Thursday, May 17, 2012

Exploited Writers in an Unfair Industry

exploitation: The act of using another person's labor without offering them an adequate compensation.

Are writers being exploited? I'm talking about writers working for what I call Big Publishing (Hachette, Macmillan, Penguin, HarperCollins, Random House, Simon & Schuster, Harlequin, Hyperion/Disney, Scholastic, Tyndale, John Wiley & Sons, Thomas Nelson, and others.)

Here are my thoughts.

Back in the pre-ebook days, paper was the dominant way to deliver media. This is worth repeating, because it is very, very important. Paper was the delivery system.

Years ago I explained this delivery system in great detail. In short, the book exists in the mind of the reader. It doesn't matter if it gets there via paper, or e-ink, or audiobook, or a pill that will someday burn the story into your memory. The method of getting the story to the reader is nothing but delivery.

Without anything to deliver, the deliveryman goes broke. We need writers, because they create the book. We need readers, because they consume the book. The deliverymen are middlemen.

The middlemen, pre-ebook, were publishers. If you were a writer who wanted to reach readers, you needed a publisher, because you couldn't get into a bookstore on your own.

I believe wanting to write is a natural extension of wanting to communicate, which is something all people do. It's an art, a talent, and a learned skill. There are an abundance of people who want to write books. This results in more books being written than books being published.

Since the publishers decided and controlled what would be published and what wouldn't, and since there were many writers who desperately wanted to be published, this put publishers in a unique position. It gave them an unprecedented amount of unchecked power.

Unchecked power never turns out well. With no competition comes no evolution. Then, when a true competitor emerges, it kicks the status quo's ass.

Take railroads. They replaced the horse and wagon as a cheap, fast way to ship goods and people. They rose to dominance, and that dominance went unchecked for decades.

Then trucks and cars came along. Railroads lost vast amounts of business to trucks and cars, and still do.

That's because railroads forgot what business they were in. They thought they were in the railroad biz. Instead, they were transportation business. When a cheaper, faster way to transport goods and people came along, railroads lost market share.

I bring up railroads for another reason. Anyone who knows a bit about American history, or who has seen Blazing Saddles by Mel Brooks, knows that early railroad workers tended to be exploited. Work was back-breaking and sometimes dangerous, and the pay was meager--so meager that minorities were hired because they were the only ones who would work so cheaply.

Getting back to publishers, they erroneously believe they're just an extension of the printing business. Their goal is to sell paper. The reason the DOJ brought a collusion suit against 5 of the Big 6 was because the 6 were frightened that they'd lose their quasi-monopoly on selling paper, so they artificially kept the prices of ebooks high to retard ebook market growth and protect paper sales.

Why do I say "artificially"?

Paper books have a built-in cost structure. They cost money to print and to ship, and the distributors and retailers get discounts that are pretty standard. I'd guess this standardization developed after years of data and experience. With each sale they pay for printing, shipping, and corrugation, and the distributor, retailer, and author get a cut. On a $25 hardcover, the author makes about $3.75, and the publisher makes around $4.50 after everyone is paid. (See my math here.)

Then ebooks come around. No printing, shipping, corrugation, or distributor. Do the publishers figure out a way to lower prices and pay authors a better royalty? No. Based on ZERO real world data they begin to sell wholesale ebooks at 40%-60% of the hardcover price. So an ebook on a $25 hardcover cost Amazon around $12.50.

Publishers didn't price ebooks according to data and experience. Nor did they price according to supply and demand--I knew years ago that supply and demand didn't apply.

Instead, publishers priced greedily. Rather than be fair with authors, they took a much bigger slice of the profits. Rather than lower prices, they fought to keep them high so they didn't cannibalize paper sales.

How did publishers universally agree that 25% of net was what authors should receive? Where did they get that number, and how did they all seem to adopt it at once?

Isn't that a bit... odd?

Even worse, why didn't anyone protest this obvious land grab? Where was the AAR? Where was the Authors Guild?

The Chinese protested exploitation by the railroad industry by striking. In Hollywood, writers have the WGA. In 2007-2008, the WGA writers went on strike. In fact, they'd been on strike several times before. The latest was to improve the dismal residuals they got for DVD sales, and compensation for new media.

