The Shatzkin Files


Big publisher bashing again with fictional facts


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The estimable Clay Shirky has written a lengthy piece called “Amazon, Publishers, and Readers” on medium.com saying, essentially, that an Amazon-dominated world would be an improvement over the Big Five “cartel”-dominated world of publishing we have today. This is an apples to oranges comparison. The Big Five are not nearly as broad a cartel as Amazon — which reaches way beyond the consumer books they publish — is a monopsony. Amazon touches much more of the book business than the Big Five publishers do. To make his case, Shirky recounts some very questionable history and employs some selective interpretation to get from his own impression of the current Hachette-Amazon dispute (about which he says “Amazon’s tactics are awful, the worst possible in fact”) to a completely different conclusion.

My complaint with the facts and logic start at the top: with the two paragraphs Shirky uses to set up his argument and establishes the “holier-than” context for his position. He says:

Back in 2007, when publishers began selling large numbers of books in digital format, they used digital rights management (DRM) to lock their books to a particular piece of hardware, Amazon’s new Kindle. DRM is designed to transfer pricing power from content owners to hardware vendors. The publishers clearly assumed they could hand Amazon consolidated control without ever having to conspire with one another, and that Amazon would reward them by passing cost-savings back as inflated profits. When Amazon instead decided to side with the customer, passing the savings on as reduced price, they panicked, and started looking around for an alternative conspirator.

Starting in 2009, five of the six biggest publishers colluded with Apple to re-inflate ebook prices. The model they worked out netted them less revenue per digital sale, because of Apple’s cut, but ebooks were not their immediate worry. They wanted (and want) to protect first editions; as long as ebook prices remained high, hardback sales could be protected. No one had any trouble seeing the big record companies as unscrupulous rentiers when they tried to keep prices for digital downloads as high as they had been for CDs; the book industry went further, violating anti-trust law as they attempted to protect their more profitable product.

Almost every sentence of this is subtly or blatantly wrong.

1. Publishers did not begin selling large numbers of books in digital format in 2007. Amazon started Kindle in late November 2007. Significant sales of ebooks didn’t start to occur until after Christmas and continued to grow rapidly thereafter.

2. Although an uninformed person would be led to infer from reading this that DRM was somehow created for Amazon, in fact DRM was routinely used for ebooks for their entire existence before Kindle. DRM on Kindle continued current practice; DRM was not created for Kindle or at Kindle’s behest.

3. DRM maintains pricing power for content owners as well as hardware vendors. In fact, I’d say it is more for the content owner than for the hardware owner. What it does for the hardware owner, particularly Amazon because they eschew the industry standard Adobe, is lock customers into their ecosystem. Of course, it is that lock-in that Shirky is telling publishers they can overcome by going DRM-free. (This precise antidote to Amazon was offered up by Matteo Berlucchi, then the CEO of Anobii, at a talk we put him on stage to give at Digital Book World in 2012.) In fact, it is not transparent that eliminating DRM would curb Amazon; it might fuel them. How well would the other retailers stand up to Amazon having easy access to their customers? Because that would happen at the same time.

4. Publishers did not believe — let alone “clearly assumed” — they were handing Amazon any sort of consolidated control. Perhaps that was a failure of vision, but it was a justifiable expectation since nobody had succeeded at selling ebooks before Kindle.

5. Amazon’s discounting was entirely at their own expense and was a tactic designed, at least originally, to sell devices and create captive customers. The publishers’ “inflated profits” (if that’s what they were) were not at issue in 2007 or 2008. So Amazon “sided with the customer”, but they also “sided with their own interests”. Some might say that’s not relevant; I think it is. Either way, it should be acknowledged, not elided or ignored.

6. Amazon was partly enabled to give the big discounts to consumers because publishers gave discounts too big to them, foolishly aping the print book business model even though a retailer’s costs drop much more than a publisher’s do with the change to digital. Stock turn is the key profitability metric for retailers. Stock turn on digital books is “infinity”. (I’d note that these are small points in this piece but are really really big points that go ignored in most of the discussions about ebook economics, which are almost always “fails” at understanding the core economics of publishers or retailers.)

7. The reduction in publisher revenue per book sold which resulted from Agency pricing (pejoratively characterized by Shirky as “colluded with Apple” rather than the at-least-equally accurate “using Apple’s established app store business model”) was not due to “Apple’s cut”. “Apple’s cut” was less than “Amazon’s cut” had been under the wholesale model. And, if you doubt that, you should take note that Amazon prefers not to switch to “Apple’s cut” so they don’t allow any but the biggest publishers to sell on the agency model with its lower margin. (Publishers can get 70% of net direct through KDP, but they have to stick to the $2.99-$9.99 price band and are at the mercy of KDP’s terms.)

8. It is misleading to attribute the publishers’ desire to keep “hardbacks” (really, all print) alive as a desire to protect “first editions”. It was primarily a desire to protect the brick-and-mortar bookstores. It should be said that way for accuracy but also to make the motivations of the sides clear. Publishers want to strengthen or maintain bookstores because their ability to reach them is a core competence that keeps them in business. Amazon wants to weaken or eliminate bookstores because it is clearly established that many customers of each bookstore that closes come to them. Another motivation for the publishers was to maintain a diverse ebook ecosystem, which at that time had just added Nook to its ranks and was about to add Apple. It is likely that Amazon’s discounting — thanks to the DoJ’s and court’s actions weakening agency — did as much to weaken Nook as any mistakes made by Barnes & Noble. And let’s not forget that Kobo has also abandoned active marketing in the US ebook market since then as well.

The other piece of Shirky’s screed that is misleading and inaccurate is his history of paperbacks.

Whether you date the beginning of paperbacks in the US to Pocket Books’s founding and Penguin’s establishing itself in the US in 1939 or to the period right after World War II when paperback publishing writ large discovered the magazine distribution system and really took off, there were decades between their arrival on the scene and their consolidation into the larger book business under joint ownership with hardcover houses. So it shouldn’t surprise anybody that, to the degree that the ebook disruption is analogous to the paperback disruption, the reaction would be even more extreme on the part of the incumbent establishment dealing with the lightning-quick change that has transpired since ebooks took off in 2008.

