The Shatzkin Files


Things learned and thoughts provoked by London Book Fair 2012


This post contains a batch of observations from this year’s London Book Fair. Some of it recalled an experience from about 20 years ago. We’ll begin there.

In the early 1990s, Microsoft was on a mission to get computer hardware manufacturers to install CD-Rom drives in new machines. Microsoft had a very simple motivation. Software then was sold as hard goods. One CD-Rom could hold the data that required many, many diskettes. So if the storage and transfer medium were changed, the cost of goods for Microsoft would drop sharply. Since the value customers were buying was the code, not the package, Microsoft figured (correctly) that they’d be able to keep the price of software the same and simply make more profit if their customers could handle the CD-Roms. (Please note this logic applies very nicely to any discussion of what ebooks should cost in relation to print.)

But, of course, most people don’t load that much software, so the CD-Rom argument would be strengthened if content were also available on them. That inspired Microsoft to stage a half-day conference to “educate” the trade publishing community about the “opportunity.” (Of course, areas of technical and professional publishing, which had opportunities in delivering very large amounts of data, had already started to move in that direction; the value of CD-Roms was real and obvious to them. They also had vertical audiences of professionals that were perfectly able to hook up a CD-Rom drive to their existing machines, and did.)

At the conference, Microsoft basically showed all the “cool” things the computer could do: delivering sound and images (not video so much in those days) and hyperlinks. They basically said, “we don’t know how you’re going to make money on this; you’re the content experts. But we’re giving you this great new canvas to create on. Create!!!”

The excitement Microsoft and others were able to generate led to a burst of activity by publishers to create CD-Roms. Very few people found this new packaging of content particularly appealing at any price, and they actually were listed at very high prices. In other words, the techies had no clue about the content business and their advice to it was self-serving.
——
Last Monday in London, Susan Danziger of Publishing Point hosted The Great Debate. The proposition being debated was that the new tech companies would ultimately deliver a “knockout blow” to the conventional publishing establishment. Michael Healy of Copyright Clearance Center moderated.

Speaking for the new tech companies were two stunningly successful new technology entrepreneurs: Bob Young of Lulu and Allen Lau of Wattpad, both of which take anybody’s content and put it into circulation. Lulu’s core mission is seamlessly turning content into printed books and Wattpad’s is about organizing it for crowd-sourced consumption and discussion.

Opposing them were two publishing veterans (and, I’m happy to reveal, good friends): Evan Schnittman and Fionnuala Duggan. Schnittman is about to move from a global sales and marketing position at Bloomsbury to become Hachette Book Group USA’s head of sales, marketing, and digital. Duggan came from the music business, spent several years heading up digital at Random House UK, and is now Managing Director for International Course Smart, the digital platform created by a consortium of college textbook companies.

There is no ambiguity about what happened in this “debate”. The format required each of the approximately 250 attendees to register their opinions as to which side they favored on the way in and then again after the speakers had presented. The “establishment” side — the Schittman and Duggan side — picked up about 100 votes with their arguments from where the audience was when it came in. The incoming audience favored the proposition that the knockout blow was coming by a wide margin. After the debate, the margin was as wide in the opposite direction. (Some were undecided; so don’t drive yourself nuts trying to work out the math.) It is hard to imagine a more decisive outcome.

Of course, Duggan and Schnittman know quite a bit about technology. But neither Young nor Lau seemed to know anything about the content business. That shouldn’t be a surprise. Both of them have gotten rich in businesses that are ostensibly content businesses, but they aren’t. Their financial success is not dependent on the quality of content, the skill in developing or marketing it, or its inherent appeal. In fact, Lau kept touting the volume of what he hosted and claiming that technology would handle the curation perfectly adequately in the future. This was “proof by assertion.” It was the ultimate declaration of faith. The audience didn’t buy it.
———————
On the day before, Schnittman had hosted the Digital Minds conference. One of the keynote speakers was an old friend of his, Andrew Steele, who is the creative director of the very successful web site, Funny or Die. Steele told us the story of that business, which is instructive.

The original concept of Funny or Die was to crowd-source user-generated content, like YouTube. They’d build up traffic and monetize it. But there was a problem. Most of the amateur stuff they got just wasn’t funny. As Steele points out, we go to YouTube when somebody sends us a link for something good. We don’t go to YouTube and browse all the amateur content. There’s a reason for that. Most of it is crap. And most of what Funny or Die was getting from the crowd was crap. They weren’t getting page views. They weren’t going to succeed.

So they tried something new. (That’s called pivoting, for those of you who don’t spend enough time talking to the tech-and-finance community.) They got professionals to create content. Things changed quickly. By allowing their professionally-produced content to go off the site while it maintained the “Funny or Die” branding, they soon built a large audience. It now keeps growing and growing. Success is assured. But the lesson Steele emphasized was that professionally-created and -curated content succeeds where amateurs fail. He sees no reason why it should be any different in our world.
————————
I got a chance to visit with Charlie Redmayne of Pottermore. He was a bit bleary-eyed at the Digital Minds event on Sunday because the site had opened to the public that weekend. When I saw him on the show floor during the week he had just benefited from a full seven hours of zzzs, and he was enjoying his status as a game-changer.

