Monthly Archives: September 2011

How to Read a Book Contract – Contempt

30 September 2011

Passive Guy has so many other things on his plate, he should put his inner ranter on hold, but a rant’s got to do what a rant’s got to do.

As PG has read book contracts for his clients (Thank You!) and contracts contributed to his Contract Collection (Thank You!), one message keeps coming through loud and strong.


Contempt for authors.

Contempt from publishers for authors.

Contempt from agents for authors.

As PG has mentioned before, during his legal and business career, he has negotiated, written, revised and reviewed many, many contracts (Hundreds? Thousands? He never counted and it’s too late to start now).

Some of the contracts were tough – dividing lots of money and property to settle a bitter divorce, creating a make-or-break deal for a small tech start-up with a Fortune 50 giant.

Some of the contracts were devious with PG sometimes discovering deviousness and sometimes creating it.

Some of the contracts were enormously complex — not quite book-length, but stuffed with dozens and dozens of cross-references and pages of defined terms that meant something different than they seemed to mean at first glance, particularly when they were combined with each other.

One of the things an experienced negotiator tries to do is to discern what’s behind the contract’s language, what the intent of the other side is, what they’re really seeking, what’s important and not important to them.

PG recently reviewed a contract that was strangely schizophrenic – generous to PG’s client on one hand and parsimonious on the other. On his first read-through, PG felt a little whiplash. When he went through the contract a second time, underlining, circling, writing cryptic notes in the margins, PG realized what was going on.

Believe it or not, lawyers have writing styles. The contract included two different writing styles.

While it’s possible two different lawyers in the same firm contributed to writing the contract, PG is pretty certain opposing counsel did a cut-and-paste for the harsh portion of the contract, the part representing a subject counsel didn’t understand very well. Because he was insecure about his knowledge, counsel hunted up a tough contract from a colleague or friend or book, pulled part of it out and dropped it into the fairly-reasonable partial draft he had already prepared.

This discovery will affect how PG approaches the negotiation – a little low-key education instead of responding to a slap in the face.

Speaking of slaps in the face, that pretty much describes most of the publishing and agency contracts PG reads.

First, measured against other classes of business agreements, they tend to be pretty sloppy. Large publisher, small publisher, pretty sloppy.

Indicia of sloppiness are many and varied, but include paragraphs that conflict with one another, vague and undefined terms and, sometimes, places where it’s clear a non-lawyer rewrote a paragraph. Badly.

As a general proposition, when a contract is important to an organization, the contract is well-written. When a contract is between a publisher and an author, it doesn’t matter. Even if the author reads it, she won’t understand it and neither will her agent. At any rate, the publisher will bully the author into doing things the publisher’s way regardless of what the contract says.


Many publishers have their version of a clause designed to capture new book rights that will be invented one hundred years from now.

Publishers were blind-sided by ebooks and have had to simply claim their contracts included ebooks even when the contract never mentioned anything but hardcovers and paperbacks.

Publishers know that if an author takes them to court, a judge will ask a question something like, “Where does it talk about ebooks in this contract?” Publisher’s counsel will respond by talking about emanations and penumbras floating around paragraph 15 and subparagraph 21(d). The judge’s well-honed BS meter will quickly be pegged in the red zone.

A contract is supposed to reflect the intentions of the parties at the time it is signed. Copyright law includes a presumption that any right not expressly granted by an author is deemed reserved to the author. If an author requests a standard reservation of rights clause, even a publisher may feel embarrassed by refusing to include it.

So, in the tradition of fighting the last war, we see a Rights Clause whereby the author grants the publisher the sole and exclusive right to create or produce or cause to magically appear any book or book-like object or book idea and beam the result into the sky in any form which is now or may in the future be stumbled-upon or imagined or hallucinated by the mind of man and/or machine in any conceivable or inconceivable way and anywhere throughout the world and the universe, whether presently mapped or unmapped.

In the reality-based business world, if PG received a contract including a clause like this, he would call opposing counsel and ask, “Sally, what are you smoking?”

In the traditional publishing world, the author is supposed to sign at the bottom of the page.


Finally (for this post), there are all the smarmy little attempts to put one over on an author. PG can appreciate well-crafted deviousness just for the art of it, but these are stupid deviousness.

How to choose between so many candidates for discussion?

Passive Guy will return to last July for this one, an audit clause:

Author may, with sixty (60) days’ written notice but not more than once a year, assign and designate a certified and independent public accountant to examine Publisher’s records as they relate to the Work. Such examination shall be at Author’s expense unless errors are found in excess of ten percent (10%) of royalties in Author’s favor, then Publisher shall pay amounts owing for the Work and the reasonable cost of the audit.