New media? Digital sales? Does this ring any bells for anyone? Why didn't anyone fight for us when this happened in our industry? Why didn't we fight for ourselves?

I've been thinking long and hard about that. When I look at other industries where workers were exploited, unions formed. Strikes occurred. Movements arose to defend the exploited. But that has never happened for book writers.

I believe I understand the reason why. The answer is all around us. It is evidenced in agents who belittle and condemn writers, and show support for the Big 5 in the DOJ's entirely justifiable lawsuit. It is evidenced by the publishers themselves, who have schemed to keep ebook prices high (and I'd bet they also schemed to keep royalties low). And it is evidenced by writers, who defend publishers and agents and continue to accept the meager crumbs thrown at them, even though they are the only essential component in this trinity.

Publishers are middlemen. They curated work from the suppliers (authors) and funneled it to the retailers (bookselling outlets). For decades, they controlled what was published and widely disseminated to the readers. It became such big business that they couldn't possibly handle it all alone, so more middlemen arrived. Distributors, which housed paper books and handled orders, and agents, who simplified curation by (supposedly) weeding out the crap before the publishers got it.

Writers, like many types of artists, are driven to create. Go to any party and mention you're a writer, and no doubt you'll get the response, "I want to write a book someday" or "I'm writing a book now."

Because books are made of words, and everyone uses words, a disproportionate number of people want to write. And because writing is more subjective than painting or music, it is much easier to deceive oneself that one is a good writer. Because of this, there are a LOT of writers and wannabe writers. Though success depends on an individual's goals, in my generation the only way to become a successful writer was to sell a book to a publisher.

This is a system ripe for exploitation. A lot of hungry, eager artists, and a limited number of slots for big publishing to fill.

Because of this, publishers had all the power. And bargaining from a position of power usually works out well for the powerful, and not so well for the opposing party.

Decades of this unfair advantage lead to our current Publishing Culture. Here are the rules:

1. As long as publishers control distribution, publishers have a lot of power.
2. As long as there are more writers than slots in publishers' lists, writers have limited power.
3. As long as writers consider writing to be a dream rather than a job, writers have limited power.
4. As long as agents have more requests for representation than they can handle, agents have a lot of power.
5. The powerful naturally develop a sense of entitlement.
6. The weak naturally develop Boxer Syndrome.

What is Boxer Syndrome?

Consider Animal Farm by George Orwell. In it was a horse named Boxer. Boxer worked his butt off to appease the pigs in power. The pigs got rich off of Boxer's efforts, but never amply rewarded him. Boxer continued to support his own exploitation, steadfastly believing in the pigs, even after the pigs ultimately sold him for slaughter and bought whiskey with the profit.

That, in a nutshell, is the mindset the majority of newbie writers, and a great deal of professional writers, have adopted. We're Boxers.

In the meantime, the publishers (pigs) have developed a sense of entitlement. They see books, and authors, as fungible. If a book or author doesn't succeed, drop it and try another one.

When ebooks arrived on the scene, and key costs could be removed from distribution (delivery, printing, corrugation, distribution) did the publishers accept their previous profit margins and give the authors more of the pie?

No. The publishers made a land grab and kept the money they would have otherwise paid out, taking 52.5% of net and leaving authors 17.5%.

On a $25 hardcover, the author made $3.75 and the publisher made $4.50.

On a $25 ebook, the author made $3.12, and the publisher made $9.37.*

The authors' share went down. The publishers' share doubled. And authors didn't complain. Agents didn't complain. No one complained.

Then Amazon created the Kindle.

After decades of no competition, publishers are now faced with a tiger of a competitor. One that doesn't ascribe to Publishing Culture. One that's smart and fast and has deep pockets and keenly understands all the things publishers are doing wrong.

Publishers can't compete with Amazon. They can't even come close.

Amazon understands that its customers--readers--want low prices and great service. Publishers don't even know who their customers really are--they always thought that retailers were their customers.

Amazon understands that it is a middleman, and that ebooks can connect writers and readers faster and cheaper than paper can, without the need for shipping or a distributor.

