Dice are rolling, the knives are out

by Amanda S. Green

Let me start with an apology to Sarah for channeling the soundtrack to Evita this morning. But, as I try to put this post together, that scene from the musical is what comes to mind. Except this time, the players are the big publishers and Apple. The publishers, in the role of Juan Peron, are worried because the Department of Justice is now–finally–doing what several states’ attorneys general and the European Union are doing: investigating them for price fixing. Apple is cast in the role of Evita, reassuring Peron that nothing will happen, even as the world is crumbling around them.

A little background first. Several days ago, the Wall Street Journal reported that the Department of Justice had warned Apple and five of the big six publishers that it planned “to sue them for allegedly colluding to raise the price of electronic books.” The five publishers are:

• Simon & Schuster Inc.
• Hachette Book Group;
• Penguin Group (USA);
• Macmillan;
• HarperCollins Publishers Inc.

The article goes on to say that at least some of the publishers have been in talks with the DoJ. These talks have not yet resulted in any agreement between the parties. In fact, Apple Insider reports that the talks have taken “many turns” and that any sort of agreement is still a long way off. According to the Wall Street Journal, the investigation stems from the fact that Steve Jobs, wanting to secure the new iPad’s place in the market “suggested moving to an “agency model,” under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn’t let rival retailers sell the same book at a lower price.”

The allegation of Jobs’ trying to stifle the market is strengthened by information included in Jobs’ biography by Walter Isaacson. Specifically, by the following quote: “We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”

All of this comes on the heels of a class action law suit against Apple and the publishers alleging price-fixing and the EU’s anti-competition investigation into the agency model of pricing.

Needless to say, the cries of “foul!” have arisen, not in support of the consumers or even in support of DoJ enforcing the country’s anti-trust laws. Now, the cries have come from the same folks who have been so vocal in the Amazon is Evil diatribes. Without knowing the full reasons behind the DoJ investigation, without knowing just how deep the alleged collusion might run (assuming there is collusion and, in my opinion, there is), these writers are saying DoJ is looking at the wrong party. No, Amazon is the bad guy. Quit picking on the saints of publishing and its savior. Okay, maybe they don’t say exactly that, but it is what I read between the lines.

I was going to let this slide with nothing more than a passing mention in my regular Tuesday post . . . until I read Scott Turow’s open letter over at The Author’s Guild. Like any good author, he tugs at the heartstrings with the header for the letter: Grim News. Talk about a hook. But, in my opinion, it all goes down from there. Bear with me as I go through parts of the letter.

Yesterday’s report that the Justice Department may be near filing an antitrust lawsuit against five large trade book publishers and Apple is grim news for everyone who cherishes a rich literary culture.

So, I guess it’s okay for publishers and distributors to do whatever they want, break whatever commercial laws they want as long as we maintain a “rich literary culture”. It’s also all right, apparently, to do so even if it is screwing the readers who buy your books. Let’s forget about the fact that books sales continue to plummet and that the agency pricing model was supposedly put into place in order to save the hard cover sector of the industry. That’s worked real well, hasn’t it? (yes, the snark meter is starting to go off).

The Justice Department has been investigating whether those publishers colluded in adopting a new model, pioneered by Apple for its sale of iTunes and apps, for selling e-books. Under that model, Apple simply acts as the publisher’s sales agent, with no authority to discount prices.

True, Apple is acting as a sales agent. But, what Turow seems to forget is that this is a role Apple took to the publishers and said it would fulfill IF they agreed to Apple’s terms and IF they agreed not to allow their titles to be sold for less anywhere else. Gee, that sort of sounds like price fixing to me. But then, I’m just a writing hack, not one who will ever put out anything to enrich our “literary culture”.

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing.

Again, true. None of us were in the room with Steve Jobs and the publishers. However, we can infer based on the evidence we’ve seen. Oh, and then there’s that pesky quote from the Isaacson book. But let’s not muddy the waters with reasonable inferences and the evidence of Jobs’ own words.

We do know that collusion wasn’t necessary: given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft.

Just because it wasn’t necessary doesn’t mean it didn’t happen. And, correct me if I’m wrong, but isn’t Turow saying here that those publishers not adopting the agency model were evidencing irrational behavior?