As a condition precedent to the exercise by Author of his/her right to examine the books and records of Publisher, Author’s duly authorized certified and independent public accountant shall execute an agreement to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative without written permission by Publisher. Author also hereby agrees to hold all information and statements provided to Author or her accountant in strictest confidence.

Do you see the smarmy deviousness?

In order to perform an audit to determine if the publisher is stealing from the author, the accountant hired by the author will have to sign an agreement, an agreement the publisher will create.

How hard is it for the publisher to create an agreement no accountant will ever sign? Not very.

No signature, no audit. You’ll just have to be satisfied with the numbers we decide to put on your royalty report, dearie.

You say twenty of your friends each bought a copy of your book from Amazon in the middle of August and we showed no ebook sales on your royalty report for the second half of the year? Amazon makes mistakes all the time. Have your accountant sign our agreement and we’ll give you some numbers.

In the meantime, go write some blog tweets and tweets to get your book sales back up. If you’re a good girl, we might give you a cookie with your next royalty report.



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Even on Central Avenue

30 September 2011

Even on Central Avenue, not the quietest dressed street in the world, he looked about as inconspicuous as a tarantula on a slice of angel food.

Raymond Chandler, Farewell My Lovely

Building Strong Characters and Emotional Depth

30 September 2011

Author and brain scientist Livia Blackburne is revising:

I’m currently revising my manuscript in response to editorial suggestions — mostly from my agent Jim, but also from feedback I received during my agent search and from my second round of beta readers.

The focus is on increasing emotional and character depth, and I thought I’d share some themes and tips from my revision notes.

1. Relationships should include both tension and harmony

Relationships will be more compelling if they include a balance of conflict and cooperation. For example, my villain is a pretty ruthless guy, but his evil deeds would have more impact if my protagonist (and my readers) believed that he was also capable of good. Therefore, I’m reworking some passages to show his nicer side. Likewise, there’s an “older brother” figure who acts as a emotional anchor. That’s all well and good, but making him less unconditionally supportive and more human adds depth to his relationship with my protagonist, and the conflict actually strengthens their emotional bond.

. . . .

3. Jot down the POV character’s emotional state from paragraph to paragraph. 
This has been both entertaining and enlightening. I started off eloquently, with notes like “confused”, “worried”, “uneasy.” Halfway through the book, notes have disintegrated into “Gahhh!”, “ZOMG”, “Run!!!!.”
But I’ve found this exercise useful for pinpointing places where the emotion didn’t quite make it onto the page. It also maps out dramatic tension. My most exciting scenes have emotions that change every paragraph. Sometimes however, I will only mark one emotion for an entire page — and surprise, surprise, those are usually the scenes that test readers have told me were emotionally flat.

Link to the rest at A Brain Scientist’s Take on Writing

Sacrificing Plot And Character Motivation For Fun

30 September 2011

From agent Kristin Nelson:

I like the heading of the entry [Sacrificing Plot and Character Motivation For Fun] as you can read it two different ways.

1) Just writing for fun and not worrying about the story/motivation,
2) The writer got lost in the fun of the world and forgot that a story needs plot and clear character motivation.

As a writer, sometimes it’s great to just say the heck with plot and character and simply have fun with your story and your world. It can unblock that critical voice and let you just write.

. . . .

In the last couple of weeks, I’ve read two full manuscripts that had great beginnings, solid writing, creative and interesting world building, the whole enchilada that starts an agent getting exciting.

Then I hit page 100 or 140. Suddenly the stories stop making sense. I puzzle over the character motivations and why they are making the choices they do. Then I start reading scenes that are fun but don’t actually move the story forward in any identifiable way. Then I can’t figure out how this scene fits with all the building elements of the first 100 pages.

Link to the rest at Pub Rants

Everybody’s Scared – Big Publishing, Agents and The Authors They Feed On

30 September 2011
Comments Off on Everybody’s Scared – Big Publishing, Agents and The Authors They Feed On

Kristine Kathryn Rusch writes another must-read essay about fear:

As one analyst said today, Amazon is the mirror image of Apple. Apple, a device maker, has low-priced content to encourage you to buy devices.  Amazon, a content provider, has low-priced devices to encourage you to buy content.

. . . .

I know, without doing much websearching, that the Amazon announcement has struck fear into the hearts of traditional publishing. Traditional publishing still hasn’t figured out how to make money on e-books, and traditional publishers are doing their best to piss off readers.