And that is quite aside from the fact that the paperback revolution was not 60-to-70 percent controlled by a single account that also controlled a substantial and growing chunk of the rest of the book sales as well. Be that as it may, Shirky is simply factually wrong to say that what happened was that the hardcover houses just bought up the paperback houses and consolidated them into the existing business. The acquisitions took place in both directions. In at least three cases, the paperback house bought the hardcover house (Avon bought Morrow, Penguin bought Viking, and Bantam bought Doubleday) in order to assure themselves a steady supply of good books.

And before the consolidation even began, real troubles had started to develop with the distribution through the magazine ecosystem. Returns were climbing (that is why prices of paperbacks went up) and paperback publishers were finding they needed to sell directly to many accounts, which made them more like the hardcover publishers. And over the couple of decades between the end of World War II and the beginnings of consolidation, almost every “hardcover” house had started doing its own “trade” paperbacks: not rack-sized and sold through the same network that sold hardcover books.

In other words, the analogy is not analogous in many important ways.

It is true that Amazon, at least in the current competitive environment, has everything to gain by pushing prices down and everybody else in the publishing world does not. And it is also true that the lower the prices of books are, the more accessible they are to more people. And accessibility is definitely a “good”.

Even so, I really resist the Manichaean view that it is “the Amazon way” or “the publishing cartel way”. It seemed like Shirky himself tried to dismiss that idea near the opening of his piece, when he attacks Steve Coll for writing “about book-making and selling as if there are only two possible modes”, which Shirky describes as maintaining the current “elites” or seeing Amazon become a “soul-crushing monopoly”. But that is precisely where he ends up. To look at things this way rejects not only what the publishers keep trying to tout as their “added values” (curation and editing, yes, but also marketing, distribution, and rights management) but it also ignores the interests of academic and professional publishing, textbook publishing, bookstores, and a diverse book retailing — and therefore book recommending — ecosystem.

There will be many Hachettes fighting their version of this battle over the next few years. But there will only be one Amazon.

Russ Grandinetti of Amazon.com is joining us for an interview by Michael Cader of Publishers Lunch and me at Digital Book World 2015, coming up next January 14-15. 

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  • William Ockham

    I am having a hard time deciding who is being more disingenuous, you or Shirky. Let’s take your numbered assertions.

    1. Your point is technically correct, but stupidly irrelevant. Dating the exact start of the ebook revolution is completely orthogonal to the points Shirky is making. You are just picking nits.

    2. Now you invent a straw man argument. Shirky didn’t make any of the statements you argue against.

    3. Now you assume facts not in evidence. There is no evidence that DRM maintains pricing power for anyone. You and Shirky both overestimate the importance of DRM and ignore the real source of Amazon’s strength which is their focus on the end-to-end reader experience.

    4. Shirky can’t read the minds of publishers, but your statement is baffling. Even in 2007, any reasonable observer should have planned for the possible success of the Kindle.

    5. I find your point completely incomprehensible. Shirky gets this wrong, but your criticism is bizarre. Do you expect companies to work against their own interests? Do we also need explicitly state that the sun will rise in the east tomorrow?

    6. Um, OK. So? The publishers did this to themselves. Was Amazon some how obligated to save them from themselves?

    7. Sigh. Will you ever admit the simple truth that those publishers did collude with Apple to violate antitrust laws? Shirky isn’t being pejorative, he is being factual. Your characterization is false. There was no established app store model for selling ebooks. Your description of the difference between the agency model and the wholesale model is deliberately deceptive. You conveniently elide the fact that the collusion included the publishers setting the price of an ebook title based on the hard cover price of the that title.

    8. Your assertions about the publishers’ motivations are not supported by the publicly available evidence from the antitrust case or the the publishers behavior in the marketplace. Just ask Borders investors how much the big publishers wanted to protect bookstores.

    • If YOU can’t decide which of us is more disingenuous, I’m doing fine.

      • RachelB.

        Shatzky, I’ll settle the argument: you are more disingenuous. Do you think everybody can be programmed to believe that 2+2=5? Do you think consumers can be hypnotized into paying $25.99 for a hardcover forever without question? Do you think just because some Meathead editor paid 7 figures for Mrs. Clinton’s memoirs that consumers ACTUALLY WANT TO BUY IT? Regarding your point #5, Amazon didn’t discount books to “create captive customers”. They did it to create “happy” customers. It was the Big 6 Cartel that set out to create “captive” customers, but Amazon broke that monopoly forever. Go put the cat back in the bag.

      • Trolls always reveal themselves eventually.

        Actually, Amazon created really cheap — discounted below cost — ebooks *precisely
        *to create captive customers who would pay them an enormous price (four hundred dollars!) for a monochrome ereader. The discounted books made the Kindle look cheap to the heaviest readers. It was a brilliant marketing move for which they deserve full credit (as they deserve full credit for jump-starting ebook usage, which had gone nowhere before them.) But it is a bit odd to be called “disingenuous” when that’s the retort! Maybe you’re not being disingenuous; maybe you *believe *that the strategy had no component of lock-in to it. That would reflect very poorly on your powers of discernment. Or objectivity.

      • RachelB.

        What I find disingenuous are your nicely-packaged arguments in favor of the cartel and at the expense of the consumer. And as for objectivity, I never claimed to be objective. I am strongly opinionated. Just not in favor of your opinions, hence that is why you labeled me a “troll”. I’m much more a “babe” than a “troll”.

      • I’m glad you find my arguments “nicely-packaged”. Since you’ve made it clear that you come to them with your mind made up to disagree with them, I won’t be surprised that you do. And I don’t think you should expect anything to change. I don’t. So we won’t be shaking hands and making friends either (even if you *are *a babe!)

        But I think you need to look up the word “disingenuous”. That implies that you don’t think I believe what I say. And you haven’t suggested any reason that you think that. So I think you don’t really understand what you said.

  • Steven Zacharius

    Very interesting blog. When the next big 5 contracts come up, things are going to get very interesting indeed.

    • It could be that something else is going on right now. We don’t really know, do we? And I’m saying that because I *don’t *know anything, not because I do.

  • Ravi

    I have issues with a number of your points, but the worst is 4.