Amazon understands that everyone wants to write a book, and decided to give all writers a chance to reach Amazon's customer base. It did so without exploiting writers. Instead, it treats writers like customers it wants to keep.

So the first blow by Amazon was inventing the Kindle. Publishers were oblivious to this. They couldn't see the future, because they were too busy dominating the present. No publisher thought to create an ereader, or and ebook store.

The second blow by Amazon was allowing authors to self-publish. Publishers didn't care. These were books they didn't want anyway, and publishers were so smug they didn't think anyone else would want the books they rejected.

The third blow by Amazon was listening to customers, who wanted lower prices. Publishers never listened to readers. Has a publisher ever done a focus group? Has it ever tried to unilaterally lower prices rather than raise them? Instead, publishers tell readers what to read, and charge whatever they see fit.

If a retailer like Amazon wanted to sell books below cost, no problem. In fact, this was a good thing for publishers.

Let's say I sell widgets. I sell them wholesale, to retailers, for $5. Retailers are welcome to sell them for whatever price they want to. If they sell them for $10, they can. But I'll sell my widgets to as many retailers as possible because I want them to compete. Some of those retailers will sell them for $9, or $7, which is good because I make the same wholesale price no matter how much they sell them for, and the lower price means more buyers.

Now say a retailer decides to sell my widgets for $3. In other words, they take a $2 loss each one sold.

Why would I be upset over that? I'd be thrilled! Many more people would buy my widgets because of the low price, and I'd be making a lot more money.

That's why publishers didn't complain when big box stores began discounting. Did you hear one peep out of the Big 6 when hardcovers were being discounted? Nope. Mom and pop bookstores were buying their books at Sam's Club and Costco because it was cheaper than they could get through their distributors. Publishers didn't care. They were making money.

But the Big 6 didn't want any retailers setting the price on ebooks. Because as bloated, lazy, ignorant, and ineffective as they are, publishers saw how quickly readers were flocking to Amazon and the Kindle, and they finally recognized the threat. Publishers had a lock on paper distribution. Ebooks didn't require that.
If ebooks became the dominant media, publishers would no longer have any power.

Publishers assumed that Amazon would sell ebooks above wholesale prices, because that's how Amazon (and all retailers) make a profit. This high price would not only protect paper sales, it would also boost profits (since publishers were taking a much bigger chunk of the net.) Readers? They'll be trained to accept higher prices without the publishers justifying those prices (no tangible product, no supply and demand). Writers? They'll continue to take the crumbs publishers offered them, like always.

Amazon, however, had a different agenda. They lowered the prices on bestselling ebooks below wholesale.

This worried publishers. For the first time, they could see the future. Low ebook prices will cannibalize paper sales, and publishers don't have a monopoly on ebooks. Even the higher profit margin on ebooks (that they gave themselves, uncontested by agents and writers) won't be able to sustain their infrastructure if customers come to expect cheap ebooks.

So what could publishers do? They didn't have an ereader or an ebookstore of their own.

But one of Amazon's competitors did. Apple. And Apple had the perfect solution to the publishers' problem. The Agency model.

Apple likes Agency because they make a fortune selling devices (iPads, iPhones, iPods). They feel 30% of whatever price the supplier wants to set is fine. It's a smart way to encourage developers. The more developers, the more people will want the devices, the more everyone makes.

Amazon's business model isn't geared to Agency pricing. They are a retailer who sells a lot of tangible goods alongside the intangibles (downloads.)

I would guess Amazon doesn't make a big profit on Kindle Ereaders (I've heard rumors they might even lose money on them). A Kindle serves a different purpose for them--it's a storefront in the customer's lap. So Amazon can lose money on the Kindle Reader, then make money on everything else. For example, I just used my Kindle Fire to buy a magnetic knife holder from Amazon. It was easier than going to the store.

The Big 6 fear (rightfully) that Amazon is using ebooks to sell Kindles and Prime memberships. This is scary because people are becoming conditioned to buy directly from Amazon using their devices.

That doesn't give the Big 6 a reason to collude. It gives them a reason to compete. But they can't compete, because they treat authors poorly, treat readers poorly, don't innovate, and are only familiar with an archaic business model.

The AG and AAR, worried they won't have publishers to pay them, are supporting the Big 6 because they don't want to innovate either.