Even Mike Shatzkin, whom many in traditional publishing consider the guru of the e-publishing world, doesn’t completely understand the importance of readers. I usually don’t recommend his blog because, although he often has good stuff, he’s so entrenched in traditional-publishing think that his blogs are only about 50% useful for the way that publishing is going—and I don’t want to explain which 50% of what article is worth your time.

. . . .

Shatzkin is the guy that traditional publishers listen to.  Remember, as you read his work that he’s a traditional publishing guy writing for traditional publishers.  He’s not writing for professional writers, like I am. That makes a lot in his various blog posts irrelevant to us (or just plain offensive).  I am pointing it out to you in this case because I want you to see how traditional publishers—even forward-looking folk—think.

Witness: “We know that agents and authors will accept an e-book royalty rate of 25% of net receipts in today’s environment, where 70% or more of the sales are still made in print.  We don’t know if the threat of the alternate publishing options will force the royalty rate up if sales fall below 50% print or 30% print.”

. . . .

What Shatzkin and his ilk don’t recognize are the professional writers who have decided that 25% of net is a ridiculous number, writers who have decided that we’re not even going to offer our books to any traditional publisher who wants to give us no more than 25% of net as a deal breaker.  Some authors are fighting this, but most are simply walking away.

The writers who remain either don’t realize they have options or are operating in a fear-based way . . .

. . . .

“We don’t know if book publishers can develop ‘e-book publishing expertise’ that will convince writers to abandon the direct-to-consumer marketing through the internet and let book publishers continue to publish e-books.”

That’s a fact, folks. And the facts are why publishing professionals love Shatzkin’s blog. But beneath all of that factual business language is sheer terror.  Because if traditional publishers can’t convince writers to return to the traditional publishing fold, then what will happen to traditional publishers?

They will become insignificant—or at least, less significant than they are now.

It’s rather astonishing to me that the traditional publishing guru of e-publishing ignores the trends among the indies. Right now, indie publishers and self-publishing writers are way ahead of traditional publishers—on e-book design, on pricing, on marketing, and on distribution.

. . . .

Indie authors are selling illustrated children’s books at good New York numbers.  For example, Rebecca Shelley has sold thousands of e-books per month of her illustrated middle grade Bees in My Butt since Christmas, on Nook alone, a platform that favors illustrations.  She doesn’t have the figures for the same period from her iBookstore sales, but she’s convinced her sales will increase this Christmas because of the iPad. (I’m sure the Kindle Fire will help her here as well.)

She is not alone. There are a lot of successful children’s writers, and a lot of successful illustrated books, many of them indie-published.  As Rebecca and I exchanged e-mails tonight (with me asking to use her name so I could promote her work), she mentioned this:

“Up to this point, all of my illustrations have been black and white. But the Nook color has the  most amazing interactive children’s picture books. You turn the Nook sideways and it gives the full picture book double-page layout. Plus it has a read-to-me feature, that reads the book to the children as they turn the pages. Every child (even the older ones) that I’ve shown these Nook picture books to has gone crazy over them.”

The advice that Shatzkin gives here shows both the fear and the arrogance of traditional publishing. Stick to print books until we know there’s a market. But of course, they’re not looking at the self- or indie-published titles, so how does traditional publishing know whether there’s a market or not?  And somehow Shatzkin and others are ignoring things like the Nook picture books—because…why? I have no idea.

. . . .

Over the weekend, I saw Moneyball with Brad Pitt (based on Michael Lewis’s book, which I really need to read). Moneyball is less of a sports movie than a business movie, and there’s this marvelous sequence in the early part of the film.  Pitt’s character has decided to use a statistical analysis to “buy” cheaper players to round out his roster, a job traditionally reserved to the baseball scouts.

A scout, knowing that he is about to lose his job, gives Pitt the Speech: We scouts know how players work, we find the talent, you won’t have a team without us, we have history and arcane knowledge that you (puny human) could never ever know…

Of course, in the sequence of the movie, we come to realize that the scout is wrong. That his arcane knowledge is as useful to baseball as alchemy is to physics.

The thing is, as the scout gave that speech, I was laughing so hard I nearly hurt myself. Make the scout a traditional book publisher. Make Pitt a reader.  You have read a version of “The Speech” all over the internet—you readers won’t survive without traditional publishing, because you won’t know the good from the bad.