    If, years after the iPod and iTunes, senior publishing executives did not understand that acquiescing to Amazon’s DRM was giving them the keys to the kingdom… They’re not fit to run lemonade stands, let alone businesses in the middle of a huge wave of technological disruption.

    That wasn’t just a failure of vision, it was willful blindness. What makes it worse is there already was a clear, successful example of how to manage DRM so that it didn’t get out of content owners’ hands – the DVD CCA. I’m vehemently against DRM, so I think the DVD CCA is horrible, but a centrally managed standard is the only kind of third-party DRM a publisher (or any other content owner) should ever agree to.

    • I have trouble with your trouble. What you said was a lot of tech jargon to me, but it isn’t at all responsive to the point I made in 4. Shirky said they handed Amazon some gift by giving them DRM. I made the point that DRM had been standard practice for a decade before Amazon went into ebooks. The rabbit hole you went down had nothing to do with the point I made. Which is a business point and a point of fact about the history. Nothing technical about it.

  • clayshirky

    Some of these observations are obviously just points of interpretation, as with when you or I would place the rise of significant digital book sales. In that particular case, we are not far off — if I say late 2007 and you say 2008, we only disagree by a few months. Likewise, since hardback sales are disproportionately valuable for bookstores, your assertion that the publishers wanted to protect bookstores is, from my point of view, just a knock-on effect of inflating hardback prices. We may disagree about which goal was paramount, but we agree that both goals were present, and tied to pricing of physical books.

    A broader disagreement comes about from our respective interpretations of the conspiracy to raise ebook prices. The fact that the publishers colluded with Apple and against the readers is inconvenient for supporters of the large publishers, but it nevertheless a fact. It is not an accurate description of the collusion that they simply adopted Apple’s established model. They violated anti-trust law to do so, which, given Apple’s pending ~$1BN fine for hosting a plan to extract more money from readers, is certainly not business as usual.

    However, the strongest part of our disagreement is around Digital Rights Management. DRM takes an infinitely copiable resource (as all digital data is) and tries to re-implement the cost and inconvenience of physical copying by tying that resource to the only physical object left in the consumer ecosystem, the playback device. It is — by definition — a net transfer of control from software to hardware. That’s not a side-effect. That’s what DRM is.

    Alongside control, DRM transfers pricing power to the hardware ecosystem as well, as we saw with Apple and the iPod/iTunes combination. It does not preserve pricing power for the content owners, or the CD model (high-priced bundles) would never have been successfully challenged by low-priced and unbundled sales, whether by Apple or anyone.

    You are correct that DRM provides an advantage to the hardware owner, but this is not in fact Amazon’s stock in trade. Indeed, they, and not Apple, were the first people to sell MP3s in their music store. The publishers could have done something similar — there are several open standards to choose from — but because they wanted to protect hardback pricing (or physical stores, if you prefer) they chose a net transfer of control to Amazon, because competitive pricing is what that industry tries to avoid.

    So to your point #4, the idea that they would demand that Amazon take a monopoly on hardware distribution channels for a particular iteration of their product without understanding how that changed their market position is clearly ridiculous. The big publishers have not shown themselves to be (let’s see, how to put this politely?) the most sophisticated thinkers about contemporary technology, but no one is that dumb.

    • marcellovena

      Broadly speaking DRM solutions do not necessarely shift/transfer control from content owner to hw vendors. There are industry standard such as Adobe Content Server sw technologies that can handle all this for any content and hw vendor. You can read Adobe DRM protected ebooks on ALL independent e-ink Devices, on Kobo Devices, on Google and on Apple devices too. It’s the very specific DRM solution adopted by Kindle that is an Amazon’s proprietary sw technology that is not compatible with the industry standard DRM solution. An industry standard DRM protect more content owners than hw vendors. This is what Mike wanted to say, I understand. Of course in the Kindle’s case the non-interoperable DRM scheme might have contributed to strenghten the customer loyalty. But this is not the reason why readers choose Amazon. Amazon provides in many case world-class if not best online services to its customers.

      There is no DRM solution that can keep your customers in a walled garden, if the garden sucks.
      If the industry should ban DRM o keep it, it’s another question. Off topic for this post.

      • Simply: yes.

        And hang on, folks, because a new workaround for that Kindle DRM lock-in is about to hit the market, I am given to understand.

      • Steven Zacharius

        How many people actually need to read a book on different devices anyhow? And if you want to, you can read your Kindle book on an iBook through the Kindle App. Kindle became an overnight success because of their pricing. They offered enormous discounts on books for their customers. Pricing that others couldn’t afford to offer. It captured them marketshare.

    • Thanks for responding, Clay. i normally admire your work.

      But not in this case.

      The point about when the ebooks took off is that it was well AFTER Amazon started distributing them (and, frankly, *because *Amazon started distributing them.) That is not the inference one would reasonably draw from your piece. Obviously, when they took is a bit of a subjective judgment, but nobody really knew it would happen until after the Amazon horse was out of the barn, so to speak.

      I know you share the DoJ and Judge’s opinion about the collusion, but it is not an established fact from the publishers’ side. They didn’t admit to it when they settled. And they settled because the government had a gun pointed at the heads of their businesses and they would have been reckless not to settle. It is a fact that they adopted the same business model as Apple had used for apps, and it is also a fact that the government doesn’t contest the legality of agency; they only don’t like the way they got there. In any case, if there was collusion it was simply stupid because all of the publishers were doing what was in their own company’s self-interest. And obviously so. And since Apple had told them *from the start *that they wouldn’t open the store without four participants (because it would have been an ineffective store; simply a business decision and an obvious one too) all the chatter the government alleges was really superfluous.

      And though I’m sure you are more tech-competent than I am (most are), I dispute your notion that DRM ties content to a *device*. In fact, it ties content to an *owner *(of the content!). Adobe is cumbersome and Amazon’s walled garden does restrict you to Kindle devices *and apps *but the objective (and the reality) is to control *who* uses the content, not on what device they use it.

      Your last point still makes no sense at all to me. They weren’t giving Amazon a monopoly on hardware; they surely hoped that others would also create hardware (as they have). The publishers were doing what publishers always do: looking for any additional channel of distribution for their content and, at the same time, trying to protect the content from unauthorized copying and use. And they weren’t changing any business practices regarding DRM to do it; they were continuing to do what they had always done before.

