Monday, October 20, 2014

Amazon Will Slash Your Royalties!

Barry sez: There’s a meme afloat in the publishing world, most recently articulated by Kobo president Michael Tamblyn, to the effect that, "When Amazon kills all competition, it will lower royalties. So indie authors should support Hachette and legacy publishers generally."
Even beyond the obvious (why so worried about a lion possibly eating you next year when there’s a bear in fact eating you right now), the argument above has things exactly backward.

The underlying concern is legitimate: without meaningful competition, a publisher is free to lower royalties. We know this is true in no small part because a lack of competition is what has enabled the Big Five oligopoly to keep author royalties lockstep-low for decades. In fact, if the long reign of the Big Five has taught us anything, it should be that in the absence of meaningful competition, the dominant system will abuse authors. Given that the Big Five has long abused its power, it makes perfect sense that should it acquire similar or greater power, Amazon, too, could become abusive.
But then isn’t this an argument for getting Hachette to compete with Amazon’s far better royalties? How can it possibly be an argument for protecting Hachette and enabling it to keep its royalties low?

Distilled to its essence, the conversation on this topic goes something like this:

Legacy author: You indies need to side with the Big Five because if Amazon crushes its Big Five suppliers, its indie suppliers will be next.

Indie author: You mean that, in the absence of meaningful competition, Amazon is likely to start abusing its author suppliers?

Legacy author: Yes.

Indie author: Because if the alternative to Amazon royalties is effectively zero royalties, authors will have no choice but to take whatever Amazon offers them, no matter how low.

Legacy author: Exactly.

Indie author: So the lower the royalties offered by alternatives to Amazon, the more room Amazon has to lower its own royalties?

Legacy author: Correctamundo.

Indie author: In other words, without meaningful competition, the dominant player can be expected to offer authors only low royalties. Take it or leave it, because there’s no other game in town.

Legacy author: That’s what I’m saying.

Indie author: But then shouldn’t we all be pressuring the Big Five to increase its royalties?

Legacy author: Huh?

Indie author: I mean, right now, the Big Five typically pays somewhere between 12.5% and 17.5% digital royalties. Amazon typically pays at least double that. For self-published authors, Amazon typically pays 70%.

Legacy author: I don’t follow.

Indie author: Well, if a dearth of high-royalty alternatives is what could enable Amazon to lower its own royalties, it seems like the current legacy low rates are a real problem. That disparity is exactly what creates room for Amazon to lower its own royalties.

Legacy author: Still don’t follow.

Indie author: Okay, here’s a thought experiment. What if your legacy publisher lowered its royalties to 1%. Would you be tempted to publish your next book with Amazon?

Legacy author: Hell, yes.

Indie author: Of course you would. You’d want the high-royalty alternative. Now, what if your legacy publisher increased your royalty to 70%. Would you be tempted to publish your next book with Amazon then?

Legacy author: Of course not. Like you said, I’d want the high-royalty alternative.

Indie author: Right. Now multiply your calculus across thousands of authors. If the Big Five started offering 70%, what would happen if Amazon tried to lower its rates?

Legacy author: Authors would desert Amazon in favor of the Big Five. Amazon could never do it.

Indie author: Correct. Now do you see how the best bulwark against Amazon lowering royalties in the future is getting the Big Five to increase them today? How the greater the gap between Amazon’s high royalties and the Big Five’s low royalties, the more room Amazon has to follow the legacy lead and lower its royalties, too? Do you see how if we protect the Big Five and enable it to keep its royalties low, we worsen, not mitigate, the danger of Amazon abuse?

Legacy author: So you’re saying… you’re saying it’s crazy for authors to settle for low legacy royalties. Not just because low royalties suck for authors, but because low royalties from one player enable lower royalties from another player. So we should be pressuring the low-royalty system to compete with higher royalties, not giving it a pass.