Amazon was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

There it is! The Amazon is evil and the source of all of publishing’s problems. Now, before you start objecting, I know Amazon isn’t pure. No company is. However, the problems facing bookstores started long before Amazon. They started when the big box stores arrived on the scene. They came in and, with their ability to buy in volume, put the locally owned bookstores out of business. Then they built too many stores. Then the economy took a downturn. Then the economy started an upswing and Amazon took off. Did Amazon have an impact? Sure. But it wasn’t the big bad guy so many want to make it out to be.  But I’ve blogged about this before and won’t go in-depth into it now.

Just before Amazon introduced the Kindle, it convinced major publishers to break old practices and release books in digital form at the same time they released them as hardcovers. Then Amazon dropped its bombshell: as it announced the launch of the Kindle, publishers learned that Amazon would be selling countless frontlist e-books at a loss. This was a game-changer, and not in a good way. Amazon’s predatory pricing would shield it from e-book competitors that lacked Amazon’s deep pockets.

Wait a minute. What other players? There were no real players at the time, certainly not with a dedicated e-reader. Sorry, I don’t count Sony because the general public wouldn’t think to go to a Sony site to buy books of any sort. Did Borders have a digital sales site at that time? No. In fact, remember the first time Borders did list digital sales? It didn’t sell the e-books itself. No, it linked over to Amazon. Barnes & Noble didn’t have digital sales at that time. In fact, the leader in the e-book sales foray was Baen and Jim Baen was vilified for not only offering e-books but for doing so free of DRM.

Critically, it also undermined the hardcover market that brick-and-mortar stores depend on.

Again, Amazon is evil. It is offering a product at a price the public can pay. Sorry, publishers, but most folks can’t afford $30 for a hard cover and certainly not for several at a time. But, again, there are other issues as well. The big box stores didn’t pay attention to market trends and they overbuilt in urban areas, flooding the market and, therefore, decreasing each store’s market share. But let’s not allow logic to taint our thinking.

Amazon quickly captured the e-book market as well, bringing customers into its proprietary device-and-format walled garden (Sony, the prior e-book device leader, uses the open ePub format).

Oooh, and nothing here about the DRM the publishers insist upon or the limitation of the number of devices an e-book can be on. Oh, and let’s forget about the fact that this so-called ePub format was through Adobe and let’s see a show of hands of folks who can no longer read those files because you have switched computers and that computer isn’t “activated” for the old Adobe account.

We’ll skip a small bit here.

By the end of 2009, Amazon held an estimated 90% of the rapidly growing e-book market. Traditional bookstores were shutting down or scaling back. Borders was on its knees. Barnes & (sic) Noble had gamely just begun selling its Nook, but it lacked the capital to absorb e-book losses for long.

Again, all this was happening for more reasons that just Amazon and the Kindle. Although, I guess any good story needs a villain and Amazon has been dubbed it. I guess Amazon is responsible for the fact that Borders was badly managed and B&N took so long to get into the e-reader market. Remember, for months and months prior to entering the e-reader market, B&N sold other companies’ e-readers.  Then there is B&N’s less than ideal search engine. But, Amazon is evil.

Enter Steve Jobs. Two years ago January, one month after B&N shipped its first Nook, Jobs introduced Apple’s iPad, with its proven iTunes-and-apps agency model for digital content. Five of the largest publishers jumped on with Apple’s model, even though it meant those publishers would make less money on every e-book they sold.

Wait just one minute. Maybe I’m a bit dense, but where is the economic sense in agreeing to a deal that means these poor publishers “would make less money on every e-book they sold”? Am I the only one who sees a bit of a problem with that statement?

Publishers had no real choice (except the largest, Random House, which could bide its time – it took the leap with the launch of the iPad 2): it was seize the agency model or watch Amazon’s discounting destroy their physical distribution chain.

So, we are now doing the apples and oranges. Remember, folks, this was when these very same publishers were still saying e-books were a passing fancy that would soon go away. But that doesn’t matter, at least not to Turow and those who believe this link of bunk, because Amazon is the root of all evil, at least when it comes to publishing. As long as they have Amazon to blame, they can turn a blind eye to the poor business practices of the bookstores and publishers.

Bookstores were well along the path to becoming as rare as record stores.  That’s why we publicly backed Macmillan when Amazon tried to use its online print book dominance to enforce its preferred e-book sales terms, even though Apple’s agency model also meant lower royalties for authors.

So, even though print sales had been declining before the general upswing in e-book sales (and this means for Amazon as well as for the brick and mortar stores), Authors Guild sided against it’s members’ economic futures. Oh, I hear the cries that I don’t understand, but I do. AG, publishers and too many authors were ignoring market trends, just as they do now. The change in technology and customer demands scares them. But guess what, you adapt, you evolve, or you go the way of the dinosaurs. You don’t stand there like the little Dutch boy with your finger in the dike because, guess what, that dike is going to give way sooner or later. I’d rather not get caught in the flood and be washed away when it does.