      As for how Kindle “changed their market position”, I think everybody was surprised by that, perhaps even Amazon. As it turned out, a relatively small number of dedicated readers willing to pay $400 for a crappy e-ink device (which locked them in to a single source for purchase) but who each buy and read a LOT of books have changed the world. And, by the way, Amazon would NEVER have invested in that device if they couldn’t have been sure they’d have controlled the sale of content to it. They took an enormous risk providing free bandwidth on it that could have been used for things other than ebook purchases. You’re positing a world where Amazon would have been the ones taking reckless and foolish risks. How likely do you think THAT would be to happen?

      • William Ockham

        You are not entitled to your own facts. The publishers engaged in collusion. The Apple trial proved that. Apple couldn’t have been guilty unless the publishers were also guilty. This stuff is pretty simple. For years, the Justice department has hosted a page that explains price-fixing in a very straightforward way:

        Price Fixing

        Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry join the conspiracy. Price fixing can take many forms, and any agreement that restricts price competition violates the law. Other examples of price-fixing agreements include those to:

        Establish or adhere to price discounts.

        Hold prices firm.

        Eliminate or reduce discounts.

        Adopt a standard formula for computing prices.

        Maintain certain price differentials between different types, sizes, or quantities of products.


        The publisher agency agreements with Apple had every element necessary for the government to prove a price-fixing conspiracy. The publishers agreed to a standard formula for calculating the price of ebook titles which raised prices by tying ebook prices to print book prices. At the same time, they reduced the discounts available to ebook sellers.
        This obvious from the very beginning. In fact, the internal emails released as part of the case show that the publishers were aware that they were doing something illegal (double delete those emails). In any event, not a single exec was fired over this. Breaking antitrust law was just a normal business practice for these companies. If you don’t understand that by now, you are being played.

      • Courts and judges make mistakes. That’s a fact. They’re documented every day. That’s a fact. And Apple is still appealing. That’s a fact. (But you’re not. And that’s a fact too.)

        And agency pricing, which creates the “fixing” and which exists in the app store, was not outlawed by the court ruling. Also a fact.

      • William Ockham

        The fact that courts and judges make mistakes has nothing to do with this. People die every day. That doesn’t mean I’m dead. This particular judge didn’t make a mistake. There’s no point of law in dispute here. There’s no dispute about the facts of the case. It’s all in the public record. I wonder what it would take to get you to admit what is right in front of, i.e. that publishers colluded with Apple to raise the price of ebooks. When Apple loses their appeal will you admit you were wrong? If Apple drops their appeal will you say that they gave up in the face of government oppression just like the publishers?
        At this point, you have about as much credibility as a Flat Earther who says that scientists make mistakes every day. It’s true, but that doesn’t make the earth flat.

      • I am not going to relitigate the case in front of a hanging judge. That’s already been done. But I don’t agree with you that the facts are so clear. They aren’t except to people who want to see it that way. You are welcome to whatever conclusion you care to draw about me, not that I would be in a position to change it anyway. I do find it a bit tiresome to have you continue to repeat the mantra “the judge decided and it is settled and you’re just defending a bunch of lawbreakers” because I’ve heard it and rejected it plenty of times already. But I know you enjoy taking your shot at me in each relevant comment string so we do this dance every so often. Meanwhile, since the decision, Kobo’s left the market, Nook is crashing, and Amazon has pulled out the hammer publicly on its first big publisher, so whether or not we agree on the law, I feel totally vindicated on the predictable consequences of the DoJ’s (and the Judge’s) misguided action. The results have been exactly what I expected. I hope you’re happy with them but if a healthier competitive environment was supposed to be the objective, perhaps you have the integrity and humility to admit that it hasn’t been the result. And if the result WAS the objective, I refer you back to my characterization of the action: misguided.

      • William Ockham

        No, the objective of the case was to enforce the laws of the United States. If you are upset about the consequences of the decision, you need to be upset with the publishing company execs who did the deed. My “mantra”, to the extent I have one is that you don’t need a judge to figure this one out. You, Mr. Shatzkin, are more than capable of understanding the following facts:
        1. Price-fixing is against the law.
        2. Apple and the 5 publishers who entered into those agency agreements intended to end retail price competition for best selling ebook titles.
        3. The retail prices of the ebook titles covered by the agency agreements were tied to the MSRP of the corresponding print title.
        Can you agree with that those three statements are true? Forget outcomes and mitigating factors, does this describe what happened?
        I partly agree with you about the results of the case. The industry would have been far better off if the publishing companies had obeyed the law and stayed with wholesale pricing.

      • Ending retail price competition was *not *against the law. Agency pricing does that and the courts explicitly did *not *eliminate it. What they prosecuted was the “collusion” in instituting it, which is *not *obvious or transparent (particularly when three of the parties were, *at the same time*, organizing a joint enterprise called Bookish), but was how the DoJ and the judge interpreted the evidence they got.

        Wholesale pricing and reselling practices make no sense for digital goods where there is no inventory to be “owned” or require investment (and, for that matter, no need for space to store the goods). Agency-type terms make infinitely more sense. And giving the retailer 50 percent of the retail price as margin is pure insanity in a digital world. That’s the world we’re locked into now because the DoJ did exactly the opposite of what they should have done, which would have been to force Amazon to allow agency pricing for any publisher that wanted to do it, instead of using their marketplace power to limit it to the Big Five.

      • William Ockham

        Some day you might respond to the facts that I presented rather than the irrelevancies you bring up. The publishers all took the same action at the same time. That is what made it illegal. The fact that one publisher doing it alone might be legal doesn’t matter. The fact that companies can legally engage in joint ventures doesn’t matter. The law is simple. Competitors cannot jointly make these types of pricing decisions. If they want to make that type of change, they can’t do it if they know their competitors are doing it too. Random House made the exact same changes that the others did and they weren’t charged with collusion because they didn’t do it at the same time.

      • You don’t present facts. You present interpretations of facts. And you back off them. We’re now moving on from “price-fixing is illegal” to “they did it at the same time!”