Indie author: Yeah, that’s pretty much it. I mean, if you think about it, it’s pretty counterintuitive that between a high-royalty system and a low-royalty system, authors would reflexively protect the low-royalty system and attack the high-royalty one.

Legacy author: Because higher royalties across the board are better for authors, and the existence of higher royalties in one system discourages competing systems from lowering royalties.

Indie author: That’s the idea.

Legacy author: Holy shit, I can’t believe I didn’t see this.

Indie author: It’s okay. You’re deep inside that system and subject to all its self-serving propaganda. Makes it hard to see the forest for the trees.

Legacy author: I guess so.

(Joe sez: Or you're fully aware of it because you're a rich author and a shyster.)

Indie author: The main thing is, we both want the same thing: a healthy publishing ecosystem, which means publishers competing for authors, not being protected from having to compete.

Legacy author: I love you, man.

Indie author: Kumbaya, baby.

Barry sez: I know there are authors who might reasonably respond to this post by saying, “Barry, I get what you’re saying, but I’m afraid the Big Five can’t compete. I’m afraid that if we don’t support the Big Five, therefore, Amazon will crush them. At which point, we’ll have a new monopoly even worse than the old one. For this reason, I support the Big Five.”

While I don’t share this worldview, I do understand it, and don’t believe it’s an unreasonable or incoherent way of approaching events. In fact, I see it as a version of the “lesser of two evils” approach. Distilled to its essence, it could be expressed as, “I know my way is unlikely to make things better, but I’m more concerned about making them worse.”

I have a number of friends, for example, who consistently vote Democratic even though they know the Democrats are cynically screwing them with a version of, “Vote for us or we’ll turn the keys over to Mitt Romney and Sarah Palin.” These voters know voting Democrat no matter what means the party will never reform and better represent their interests. But they’re less afraid of things not getting better because they always vote Democrat than they’re afraid things will get worse if they divert their vote to a third-party (really second-party) candidate.

My own default personality settings are somewhat different. First, I tend to react badly when someone presents me with a fait accompli, or game of chicken, or other brinksmanship dynamic where I’m expected to blink first. My attitude in such circumstances tends to be, “You just chose the wrong contestant for your game.”

That’s the emotional aspect of my worldview. The more intellectual one is, “I’ll take the risk of things getting worse for the chance to make things better.” Which is why it makes me sad to see so many people throwing their votes away on the the Democratic and Republican wings of America’s duopoly. Sure, doing so arguably prevents things from getting worse. But it also ensures things will never get better. And naturally, the duopoly cynically exploits these fears, ensuring its continued monopoly on power.

Sound familiar?

When publishing’s chattering class frets about Amazon being a “monopoly,” what they really mean is they’re afraid Amazon could become a monopsony -- that is, “a market form in which only one buyer interfaces with many sellers.” With its lockstep crappy terms -- forever-term contracts, twice-yearly annual royalty payments, lockstep low digital royalties, outlandish rights grabs, and draconian non-compete provisions -- isn't that how the Big Five cartel has always functioned with regard to its author suppliers? We have ample evidence that, without competition, the dominant publishing player is free to present a “take it or leave it position” to authors. Don’t we want the Big Five to face competition for authors, rather than enabling it to  continue to exercise “take it or leave it” negotiating leverage?

(For a nice example of an otherwise learned columnist bleating about how Amazon could become a monopsony while ignoring the current, actual cartel that’s abusing its suppliers right now, today’s Paul Krugman column is a must. Like others more afraid of the future than concerned about the present, Krugman shows some understanding of the principles of monopsony (though curiously, he fails to mention any relevant law on the topic), but seems to assume those principles apply only to hypothetical future situations and not to real existing ones. Joe and I have more on Krugman below.)

