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Apple, Amazon, Antitrust, and You: More Links to Chew On

April 25, 2012

Today’s post is really going to be a whirlwind tour and roundup of links.  I’ll have a few thoughts and commentary on a few of these links but mostly, at this point, I’m in learning mode.  The last few weeks have seen some major upheavals and changes in the publishing industry, and things are changing faster than you can blink: from the Department of Justice filing a lawsuit against 5 major publishers, to 3 of those publishers settling, to the sudden announcement by one imprint of one of the 2 remaining defendants that it will drop DRM… I don’t know everything about what’s going down in this case, I don’t know how this case is going to impact the future of books and ebooks, and I’m not even sure I can articulate what I think a best-case scenario looks like.  So, without further ado… More Links to Chew On, the Apple, Amazon, Antitrust, and You Edition:

  • Acclaimed Sci-Fi author Charlie Stross on “Understanding Amazon’s Strategy” is an excellent piece.  He hits a lot of points that I’ve tried to make here in the past, among them a fairly lucid and clear explanation of the Monopsony Problem.  The Monopsony problem is something that a lot of people don’t really understand – they don’t even know what it is much less how critical it is to understand it if one is to understand Amazon’s role in the current market.  Stross’s conclusion is also an interesting one, and the first time I’ve seen this idea articulated so clearly: the logical, strategic conclusion of the DOJ suit against Apple and various publishers is an end to ebook DRM.
  • Equally articulate and excellent is John Scalzi’s plea to people treating the ongoing battle between Amazon, Apple, Traditional Publishers, and the DOJ like a game of football: “Dear Consumers Who Apparently Think the Current Drama Surrounding eBooks is Like a Football Game“.  To those people he has a very truthful revelation to share: it’s not like a Football Game at all.  More to the point, none of these sides, really is your team and none of them is on your side.  They are all very much on their own sides, and sometimes that means screwing you, the consumer, over quite handily.
  • C. E. Petit of Scrivener’s Error has some really interesting analysis of various matters pending before the court and how they might impact the result of the DOJ lawsuit.  I won’t pretend I understanding everything he discusses there – legal matters can be pretty dense for the non-legal-professional.  I’m not positive I can tell you what I think Petit’s position on these matters is – but in keeping with Scalzi’s exhortation, Petit doesn’t seem to be on either “team”.  One important comment, I think: “Suffice it to say that nothing in this action [i.e. the DOJ suit against Apple et al.]  forecloses any action against [Amazon]…” This seems to suggest, I think, that Petit suspects the possibility that although Apple and the Publishers are currently in the DOJ’s sites, Amazon itself, having a history of abusing its monopoly position, may well find itself in those same sites soon…
  • The SFWA blog has a pretty clean run-down that gets you up-to-date on what’s going on, posted by Victoria Struass.  Her overview is sprinkled heavily with links, some of which may be of interest.