The key to Charlie’s disruption was his willingness to substitute watermarking for DRM. He said it definitely made him nervous to do it, but he couldn’t see any other way to achieve what he wanted for Pottermore. He had to be able to sell to any device; he wanted to be able to allow any purchaser complete interoperability. There was no way to do that and maintain DRM.

His technical infrastructure is awesome. It stood up even though the average length of engagement by each user was three or four times what they had projected and the traffic exceeded expectations as well. But the most startling early news was what he reported about piracy.

Apparently, Potter ebook files started showing up on file-sharing sites pretty much right away after they opened. But before they could serve any takedown notices, Charlie says the community of sharers reacted. They said “C’mon now. Here we have a publisher doing what we’ve been asking for: delivering content DRM-free, across devices, at a reasonable price. And, by the way, don’t you know your file up there on the sharing site is watermarked? They know who you are!” And then the pirated content started being taken down by the community, before Pottermore could react. And very quickly, there were fewer pirated copies out there than before.
————————
I heard a rumor from a very reliable source that two of the Big Six are considering going to DRM-free very soon. The rumor is from the UK side, but it is hard to see a global company doing this in a market silo. Another industry listener I know was hearing similar rumors from different sources.

Could we see another crack in this wall sometime soon, maybe this year?

This is one lecture the techies have been delivering to the content folks that might have been on the money. I’ve always been skeptical that DRM prevents piracy, but I’ll admit that I was more concerned in the past than I am now that it would cost sales.
————————–
At the Digital Minds conference, there was a panel on children’s content publishing. Sara Lloyd, head of digital for Pan Macmillan, moderated a group that included Belinda Rasmussen from her own company, Eric Huang from Penguin, Jeff Gomez of Starlight Runner Entertainment, and Kate Wilson of Nosy Crow, which is a new children’s “book publisher” that seems much more focused on apps.

I have trouble seeing a future for book publishers in the kids’ content world. Everybody seemed to agree about what the apps of the future required (interactivity, game elements, animation) and that the parents of five years from now will be much more likely to hand their kids in the back seat an iPad than a book. So I asked them, as books diminish, what will publishers have to offer here? Wouldn’t this business belong to people who know gaming and animation, not books?

Kate seized the question from the stage and answered in a way that seemed to confirm my conjecture. “We don’t hire people with book experience,” she said. When I checked in with her later, she agreed that books were a revenue-generating convenience to get her company started. She sees the day when they won’t be part of her business anymore. What excited her (and well it should) was that they’d just made their fifth app and had created all the software tools they needed to build it while making the first four. The cost of creating their apps is plummeting because they’ve built the toolkit.

———————-

The news about the DoJ’s charges against five publishers and Apple and their settlement with three publishers broke just before LBF. It was a topic of much discussion, of course. Most people in the industry are horrified by the lawsuit and the settlement and there is really widespread fear about the consequences of ending the agency model. (The settlement doesn’t do that, but having three big publishers pushed to allow discounting for the next two years at least certainly cripples it.)

On Publishers Lunch, Michael Cader rounded up an impressive set of links to media around the country who are just as horrified as publishers, retailers, and agents at LBF were. Here are the stories from the New York Times, the Wall Street Journal (behind a pay wall, unfortunately), Slate, and the Los Angeles Times.

We understand that an amendment to the Tunney Act obliges the DoJ to take note and report to the court any opinions expressed in writing by the citizenry about a settlement that takes place in a case still being litigated. Cader notes that the law has usually been used to expand a judge’s ability to exercise oversight when the court believes DoJ hasn’t been tough enough. In this case, we’ll be asking them to pare back a settlement, which is apparently a less common use of the law. But the law allows us 60 days from the settlement to get those letters in and it is what we in the community can do to help fight this battle.

As I wrote in my summary of the impact of this settlement, it is one where Amazon and the cost-conscious ebook consumer win, but everybody else (and that means authors, publishers, retailers, and the public that wants good books, as I explained on NPR) lose. The low-price side of this is easy to understand. The publishing business side isn’t. (If this were a GOP DoJ, I’ll admit that I would have inserted a snide remark here about what this shows about their IQ.)

One point to note here, which didn’t occur to me at first, is that the three settling publishers are about to game the two fighting publishers (and, perhaps, Random House) the same way Random House gamed them when they stayed out of agency at first. Whether or not they stick with agency, they are now enabling discounting, so they might get the same benefit of the retailer discounting their goods while they retain their revenue that Random House got for the first year of agency.

In other words, more weight on the shoulders of the two companies, Macmillan and Penguin, who are carrying the fight for the whole industry. And that means more reason for the rest of us to try to help.

I am working on my letter to DoJ now, and I’ll publish it in a future post. I hope all my readers who understand what’s at stake here will also write to Justice. Address your letters to

John Read
Chief Litigation III Section
Antitrust Division
U.S. Department of Justice
450 5th Street, NW, Suite 4000
Washington, DC 20530

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  • EricWelch

    I fear you will probably make some remark about my low IQ, but I fail to see how you make your case for the following remark: ”
    As I wrote in my summary of the impact of this settlement, it is one where Amazon and the cost-conscious ebook consumer win, but everybody else (and that means authors, publishers, retailers, and the public that wants good books, as I explained on NPR) lose.

