From veteran publishing consultant Mike Shatzkin:
I went to the In Re Books conference at New York Law School last Friday and Saturday in hopes of curing some of my ignorance about the law and publishing.
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I’m afraid my major takeaway was, once again, that the legal experts applying their antitrust theories to the industry don’t understand what they’re monkeying with or what the consequences will be of what they see as their progressive thinking. Steamrollering those luddite denizens of legacy publishing, who just provoke eye-rolling disdain by suggesting there is anything “special” about the ecosystem they’re part of and are trying to preserve, is just part of a clear-eyed understanding of the transitions caused by technology.
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[W]hat is concerning is that Amazon will restructure the pricing of books so that the profit for publishers is squeezed out, robbing us of a publishing ecosystem that invests in unwritten books tens of thousands of times a year. My argument and fear is that a restructured ecosystem will deny us books like Walter Isaacson’s Steve Jobs biography or Ron Chernow’s George Washington. Books that take years to write and require hundreds of thousands of dollars of financing to be written will never see the light of day if publishers can’t earn a profit by investing in their creation.
This is an argument and a concern which the attorneys on the platform at this conference made explicitly clear they never entertained. I don’t think the ones in the DoJ did either. Perhaps this has no bearing on the law, but I wish they’d stop trying to tell us the concerns of the industry are just the same old crap coming from a different source when they haven’t taken on board what we’re actually saying.
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The old publishing case was Bobbs-Merrill versus Straus from the first decade of the 20th century. It seems that Macy’s, the department store that sold just about everything, also sold books at at discount. Bobbs-Merrill posted a notice in its books that the retail price was set at one dollar and that selling below that price constituted a violation of copyright. The Straus brothers, who owned Macy’s, insisted on selling these books for eighty-nine cents.
Both the trade association of publishers and the trade association of booksellers supported Bobbs-Merrill’s position, but the courts did not.
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1. The trade book business is quite different from other segments of the book business and has little in common, as a business, with school or college text or academic or professional publishing. Thompson made it clear that knowing one segment doesn’t mean you know another. After two days of hearing librarians complain that publishers were dissing their “biggest customers” because of the big houses’ concerns and restrictions on ebook sales to libraries, it was good to have somebody explain that publishers were different. In fact, libraries — relatively speaking — are not very large customers for general trade book publishers.
2. Thompson also emphasized — and this was critical insight coming, as it did, from the single speaker most knowledgeable about the transition trade publishing is making from print to digital reading — that nobody knows the future course of ebook adoption. Will it remain, as it is, in the 20% range for general trade reading? Will it go to 30%? 50%? The fact that nobody knows the answer to that question means that publishers’ policies have to accommodate uncertainty about a critical component of the publishers’ future commercial reality.
A couple of other points Thompson made bear repeating. One is that he sees big Anglo-American publishers fighting off threats to their margins. But he thinks the main source of margin erosion for American publishers is the agents, who exercise their power to drive up the cost of acquisition for the most desireable books; whereas for British publishers the source of the biggest problems are the big book retailers, particularly the supermarkets. It is ironic that America’s Robinson-Patman Act, which by requiring manufacturers to offer the same terms to like customers aims to protect small merchants, is actually the shield which protects American publishers from facing ever-escalating demands for margin from their largest accounts.
Link to the rest at The Shatzkin Files
Austrian economist Joseph Schumpeter borrowed the term, “creative destruction,” to describe one of the core components of a capitalist economy. Schumpeter wrote:
Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action.
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The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.
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The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.
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But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.
The established structures of the publishing business are undergoing creative destruction. The chief components destroying the old order are disruptive changes based upon low-cost and widely-available digital technology – personal computers to create ebooks and tablets and ereaders to read them – combined with a powerful communication medium – the internet – which makes distribution of digital goods almost cost-free and opens up opportunities for new retailers like Amazon.
The current structure of traditional publishing developed by destroying the publishing structures that preceded it – small publishers, often family-owned – which, in turn, had destroyed the publishing structures that preceded them – printers that would create books for authors for a fee. Today’s big publishing conglomerates used their superior financial strength to either drive the earlier small publishers out of business or force them to sell out. In their day, the big publishers represented a superior way of doing business, but that day is past.
In its present form, big publishing imposes a huge cost on books. Those costs are collected from two groups: 1. From readers in the form of high book prices and 2. from those people who create the books – authors – in the form of a low percentage of the sales price of the book (less an agent’s fee).
How high are those costs? The combined revenues of two large publishers that just announced a merger – Random House and Penguin - totaled nearly $4 billion last year. Of course, these were not profits. There were the costs for thousands of employees, office rent in Manhattan, London and elsewhere, warehouses, Barnes & Noble, etc., etc., but readers and authors definitely paid most of those costs.
The new model of publishing includes far lower costs. The new model allows a reader to purchase an ebook for $2.99 with the author receiving a little over $2.00 and Amazon or another etailer taking a little less than $1.00 demonstrates the benefits accruing to readers and authors from an alternative model that excludes publishers and their associated costs.
The growing number of authors moving from the old model to the new model and the steady increase in the numbers of indie authors appearing on ebook bestseller lists demonstrate that both the readers and the authors appear to be satisfied with the new model.
Mike says, “My argument and fear is that a restructured ecosystem will deny us books like Walter Isaacson’s Steve Jobs biography or Ron Chernow’s George Washington.” PG respectfully replies that great biographies and great histories and great novels were written long before the advent of the media conglomerate model of publishing and will continue to be written and read after the last big publisher disappears behind a cloud of bankruptcy filings.
The only essential components for great books are great authors and readers who appreciate what great authors write. Everything else is just whatever the current method of connecting authors with readers happens to be.