Besides, where at all possible, I prefer to believe the best of people and even of institutions. So why insult the Big Five with automatically low expectations? Suggesting the Big Five can’t compete and therefore has to be coddled is to expect so little of it. I say, let’s believe in the Big Five, believe in its ability to innovate and adapt and compete, and let’s encourage the Big Five with our confidence to be better than it’s ever aspired to be before. If we demonstrate to the Big Five that we’re not going to be suckered with its pleas for protection, the group will realize it has no choice but to improve. And within that dynamic, is there any reason to believe it won’t improve? How can we know the Big Five can’t do better if we constantly indicate with our rhetoric that we don’t believe it can?

I’ve said many times: when someone is sick, you don’t want them to die; you want them to get well. Well, I believe the Big Five can and will get well. But not if we keep indicating to it with our policy prescriptions that we believe the organization is inherently sickly. The Big Five needs our confidence, not our doubts. A hand up, not a hand out. Our help, not our enablement.

How can we have a healthy publishing ecosystem with a sickly Big Five at its center? Competition is the definition of a healthy publishing ecosystem, as a single buyer is the definition of publishing pathology. Amazon is providing the first real competition the Big Five has ever seen. This is a good thing, not something to try to stop. So let’s not enable the Big Five to stay sick. Let’s help it get better.

Joe sez: I really like Barry's answer to the oft-heard Hachette apologist whine: "When Amazon kills all competition it will lower royalties. So we need to support Hachette."
This is a classic example of misdirection. While the magician directs your attention with theatrics, he's clandestinely pocketing your coin.
The problem is that in the absence of competition, Amazon has more cause to lower royalties and take a bigger cut for itself. As Barry points out above, a lack of meaningful competition is exactly how the Big Five (formerly Six) oligopoly has been able to keep its royalties uniformly low for decades. It's also how Amazon was be able to become a publisher; by offering authors things the Big Five didn't. Namely: no barrier to entry; full control over your intellectual property rights; higher royalties.
So rather than supporting Hachette's greed, authors should be demanding Hachette increase its low royalties to levels competitive with Amazon's high ones.
Right now, Hachette's major benefit over Amazon--getting paper books into physical stores--is being negated by the fact that their book sales are floundering in the LARGEST BOOKSTORE ON THE PLANET. It's easy to understand why uber-rich authors are sticking with Hachette; they can still plug into this paper network and make assloads of money. But why are midlist authors following the lead of the rich ones?

Because they are being misled.

If authors demanded higher royalties from Hachette, and Hachette complied, then Hachette would remain a vital, viable alternative to Amazon. This would force Amazon (Hachette's competition) to keep author royalties high.
And if bigshot authors really wanted to help their midlist peers, as they repeatedly claim, they would be in talks with Hachette to demand royalties comparable to Amazon’s. That would lessen the chances of Hachette authors leaving to self-pub on Amazon, and maintain pressure on Amazon to stay competitive by keeping its royalties high.
Wouldn’t what I just described be the quintessence of the “healthy competition” and “healthy publishing ecosystem” Authors United and the Authors Guild and their mouthpieces keep publicly insisting upon?

The Big Five and its enablers in Authors United and the Authors Guild are the parties who are actually stifling competition. After all, they’re in favor of the low legacy royalties that create a danger of Amazon lowering its royalties, too. Amazon is actually the first competition the Big Five has ever had. Amazon should be lauded for introducing competition into the publishing ecosystem, and for the higher royalties they're using to compete.

Authors should also be insisting that Hachette explain why it won't accept Amazon's terms. If the dispute is truly about discounting, with Hachette wanting to control the price of ebooks and keep them high, Hachette’s position doesn't serve the interests of the majority of non-bestselling Hachette authors who don't get the widespread paper distribution of Preston and Patterson. Hachette capitulating on both issues would ensure that most Hachette authors would make more money than ever before, and ensure Amazon royalties remain high. It would also force every other publisher to match those terms. That's what Authors United and the Authors Guild should be focusing on.
As it stands, they're enabling Hachette to remain greedy and self-serving and non-competitive. A handful of bestseller authors are saying, "We'll support Hachette because it made us rich, with the understanding that if Hachette gets its way, a few of us will stay rich."
If they truly cared about their peers, and competition, as they say they do, their stance would be; "We need Hachette to increase royalties and lower ebook prices, because that's the only way to deal with a tough competitor like Amazon--to actually compete."
That's the approach all authors should be taking. We want third parties to compete for our books. We want real choice. We want competition.