But here’s the thing: traditional publishing has forgotten that they’re in the market of pleasing their audience—and their audience is readers, who don’t care if they buy a book from Bantam or directly from Rebecca Shelley, so long as that book is good. If the book is good (and trust me, Bees in My Butt is good), then the readers will buy the next Rebecca Shelley book, whether it is published by Rebecca Shelley or by Bantam Books.

. . . .

Shatzkin ignores the real threat to the number of books on shelves. The way that Barnes & Noble has decreased the books it carries, replacing them with toys, and games, and scented candles (Yep, even scented candles).  A number of B&N employees are furious about this. As one wrote to me a few weeks ago, “I got hired to sell books. Now I sell ‘book-related merchandise.’” A B&N manager went further, sending me photographs of the interior of the store as this change from bookshelves to toy shelves is occurring.  The manager wrote, “Anyone who tells you that B&N’s [brick-and-mortar] stores will carry the same number of books as before is lying.”

B&N isn’t the only brick-and-mortar bookstore to abandon books. Indigo Books and Music has been Canada’s largest chain bookstore since the merger with Chapters in 2001.  In addition to trying an e-book model through Kobo, Indigo is also diversifying the products in its brick-and-mortar stores.  Indigo will offer its own line of “home décor and lifestyle products” because, clearly, there aren’t enough stores in Canada offering that sort of thing. (Okay, everything after “clearly” is my personal opinion. But jeez, how stupid is this?)

. . . .

The problem is that all the old markets are going away. Yeah, the Publishers Weekly article on Indigo ended with a vaguely hopeful note: “But if Indigo has less space for books and less time* on the shelves to sell them, one…possible silver lining is that it might present opportunities for independent booksellers.” Exactly the conclusion I had about B&N several  months ago.

Still, that’s all traditional publishing sees. If they can’t market books to bookstores and to some discounters, like Wal-Mart, where can they market books? And if they can’t see where to market books, if they can’t figure out how to find new places to do so, places that are fairly obvious if you just look around (depending on your product), then they’re of no use to the “content-creating brands”…um…I mean the writers.

And deep down, the traditional publishers know that. It makes them afraid.

And they are afraid. Just the fact that Shatzkin mentions the 25% of net as something that “agents and authors” might not accept in the future means that traditional publishing knows the deal is a bad one for us “content-creating brands.” The publishers are worried that we’ll figure it out, just like they’re worried about their entire industry.

. . . .

Fear, fear, fear.

As the fear trickles from the publisher to the agent, imagine how the traditional writer feels. The writer who doesn’t want anything to do with indie publishing, who sees self-publishing as something horrible. Those writers are only hearing about the fear from their traditional publishers and agents.  As a result, these uninformed writers believe that “publishing” is collapsing, when in reality, it is the old business model that is failing.

Because the writers are afraid that publishing is collapsing, they’re grabbing onto whatever gets thrown their way, no matter how bad it is.

These are the writers (for the most part) that Shatzkin and his friends are doing business with. The writers who have no idea that next to the sinking Titanic are small yachts available to any writer who will leap from the Titanic’s deck to the waiting yacht.

Link to the rest at Kristine Kathryn Rusch

Crying: How Much is Too Much?

30 September 2011
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No, this isn’t about Amazon’s competitors.

Nor is it about reading your royalty statement.

It’s from Blythe Barnhill writing on All About Romance:

Every year when you fill out AAR’s annual poll, we ask you for your biggest tearjerker. For me, some years it’s a no brainer, and sometimes I really have to think about it. On the whole, I’m not a frequent weeper. I’m not like Cameron Diaz in The Holiday (if you haven’t seen it, she can’t cry…until the end), but I don’t really cry at Hallmark commercials either (do they even still have those? I have DVR.)

. . . .

I wouldn’t say I seek out tearjerkers, but after some contemplation I decided that I don’t mind feeling sort of emotional. Tearing up, maybe. What I don’t want to do is cry buckets and wallow in self pity. It also doesn’t help that I’m basically terrified that I may one day get Alzheimer’s myself, and I don’t want to read about things that really, truly scare me. It’s the same impulse that makes me avoid romantic suspense books if they involve kidnapped children or child-molesters.

. . . .

My most surprising tearjerker? Wait for it…Dr. Seuss’s Horton Hatches an Egg. I know, I know. It was a favorite of my youngest son when he was little, and to this day I can’t read “And it should be, it should be, it SHOULD be like that! Because Horton was faithful; he sat and he sat…” without my voice breaking. It may just be the ultimate happy ending.

So that’s how I like to cry. A little. When Beth dies in Little Women. When Andy gives away his toys in Toy Story 3That kind of crying, not the truly depressed kind. What about you? What are your tearjerker books and movies? Do you actively seek out ones that will make you cry?

