thanks for catching that miss-statement. I shouldn’t have said “direct sell.” What I meant was “through channels other than Amazon.”
On the second point, though, I have to disagree. Authors have shown for a hundred years that they will write books with little or no hope of ever getting published. And they’re continuing to do so in even greater numbers now that they can self-publish, regardless of whether the odds of them selling many books are good or not.
The third point, though, is really interesting, and I’ve been thinking of doing a blog post on it. My thoughts on this run (briefly) as follows:
– There are 100s of millions of books already written. So if a new book was never written again, there would be a near-infinite number of books available to every reader that they’ve never read before. I seriously doubt that people would quit buying and reading books if new ones quit being made available (which – see point one – isn’t likely to happen anyway). And those books would have to come from somewhere – like Amazon.
– So why does Amazon pay more at all? Why did it care whether self-publishing took off? After all, it’s only dabbled in publishing to date.
– Stated another way, if Amazon can sell 10 million books, why should it care whether they’re self-published or trad-published?
– The answer has to be that they expect to make more money if self-publishing flourishes than if it doesn’t.
There are three possible ways they can do that. One is by using self-publishing as a wedge to drive a harder bargain with trad publishers, and certainly the current dispute with Hatchette would seem to lend credibility to that theory. If that’s the case, then the likelihood of Amazon later turning the screws on self published authors as well would increase.
The next possibility is that they’re trying to build volume. But I’m not aware that people are actually buying more books than they were before.
The third is that they’re trying to get customers more committed to buying everything through Amazon, and the introduction of the new Amazon phone would seem to bear that out.
If that’s true, then there could be a motive for Amazon to continue to pay authors well – but only to the extent that a burgeoning number of self-published books would bind more customers more tightly to Amazon than would customers buying trad published books through Amazon.
Would the third possibility be the case? It’s not obvious to me, but perhaps it is. If so, then there could be an incentive to continuing to pay self-pub authors dramatically better than trad-published authors. But, as I say, it’s not obvious to me why self-pub glue would be tighter..
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Thanks for the comment, as well as for the long response at your blog. Here are a few thoughts.
For starters, It might help understanding where I’m coming from to know that I’m sixty years old, and have been a high tech lawyer my whole career. Zeroing in even further, my specialty is standards and “network effects.”
So here’s an example, which is developed in greater detail in the “Why Johnny Can’t Format (a book)” post I linked to above in the blog entry.
The example is Microsoft Word and Microsoft Office, each of which have been dominant globally since Microsoft established monopoly power more than 25 years ago. True, Microsoft is now being challenged in the operating system space – but that took 25 years, a new platform (mobile) and huge and powerful competitors before Microsoft finally started losing ground. And no one has succeded in displacing Office yet, event though the largest high tech companies in the world tried to do that ten years ago and there are multiple *free* alternatives that anyone can download.
What people are missing here is that once a huge company controls the market it becomes enormously difficult to displace them. And someone has to be determined to do it and think that they have a shot at succeeding – which is always very, very difficult once a monopoly is in place.
Which takes me to the next point. Once there is a monopoly, the market re-aligns to take advantage of it. Microsoft has thousands of business partners, who benefit from the status quo. So instead of gathering more enemies, you start gaining allies.
And here’s the third point: Books aren’t actually that big a market. If you’ve got only $5 billion a year to try for a piece of, only little companies will try for it. The odds are too long, and the rewards for success too small for any of compaanies that are big enough to actually damage Amazon to take a run at them.
Could the little guys succeed someday? Thankfully, yes. Even powerful monopolies don’t last forever, and hopefully that will happen here. But authors had better not be complacent and just assume that some entrepreneur is going to ride over the horizon and pull their chestnuts out of the fire. And I don’t particularly want to wait twenty years for it to happen, either.
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For those of you that aren’t regular readers of The Passive Voice (you should be!) there’s a lively discussion over there relating to my entry above, which was included in the daily Passive Voice email aggregation of news. Someone asked me there what suggestions I might have to address the concerns I have regarding an Amazon Monopoly, and I thought it would be worth copying my response in here. So here goes:
Suzan,
Thanks for the invitation, and you’re right, it’s easy to fall into the trap of defending rather than taking concepts forward – even though that’s a lot more fun.
What do I think can be done? I need to start by stepping back a few steps to explain how I see the dynamics that are at work here.