        Of *course *they all did it at the same time. The iBookstore was opening on a set date and Apple told them all from the beginning that the store wouldn’t open unless four of them were in. Random House staying out was a serendipity based on their awareness that staying out would enable them to game the system: continuing to sell their ebooks at *higher *prices while Amazon would discount them *below cost *and give them a competitive advantage. Turns out they won big twice. But as for the rest of them doing it at the same time, don’t get too breathless about that. It could never have happened any other way. And, frankly, it isn’t what the DoJ got bent out of shape about. It was the alleged “discussions” that hung them, not the timing.

      • William Ockham

        No, I am not backing off anything. It was “doing it at the same time” that turned what may have been legal for one publisher into an obviously illegal act for five publishers. Your answer to me proves my point. You admit that the publishers knew the others would join them. That is collusion. They had a written agreement with Apple that they would all adopt the same scheme.

        “Of course they did it at the same time” is admitting that it was illegal. I started this conversation by pointing you to the definition of price-fixing: an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold.

        Let’s forget my interpretation of the facts and look at yours. You have stated that there was an agreement between Apple and the publishers that was contingent on at least four of the publishers acting in concert. You are describing “an agreement among competitors”. You have described the purpose of the agreement as being to allow the publishers to gain control of the retail prices of their ebooks. That is “to raise, fix, or otherwise maintain the price at which their goods or services are sold.”
        Your interpretation of the facts is that it was price-fixing.

      • If I had a moment of thinking that you back off on anything or hear anything anybody else is saying, it was a momentary delusion. I won’t make that mistake again. Of COURSE whatever I say proves to you that you were right!

        They also all gave Amazon the same terms at the same time, by the way, putting books out on Kindle that they’d never considered making available as ebooks before. Retailers offer opportunities, publishers take them. That’s the way it has always been. Sony should have complained to the government!

      • EOrr

        I can’t let this ridiculous response stand. On a certain level you are right. The publishers were not necessarily acting with malicious intent. The law as it currently is written outlaws what they did. It seems unfortunate to many that there isn’t currently an exception to the rule that this type of agreement is illegal when trying to promote competition with a monopsony. That is not a valid argument that what happened wasn’t illegal.

        The crazy part to me is that the legal departments didn’t scream their heads off when Apple required at least 4 of the big six to agree. Apples blindness in a way forced the publishers into an illegal act. That doesn’t make that act legal.

        The problem occurred not over what the agreement was nor how the agreement was reached but by virtue of the fact that the publishers knew that their fellow publishers would take the same action at the same time.

        Perhaps you have to have a certain amount of legal training but it is such an overwhelming and damning set of evidence based on the contracts.

      • I have NO legal training. But I know people with plenty who disagree with you. And I’m quite sure the DoJ could have simply not brought the case.

      • RachelB.

        Ouch! I think you gave him a black eye!

      • Steven Zacharius

        When the iPad was being released, the entire world saw this as an amazing device and a game changer for ebooks. If you wanted to be on the iPad you had no choice but to be on the agency model. This is the same model they use for all the apps that are sold by Apple…70/30 split. So it was a matter of two options…either you wanted to be available on the iPad or you didn’t. The choice seemed pretty easy at the time.

      • William Ockham

        All of that may be true, but it doesn’t change the fact that the five publishers who all signed up together broke the law and they knew they were breaking the law when they did it. You guys can yammer on all you want about this stuff, but it doesn’t take any legal training to understand. Read the very simple, plain English explanation I posted in my very first comment.
        There’s lots of stuff in the law that is complex and confusing to laymen. This isn’t one of them. It is incredibly simple. Only the intentionally blind can fail to see what is right in front of their faces.

      • You will never believe this, but nobody thought they were breaking any laws. Your plain simple explanation notwithstanding.

      • William Ockham

        Are you really sure nobody thought they were breaking the law? If so, you need to explain the following. Two days after the iPad launch, Elisa Rivlin, the top lawyer at S&S, sent an email to the S&S CEO, Carolyn Reidy, and Adam Rothberg, the VP for Corporate Communications. The email was a press clipping that referred to the now infamous Steve Jobs interview with Walter Mossberg wherein Jobs says the price of the True Compass ebook will be the same at Amazon as in the iBook store. Rivlin’s comment was “I cannot believe that Jobs made the statement. incredibly stupid.”

        Why was Rivlin commenting on this when the ebook wasn’t even an S&S title? Why was the top lawyer concerned enough to send that email to her boss and the top press guy? There has to be some reason that it concerned the legal department.

        I fully expect your reaction to be “lalalala, I can’t hear you”, but your readers will see through that. There is absolutely no reason for that email unless Rivlin knew that S&S was at risk for an antitrust lawsuit. If you want to imagine that she was totally incompetent, I can’t stop you, but any first year law student knows what they did was illegal. You can get your legal advice from nutjobs if you want, but the publishers had good lawyers and they knew what was up.

      • Steven Zacharius

        As I said, these were normal terms for selling on the Apple platform. The law is complex and this is why they have courts, trials and appeals. Meanwhile all the parties involved have paid big fines and Apple is appealing. It’s time to move on and worry about more important things such as increasing competition in the publishing industry and making sure there are bookstores and space to shelve physical books as well as a healthy online retail system. I don’t really care about this argument about the Apple platform and the lawsuit. My company wasn’t part of it and I’m glad we’re able to be on the iBooks platform. I’m hoping the new larger iPhones are going to be a big boost to mobile reading. That’s what’s important to me.

      • William Ockham

        No, this is not complicated. The big publishers were willing to illegally take money from little old ladies to protect their business model. They made a conscious decision to rip off readers, who are disproportionately older women. How corrupt do you have to be to defend these multinational corporations who think nothing of illegally raising prices to harm their loyal customers the most?
        You and Shatzkin can rationalize this all you want, but it all boils down to you preferring to defend crooks and liars instead of readers. It is despicable. You can ‘move on’ if you want, but I will not let you get away with pretending that there is any gray area here.

      • Oh, boy, now we have the little old ladies to add an extra moral dimension to your self-righteousness!

        What it “comes down to” is your simple-minded notion that “defending readers” boils down to getting them lower prices on a very particular selection of *e*books, without considering other effects, that *affect *readers,
        but which are not quite so easily calculable as a price. You have made your point over and over again. It’s not hard to grasp; it’s a Literal Intepretation of the Court’s Judgment. Saying it again and again doesn’t make it any more persuasive, and adding ad hominem characterizations actually makes it odious.