  • E-publishing Consultant, Author and Publisher Mike Shatzkin analyzes the DOJ suit and the impact on the industry in “After the DOJ Action, Where Do We Stand?”  In his analysis, he makes an interesting observation about how the impact of this litigation hurts digitally self-published authors.  His argument is basically this: as the big titles put out by traditionally publishers are aggressively discounted by Amazon after the Agency model goes away – as seems likely to happen if the remaining publishers battling the DOJ lawsuit fail – then the price for ebooks generally will fall.  This decrease in e-book pricing will erode the price advantage enjoyed by digitally self-published authors, who typically price at a discount to what a major publisher prices their ebooks.  This erosion in price advantage will hurt their long-term discoverability: that is, what’s the point in gambling on a no-name author without traditional publisher backing when you can get a polished, traditionally-published ebook without paying a price premium?  It’s an interesting argument, logically speaking.  There are other possible factors that might affect this, of course.  Give his article a read for further context.
  • A fellow named Baldur Bjarnason, who studied eBooks in his PhD, writes about “How to Beat Amazon“.  (Note that this is actually the subtitle to his article, which I use because the main title by itself is too oblique to be immediately useful.)  Baldur does an analysis of Amazon’s strengths and weaknesses, and what he thinks Publishers and others can do to take advantage of Amazon’s weaknesses and what Amazon can do to neutralize those weaknesses.  His conclusion is in many ways similar to Charlie Stross’s: the best competitive approach to Amazon’s current attempt at a Walled Garden is to embrace open standards and to avoid DRM (with a few other useful tactics).  But he swings it both ways: Amazon’s approach at a Walled Garden is rather doomed to failure (in part because they don’t do it nearly as well as Apple), and they can counter this by embracing openness and modularity early, themselves.
  • Mark Coker, CEO of Smashwords (an “Indie” digital self-publishing aggregator) asks “Does Agency Pricing Lead to Higher Book Prices?”  He digs into some data, and finds the answer is “no”: in fact, prices have gone down under the Agency model.  The problem with his data?  It’s pretty much limited to what Smashwords sells, or in other words, prices of small-time digital self-publishers.  That doesn’t tell us much about what happens in the space where most people are actually reading: traditionally-published NYT-Bestselling-grade books.  But Coker’s analysis largely agrees with Mike Shatzkin’s: the end of agency pricing for traditional publishers targeted by the DOJ will hurt “Indie” publishers, for various reasons.  Primarily, Coker’s argument is in favor of agency pricing as a model, and not in relation to whether the publishers targeted by the DOJ were in collusion with Apple.  Notably, however, the DOJ suit does not implicate Agency Pricing per se as illegal.  Rather, it specifically targets the suspicious behavior of the publishers, as each entered these agreements with Apple in a rather lockstep fashion.
  • Coker follows up his blog piece on Smashwords with an opinion piece on CNN, where he mostly repeats many of the points he made in the longer Smashwords blog article.
  • I must admit, I don’t understand the antipathy Passive Guy has for traditional publishers, but he let’s that flag fly in his post critiquing a Seattle Times article: “Speculation Abounds That Amazon Triggered E-Book Lawsuit“.  There, he likens Amazon to the hapless victim of a crime and the DOJ suit to a criminal complaint – a spurious analogy at best (anti-trust actions are, first and foremost, supposed to be about consumer protections – and the consumer is the one who best ought to be likened to the victim).  His followers (in the comments) are even more aggressive in their hatred and antipathy for traditional publishers and their unmitigated support for Amazon.  I’m not sure why Passive Guy is so offended by the idea that the DOJ lawsuit had anything to do with Amazon.   I do want to comment on one quote from the Seattle Times piece that Passive Guy pulls out:

“If Amazon becomes more of a monopolist than it already is, and it tries to raise prices, then other people will enter the field,” he [i.e. Steve Berman, managing partner of Seattle law firm Hagens Berman, lead counsel in the separate antitrust lawsuit on behalf of e-book buyers] said. “There are market checks out there.”

  • Well… Methinks Mr. Berman of law firm Hagens Berman doesn’t know a thing about business, market forces, competition, and barriers to entry, now does he?  Either that… or he’s being intentionally disingenuous about it.  There’s a reason we have Anti-trust and anti-anticompetion laws: because “market checks” alone have historically been insufficient to ensure that a monopolist does not abuse their monopoly position.  That said, Passive Guy’s point – that Hagens Berman only happens to be located in Seattle in the same building as one of Amazon’s large offices is only coincidental – is… well, on the one hand it’s laughable ( coincidence you say? O RLY?)  On the other… given Amazon’s history of anti-competitive behavior, I should think Amazon likely wouldn’t want to draw the attention of the DOJ to itself, even as a complainant in a DOJ case targeting an Amazon competitor.  This gets back to Petit’s musings on possible future DOJ actions…
  • Author Chuck Wendig has some advice for authors worried about all of this in “Prepping for the Publishing Doomsday“.  His advice is… not to worry about it.  Whatever happens is what will happen, and as a writer you can’t do anything about it, really.  (True.)  And he has some assuaging words: “People always want stories.”  Of course, these reassuring words don’t really… um… reassure someone who’s worried about questions of long term discoverability, and how you achieve that in the changing marketplace.  But whatever.  He’s right about one thing: you can’t do much about it, anyway.  So worrying doesn’t really help.
  • GalleyCat disects some of the allegations against Apple and the Publishers in “Publishers Allegedly Deleted Emails ‘To Avoid Leaving a Paper Trail’ in Agency Model Discussions“, and they claim to have direct evidence of the conspiracy to collude.  Have to say: this looks rather damning for the Publishers.  To borrow a quote from the Passive Voice article linked above: “If Big Publishing didn’t want to be sued for price-fixing, the CEO’s of Big Publishing shouldn’t have gotten together over lovely little dinners to engage in price-fixing.”  As I suggested in my post when news of the DOJ action first surfaced: the facts on the case definitely look like collusion occurred – although the same outcome could theoretically be arrived at without collusion, that doesn’t look like what happened here.
  • What Does the DOJ EBook Pricing Lawsuit Mean for Readers Now” has some speculations and predictions about how the industry and market will change as a result of the DOJ lawsuit.
  • In “Why I Break DRM on EBooks: A Publishing Exec Speaks Out” an anonymous executive at a publishing company (which purportedly uses DRM on its books) explains why he has come to routinely break DRM on ebooks he purchases.  This story has echoes with Charlie Stross’s argument in the very first link above.
  • On top of that comes the announcement from Tom Doherty Associates/Tor/Forge that it will, in fact, be the first of the major publishing imprints (Tom Doherty/Tor Books is an imprint of one of the defenders of the DOJ lawsuit, Macmillan, which has not yet settled the dispute).  At this point, Charlie Stross is starting to look eerily prescient.
  • Then turning back to John Scalzi, he shares some of his thoughts on the news of Tor/Forge dropping DRM.
  • And finally, back once again to Charlie Stross, he reveals his own role in the announcement from Tor/Forge. (He was called in to to offer his argument on why publishers should drop DRM, which hints that the publisher in question was already mulling this decision over, and was exploring the limits of its reasoning.)

I’m still processing all of this.  As I’ve pointed out before, I’m not immediately impacted by any of this.  I don’t own an EReader, so I’m not directly impacted as a consumer.  I don’t have a book in the marketplace, so I’m not affected as a writer.  And I don’t even have a finished manuscript that I’m trying to position for publication (neither self- nor traditionally-), so it doesn’t impact me in that way, either.  At least, not for me in the present.  But all of this radically alters the future landscape of publishing.  I’ve also said before, and this bears repeating, that whatever the world of publishing is going to look like in the future, we’re not in the end-game yet.  The changes are going to keep coming.

19 Comments leave one →
  1. April 25, 2012 12:52 pm

    I do not own an e-reader, but if DRM disappears, it makes it more likely that I will buy one. The idea of only being able to read a book on a single device / format worried me, and I’ve been concerned that I might not be able to read my e-books more than a year from now (I like to go back and read parts of books I have enjoyed), when formats and devices or the competitive landscape changes. And if I have one device, and most of what I want to read is only available on another (this is a bigger issue in Canada, where only the Kobo is readily available) then I might have made the wrong decision in reader… A lack of DRM would take care of that issue.

    I’m also watching what happens with interest.

    • April 25, 2012 5:29 pm

      I might still recommend an e-reader for small press books where DRM is not present. I’ve greatly enjoyed my Kindle and it has given me the means to support many author friends by purchasing their work at a price I can afford. Especially knowing that they generally get paid the same for a $2.99 ebook as they do for a $15.00 paperback. I get to enjoy their work and read more of it, which also gives me another avenue to build them up by reviewing more of their stories on sites like Amazon and Goodreads. Not to mention that the convenience is truly magnificent sometimes, though I am still very fond of actual bound pages. (Note: I chose Kindle because it was the best reviewed e-reader that supported the greatest variety of file types)