The first observation I would make is that market disruption occurs either when something fundamentally changes, allowing new business models to become feasible, or when the incumbents become too fat and lazy, allowing new, more nimble competitors to have an edge to compete. Clearly, we’re speaking about both here, and that’s powerful.
One possible result of the first factor is “disintermediation,” meaning that (for example), the middle man can be cut out of the equation, and that’s exactly what the Internet has done. Sears and Montgomery Ward did the same thing more than a century before that Amazon has done now, with Amazon using the Internet instead of the post office. It’s been able to take advantage of the second approach as well, because of consolidation in publishing leading to all the shortcomings that have been so well described already by others.
There are two differences in what’s going on here as compared to previous situations, however, that most commentators have missed, and we can’t progress to solutions – or why solutions may be so hard to come by – until we understand them.
The first is that books represent an unusual opportunity for Amazon (unlike diapers), because traditionally books have been sold by stores that sell nothing but books. Amazon will never be able to gain a monopoly on diapers, not only because so many outlets sell them, but because those outlets can play the same game that Amazon can – discount diapers this week, and toothpaste the next, and dog food the week after that. But bookstores? The only things they can discount are other books, so Amazon always has the upper hand.
Amazon has been doing this for years, selling books below cost, even though perhaps it may never have done that with diapers. Why? Because it has a realistic chance to gain a monopoly in books that it can exercise for years to come, and it can never get a monopoly in diapers.
The second crucial and under-appreciated difference to understand is the difference in position between who sells what, and why. Let’s review the major players:
– Amazon sells everything. The only question is which thing it can sell at higher margins than others. If it can secure a monopoly in a product area, it will reap the highest margins in that area, and it therefore has a big incentive to achieve that monopoly. This is why, when the iPad began to take off, Amazon began offering a Kindle app for the iPad – better to sell books to Apple users than not, even though it’s initial strategy was to lock customers exclusively on to the Kindle.
– Apple sells high-margin, high cost, hardware. Everything else can be – and often is – a loss leader to sell more hardware. This is one reason that Apple hasn’t bothered to make it easy for authors to self-publish directly at iTunes. It’s also why Apple allowed the Kindle app on the iTunes store – because they want to sell iPads a lot more than they want to sell books (remember? they sell books only to sell more iPads, so why wouldn’t they let their customers read Kindle books on iPads?)
– Google sells ads. The only reason they developed the Chrome browser and the Android operating system – both of which they give away – is so that they could be sure that their ads will continue to display well on laptops and mobile devices. It’s also why they’ve spent very little effort on GooglePlay – it’s been a tepid effort, and I won’t be surprised if they abandon it entirely one of these days, like the Google Reader, Google Phone, and so on.
– Sony has been in deep trouble for years in almost every product area – music, devices, its reader, you name it. They clearly were not going to be a success, and more importantly, the game changed. Originally, people wanted to lock customers into their device. The iPad changed that (see above), so Sony cut its losses and hunkered down on its key business units, abandoning their reader entirely.
The purpose for this litany is to offer some ideas why some of the companies you mention did not do better. And also to highlight the central fact that Amazon has much more reason to care about books than anyone else.
Let me repeat that: Amazon has much more reason than any of the big players to care about books. Therefore, if it does a good job at watching out for itself, it will beat all of the other big players, because it has far more incentive to win.
That at last brings me back to your question. Or, as Lenin put it, What is to be done?
As I wrote in my original entry, I think that the answer is not likely to come from the big five, unless their owners begin spinning them off with enough capital for them to begin getting serious about becoming true partners to authors again. And that’s not likely to happen for at least a few years.
That then leaves the smaller players, existing or yet to be launched. They fall into two categories: smaller publishers, and other service providers. I do have thoughts about the latter, but that’s such a complicated discussion I need to save it for a full blog entry.
The second is small publishers, and that’s where I think the real answers may lie. Briefly stated, publishers can provide huge value to authors, and I think that the great majority of authors would gladly share more profits with a publisher that was a partner the way publishers used to be than they would with Amazon in order to not be bothered with all of the essential services that publishers provide. So I think that well motivated, well intentioned small publishers – and as many more as possible – will have little trouble getting authors to work with them if they get real value in return. After all, most self-published authors don’t get their up front investment back anyway, so why suffer more in the process?
The problem for the indie publishers (as compared to the legion of people that just want to be paid by authors, and have no skin in the game themselves) is how to be more successful with promotion for their benefit as well as their authors – and that’s the hard part.