Our concern about bookstores isn’t rooted in sentiment: bookstores are critical to modern bookselling.  Marketing studies consistently show that readers are far more adventurous in their choice of books when in a bookstore than when shopping online.  In bookstores, readers are open to trying new genres and new authors: it’s by far the best way for new works to be discovered.  Publishing shouldn’t have to choose between bricks and clicks.  A robust book marketplace demands both bookstore showrooms to properly display new titles and online distribution for the convenience of customers.  Apple thrives on this very model: a strong retail presence to display its high-touch products coupled with vigorous online distribution.  While bookstores close, Apple has been busy opening more than 300 stores.

The key to this is BOOKstores. Not stores that sell a few books. What Turow doesn’t address here is the fact that these same big box bookstores he is so intent on protecting don’t look and feel like bookstores any longer. Their staffs, on the whole, aren’t knowledgeable about their products. Books aren’t on the shelves long enough to build a following. Managers aren’t able to buy based on their market. No, their stock is determined by regional or, worse, national buyers.  Oh, the other thing he forget — the hue and cry that went up from those authors who see Amazon as the Big Evil when Amazon announced it was going to open a boutique bookstore. Gee, how dare Amazon open a bricks and mortar store even when that is what they say is needed to keep the industry alive. Double standard, no?

For those of us who have been fortunate enough to become familiar to large numbers of readers, the disappearance of bookstores is deeply troubling, but it will have little effect on our sales or incomes.  Like rock bands from the pre-Napster era, established authors can still draw a crowd, if not to a stadium, at least to a virtual shopping cart. For new authors, however, a difficult profession is poised to become much more difficult. The high royalties of direct publishing, for most, are more than offset by drastically smaller markets. And publishers won’t risk capital where there’s no reasonable prospect for reward. They will necessarily focus their capital on what works in an online environment: familiar works by familiar authors.

Again, true–but only to a point. Publishing, and agents, have been moving away from new authors for ages. Ask any of us who have been trying for years to get in. We get the nice, often personalized rejections saying how good our book is but there’s just no spot for it. And this is after it’s sat on a desk for months or years. Ask the mid-listers that have been the backbone of traditional publishing for ages. These are the authors publishers knew they could always count on for X-number of sales. Now, in order to take a risk on the so-called best sellers (who, btw, aren’t always), mid-listers are being cut loose. Basically, what Turow is describing here is an industry afraid of change and growing stale because it won’t take chances.

Let’s skip a bit here because it’s just more of the same.

Let’s hope the reports are wrong, or that the Justice Department reconsiders. The irony bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition.

I guess my biggest issue with stances like the one presented by Turow is that, even though they say they are looking at the whole picture, they aren’t. Not really. What they are doing is trying to maintain the old order, even though that order has been in decline for decades. Do I want to see bookstores disappear? No. But the big box stores probably will. Does that mean the brand will disappear? Not if they are smart. What they need to do is go away from the high overhead, huge footage stores that they have to sell toys and knick-knacks, etc., to help meet the rent. Go to smaller venues where the bills are easier to meet. Return to local or regional ordering. Let stores stock what their customers want, not what some list across the country says they should be buying. Hire folks at a reasonable salary WITH benefits and knowledge about the books they are selling. Go back to thinking about the customer and not just the bottom line because, with the customers coming through the door, the bottom line will be taken care of.

Again, Amazon isn’t pure in this. It has had a hand in the continuing decline. But it isn’t the only cause.

But, what is telling and what every author should consider, is that this letter is supporting action that reduces the money publishers receive for e-book titles and that, in turns, means less money for the authors. Why are you supporting something that takes money from your pocket?

And, before you go back to the old saving the hard cover sales argument, ask yourself this: when is the last time your book was published as a hard cover? There simply aren’t as many hard covers being published anymore and, again, this trend started before Amazon. So, before you start lighting your torches and preparing the pyre for them, look at the issue dispassionately and think. Think about what is best for you in the long run. For me, the answer is simple: like change or not, we have to adapt or we will be left behind. That change, now, is making our e-books available at an affordable price and without DRM. It isn’t insulting our readers by trying to get them to pay more for a digital book than they would a hard copy version of the same book.

But then, I’m just a hack who knows what my bank account will allow me to do.