      • April 26, 2012 9:16 am

        I don’t discount the possibility that an e-reader device might be in my future, eventually. The main benefit, for me, would be in having a digital library where I can keep all the books I want. Physical space for physical book storage is an issue in the Casa Chez Watkins. But, at least for now, I don’t have a lot of interest in wading through the sea of Self-published material. Overall, I’m a relatively slow reader. During the prior three years, in which most of my non-work, non-sleep time was spent on my Master’s degree, I read on average about a book-and-a-half a year. So far this year, post-graduation, I’ve read about 2 books and expect I’ll read 2-3 more before the year’s over. At that rate… I’m just barely treading water (best case) in keeping up with the books I want to read coming through the traditionally published pipe. (Over those three years of Grad School I added something like 20 books to my To-Read pile. Most of those were the first in a series. Most have added several books in their respective series since then. So really, at 4-5 books a year I’m still losing ground on my To-Read list.) Basically… when there’s more traditionally published stuff that I want to read than I actually have time to read… there’s not much incentive to cast my eyes further afield for more. I’m hoping in the years to come that I am able to increase my book-reading speed substantially. And still, also like you, I’m quite fond of actual books. Especially lovely, lovely hardbacks. I’ll likely still get some books in hardback even if I get an e-reader, though I’ll probably be very selective about which books I’ll get in hardback.

      • April 27, 2012 1:58 am

        Sounds like a plan. The space issue is actually the reason I purchased my Kindle. I also discovered that while there were many books that I wanted to read, there were few of those that were actually good enough that I wanted to own them for reference or rereading. The decrease in expense was an added bonus. As far as books, the ones I was speaking of are traditionally published, but are from small press. Seven Star Press is one such publisher. I am currently following The Fires of Eden series by Stephen Zimmer and also reading the sequel to Jackie Gamber’s book Redheart, Sela. Both are excellent in their own right. In fact, I was able to get Sela free in Kindle format on a special offer which was incredible considering my often very limited budget. I love Jackie’s writing and her stories have been incredibly engaging.

      • April 27, 2012 9:06 am

        Ah, of course, Small Press titles. I don’t have my ear to the rails on Small Press as much as probably I should. I have actually wondered, though, if Small Press as a group isn’t best positioned – better even than either self-publishers or Big-6 publishers – to take advantage of the changing trends in the publishing industry, since they have the benefits of small size (making them more nimble and better able to react to market changes) and established infrastructure and access to resources the individual self-publishers lack.

      • April 27, 2012 2:29 pm

        My connection to conventions has yielded a fairly strong connection to several small press publishers in the realm of spec-fic. I think that in many ways they are better positioned, in large part due to openness to new trends. Slowly people are beginning to see that small press does not mean a compromise in quality. One recent example is the book Terminal Mind which won a Philip K. Dick award. I believe it was the first small press book to do so. It was first published with Meadowhawk Press. They are definitely worth learning more about. And as an added bonus, many of them are filled with really incredible people!

      • May 2, 2012 9:40 am

        I’ve heard several times that conventions are pretty much the best place to develop contacts in the industry – and they seem to be a great way to work your way into getting published (at least if you’re sufficiently gregarious to make a good impression).

    • April 26, 2012 8:44 am

      That’s a very good point about the deleterious effect DRM has had on the international ebook market. I agree that the end of DRM will increase the likelihood over time that I’ll get an e-reader (though the dominant contributing factor is still price). On the other hand, Charlie Stross’ follow-up comments, which includes his prediction of the eventual total obsolescence of e-readers in the next 5 years – gives me pause on that front. The saving grace, I think, for e-readers is that they will become substantially more affordable as they progress toward obsolescence, whereas I haven’t seen a lot of price movement on solid quality multi-purpose tablet devices toward the affordability range yet. It’s relatively easy to justify a US$50-75 purchase for a good quality e-reader. It’s harder to justify US$300-600 for a good quality tablet.

  2. April 25, 2012 5:22 pm

    Thank you for sharing some of the fruits of your labor. I’m looking forward to browsing these links when I get a little more time. We are definitely in a fairly chaotic time as all of this works itself out. Always changing…

    • April 26, 2012 9:03 am

      You’re welcome, of course. And things are bound to change further, which will likely precipitate further entries of this sort in the future. As things go along, I’m leaning more toward just posting lists of links with very limited thoughts on them rather than full posts where I spout out my opinions. The context of the changing landscape is much more useful.