One reason is that Amazon doesn’t care whether it has blockbusters or simply the long tail, so long as the number of units moved and dollars received are the same. For a publisher, though, having only a piece of the long tail would be a financial disaster.
It’s at this point that my crystal ball starts to go dark. My gut tells me that ultimately, salvation probably needs to come from the reader. Authors need readers to have more skin in the game, too, realizing that ultimately the quality of what you read is a direct result of what you’re willing to support. I do have thoughts on this as well, but this response is already more than overlong, so I should save that for a blog entry as well.
But here’s a preview: I see a healthy publishing ecosystem as one that has three key elements:
– an author that can spend as much time as possible creating great content
– a publisher that can spend as much time as possible providing editing, production and promotion services as possible
– a reader base that regards itself as an essential part of the team, helping to promote the work of the author.
I’ll provide some thoughts sometime soon at my blog about how I think that might come about.
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So, Amazon is a honey trap, luring indie authors then using their corporate muscle to crush other distributors until they own the market. Then Amazon will drop their percentages and steal the author’s royalty until authors no longer make money.
That’s one possible future. But as an indie author dealing with the present in which Amazon already has an effective monopoly on e-books, through AZ I have a chance to distribute my work, have it read, and make some money. Without AZ . . . I have no chance of ever achieving either of those objectives. Amazon incents me to price my product through them exclusively by offering a 70% royalty. If they drop the 70% royalty as you predict, then my incentive to distribute solely through their channel will be reduced. I think you are forgetting that the consumer chooses to read what they want to read. Their book purchasing decision is driven in part by price (I’ll take a chance on a new author at 99 cents), but more by author name recognition, and that’s channel independent.
I don’t expect the Amazon model will stay as it is indefinitely, but from my perspective, their monopoly is at a channel level. The big five’s monopoly is at the content level. I’ll take my chances, because without Amazon, I don’t have any other way to reach the market and have my work judged by strangers—oh, wait doesn’t that mean Amazon are breaking a monopoly?
There may not be another behemoth that can challenge them head-to-head in the Internet of everything, but in the book publishing niche, I think there is room for many alternatives. And if Amazon hadn’t created this standoff with trad publishing, that opportunity would never have arisen.
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Pete, thanks for the thoughts. I agree that life is good right now for authors as a result of Amazon, which is a great thing that’s had wonderful positive effects for authors. But consider this – by definition, the “better it gets for authors” because of the Amazon effect:
– the worse it gets for book stores. Once most of them are gone, that leaves only Wal-Mart (which will stock a very narrow range of titles) and on-line retailers to sell books for authors, few, if any, o of which will be able to match Amazon’s prices.
– the tougher it gets for Indie publishers, because Amazon can always undercut them on price (it has a history of selling eBooks at a loss), and overwhelm them with the collateral benefits it can provide, such as one stop shopping, the Prime program, etc.
I obviously can’t know for sure that what I’m predicting will occur. I think I can make a case that it’s a possibility that it’s worth thinking about. And I doubt you’d find any Indie publishers that would disagree with my reading of the tea leaves (see Deb Smith’s comments above, for example).
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Did you know there were 20% more independent bookstores around as of September than there were in 2009?
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True, but keep in mind also that Borders is now gone, and Barnes & Noble has cut back on its stores as well, so that may still represent a net loss in books sold face to face. The important data to follow, I think, is the percentage of books that are bought face to face vs. on line. And, as I’ve pointed out before, which titles are sold face to face. If a lot of the face to face books are being sold through Wal-Mart rather than an Indie store, they’re likely to be in only a few categories.
It’s also worth keeping in mind that we may end up talking about two book markets – books that only come out in eBook form, and multi-format books. Although Indie book stores have dabbled with getting patrons to buy eBooks through them, that strikes me as a tough model to gain real traction with.
We’ve seen huge dynamism over the past ten years in book stores and chains, eReaders rising and (some) failing, and even being threatened as a form factor entirely with the rise of tablets and phones. It will be very interesting to see how book stores fare in the next ten years (and, by the way, I love book stores and would rather browse and buy there rather than on line).
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Chris (Robo) – I agree. I suspect that that the future of how books get packaged, promoted and distributed is going to change a lot over the next ten years. So far there’s been lots of innovation, some successful, and some not (and some of the latter seemed like pretty good ideas – they just didn’t get noticed, in many cases, just like a lot of good books don’t). I think that everyone should pull together – authors, indie publishers, and new model innovators – to try and bring more new ideas and modes of operation successfully into the marketplace.
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