        I won’t miss you if you choose not to comment here anymore. You think I don’t “get it”. I think YOU don’t “get it”. But I’m tired of indulging a self-righteous asshole.

      • Steven Zacharius

        This comment doesn’t dignify a response.

      • RachelB.

        Are you for hire the next time my mother-in-law gets on my case?

      • RachelB.

        Oh, you’re good. You must have been on your college debating team!

      • Not even high school.

      • RachelB.

        Can’t you guys just shake hands and agree to be friends?

      • I imagine one thing we could agree on is that neither of us would see much value in that.

      • Clay Shirky

        Mike,

        DRM-encumbered content is legally controlled by content owners, but it is controlled in practice by whoever controls the hardware that can access it.

        Some models have the same producer of the DRM and the vendor of the hardware (MiniDisc; iPod), while some involve writing software to run on other hardware (PDF; Steam). The end result, though, is the same: since there is no such thing as bits that can’t be copied, DRM makes bits that can’t be interpreted, and moves the actual control to the interpreters. No one ties DRM to the users, which is to say no one imagines DRM that allows people to shift content to arbitrary devices at will just because they’ve paid for it.

        Furthermore, the difference between relatively widely and relatively narrowly supported DRM formats, as with PDF vs. Kindle, weakens your belief in the good faith of the publishers. Not only could they have insisted on PDF as a format in 2007, they could all release PDF versions by the end of this week if they wanted to. Keeping ebook pricing away from competitive markets is the only goal compatible with all their decisions in the last seven years.

        Contrary to your assertion that they wanted whatever additional channels they could get, they have gone into hysterics every time competition lowers price, from paperbacks to bookstore chains. Had they wanted lots of devices in the ecosystem but demanded DRM, they would have adopted PDF as their standard. They did not make that choice, either in 2007 or today, because they do not want a competitive market for ebooks, since such a market will tend to drive costs down.

        You contest that the big publishers intentionally handed Amazon a monopoly, but given their refusal to use more widely accepted DRM formats, that is the only interpretation possible. No CEO is stupid enough to lock their content to someone else’s device without expecting a quid pro quo, and were someone that thick-headed to inhabit the top job, even a minimally competent board would have fired such a person within a year. Yet your ‘poor little lambs’ story requires us to believe that there was not just one CEO that stupid and one board that incompetent, but that every single one of them were, at the entire top of the industry.

        This would have been an unprecedented cavalcade of ignorance and fecklessness, even for an industry largely populated by English majors. A simpler interpretation is that they were all OK with strict limits on the portability of their content, so long as they assumed that they would retain pricing power.

        As for their collusion, I never mentioned agency pricing, which was obviously not the source of the Federal suit. The problem was instead that the Feds didn’t like “the way they got there”, as you put it, a statement with which I could surely agree, pausing only to note that “the way they got there” was criminal conspiracy.

        Your metaphorical gun pointed at their collective heads was the straightforward interpretation of anti-trust law. The fact that every one of them settled rather than admit to criminal activity is no more meaningful from them than it was from Bank of America after the housing collapse — it’s just what you say when you settle.

        Even harder for the image of blameless behavior, Apple decided to argue that the ‘chatter’ didn’t rise to the level of criminality, and lost. If Apple is guilty of conspiring with the publishers, then the publishers must have conspired with Apple, no? There wasn’t a lot of ambiguity in the judgment handed down against Apple; the idea that just because these people were a party to a crime, I shouldn’t write about them as if they were criminals seems to stretch plain English past the breaking point.

        This was the core problem with the hysterical narcissism of the Packer and Coll pieces. It is so enormously inconvenient for them that anti-trust law regards an industry working together to raise consumer prices as putatively illegal, because they recognize that that is the only thing that will preserve the status quo, so they simply wrote as if the plain meaning of that decision must never be factored into the debate, because the sense of victimization is central to their worldview, outcomes be damned.

      • clayshirky

        Mike,

        DRM-encumbered content is legally controlled by content owners, but it is controlled in practice by whoever controls the hardware that can access it.

        Some models have the same producer of the DRM and the vendor of the hardware (MiniDisc; iPod), while some involve writing software to run on other hardware (PDF; Steam). The end result, though, is the same: since there is no such thing as bits that can’t be copied, DRM makes bits that can’t be interpreted, and moves the actual control to the interpreters. No one ties DRM to the users, which is to say no one imagines DRM that allows people to shift content to arbitrary devices at will just because they’ve paid for it.

        Furthermore, the difference between relatively widely and relatively narrowly supported DRM formats, as with PDF vs. Kindle, weakens your belief in the good faith of the publishers. Not only could they have insisted on PDF as a format in 2007, they could all release PDF versions by the end of this week if they wanted to. Keeping ebook pricing away from competitive markets is the only goal compatible with all their decisions in the last seven years.

        Contrary to your assertion that they wanted whatever additional channels they could get, they have gone into hysterics every time competition lowers price, from paperbacks to bookstore chains. Had they wanted lots of devices in the ecosystem but demanded DRM, they would have adopted PDF as their standard. They did not make that choice, either in 2007 or today, because they do not want a competitive market for ebooks, since such a market will tend to drive costs down.

        You dispute that the big publishers intentionally handed Amazon a monopoly, but given their refusal to use more widely accepted DRM formats, that is the only interpretation possible. No CEO is stupid enough to lock their content to someone else’s device without expecting a quid pro quo, and were someone that thick-headed to inhabit the top job, even a minimally competent board would have fired such a person within a year. Yet your ‘poor little lambs’ story requires us to believe that there was not just one CEO that stupid and one board that incompetent, but that every single one of them were, at the entire top of the industry.

        This would have been an unprecedented cavalcade of ignorance and fecklessness, even for an industry largely populated by English majors. A simpler interpretation is that they understood what strict limits on the portability of their content would mean, and were OK with it, so long as Amazon kept prices high.