  3. April 25, 2012 9:09 pm

    It is weird that a guy named Passive Guy should get so worked up. Maybe that’s the idea. I always wonder, with the bloggers who are so vitriolic about Big Publishing, whether they’re taking out their anger over past slights (manuscripts ignored or rejected, phone calls not returned) or whether this just gets them annoyed for some reason. Seems weird to get so emotional about it.

    (As they say in all the Mafia movies, it’s just business, it’s not personal. :-) )

    Of course, the flip side of the argument that Big Pub titles will get heavily discounted, removing a great price advantage that Indie publishers have now, is that Big Pub will be making a lot less money. Some of that reduction will get passed on to authors, but I would assume not all. So, reductions in editorial staff (and not necessarily starting with the lowest-paid and least-experienced), reductions in cash for promotion, etc. Which might tend to level the playing field as far as those advantages go.

    Similar to Kirk, I own a Kindle but I buy almost no current books. I use it for 1) editing my own stuff, 2) buying my friends’ books, and 3) out-of-copyright freebies.

    Oh, and Berman’s point is ludicrous (jeepers, if you’re not aware that there was a 20th century, there are books about it :-) ), but either he’s arguing a point to benefit his client (which is his job, after all), or he thinks that the Free Market (if left alone) will solve all these problems for itself. A lot of people do think that, though usually they realize they have to make more of an argument for it.

    The only post I read was Bjarnason’s, which was interesting (though I confess I didn’t finish it — it should say at the beginning that you should pack a sandwich :-) ). He makes the point I’ve made before, which is that sacrificing profit to gain market share will only take you so far. It’s worth remembering that seeing market share as the top priority nearly sank Apple, and (contrary to all the blather about his genius and so on) the most important thing Steve Jobs did when they brought him back was forget about market share and concentrate on making profits. Which they did, which is why they lasted long enough to get to invent the iPod, iPhone and iPad.

    Bjarnason’s point about moats and the analogy to comic book stores is very apt, too. I’ve been buying comic books since 1965, and I’ve watched the entire process he describes. Remember, novels used to be mass entertainment, in a way they they aren’t now (with a few exceptions), and they could easily go the way of comic books (and theater, for that matter).

    • April 26, 2012 10:32 am

      Well, for Passive Guy, as I understand it he’s a former IP/Entertainment (or similar field) attorney, so he worked extensively on that side of things in the business. I’m not sure how that would affect is outlook on things, but I’m sure that it does have a very strong effect on his point-of-view. Sometimes Passive Guy seems pretty reasonable and even sharp-witted. Sometimes he seems like a bloviating blow-hard with a bone to pick. From my side of the fence, it looks like it could be as much dependent on the position of the stars or the phase of the moon as on anything substantive.

      A small correction to your point on discounting at Big Pub titles: as Agency pricing gets stripped away, publishers will likely be returning to the old “wholesale” model for ebooks. In the Agency model, Publishers set the List Price, and retailers took a commission % off of each sale (say, 30%). But the publisher retains final pricing authority. So if a title was priced at $15.99, then the publisher got $11.19 and the retailer took $4.80 in revenue. This is, basically, like a consignment sale. But in Wholesale, the publisher sells the title at a certain Wholesale discount to the retailer, after which the product is now owned by the retailer, and they are free to do with it what they will. In this case, if the Publisher sets the list price at $15.99 and sells at a 30% wholesale discount, they’d still get $11.19 in revenue from the retailer. The publisher makes the same amount. But now the retailer (i.e. Amazon) is free to set a final customer sales price of whatever it wants, irrespective of the Publisher’s List Price. So they can sell it for $9.99: a $1.20 loss per sale.