Link to the rest at All About Romance


Amazon – Threat or Menace?

30 September 2011

A comment to one of the many Amazon posts Passive Guy has made recently included a link to Borderlands Books, a San Francisco fantasy, science fiction and horror bookstore selling new and used books.

Of specific interest was an essay written by owner Alan Beatts entitled Amazon is Nobody’s Friend, Part One 

Excerpts from a much longer piece:

The reason that I’m finally being truly critical about Amazon is two-fold.  First, at this moment a huge number of book buyers are facing a choice.  All the former Borders customers out there have to decide where they are going to get their books now that Borders is closed.  There are three choices:  1)  Barnes and Noble.  2)  Amazon.  3)  An independent bookstore.  At first glance, it will seem that I’m trying to deter customers from shopping at Amazon (and, it won’t break my heart at all if you choose to avoid Amazon after reading this).  But what is more important to me is that I provide you with information so you make as informed a choice as possible.  Your dollars are your economic votes.  Where, how and with whom you spend your money determines what businesses survive and thrive.  Just like any election, I think an informed group tends to makes wiser choices.

. . . .

(A) “Been a deceptive and pervasive influence on ecommerce.”

Amazon is much bigger and more pervasive than one might think.  They have a fondness for buying companies in fields that they are interested in and then continuing to operate them under their original names while changing the back-end and fulfillment over to Amazon’s systems.  Notable web-retailers that they own are:,,,

All of those companies are big retailers in their specialties and, by buying them out and keeping the names, Amazon eliminates competition while maintaining the illusion of consumer choice in the marketplace.

. . . .

Another hidden Amazon property is of one of the best ebook reader applications for EPUB format files.  (EPUB is the free and open-sourced ebook format supported by many publishers.  It is not the format Amazon uses for the Kindle nor is it one that is very easy to read on the Kindle.)  Lexcycle makes Stanza, which is a great program that I used to use all the time.  It’s simple, clean, fast and works on Mac, Windows, and iPhone/iPad.  Now it’s 100% owned by Amazon and still the top EPUB reader.  As in the case of companies like and, Amazon maintains the illusion of consumer choice while actually owning their own business and their seeming competition.

In a slight variation from their usual habits, is an interesting case in that here Amazon lets their name be seen associated with the site.  My bet on the reason is that, if you click on a book, you end up on a page with exactly the sort of “buy-now” feature I suggested would work on IMDb.  Hard to hide the company’s involvement with that sort of connection.  Though it is nice and provides some sense of impartiality that Shelfari also provides a link to, a major used bookselling site with an excellent reputation among collectors . . . or at least it looks impartial.  By owning Shelfari Amazon is also getting one of the benefits that I suggested relative to the IMDb, since Shelfari is all about book recommendations and making connections between books, it’s a hugely valuable source of data for Amazon’s marketing.

. . . .

(B) “Consistently tried to eliminate other businesses to increase their hold on the book market.”

If the foregoing wasn’t a clear enough indication that Amazon is interested in controlling all the good parts of on-line bookselling and ecommerce in general, the pattern of Amazon’s business expansion also indicates that they are trying to fill all the niches in the book business, from publishing all the way down to selling.  There hasn’t been any sign that they are going into the writing business, thank goodness, but there really isn’t any conceivable reason that they would want to do that.  (It’s always been best for publishers to let anyone try to be a writer who wants to and then pick and choose what they want to pay for).

When Amazon started, they used the Ingram Book company as their major supplier.  Ingram is one of the two national book distributors in the US.  They buy books in large quantities from publishers and then sell them to bookstores.  One of Amazon’s early moves was to kick Ingram to the curb and start running their own distribution centers and warehouses.  At that point, the sales chain went from the publishers to Amazon to the customers.

. . . .

(C) “Pricing designed to cripple competition and manipulate its suppliers and customers”

Pricing products is a complex process and the ethics of it are even more complex.  The idea of having “loss leaders” in business (i.e. items that are sold at below cost to attract customers who, one hopes, will buy other items as well) is a well established practice.  I think it falls into a sort of grey area in terms of ethics, though there are places where it’s prohibited — for example, in France is it illegal to sell books, specifically, for less than cost.

However, when a business engages in pricing with the intention of manipulating the market for their long term benefit, when pricing is used to eliminate competition and therefore consumer choice, or when prices are fixed to manipulate suppliers — to my mind, all those cases slip from the soft, dove-gray of well-it’s-probably-alright into the more charcoal-gray of I-don’t-think-that’s-OK-at-all.