    As a cost-conscious consumer of ebooks, I’m thrilled I will benefit. As far as Amazon benefiting (maybe, but I don;t think you’ve provided benefit showing that.) Authors, as has been demonstrated several places make less under the agency model and many are now making more by cutting out the middle-man. By retailers, I assume you mean B&M stores and they may suffer but so did corner soda fountains with the advent of supermarkets. Publishers have the potential to do very well but not if they insist on sticking with a business model that sees a substantial portion of their product pulped as returns (I’ve seen figures around 50%.) As far as the public losing good books, a glance at the NYT best seller list reveals a lot of crap. (Fifty Shades of Gray, #1, an erotic thriller, is published by Knopf?  Oi Veh. What’s happened to my favorite publisher? 

    • /blog Mike Shatzkin

      Ah, Eric. You want me to rewrite the posts?

      Amazon benefits because they can drive down prices and drive their ebook competitors from the field. Fledgling authors will lose because they’ll lose the price differential that makes them discoverable. Experienced authors will lose because they’ll lose the publishers that pay substantial advances (and provoke Amazon to compete on that front.) The authors that now win through disintermediation will lose because Amazon won’t have to pay them 70% anymore in the future when there aren’t other alternatives. The competitive retailers will lose because they won’t be here anymore.
      And the consumer that wanted the value a publisher adds, including financing books like the Steve Jobs bio (the most convenient recent example of a high-cost non-fiction book that requires a substantial advance to get written) that won’t be produced, will lose things they won’t even know could have existed!

      But, absolutely, the person who wants their thriller or romance novel or sci-fi from a top author for $2.99 instead of $9.99 will win. Unfortunately for them, they’ll be mostly choosing from those authors that made their name during the time (now) when establishment publishing exists and those outside the establishment gain recognition through the price differential.
      And rather than the soda fountains and supermarkets, how about using the
      town centers and Walmarts as your example? How many people do you think
      would like to put *that* genie back in the bottle, if only they could?
      Lower prices have been delivered at the expense of many communities.

      Some people think that’s a good thing. If you’re price conscious, perhaps
      you do. If you were price conscious and now unemployed, perhaps you don’t.
      (Or you could be employed at a Walmart, but then it would depend on what
      your last job was…)

      Mike

      • http://josephratliff.com/blog JosephRatliff

        Does it really make sense for Amazon to quit paying authors a reasonable rate, even when there is little or no competition?

         If Amazon starts to “lower pay rates” for authors, who write the very product being sold, over time… wouldn’t Amazon’s business suffer?

        It doesn’t seem like a very solid end game for Amazon to drive out the competitor (even by lowering prices), then create an imbalance within the very relationships that feed their business (author and consumer).

        Authors do have the option of not only self publishing, but also adapting and self-marketing… yeah Amazon is a giant market place… but they are NOT immune to new competition that adapts to a changing digital marketplace, nor immune to business loss if they tick off a bunch of authors. 

        Will it take new thinking for a potential competitor?  You bet.  Will it take serious innovation?  You bet.

      • /blog Mike Shatzkin

        Joe, it is all about the choices anybody has at any one time.

        Amazon — perhaps better and more intelligently than any other company on earth — responds to the reality of market conditions. If they have the lion’s share of the book customers, anybody who wants to reach them will make whatever deal with them they can. They know that and it will affect the terms the offer.

        The precise logic you are applying to authors could be applied to publishers which, after all, have provided Amazon with content since their inception. That hasn’t prevented Amazon from progressively reducing publishers’ margins to their own benefit. There’s nothing “wrong” with that; it’s just the reality of how things work in a commercial marketplace.
        I don’t expect Amazon to behave differently than they do. They’ve got a powerful position and they’ve earned it. But I wish our government weren’t exercising its prosecutorial discretion to help the biggest and most powerful player in our industry to become more so.

        Mike

      • http://josephratliff.com/blog JosephRatliff

         But publishers play a different role in the transaction than authors do, no?

        They are in the “middle” position.

        Authors simply relied on them to deliver what they wrote to the consumer marketplace.  Amazon, well, seems to be doing a better job at that… but they are in the same position as the publisher.

        And thanks Mike, I love your response by the way… and this post… I learned a bit this morning, which helps the coffee do it’s job :)

      • /blog Mike Shatzkin

        Joe, saying “simplied relied on them to deliver what they wrote to the consumer marketplace” is such an oversimplification that it is almost *never * true; there’s almost always more to it than that. But you have captured the part where Amazon excels. It leaves a lot out.

        Here’s a simple fact to take on board. A retailer is not interested in promoting sales outside their own retail channel. In fact, retailers try to have store-created products specifically to create a unique proposition for consumers (“you can’t get it anywhere else”.)

        Publishers, like all manufacturers, want a diverse retailing ecosystem with lots of points of purchase.

        So Amazon’s strategy in its own interest is to make other retailers get sick or die. Publishers’ strategy is to figure out how to make them live and thrive.

        Which do *you* think is better for authors in the long run?