But, as I've said in the past, ereaders won't put publishers out of business. Neither will low-priced ebooks.

The thing that will ultimately destroy publishers is the fourth blow by Amazon. One that publishers, in their hubris, haven't comprehended yet.

Authors are going to destroy publishing.

Amazon is now courting professional authors. They're paying higher royalties than publishers. This is not going unnoticed. More and more authors are going to be published by Amazon, or by Amazon's ebook competitors.

In order to survive, publishers will have to abandon the shrinking paper market, pay authors higher royalties, and drop their ebook prices.

To do this, they'll need to restructure and radically alter their business strategies. But they won't be able to. Because they are bloated and ignorant and inefficient and arrogant. They dominated for too long, and came to think of their lock on distribution as a God-given right. The AAR, the Authors Guild, and many writers have a sense of entitlement they won't be able to shake off. The system worked for them. So of course it will keep working for them.

But fighting to keep the status quo never works. And I, for one, am happy for the mantle to pass. Publishing Culture is diseased. It's a deep-seated disease, where writers are exploited so badly they expect to be exploited. Writers even look forward to it. They dream of exploitation and defend the ones exploiting them. Agents claim to work for writers, but clamor for publishers' approval, while at the same time running their own fiefdoms. Publishers have such a strong sense of entitlement that they feel perfectly justified in breaking the law to keep things how they are. They abuse their power. Worse, they think their power is deserved, that they alone can deliver rich literary culture to the unwashed masses because their insights are so keen and their judgement so ubiquitous.

All the players in this little drama don't seem to realize how sordid and unhealthy it is for everyone. But no one recognizes it because it has gone on for so long. This culture infantilizes writers, teaching them to be needy, dependent, insecure, and willing to accept a pittance for their hard work. A pat on the head and a membership card to the old boys' club is not the same as a living wage, but we've been conditioned by those in power to believe that it is.

We've been so browbeaten that we get pissed on and told it's just rain and we eagerly believe it.

Amazon (and Kobo, BN, Smashwords, Sony, Apple) have empowered writers. We've never had effective unions, never had strong defenders, but now we do have outlets where we're paid fairly and given the thing all writers want: a chance to reach readers without some NY pinhead gatekeeper getting in our way.

Instead of celebrating this, many writers are defending Publishing Culture. I've called this Stockholm Syndrome in the past, but its something deeper than that. When you are an exploited writer in an unfair industry, and you can't see it, you're beyond simple delusion, ignorance, blind faith, compliance for self-preservation, or a need of acceptance.

To have so much of your self-worth be dependent on the arbitrary whims of demonstrably unfair gatekeepers, and so much of your potential income unjustifiably taken from you, and then to defend those exploiters and vilify those who are truly on your side--that's a textbook case of stupid.

My advice to writers: stop being stupid.

Publishing Culture is guaranteed to end, and when it does everyone will be better off.

Well, everyone except the gatekeepers. But don't cry for them. They never cried for you.

*Addendum: A few folks have asked me to got into more detail explaining the numbers, so here it is.

On a $25 hardcover, the author made $3.75 and the publisher made $4.50. This is after the costs directly associated with paper books--printing, shipping, distribution, corrugation--are paid by the publisher. So the author profit and publisher profit are pretty similar.

On a $25 ebook, the author made $3.12, and the publisher made $9.37. Publisher went from making a little more than the author, to almost triple, for no justifiable reason other than greed. This is based on the wholesale model, where a publisher would sell an ebook to Amazon for $12.50 which would have a suggested retail price of $25, same as a hardcover. But Amazon discounts, rarely charging the recommended retail price. The publisher would make $9.37 whether Amazon charged customers $25, $15, $10, or $5.

On a $25 ebook under the agency model (for comparison's sake). the author made $4.37 and the publisher made $13.12. But under the agency model, publishers control retail price, and I've never seen them price a single title at $25. They do price at $14.99. At $14.99, the author makes $2.62, and the publisher makes $7.87.

So under the wholesale model, a $9.99 ebook was earning $3.12 for the author. Under the agency model, a $9.99 ebook earns $1.75 for the author. Ouch.