Authors United doesn't want competition. They've escalated their efforts to get Amazon to back down (recently Douglas Preston and Stephen King were on CBS repeating the same one-sided nonsense we've repeatedly debunked) while admitting they haven't even talked to Hachette.

Both Authors United and Hachette immediately rejected Amazon's three separate offers to compensate authors monetarily during this negotiation. Preston called the offer "blood money" because he believes it would harm his publisher.

Unfortunately, if Hachette is unwilling even to temporarily compensate its authors during this negotiation, I don't see it raising royalties, either. And allowing Amazon to discount ebooks means a quicker end to the current iteration of Hachette’s paper distribution oligopoly.

Hachette, and the other members of the Big Five, has to understand this. But they're acting as if they'd rather go down with the ship than try to restructure it, because restructuring would cost them too much money.

Let's delve a little deeper into that analogy. Once upon a time, the only way to get from Europe to America was via ship. People had no choice. Some, with money, travelled in style. Some were relegated to steerage.

Then the Wright Brothers obliterated that oligopoly. Now there was a new, faster way to cross the Atlantic. And now that travellers had a choice, many chose to fly. When it became cheaper to fly than sail, the balance of power shifted.

It isn't the job of passengers to keep that ship sailing. It's the ship owner's job to make the ship appealing to passengers, so they'll buy a ticket to board.

It also isn't the job of ship-loving passengers to launch a media campaign condemning the Wright Brothers, blaming them for being immoral and unfair, and asking for the government to intervene.

These days, people take cruises as a vacation, and cruise lines often partner with airlines and offer passengers package deals. The ship owners changed with the times and partnered with the enemy. Maybe they aren't making as much as they did in their heyday when they were the only game in town, but they survived because they had something different to offer: Shuffleboard.

Okay, I was kidding with that last line, but cruise ships remain popular because they do offer a lot that airplanes can't, such as gambling, entertainment, food, and activities. Most cruises are round-trip, bringing passengers to the same spot they departed from. Once ships only existed to get from Point A to Point B. They adapted and changed and survived.

If publishers want to survive, they need to offer authors something Amazon can't. Paper distribution, advances, editors with magic wands that bestow rich literary culture and nurturing, etc.

Authors worried about their own futures should be demanding that their publishers reform. If I were a Hachette author, I'd be mad as hell at my publisher for not being able to come to an agreement with Amazon, and even madder that Hachette rejected three separate offers to compensate me.

That's who I'd be going on CBS to pressure. It seems obvious.

Instead, perpetuating the "Amazon is harmful" meme is nothing but misdirection, and we've just revealed the trick. Authors United doesn't care about all authors. It cares about continuing a beneficial relationship that rewards the few and harms the many.

The sad part is, these celebrity authors could be using their wealth and vast media contacts to improve the health of the whole publishing ecosystem for the good of the vast majority of authors.
But instead, Authors United is shouting at airplanes. Which is about as effective as it sounds.

Now rather than fisk Paul Krugman's surprisingly naive NYT article, since Barry and I have already debunked most of its points and positions, I'll respond to four of the main ones..

Amazon is not hurting America. It may be squeezing its suppliers, which Americans are benefiting from. Consumers with more choice and lower prices. Authors with new opportunities. Middlemen… well, if you care about propping up an archaic, abusive oligopoly so it continues to exploit writers, by all means say Amazon is hurtful.

Amazon is not a robber baron. According to Wikipedia, the term was typically applied to businessmen who used what were considered to be exploitative practices to amass their wealth. Amazon amassed its wealth by innovating, not exploiting. The Big Five are the robber barons, controlling the paper distribution cartel, price-fixing, making hardcovers luxury items, windowing, and exploiting authors with unconscionable contracts.