Amazon has a big vested interest in moving the reading public towards ebooks.  Aside from the obvious reasons (the size of their market share and so forth) there is a bigger and more compelling one.  Regardless of its advantages, Amazon labors under a huge handicap compared to physical bookstores.  For many readers there is no possible substitute for looking at actual books on an actual bookshelf, just browsing along and looking at whatever catches your eye.  But when it comes to ebooks, there is no difference between looking at them on Amazon’s website and looking at them on any other website.  So, the move towards ebooks eliminates Amazon’s handicap versus physical bookstores.  The other big advantage for Amazon is that ebooks take up no space and they require no investment in inventory.  All you have to have are some big computers and some good data connections, both of which Amazon has more than they know what to do with.

Kindle ebook readers are sold at a loss and always have been.  I honestly wonder if they were ever meant to make money; I’m betting not.  But the Kindle has done exactly what Amazon planned.  It’s caused ebooks to take off in a major way and it’s changing the behavior of consumers.  That’s perhaps not an unethical way to do business but it certainly is ruthless and profoundly manipulative.

Also on the topic of pricing at a loss: Amazon was so committed to building its business that for years and years they lost money at a awe-inspiring rate.  Between 1993 and 2003 they lost 3 billion dollars.  In fact, in 2001 alone they lost 1.4 billion.  But during that time they set a permanent expectation in the minds of consumers that they always had the lowest price.  And during that same period Amazon was responsible for countless independent bookstore going out of business.  And the real reason that those stores closed wasn’t that Amazon was doing a better job at bookselling than they — it was just because they couldn’t afford to lose as much money as Amazon.  It’s interesting to notice that Amazon’s discounts from retail are much smaller and less universal than they used to be.  The preceding is a textbook example of predatory pricing: “predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors”. (3)

$9.99 is a magic number in retail.  It’s a price that makes people think, “That’s cheap, it’s not even ten bucks!”  So it’s no wonder that Amazon decided that was the right price for ebooks.  For quite a while, that was the price that an ebook at Amazon sold for, regardless what it cost Amazon (often, much more than $9.99).  Publishers became concerned that Amazon’s pricing of ebooks was causing a perception on the part of the public that any other price was inflated and unfair.  The question of what an ebook actually costs, compared to a physical book, is a topic for another time, but certainly there are some novel length works of fiction that cost the publishers more than that to produce.  But more importantly, it is the right of the publisher to set the price of their books.  They can blow it, set it too high, and the book won’t sell.  In which case they learn better the next time.  But the publisher is the entity “making” the book.  They can set their costs, decide what sort of quality is needed for what elements (editing, cover art, and so on), estimate what the market will pay and so forth.  They control the process of “manufacture”, if you will, and that means they get to set the price.

But it’s certainly not Amazon’s place to set the price that publishers can charge for books, electronic or not.  They have the right not to buy something if they think it’s overpriced and won’t sell, but that’s about it.  And in this case, Amazon wasn’t trying to set the price for one book or even all the books from one publisher.  They were trying to set the price for _all_ ebooks.  Based on the specific laws regarding price fixing, what Amazon was doing wasn’t illegal since they weren’t collaborating with any other sellers.  But, since they represented around 80% of the ebook market at the time, they really didn’t need to collaborate with anyone.

Regardless of the legality of it, thanks to a risky action on the part of John Sargent, the CEO of Macmillan (one of the six major US publishers), at the beginning of last year, Amazon doesn’t get to set ebook prices for the big publishers at all anymore and neither does any other retailer.  The short version is that Sargent went to Washington state to meet with the folks at Amazon to talk to them about ebook pricing.  After months of discussions regarding publisher concerns that Amazon’s low prices were damaging the public perception of the value of ebooks, Sargent had come with an ultimatum.  He told them that Macmillan was switching to the “agency model” for ebook sales.  What it meant was that publishers would set the price and retailers would take a commission on the sale to readers rather than the old model in which publishers sell to retailers, who then sell to readers at a price that the retailer determines.

. . . .

