Monday, June 9, 2014

June 9 2014: Battle of the Amazons (pun intended). Amazon versus Hachette (one of the Big Five traditional publishers).

“Publishing is a business. Writing may be art, but publishing, when all is said and done, comes down to dollars.”

Nicholas Sparks

ALL POWER CORRUPTS. I’m a great believer in the Lord Acton’s observation that “All power corrupts and absolute power corrupts absolutely. I’m a believer in it—not for ideological reasons—but because I see evidence to support its innate veracity on a daily basis.

DOES THE GOOD OUTWEIGH THE BAD? When either people or organizations become powerful, they invariably abuse their power—to a greater or lesser extent—and betray trust. If there are exceptions to this pattern, I don’t know of any. The only difference, where the powerful are concerned, relates to the degree of abuse—and whether the good outweighs the bad. The roots of such behavior lie, fairly obviously, in human nature—and I see no sign of that changing.

A STATIC CONSTITUTION IN A CHANGING WORLD. The Founding Fathers knew this—which is why the Constitution is set up on the basis of limiting the power of the various branches of government, implementing a system of checks and balances, and giving the individual rights so that he or she is not at the mercy of government.

Unfortunately, they failed to anticipate:

  • That the Constitution would be treated as something of a sacred cow—and be left largely unchanged even as society changed around it.
  • That corporations would evolve to become as powerful as they currently are.
  • That the ultra rich and the corporations they control would learn to game the system—to use the Constitution for selfish reasons—to the degree to which they have—and that the net result would be an economy biased against the Middle Class and rigged to favor the ultra rich and their corporations.
  • That the Supreme Court would adopt the legal fiction—on the basis of no legal arguments of significance that, from a legal point of view, corporations are people.
  • That the Supreme Court would equate money with free speech—and thus allow the outcome of each and every election to be influenced, if not decided, by weight of money. 

BYE BYE DEMOCRACY. As a consequence of the above, the U.S. is no longer a representative democracy—as defined by the constitution—but a plutocracy (a political system controlled by the ultra rich—and those who serve them—for their own exclusive benefit). The ultra rich mostly operate through corporations. Their control is not absolute—yet. They can’t do exactly what they want. But they can do a great deal, block almost anything they don’t like—and their power is increasing by the day as they get richer and richer.

CORPORATE POWER. So what keeps corporate power in check? Right now, very little. Government has been neutralized to a very great extent, the unions have been largely defeated (especially in the private sector), worker rights are minimal by the standards of other developed countries, public indignation has been kept in check by the fact that the media are corporately owned—so really all that is left to check corporate power are other corporations and the basic functioning of the economy (a subject I’ll leave for another day).

For that reason, and because it’s about my world of words and books, I’m particularly interested in the Amazon versus Hachette fight. Let me quote a little from a recent Slate article.

Amazon is digging in for a lengthy fight with one of the Big Five publishers, Hachette, and flexing its extraordinary market muscle while the two companies negotiate a new contract. It’s understocking Hachette books so as to create shipping delays, cutting discounts, suggesting alternative titles to buyers, and even refusing to take pre-orders, foreclosing a major sales opportunity.

Neither side is officially discussing exactly what it is they are fighting about. But all indications and industry chatter suggest that Amazon and Hachette are revisiting the pricing and revenue split for e-books—the same contentious issue that prompted the 2012 price-fixing suit against the Big Five publishers, from which Amazon emerged more powerful than ever.

The publishing industry is cheering for Hachette to hold the line and has denounced Amazon’s anti-Hachette tactics almost unanimously.

But the publishing world that is speaking as one against Amazon is really made up of two principal factions: publishers and authors. Their interests are not identical, and authors should consider the possibility that the publishers have contributed to the difficult situation they now face.

The crux of the issue is that in recent years, e-books have been more profitable for publishers than print books, despite the substantially lower price tag. But they’re less profitable for authors of new releases. This is not a well-known fact, but one group to have noticed is literary agents, who are in the business of ensuring that authors (and they themselves) get their fair slice of the pie.

So when HarperCollins, another Big Five publisher, boasted about its digital profits in a presentation to investors last year, literary agent Brian DeFiore seized on Harper’s own PowerPoint slide to point out that authors of new releases get the short end of the deal. On the blog of the leading agents’ trade association, DeFiore published a post headlined “e-books and profitability—What we’ve always said and publishers have always denied.” He noted that Harper’s chart neatly demonstrated that for a given title, the e-book is more profitable than the hardcover edition precisely because the author makes less money on it.

“Look at Harper’s own numbers,” DeFiore wrote. “$27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author. $14.99 agency priced e-book generates $7.87 profit to publisher and $2.62 royalty to author.”

Looks fishy, doesn’t it? And the same basic math holds throughout the industry, including at Hachette.

A prominent industry analyst, Mike Shatzkin, has been arguing for some time that publishers ought to raise e-book royalty rates. For him, the point is not that this would be the fair thing to do; he just thinks it would be the best move strategically. By leaving royalty rates where they are, publishers have left their nice digital margins hanging out there for everyone to see. And when Amazon sees someone else’s healthy profits, it’s like a dog smelling a steak. As Jeff Bezos has said, “Your margin is my opportunity.”

What I suspect is happening right now is that Amazon is telling Hachette that they want some of that margin. If Hachette had spread some of those digital profits to authors in the first place, it would not be vulnerable to this tactic. What’s more, if Hachette had been the first to raise author pay, it no doubt would have snagged some marquee writers.

AMAZON IS FAR FROM PERFECT—BUT… I am well aware that Amazon is now without its flaws. It is overly large, overly powerful, becoming close to monopolistic, excessively secretive, and doesn’t seem to treat some of its workers too well. On the other hand, it may well be a corporation where the good outweighs the bad. It does a superb job where it comes to online retailing—and  its innovations, where it comes to book production, publishing, and distribution have benefited writers enormously.

ACTIONS HAVE CONSEQUENCES. As for Hachette, as the above figures indicate, “the more things change, the more more they remain the same.” In short, traditional publishers have been screwing authors for decades—probably since cavemen wrote on cave walls—and seem to be culturally incapable of changing. Well, actions have consequences—and so does behavior.

THE HOME TEAM. I shall watch the outcome of this fight with great interest. Amazon are, of course, Seattle based—so are the home team. I’m rooting for them.




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