        Mike

      • http://josephratliff.com/blog JosephRatliff

         While I get your point now Mike… I’m pretty sure publishers wouldn’t mind if Amazon wasn’t around ;)

        (if it “got sick and died”)

        So I guess publishers need to step up and create a “virus” to get Amazon sick then.

        I guess in the end I just get this “whiny” vibe from publishers as a whole… like they don’t want things to change, Amazon is changing them, etc…

        And unfortunately, price is one of those variables that consumers will naturally gravitate towards in the absence of value.

      • /blog Mike Shatzkin

        Actually, Amazon is a great boon to publishers, as I’m sure they could tell you. They sell a *lot* of publishers’ books. If they appeared to understand that publishers add value and looked for ways to allow that to continue to happen, the hostility that exists now would fade away. But it looks for all the world like Amazon sees a future with very few bookstores (as do I) and they’d like that day to come as soon as possible and for them to be pretty much the sole marketplace when it does (which is where we part company.)
        Mike

      • http://twitter.com/KOMcLaughlin Kevin McLaughlin

        It would probably help if there were not quite so many writers out there singing “ding, dong, the wicked witch is dead” (regarding publishers), too. Of course, that would be predicated upon publishers treating writers with respect, which in general isn’t happening either…

      • /blog Mike Shatzkin

        I don’t think most publishers treat most writers with a lack of respect. I do think that the demands of a corporate environment aren’t always kind, and they can seem particularly harsh and arbitrary to somebody who lives their whole life outside of one. And big publishing is big business and, inevitably, corporate. Believe me, if the writers had to deal with financial firms or manufacturers, it would be worse!

        Even though many people get one deal or two with big publishers, never get anywhere, and are entitled from their own experience to be a bit cynical about how much publishers add value, there are also lots of stories like the one being told these days about Robert Caro.

        You know, there are a lot of writers who put their books up for sale on the Internet and hardly sell any. More of those than there are failed authors with publishers. And lots more of those than there are successful authors at all. Because even with a publisher’s help, far more authors succeed in completing a novel or memoir than can persuade anybody outside their immediate family to read it.

        Mike

      • http://twitter.com/KOMcLaughlin Kevin McLaughlin

        Joseph, I agree, but for different reasons.

        Very recently, we saw the impact a few thousand writers made irate by the decision of one large company had on that company’s decision making. Paypal decided to force bans of certain specific legal ebook content (certain types of erotic books). We watched several thousand writers take to the internet, and, with the help of the ACLU and some other groups, force enough spotlight on the issue that Paypal relented.

        Amazon has a sweet deal with writers at the moment. Writers are fond of Amazon, and the main store that writers tweet links to, or post links on their website, posts, etc. to is Amazon. This is of enormous benefit to them.

        Slashing writer royalties would result in…well, I suspect the backlash would more closely resemble the recent SOPA thing than it would the Paypal issue. I don’t know that writers would pull their books, but all those “buy my book here” links would suddenly go elsewhere to some other retailer (Smashwords, perhaps, if the other big retailers ALL died). And if a hundred thousand irate writers all took to the internet as a unit decrying Amazon’s actions, I suspect the result would be…memorable.  ;)

        So no, I’m not at all worried about Amazon slashing royalties. I frankly don’t think it will happen. And if it did, the backlash would damage Amazon’s image enough that they’d probably rescind it very rapidly.

      • /blog Mike Shatzkin

        I think whether royalty-slashing would work is all about timing, how it is done, and what other choices are available when it happens. Amazon has tried pushing sometimes and failed. But over time, inexorably, they have taken margin from trading partners. Why should writers be any different?
        Mike

  • Calee

    I’m curious to see what happens with the children’s ebook market as opposed to the children’s app market.  Obviously, I’m rooting for the ebook side (my company is http://xistpublishing.com) since we’re in the business of publishing ebooks rather than apps.  I think that there will be room for both in the baby-5 market, but as kids begin reading longer books the move will be towards ebooks.  We’ve been able to keep our costs much, much lower because we don’t do apps and sales have grown month over month in a way that’s very promising.   Parents still want to read to their kids and a phone/ipad/kindle fire is often more convenient than lugging around a pack of picture books.

    • /blog Mike Shatzkin

      It is very early days and predictions are dangerous, of course. My concern would be that more and more interactivity will be demanded as time goes on. And that book-like prices will be hard to sustain. Still, if you have a formula that is working for you now, you’re ahead of the game. Stay with it!
      Mike

  • Pingback: Macmillan’s Tor/Forge goes DRM-free — paidContent

  • http://www.facebook.com/LauraVanWormer Laura Van Wormer

    Dear Mike, Wonderful column as always I was puzzled by the piracy report from Pottermore.  “And then the pirated content started being taken down by the community, before Pottermore could react. And very quickly, there were fewer pirated copies out there than before.”To me, Mike,  the piracy problem is about (mostly) Asian and Eastern European pirates manufacturing from a single eBook file and SELLING them around the world.  DRM doesn’t solve it, but it defies the imagination why it would be good to just roll over and give the pirates a helping hand in doing what they already do–set up sites and sell the pirated eBooks and then vanish in the night, setting up shop under a different name the next day, on and on.  (I think they caught something like 1% of eBook pirates in German a few months ago?) 