        As for their collusion, I never mentioned agency pricing, which was obviously not the source of the Federal suit. The problem was instead that the Feds didn’t like “the way they got there”, as you put it, a statement with which I could surely agree, pausing only to note that “the way they got there” was criminal conspiracy.

        Your metaphorical gun pointed at their collective heads was the straightforward interpretation of anti-trust law. The fact that every one of them settled rather than admit to criminal activity is no more meaningful from them than Bank of America saying they had admitted to no wrongdoing after the housing collapse — it’s just what you say when you settle.

        Even harder for the image of blameless behavior, Apple decided to argue that the ‘chatter’ didn’t rise to the level of criminality, and lost. If Apple is guilty of conspiring with the publishers, then the publishers must have conspired with Apple, no? There wasn’t a lot of ambiguity in the judgment handed down against Apple; the idea that just because these people were a party to a crime, I shouldn’t write about them as if they were criminals seems to stretch plain English past the breaking point.

        This was the core problem with the hysterical narcissism of the Packer and Coll pieces. It is so enormously inconvenient for them that anti-trust law regards an industry working together to raise consumer prices as putatively illegal, because they recognize that that is the only thing that will preserve the status quo, so they simply wrote as if the plain meaning of that decision must never be factored into the debate, because the sense of victimization is central to their worldview, outcomes be damned.

      • Clay, thanks for the thoughtful reply, some of which I don’t think I’m grasping. But let me try to address those items you raise that I can.

        I am going to refrain from entering a discussion of the long, complicated, and mostly not-presented history of DRM and formats. The techies I know who wrestled with it all years ago tell me that most publishers would have been happy to go with Adobe but they delivered both a bad reading experience and a bad DRM experience.

        Here’s what I think is our central point of differentiated understanding. Publishers field opportunities as retailers present them. They aren’t creating their future. Amazon offered an opportunity with Kindle. They took it. Apple offered an opportunity with iBooks later when Amazon had changed the landscape. They took it. Publishers don’t all move at the same speeds except that sometimes they face the same deadlines. They all went to Kindle at the same time on similar terms just like they all went to Apple at the same time on similar terms. Neither was a conspiracy, whatever the DoJ thinks. It may be herd behavior, but it wasn’t conspiracy. And they didn’t set the terms; they accepted what Apple insisted on, including the relationship between ebook prices and the listed print prices.

        What your analysis ignores is that the retailers are bigger and more powerful than any of the publishers. Much bigger and MUCH more powerful. Apple could buy all the publishers with the cash from a few days’ sale of new iPhones. Publishers did not feel they could tell Amazon or Apple what to do. And they were right. They couldn’t.

        Your point about the banks is useful to me in this way. Many of us can see violations by the banks that the government could choose to pursue legally but didn’t. They exercise prosecutorial discretion which was not exercised in the case against the publishers.

        Yes, publishers are trying to avoid having ebooks cannibalize print sales faster than would otherwise be the case, particularly with a single retailer who would like to destroy store sales of print subsidizing the price differential. You’re right that maintaining prices in the market was (and is) more important to them than portability of the content. In fact, portability isn’t a value that concerns them at all. They probably prefer the content to be minimally portable. That is a “crime” among the digerati. It is just commercial common sense to many people (even though good arguments can be made that it is commercially counterproductive. I understand that. But it is debatable, not a matter of fact.)

      • Steven Zacharius

        Publishers couldn’t insist that Kindle use PDF. Kindle converted the files that were supplied to them to their own format. I don’t believe that publishers look at DRM as a tool to keep content locked into a device. We look at it as a way to try to control piracy and protect author’s royalties and our sales. Most authors appreciate that and they notify us whenever they see a pirated copy of their book available on some other site.

    • clayshirky

      Mike,

      I’m taking the liberty of replying up-thread to your recent comment (http://www.idealog.com/blog/big-publisher-bashing-fictional-facts/#comment-1594674927), because of Discus’s annoying habit of smashing long threads up against the right-hand rail. Forgive the discontinuity (and feel free to move the comment, if it doesn’t turn it into a single-word column.)

      I think you’ve nicely described the main point of our disagreements.

      On the issue of conspiracy, I think we simply disagree about the meaning of Apple’s loss in court. The DoJ believed that the publishers behaved criminally, and Judge Cote agreed. However, if a 160 page footnote to her finding — “Based on the trial record, and for the reasons stated herein, this Court finds by a preponderance of the evidence that Apple conspired to restrain trade in violation of Section 1 of the Sherman Act” — didn’t convince you that a crime was committed, nothing I say will.

      (As an aside, I think those of you defending the publishers don’t understand how much damage you are doing to your cause by insisting on their guilelessness in the matter of raising prices. There is absolutely nothing about that argument that will resonate with the book-buying public. However hard done by you feel about the settlements and conviction, you should simply drop any line of public reasoning that lets your opponents quote Judge Cote.)

      The point I found most fascinating was “Publishers field opportunities as retailers present them. They aren’t creating their future.” If I had to pick any single sentiment that illuminates our dispute, I think this is it. I believe you that this is how the publishers think of themselves. At the same time, though, I’ll ask you to recognize that back in 2007, they were, in fact, creating the future they live in now.

      Although you started this thread by accusing me of publisher bashing, the worst opinion I have of them is that they are arrogant criminals. This is, I grant you, not the most flattering view, but it seems a damn sight kinder than yours, which is that the entire US publishing industry is staffed by hapless cretins, a half-dozen big firms where not one CEO, marketing chief, senior counsel, or board member looking over the Amazon term sheet and said to themselves “Hey, wait a minute, if we format our books for just this one platform…”

      This is, I think the core issue between us, and the reason that I (and many members of my tribe) have vanishingly little sympathy for the Big 5. We think they are guilty of two crimes — anti-trust violations and whining — and we think that whining is by far the worse crime. The industry preference for non-portability is exactly, precisely what they asked for. And Amazon v. Hachette is where it got them, as was widely predicted at the time.

      Don’t take it from me — people who are on your side have been saying this for years. Here’s Charlie Stross, “Cutting Their Own Throats”:

      “[T]he strategy of demanding DRM everywhere is going to boomerang, inflicting horrible damage on the very companies who want it….the Big Six’s pig-headed insistence on DRM on ebooks is handing Amazon a stick with which to beat them harder.” http://goo.gl/XR5m5e

      That’s from 2011.