      This is what was happening before the major publishers moved toward Agency pricing. And Amazon was using its rather deep cash pockets to deeply discount ebook titles. Why this was an issue was that the more Amazon did this, the more they strengthened their growing monopsony position in the nascent ebook market. Agency pricing was seen as a way to counteract Amazon’s monopsony position (which inevitably would have led to Amazon putting price pressure on publishers, forcing them to sell at even deeper discounts and thereby eroding Publisher profits in the long run). (I say inevitably because this is what has always happened when a single retailer gains significant market share and monopsony power in a market… Wal-mart doesn’t generally enjoy nearly the same monopsonistic position in its various sales channels that Amazon had in e-books prior to the institution of Agency pricing [anecdotally around 90% of the ebook market prior to agency versus 60-80% now], and yet it has been able to use it’s very strong position to force considerable price concessions out of its suppliers. There is no doubt Amazon was aiming to do the same, and in fact it has done so in some areas of its business.)

      The point of all that was… as Agency goes away, the immediate profits of Big Publishing aren’t likely to take a hit, so the immediate predictions of the effects of extreme discounting by Amazon on Big Publishing titles aren’t invalidated, and the Publishers will still be able to make a profit on that. The difficulty, from their position, is that the loss of Agency pricing will lead to long-term profit errosion. (Which is what gave rise to Stross’s prediction of the end of DRM as a potential competitive move to combat that profit-eroding situation.)

      I’ll add to all of this my own opinion on Agency versus Wholesale pricing of ebooks: Wholesaling ebooks doesn’t make any sense. Wholesale, as a concept, is founded on the idea of selling a product in bulk into a distribution/retail channel. Retailers/distributors have to take physical possession of a large quantity of physical goods. Ostensibly, those Retailers/Distributors have facilities and infrastructure to better connect single units of quantity with individual consumers. But with ebooks, there is never a true physical transferal of a product. Copies of the product are created ad hoc, on demand, as individual orders come in. The infrastructure needed for completing this transaction is comparatively negligible. Without the physical transferral of a bulk quantity of goods for disaggregation and dissemination… Wholesale just doesn’t make sense. Agency pricing, IMO, was a more appropriate pricing model for the physical realities of ebook sales.

      As for Berman… I could further add: “Yeah, there are market checks out there. Just like there were market checks in the Subprime and Mortage industry back in 2006-2008. Oh Wait.”

      Finally… I think your last observations are pretty useful. I could add that another similar example that hits close to publishing home might be the Tabletop RPG games industry – which has relied on a similar distribution channel to that of Comicbooks (most places that I’ve found to buy a good variety of RPG titles have also been comics shops). All of these are very niche products – RPGs moreso even than books or comics.

      • April 27, 2012 7:22 am

        Thanks for the clarificaction on the alernative to agency pricing. My official position is that my brain hadn’t absorbed it until now because (as you point out) it doesn’t make any sense in an industry with no tangible products.

      • April 27, 2012 9:06 am

        You’re welcome, of course. :) (I was afraid that I was over-explaining, so I’m glad it was a useful clarification.) And that’s a fine position to take, I think. When something doesn’t make sense… how do you make sense of it?

  4. May 1, 2012 11:16 am

    Great job of summarizing things.
    I do own a Kindle, but I prefer buying from Smashwords (and selling, LOL! But that’s because I just saw my first money, and it’s from them, not Amazon…).
    And I make sure never to put DRM when I upload on KDP. As I normally buy from Smashwords (DRM free), I’m not sure what would happen with a DRM-protected file (maybe I got some from Kindle, but I didn’t notice)…
    As long as writers don’t rush to KDP Select program (and I’ve heard of not-so-happy authors who were very happy to have their stuff up again at other places), I doubt Amazon can get that monopoly everybody seems to fear so much…

    • May 2, 2012 11:05 am

      Thanks! Yeah, my limited exerpience so far suggests that most authors prefer not to publish with DRM – and those who are indie/digital self-publishers who have the choice not to usually don’t. I imagine that’s because writers are usually also readers, and as readers they’re as annoyed by DRM as most other readers (of ebooks) are. As for Amazon and KDP… I don’t know much at all about KDP Select, so I don’t feel qualified to comment on that.

Trackbacks

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