    P.S.  How does Pottermore know how many illegal editions are being sold around the world?  

    • /blog Mike Shatzkin

      I believe they were responding to what was UP, not what was SOLD. Out of the gate, copies they were selling DRM-free were going up on pirate sites, but before they served takedowns, the community pulled them off.

      Mike

      • Chris

        I get 100,000+ links to the Pottermore torrents…

      • /blog Mike Shatzkin

        But how many were there before?

        He didn’t say he eliminated them.

        Mike

      • Chris

        Mike, there’s tons of torrents on the biggest pirate site. So removing files from other sites is kinda like saying to the Chinese Politburo that everything is fine because we shut down every search engine on the net … except Google!

        Personally I believe that most people will buy an ebook despite pirate listings. And those who don’t and choose to pirate instead… well, they probably weren’t really going to convert as buyers anyway.

        I used to really stress about the whole piracy things years ago … I couldn’t care less these days. Best to treat it as marketing.

        Price titles fairly, keep them DRM-free and carry-on with business. Not doing that will probably cost more in lost revenue than any amount of pirating.

      • /blog Mike Shatzkin

        I don’t really disagree with you, Chris. There are some problems in life that just can’t be solved and pirated files on Torrent sites is one of them. Takedown notices seems like spitting into the wind.

        One great speaker at the Digital Minds conference in London said “consumers *choose* to pay for ebooks”, his point being that anybody who really wants to can get the files for free. It’s an interesting way to look at it, and certainly not the way we thought about things in the physical world.

        I had a friend in college, who is now actually a very famous and very rich man, who used to steal books to order. You told him what you wanted, and he went into the bookstore and came out with it in his coat pocket. The big difference then was that the store paid for it, the publisher and author didn’t feel the pain of the theft.

        Mike

      • Chris

        Very famous and very rich…? 

        Jesus Christ, so all these years I spent liberating words from mind should have been spent liberating them from book stores?!

        Too late now, I guess … it’s all digital. 

        Not to mention that everyone is currently robbing those friggin bottomless shelves with me! :)

      • /blog Mike Shatzkin

        He didn’t get famous and rich stealing books. He changed careers.

        Mike

      • Chris

        Geez Mike, you take me more for an idiot than my wife!

        Mmm, actually… now that I think of it … so does everyone. :)

      • /blog Mike Shatzkin

        Sorry. I never want to usurp a wife’s role of delivering a man’s most profound insults.

        And I don’t want to insult you, anyway. You’re one of my favorite commenters!

        Mike

  • http://gravitationalpull.net/wp/ ampressman

    One issue with your floppies/CDROMs equals printbooks/ebooks analogy — The CDROM shift left customers with exactly the same rights they had in the floppy age and with an upgraded storage medium, so keeping the same price makes perfect sense. The ebook shift with DRM is no such animal, not even close.

    • /blog Mike Shatzkin

      They’re analogs, not identical twins. When you talk about less money for less value, I’m with you. And, in fact, publishers charge less for ebooks than they do for printed books (even if retailers don’t always reflect that.) But most of the *complaints *are cost-based. And to the extent that cost is the determining criterion, the analogy is totally appropriate.
      Mike

  • JayneA

    I absolutely cannot suspend my disbelief enough to think that the alleged collusion didn’t happen.  Yes, the DOJ filing reads like the greatest Christmas present ever to Amazon but the blame for that lies entirely with the defendants. 

    I totally get their frustrations with Amazon and the motivation to do something about it but could they not do it a way that was not illegal?  

    The only good thing the agency model accomplished was to give Barnes & Noble some time.  In the meantime, the price fixing did not help author and readers in any way that I can think of. 

    I suspect life will bleaker yet for the publishers but at this point, I think they deserve every bit of it as a result of their own behaviors. 
     
    I will be writing a letter to the DOJ but it will not be in support of those who I believe to have committed illegal acts.

    • /blog Mike Shatzkin

      Jayne, I think you have to reconsider what you think you’re seeing as evidence of collusion on agency as what it more probably is: discussions about creating Bookish (and/or Anobii.) Bookish is about to launch, perhaps before BEA, and nobody at Justice as has said “boo” about that, as far as I can tell.

      If you don’t know what Bookish or Anobii is, I’d suggest you need to know more to have an informed opinion about this case.

      If you read Jane Litte’s post about the law, what was incredibly striking to me is the opening where she says:

      In* United States v. du Pont & Co.,* 351 U. S. 377, 391, we defined monopoly power as “the power to control prices or exclude competition.”
      Since Amazon clearly has that power, I’m wondering why the focus is on the alleged collusion and not on the single party that clearly has the power the Supreme Court was worried about.

      The problem is that Amazon’s market position elides the contribution of the publishers and they have enough pricing power to create a book marketplace where there won’t be any margin to support publishers. You will be able to get lots of cheap books from Amazon, though. If that’s your priority, they’ll be serving you well.

      Mike

      • JayneA

        Please don’t take my opinion of the suit as support of Amazon.  I suspect they’re going to have their own troubles with the DOJ but price fixing isn’t one of them.   I don’t like that they were handed the present I mentioned in my earlier comment but the defendants only have to look at the mirror to assign blame.