(D) “Avoiding sales tax a cardinal part of their business model”

I don’t like to pay taxes and I understand that other people don’t like to either.  But if I am going to have to pay them, it’s important to me that they’re applied equally and fairly across the board.  Amazon has made part of their business model the avoidance of sales tax practically from day one.  Jeff Bezos, the founder, has even stated publicly that reducing sales tax was on the forefront of his mind, both when planning the company and when choosing Washington state as a location.  In fact, their systematic avoidance of sales taxes has been so aggressive that employees traveling to California have been issued business cards reading “Amazon Digital Services” (an Amazon subsidiary that doesn’t sell physical products) rather than “” to reduce the threat of California arguing that they were conducting business in the state.  Other tricks have included identifying states that were risky as “red” states and requiring staff to consult with corporate lawyers before traveling there on business as well as conducting employment interviews via video conference rather than in person so that the Amazon representatives weren’t actually in the state in question.  (4)

The theory of sales tax is that it needs to be collected and remitted by businesses that are active in a state.  The usual test for this is whether the business has a “nexus” within the state.  “Nexus” has been traditionally proven by having physical locations or sales staff within a state.  But there are two other underlying parts of the sales tax theory that have been conveniently ignored during the rise of ecommerce.
The first part is that the requirement of “nexus” was originally put in place based on the assumption that a business that is not located in a state won’t be conducting very much business there.  Granted, there have been catalog retailers for well over 100 years but purchasing items through a catalog was always a second-best choice when you couldn’t get something locally and the prices were usually higher (when shipping was factored in) than buying from a local merchant.  But now, that underlying assumption is deeply flawed because of the number of purchases made over the internet and the way that buying on-line is progressively becoming the preferred choice.

. . . .

And that brings us around to the principal of sales tax.  It’s there to support the costs of running the state government.  Which is going to cost just as much regardless of whether Amazon has to collect tax or not.  Moreso, as residents in the state, we’re going to have to come up with the money to pay for that government or the state will go broke.  What’s really happening here is that, to drive sales to their business, Amazon is fighting really hard to maintain their ability to look like they’re giving the average San Franciscan, for example, a 8.5% discount as compared to a local business.

. . . .

(E) “An ebook business model and format that’s bad for the consumer”

Amazon is the most successful ebook retailer in the world, by a fair margin.  Depending on whose figures you believe, they sell in-between 60 and 80% of the ebooks in the US (the percentage in the UK is even higher).  They also produce the most popular ebook reader, the Kindle.  That they are doing so well with ebooks really isn’t a surprise.  They have the best on-line store, their software gives what is arguably the best reading experience, they’ve been in the business the longest, and, perhaps most importantly, they have their existing  market position as the second largest seller of physical books in the world (Barnes and Noble is still #1).

What disturbs me and what I think should bother my fellow readers, is that their ebook format is completely unique and proprietary.  The problem there is that you cannot read an ebook that you bought from Amazon on anything other than a Kindle or a device that has a Kindle application available for it.  Granted, as of now, there are Kindle apps for Mac, Windows, iPad/iPhone, and Android.  But there’s no guarantee that Amazon will keep making them or supporting them.  Given Amazon’s fondness for competition, it wouldn’t surprise me if, at some point in the future, the Kindle apps for the iPad/iPhone vanished.  At that point, all the people out there who bought ebooks and want to use those devices are going to be pretty much out of luck . . . at least until they buy a Kindle.

On the other hand, the three other major ebook retailers — Apple, Barnes & Noble, and Google (plus all the independent booksellers Google partners with) — use some variation of EPUB format which is device agnostic and can be used with all the ebook readers, computers, and smart phones out there (except for the Kindle).  Granted, all three of them use their own sort of copy protection but, each for specific reasons, it is much less likely that ebooks purchased through any of those companies will force you to adopt a new device if you want to keep reading your books.  Also, none of those businesses are as savage about trying to dominate their industry.

Link to the rest at Borderlands Books The article about Amazon is quite a way down the page. Use your browser’s Find command (Ctrl-F on a Windows machine) and type Amazon if you want to go straight to the article.

Where to begin?

First of all, Passive Guy has a general policy of going after big guys and leaving small guys alone. It’s clear that Borderlands Books is not one of the big guys. However, Mr. Beatts’ essay is wrong in so many different ways PG has to make some comments. In light of the small guy nature of his target, PG will not give his comments the full treatment he might for a larger target.

Point number one from Mr. Beatts’ essay is “Amazon has been a deceptive and pervasive influence on e-commerce.”

PG will parse the sentence somewhat. He has no doubt Amazon is a pervasive influence on e-commerce because it is extremely successful. Smart e-commerce companies watch what Amazon does very carefully and copy many of its techniques. Any successful organization is a pervasive influence on the industry in which it operates. Apple is a pervasive influence on the tablet, smart phone and laptop markets. The University of Alabama football team as a pervasive influence on the college football markets. Barack Obama is a pervasive influence on the United States presidential candidate market.