Barry sez: Hachette books weren’t “banned outright” from Amazon’s site. Why is he using the word "ban"? If, for example, Wilson Sporting Goods can’t come to terms with Sports Authority regarding the proper price of Wilson’s tennis balls, and Sports Authority stops giving preferential aisle placement to Wilson's tennis balls, no reasonable person would claim that Sports Authority was in any way “banning” Wilson’s goods. The notion that in failing to offer preferential treatment to Hachette’s books -- when Amazon doesn’t even have a contract to sell them -- Amazon is in any way “banning” those books is an atrocity upon plain English and a violation of common sense. It's name game nonsense.

Joe sez: But the stupidest thing Krugman writes is; "And what Amazon possesses is the power to kill the buzz." No, Paul. Amazon cannot prevent consumers from finding books. It is a publisher's, and an author's, job to make books discoverable. They have done this, historically, by working with bookstores. Bookstores do NOT work for free. If you want preferential treatment in a bookstore--signings, discounts, end cap displays--you pay a coop fee for that. Bookstores have NEVER treated all books equally. Amazon, which has no contract with Hachette, is not "buzzkilling." Hachette has failed to reach an agreement with Amazon that give its titles greater visibility.

Krugman's comparison of the different treatment two Hachette titles received from Amazon is woefully ignorant. Paul, no two books EVER get the same treatment for retailers. Even the simplest understanding of the bookselling world would reveal this. Some books get special treatment. Mostly because publishers pay for it. Sometimes because booksellers like certain titles over others and push them.

Barry sez: Another thing that interested me about Krugman’s post is the lack of evidence behind his claim that Amazon is hurting America, authors, and readers. The only thing he really says in support of his whole argument is that “what Amazon possesses is the power to kill the buzz.” Well, if that’s true, it’s really bad news for legacy publishers. It means they’re totally powerless to do the primary thing authors pay them about 85% of revenues to accomplish. Krugman is arguing, in effect, that legacy publishers are nothing but vestigial appendages.

Of course, if legacy publishers really were that useless, it’s hard to imagine any author ever signing with one of the Big Five. And yet thousands of authors do indeed continue to sign their books with the Big Five in the belief that the Big Five will deliver the buzz and all that. If Krugman really believes the Big Five is as feckless as he claims, he ought to explain why so many authors continue to go that route.

Joe sez: An appeal to emotion, in lieu of facts or common sense, is a fallacy. Krugman claims Amazon abusing its power. Watch out, or they'll buzzkill you! (I hope buzzkill becomes adopted with the same derision as whale math.) And Stephen King says Amazon isn't fair or moral.

Well, I'm pretty sure the DOJ cares more about the law than how people feel about a particular company. Ask me how I feel about Hobby Lobby and Chik Fil A. At the same time, I defend their right to run their companies as they choose to. I endorse freedom, and capitalism, even if corporations do things I don't agree with.

Amazon isn't hurting America. But celebrity authors and so-called reporters with axes to grind are potentially harming authors with misinformation. At times, to me, it seems like Authors United has a monopsony on slanted media coverage; this one group can appear in any newspaper or TV show they like, while authors who oppose them get little press attention.

Authors United does have one indisputable monopoly: during the entire Amazon/Hachette negotiation, Authors United has held a monopoly on stupid. That the media wants to report stupidity as news is their right. Newspapers like the NYT are allowed to be wrong, just like I'm allowed to cancel my subscription and read something else, just like I don't have to eat at Chik Fil A or buy crafting supplies at Hobby Lobby, and just like Krugman doesn't have to shop at Amazon anymore, even though he says, "I have Amazon Prime and use it a lot. But again, so what?"

So what, Paul? If you don't see the hypocrisy of continuing to support Amazon with your dollars while writing a screed condemning Amazon, then I weep for the integrity of the modern journalist.