        The defendants allowed their fear of/ frustrations with Amazon to cloud their judgment and implemented the agency model in a manner that was waving a red flag in front of the DOJ.  Did they not talk with their attorneys before doing this?

        I happen to think the agency model as it is may be the best way to deliver digital goods at this time.   If the publishers had put a little thought into this rather than jumping on the Apple bandwagon, I’m sure they could have found a legal way to convert to the agency model without it coming at the expense of their authors, readers and employees.  All of these people at risk or hurt and we’re supposed to believe it’s increasing competition.

        Ok, B&N increased market share but I suspect that came at the expense of independents rather than Amazon.  By taking away pricing decisions, loyalty cards, etc. all that was left was convenience and customer service.  You have to give credit to Amazon there, they win in both categories quite handily.

        I have a family member that relies on a contract with one of the defendants to put food on her table and a roof over her head.  What did she see post agency model?  Decreased royalties per sale and decreased sales due to the increase in the price of her books.  She will fulfill her contract and move on with the full support of her agent.  Who knows if she could even get a new contract with the decrease in sales?  That’s hard for her take even when you can see the significant shift that occurred post agency.  Lots of people were buying her well reviewed books at $7-8, not so many buyers at $13.

        What did the readers in my family see?  Ridiculous price increases on many backlist titles.  No, no one here is buying those these days. Most of us would gladly pay $7-9 for the convenience of a digital book but they’re not going to pay $13-20 for them.

        I’m sure Bookish and/or Anobii was/were probably discussed during these private meals but it’s the price fixing that causing the indigestion. 

      • /blog Mike Shatzkin

        Jayne, some of what you say rings very true (such as your victimized author friend because, indeed, the revenue to both publishers and authors went down under agency and, because Random House was outside it the first year with books being discounted, sales of others definitely must have suffered. But some of what you say doesn’t, such as complaints about backlist ebooks at $13 to $20. That wouldn’t be agency pricing. Might those be books that Amazon is NOT cutting prices on but selling at the silly inflated publisher list prices created by the silly inflated 50% wholesale discount? I don’t know.

        The problem with agency wasn’t the publishers who introduced it, but that Amazon singlehandledly *prevents* many publishers who want to implement it from doing so.

        But I have to say it is might fastidious of you to see agency as the best method but to be happy to see it blown up because of the “evidence” you think you see of collusion (which might be about other things, not agency at all). The consequences of that in the short run might be ok for your writer friends and family, but I think it is very likely you and they will live to rue the day.

        Mike

      • http://mindtherant.blogspot.com/ MindTheRant

        I sympathize with the travails of your author friend.  I take you at your word that she took a hit when her publisher switched to the agency model.  Amazon did an outstanding job convincing its customers — and a sizable chunk of the ebook-reading public — that no one should have to pay more than $9.99 for an ebook.

        However — and this may be trivial — I do disagree with your contention that B&N increased market share at the expense of independents rather than Amazon.  When the Nook arrived in November 2009 the ebook market was, despite Amazon’s 2-year-lead, still a gold-rush opportunity.  There were still tens if not hundreds of thousands of ebook enthusiasts to be won over to a platform, and B&N managed to grab many who, in the absence of a meaningful choice, would eventually have switched to Amazon.

        Indeed, since the independents had no ebook platform (and Google, after offering them one, is now backing out of its eBook Reseller Program) I’m not sure what you mean by your assertion that B&N’s share came at their expense.

      • /blog Mike Shatzkin

        Thanks for answering the part of that post that I missed. You’re right.
        Mike

      • JayneA

        MindTheRant-

        In no way did
        I mean that B&N got their entire market share because of the agency model
        but that is certainly what I posted. I can read and reread what I write and
        still manage to leave out a meaningul word or two. My apologies and I’ll try
        again.

        I think the
        agency model was a boon for the B&N platform because it gave them time to
        develop the hardware necessary to capture market share. I think kindle owners
        also benefited because Amazon had some competition. I give the agency model all
        the credit for that.

        I think the
        independent sellers got hurt though because they could no longer compete on
        price. I’m referring to loyalty programs and such here. I’m not one that likes
        to run all over the place to buy my books but I am happy to do that in an
        effort to support “the little guy”. Once the loyalty programs went
        away though, I found that no one else I spoke with ever bothered to go back to
        those sites. Maybe I don’t talk to enough people but every one of them told me
        it wasn’t worth the effort. They either bought from Amazon or B&N. One
        reader, one digital library. That was the convenience part of my comment.

        I have yet to
        talk to any reader that has switched platforms from Amazon to B&N but I
        know of four that switched from B&N to Amazon. That’s the customer service
        part of my comment but again, I may not talk to enough people.

        MindTheRant-

        In no way did
        I mean that B&N got their entire market share because of the agency model
        but that is certainly what I posted. I can read and reread what I write and
        still manage to leave out a meaningul word or two. My apologies and I’ll try
        again.

        I think the
        agency model was a boon for the B&N platform because it gave them time to
        develop the hardware necessary to capture market share. I think kindle owners
        also benefited because Amazon had some competition. I give the agency model all
        the credit for that.