      If the publishers want other book outlets, they should sell books directly to the readers. This will, of course, put them in direct conflict with Amazon, but that’s happened anyway, despite having handed Bezos the gift of monopsony purchasing.

      It will also hasten the death of Barnes & Noble, and with it the last hope of a large-scale pipeline for physical books not run out of Arkansas. That too is coming, and just waiting for it to happen is stupid. (It will not yet be the death of the indies; paper is the new vinyl. As I said long ago, independent bookstores will survive not by selling books, a function they always sucked at, but by hosting local book culture, a job B&N never really understood.)

      So that’s my prescription: stop whining, start selling. That probably won’t happen, though. Even now, when the transition to ebooks is so far along that it is hard for even the “PAPER SMELLS NICE I READ BOOKS IN THE TUB” people to ignore the enormity of the change, the possibility that the publishers will start playing offense rather than defense seems…small.

      • Publishers DO sell direct. Ineffectively, because that’s what a single publisher selling direct will do, most of the time. But except for Hachette, all the big ones and many others already do.

        The publishing business has 100 years of structure based on the idea that retailers face the public and publishers face the retailers. That’s how their title acquisition and their marketing strategies (B2B) have developed. It worked for years because there were multiple retailers competing with each other so none were inclined to boycott a publisher that had books their customers would want.

        What’s changed in the past 10 years is that we now have two dominant retailers, each in its own sphere: Amazon online and B&N in bricks-and-mortar. That has changed the power equation and put the publishers very much on the back foot. Suggesting that they sell direct — which is a suggestion I have made for years — is helpful but not nearly a “solution” to the “problem”.

        What is also different is that Amazon doesn’t need to — doesn’t really try — to make money from the book business. Their game is to go for market share and that includes taking the oxygen (margin) out of the ecosystem for everybody else. There really is no solution to this, except one I proposed a few blogs back, which would be to get another competitor in the game that could also operate on no margin. I’ve found the one possibility for that, but it isn’t in any publisher’s power to make it happen.

        So far, you have not proposed any solution that would improve a publisher’s commercial changes in any measurable way. You’re a genius and they’re cretins, but the net result is the same. No answer that solves the conundrum.

      • Elliot1234

        Suggesting that they sell direct — which is a suggestion I have made for years — is helpful but not nearly a “solution” to the “problem”.

        Problem? What is the problem? We have more books available to more people at lower prices than at any time in history.

      • Steven Zacharius

        I would add that publishers did not just format books for Kindle. When ebooks first started we formatted for Sony, PDF, Mobi and epub. It was the fact that Kindle sold books at very low margins that made their business grow so dramatically. The others weren’t able to compete, with Sony ending up getting rid of their ebook business. And please keep in mind that there are more than five or six publishers.

  • billrosenblatt

    Mike,

    Great piece.

    (I would love to know how Clay Shirky manages, with a straight face, to describe himself as “…a member of the Sancerre-swilling East Coast Media Elite. Of course the existing system works well for me — it’s run by people like me, for people like me.” People who make public careers of bashing the “Media Elite” don’t get to say that they are part of it. Not even his NYU colleague Jeff Jarvis — a former Media Elite who walks among them occasionally for several $k/day — can get away with that. Having said that, it is of course possible that Shirky drinks Sancerre; I wouldn’t know.)

    I just have one question. You say “In fact, it is not transparent that eliminating DRM would curb Amazon; it might fuel them. How well would the other retailers stand up to Amazon having easy access to their customers? Because that would happen at the same time.”

    Not sure I get it. How would eliminating DRM give Amazon access to, say, B&N’s customers? Because this isn’t what happened when the music industry gave up DRM for downloads. Not everyone started buying MP3s from Amazon and listening on iThings. In fact, Apple lost market share relative to Amazon and other retailers – not overnight but gradually. What’s really happening is that the overall paid download market in music is headed downwards and revenue streams are coming from elsewhere — from other types of services (that use other forms of DRM). It’s possible that the same will happen in publishing, though I’m not sure I see how at the moment.

    BTW how about allowing people to sign in here with LinkedIn?

    • Bill, all I meant was that if you own a Nook, Amazon can’t sell to you unless they want to live in the world of Adobe Digital Editions. But if DRM were off the books, they could simply sell an epub version in addition to a mobi versilon and anybody on Nook or Apple or whatever could choose to buy the ebook from them. So publishers (and other retailers) would gain the ability to simply put a mobi version on a Kindle, but Amazon would gain the ability to put epub on other devices. Would Amazon lose more business than they’d gain? I’d bet they wouldn’t.

      I really think music is entirely different. You listen to songs over and over again. You don’t read books over and over again. You might at any moment want to hear just about any song. You are much less likely to at any moment need to look at (let alone “read”) any book. Subscription services make sense for music in ways they don’t for books (not that they cant work for books, but they aren’t as big a problem solver.)

      And I don’t know why you can’t sign in with LinkedIn. I’m not sure how hard that would be to do. I’ll ask people that know more than I do but I can say you’re the first person who ever asked and we’re about five years into the blog…

      • Mike —

        I, too, was a little confused by your comments (quoted by Bill Rosenblatt above) about DRM. It seems to me it would be beneficial — unless it means illegal restraint of trade — for publishers to sell DRM-free ebooks themselves while continuing to use DRM for the versions they provide etailers. As long as publishers made it idiot-simple to move the title from their website to a customer’s device, and as long as their DRM-free prices were competitive with Amazon’s, I would think going DRM-free could be a big win on the publisher side. Or would Amazon under such ebook sale conditions simply pull a Hachette on any publisher that tried it?

      • Can’t see that what you suggest would win publishers any friends among retailers. And can’t see that many publishers could sell enough on their own to make it wise to annoy their intermediaries.

      • Steven Zacharius

        There are plenty of publishers that sell DRM free books. Lots of digital only publishers do this as do some of St. Martin’s Press imprints. Even if a book were DRM free the publisher would still have a digital list price and the retailer would be paying them x amount for that book for each download. If the retailer is still going to sell it at cost, near cost or even below cost, being DRM free is irrelevant because that retailer would still capture the majority of marketshare because of low pricing.