        I think the
        independent sellers got hurt though because they could no longer compete on
        price. I’m referring to loyalty programs and such here. I’m not one that likes
        to run all over the place to buy my books but I am happy to do that in an
        effort to support “the little guy”. Once the loyalty programs went
        away though, I found that no one else I spoke with ever bothered to go back to
        those sites. Maybe I don’t talk to enough people but every one of them told me
        it wasn’t worth the effort. They either bought from Amazon or B&N. One
        reader, one digital library. That was the convenience part of my comment.

        I have yet to
        talk to any reader that has switched platforms from Amazon to B&N but I
        know of four that switched from B&N to Amazon. That’s the customer service
        part of my comment but again, I may not talk to enough people.

         
         

      • /blog Mike Shatzkin

        Jayne, you are just 100% wrong about the independent booksellers. The head of the American Booksellers Association, Oren Teicher, was one of those who have been on record loud and clear in favor of the agency model. When Random House went to it after a year staying out of it, one of their top executives told me personally that one of the major considerations was the pleas of independent bookstores that they go to the agency model.

        There is no world where independent anythings can compete with Amazon on price. Not possible. And the loyalty programs, which mostly work in the romance world, don’t have much to do with Big Six agency-priced books.
        Mike

      • Another Steve

        >all that was left was convenience and customer service.  You have to give credit to Amazon there, they win in both categories quite handily.
        The two companies have different models of customer service, and some might prefer one over the other.  With its physical stores, B&N offers services that Amazon cannot.  If I take my new Nook out of the box and find it defective, I can take it back to the local B&N where I bought it and if they have one in stock they’ll swap it for a new one.  Same thing happens with a Kindle, I have to pack it up, take it to the UPS store, and wait for my replacement to arrive.   

        Before I buy my Nook, I can go to the store and have it demonstrated.  If I don’t understand how a particular function works, I can bring it in to the store and somebody can show me how to do it.  Support over the phone, particular on a device that doesn’t allow a remote desktop, is a poor substitute.  If need be, the sales associate can call tech support for me.  

        For a lot of people, this is what customer service is all about.  Apple realizes this and is opening up Apple stores all over the place, even though their online and phone tech support is first-rate.    

        Because B&N is not a highly centralized organization, I’m sure the quality of service will vary from store to store.  And if no store is convenient, then these advantages go away.   And, yes, B&N is struggling right now.  

        But there are a lot of advantages to having a physical store, and that in and of itself is an important selling point to many customers.  

      • /blog Mike Shatzkin

        Thanks for this, Steve. Of course, you’re right. And it shows the perils of generalizing from one’s own experience. Some people need stores; some people prefer every engagement to be online or through email. People are different. An all-Amazon, no-stores world will work for some people and be very inconvenient for others.

        Mike

  • http://mindtherant.blogspot.com/ MindTheRant

    Mike –

    Your discussion of Charlie Redmayne and Pottermore makes it sound as if Redmayne was responsible for the decision to substitute social DRM for conventional DRM in the Harry Potter ebooks the site sells.  However, when J.K. Rowling announced Pottermore in June of 2011 she also announced that the Harry Potter ebooks it would sell would use watermarking in place of DRM.  Here’s a link to a Wired.com story from 23 June 2011 that makes her intentions plain:

    http://www.wired.com/underwire/2011/06/pottermore-details/Charles Redmayne didn’t take over as CEO of Pottermore until November of 2011, so it seems to me he’s getting credit for a daring sales strategy that was already in place well before he came on board, no?

    • /blog Mike Shatzkin

      True. Charlie implemented it. I don’t mean to reduce the credit due to Rowling, and Charlie wouldn’t like that either.

      What I doubt was in place before Charlie came aboard was the complex dance step with all the retailers that has them all sending traffic to Pottermore, but has Pottermore allowing them to put DRMd versions on their devices.

      Mike

  • Pubber

    “The excitement Microsoft and others were able to generate led to a burst
    of activity by publishers to create CD-Roms. Very few people found this
    new packaging of content particularly appealing at any price, and they
    actually were listed at very high prices. In other words, the techies
    had no clue about the content business and their advice to it was
    self-serving.”

    I worked for one of the illustrated reference publishers who went into CD-ROM publishing in a big way, and remember things rather differently. Our products were loved by consumers and won lots of awards; through our home-selling channel, where buyers could try the product in a friend’s home, sales were high; the combination of multimedia content and true interactivity was very compelling – indeed many successful apps today are faint imitations of some of these products. But our initial price points were too high for the market and had to come down. And our biggest disappointment was that bookshops did not come to grips with selling CD-ROMs; they just put the box on the shelf, and there was no way the consumer could understand the value of the product unless they could try it out on a PC – which bookshops were unwilling/unable to provide in-store.

    So I feel that the tech industry put some fantastic technology  at the publishing industry’s disposal, and the book industry did not rise to the occasion. And to me that is the analogy with ebooks. Why didn’t the Big Six get together 10 years ago and start offering an ebook reader and downloads through a common site? They let Amazon seize the opportunity – and Amazon have of course been ruthless in exploiting it to the full. Yes ebooks are a disruptive technology and the Big Six had enough going for them – large coffers for investment, brands, authors – to take control, but despite continually saying “we are so clever, we won’t let what happened to the music industry happen to us”, they did let a tech company walk right in and walk all over them.

    • /blog Mike Shatzkin

      Two big points. Two separate responses.

      I did an assignment in the mid-1990s for Simon & Schuster Interactive. They had StarTrek. Their CD-Rom was a big winner. They commissioned very expensive research about CD-Roms. In a nutshell, what the research company told them (which they didn’t hear at the time, because they didn’t believe it, but I did, because I did believe it) was that when somebody had tried and used five of these products, they had absolutely zero interest in trying a sixth.

      People have to want these things over and over again, like books. And movies. They didn’t. And if they did, now that the tech is cheap and the distribution is easy, enhanced ebooks would be selling like hotcakes and apps would be able to command decent prices. They don’t and they don’t.
      As for publishers competing with Amazon: hogwash. Aside from being * brilliantly* run and executed, Amazon discounted publishers’ books enormously as they were getting started to build a market. They not only were okay not making money, they were willing to sink hundreds of millions into building an infrastructure and selling things cheap. And that’s only possible because they are monetizing those customers eighteen ways from Sunday, not just selling them books.

      That’s part of the dirty little secret about why B&N ultimately will find
      it very difficult to compete with Amazon. Not only are they not global
      (which Amazon is), they don’t sell batteries and vacuum cleaners, let alone
      run a marketplace that just about everybody in the world can use.

      But the publishers are trying it now, with Anobii (in the UK) and Bookish
      over here. They have my very best wishes but not my very highest hopes.

      Mike

  • http://twitter.com/KOMcLaughlin Kevin McLaughlin

    I think the DRM issue is key.

    Right now, DRM serves basically one purpose: it gives Amazon a walled garden ecosystem. It doesn’t stop piracy in any meaningful way; a quick internet search reveals a number of fast, easy ways to break any available DRM.

    But as a result of publishers’ insistence upon DRM, no one but Amazon can sell files for Kindle devices or software. And since most readers are using Kindle devices and software, it means that most ebook retailers cannot sell the *dominant* ebook format.

    Remove DRM, and Google could begin selling mobi files alongside epub. All Romance could begin selling mobi files. Smashwords could pick up the lists from the major publishers. And, if they had access to the entire market rather than merely the third of it which uses epub, I suspect we’d see a swarm of startups kicking off to challenge Amazon.

    I’d consider starting one myself. ;)

    But right now, it’s basically impossible. The primary market – those Kindle device/software users – is closed. And those readers simply aren’t going to switch to another retailer, because that would mean abandoning their existing investment in books.

    I suspect that removing DRM from ebooks will be a crucial move for publishers interested in breaking Amazon down a bit. No one bookstore is likely to do this alone – but a few dozen startups, all running light on infrastructure to keep costs down, could compete effectively IF they were allowed to do so.

    • /blog Mike Shatzkin

      Whether DRM removal is the magic bullet you and other think it is is likely to be something we’ll find out over the next year or two. The Tor.com announcement by Macmillan yesterday is very likely to be the first of many from major houses as we march into a non-DRMd world.

      Mike

  • http://twitter.com/KOMcLaughlin Kevin McLaughlin

    “As I wrote in my summary of the impact of this settlement, it is one where Amazon and the cost-conscious ebook consumer win, but everybody else (and that means authors, publishers, retailers, and the public that wants good books, as I explained on NPR) lose. ”

    I’m in the “unconvinced” camp, here. To borrow your phrase, this reads like “proof by assertion”, Mike.

    On the retailer side – the settlement does not allow Amazon to discount to a loss, and in fact they *have not* made a habit of doing so even when they could. Pre-agency, they were discounting books priced in the $14-18 range down to $9.99, which was not a loss level (remember, pre-agency they got 50% discounts on ebooks at wholesale). So if B&N or other retailers cannot make a profit on ebooks at prices that Amazon can, it means that they are, frankly, not competitive and *ought* to go out of business. Other retailers will move in to replace them. The cost of entry to the market is fairly low, the cost of maintaining the business astonishingly low, making it a fairly attractive model.

    Publishers will earn the same amount, whether Amazon discounts or not. Publishers ought to be doing what they can to encourage more retailers to sell Kindle-compatible books; this is the best route to preventing Amazon dominance at this point.

    Likewise, writers will make the same amount; those who work for publishers will continue to make the same, since their publishers will. Those who indie publish will probably be completely unaffected – the prices Amazon seems interested in discounting ebooks to are sufficiently higher than the $1-6 indie price range that they’re very different markets. I don’t see the settlement impacting most indies at all.

    The public that wants good books will be unaffected, except that they’ll be able to get some of those good books cheaper. Most of the public buying good ebooks are, at this point, buying self published ones anyway; again, these won’t be impacted by the settlement.

    Who WILL be affected? The uncompetitive. The retailers whose stores look like crud will be hurt. The retailers whose infrastructure costs are too high and therefore can’t discount enough and still make profit will be hurt. Forcing businesses to work a little harder to become as good for customers as Amazon is doesn’t seem like a negative thing, to me.

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  • Somerset Wedding Gal

    Great summary, sounds like a really thought provoking experience!

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