Mr. Beatts’ case that Amazon is “deceptive” is ridiculous. Yes, Amazon has purchased other companies. Yes, in some cases, Amazon has elected to use the brand name of the acquired company. I don’t see how any case can be made that this is deceptive. In the e-commerce world, of all places, the choices for consumers are enormous and widespread. If I don’t like Amazon, I can buy 99% of the products Amazon sells somewhere else online. If I want to boycott Amazon, a 3-second Google search will allow me to see if I’m about to purchase from an Amazon subsidiary.

In making its acquisitions, Amazon understandably chooses companies that it believes will help make it more successful. Passive Guy finds no conspiratorial motivation for doing so.

PG nearly choked when Mr. Beatts talked about Amazon kicking Ingram Book to the curb. The only reason Ingram exists is because publishers have been such inefficient organizations.

A long time ago, PG worked for a law firm representing a small book wholesaler that was later acquired by Ingram.

When PG learned what the business was, he asked the president why the company was able to buy from publishers and sell to book stores at a higher price when bookstores could acquire books directly from publishers. The answer was shockingly simple. This book wholesaler could deliver books to bookstores faster than publishers would deliver books to bookstores. There was no reason at all why publishers could not become more efficient in their shipping and put the wholesaler of the business.

Ingram typically takes 10-15% of the retail price of the book for its wholesaling services. Who pays that price? People who purchase books and, indirectly, authors who write books. PG does not believe Ingram is a friend to either readers or writers. It has simply allowed publishers to offload a task that nearly every other business does on its own – take orders and deliver products in a timely manner.

The reason Amazon got rid of Ingram is Amazon decided it could do what Ingram does for less (probably much less) money. This is one way Amazon can offer lower prices.

Mr. Beatts accuses Amazon of pricing its products in a way designed to cripple competition and manipulate its suppliers and customers.

He states, “Pricing products is a complex process and the ethics of it are even more complex.”

Here is why PG likes Amazon’s pricing practices: Amazon sells at low prices. The ethics of this are clear to PG. He likes paying low prices. He can buy more stuff if prices are low. He can spend $100 on books at Amazon and get more books than if he spends $100 at Barnes & Noble.

What’s not to like?

Mr. Beatts accuses Amazon of pricing its products for its long-term benefit. I’m certain the people who own Amazon are very happy that management does this. Is Mr. Beatts saying that he does not price products for his long-term benefit?

It is not an easy thing to compete against Amazon. It is not an easy thing to compete against any market-leading organization. Ask anyone who competes against Apple. Ask anyone who competes against BMW. Ask anyone who competes against Google. Ask Mr. Beatts.

Does this mean that Amazon is evil because it is a good competitor? Does this mean that Amazon is evil because it is a big company? PG would note in passing that Amazon has not always been a big company. It first went online 15 years ago. It was tiny. Barnes & Noble was much larger than Amazon during the early years. Barnes & Noble told Amazon that it would squash Amazon like a bug if Amazon did not agree to sell itself to Barnes & Noble. Amazon grew large because millions and millions of people liked what it did and how it did it.

Mr. Beatts says “$9.99 is a magic number in retail.” However, he takes great offense at Amazon pricing e-books at $9.99. He is even more upset that Amazon sold books to readers for less than Amazon paid for them. PG has never talked to a reader who was upset at buying a book that normally would cost $20 for $9.99.

Mr. Beatts believes it is a terrible thing for Amazon to decide how much it will charge for books. He believes it is a wonderful thing for publishers to force retailers to sell books at the price publishers specify. In Mr. Beatts’ world publishers are wonderful, intelligent and kind. They always know the best price for books. Just like they know how much an author should be paid.

It is ironic that Mr. Beatts accuses Amazon of price-fixing. As regular visitors to The Passive Voice know, multiple class action suits have recently been filed against big publishers for price-fixing arising from their united action to force Amazon to adopt agency pricing, fixing prices for books across all retailers. How many readers are happy that Amazon is no longer permitted to sell books at a discount from list price? PG doesn’t see many hands being raised.

Since Mr. Beatts sells used books, here’s an idea: Why not have the publishers set the list price for used books? After all, as Mr. Beatts says “it is the right of the publisher to set the price of their books.” Perhaps a 5% discount from the original retail list price would be a great price for used books. Or even better, may be used books should cost 10% more than new books cost. After all, they’re broken in, annotated and are an environmentally responsible form of recycling. From what PG knows of big publishers, he expects they would feel good about that price. Certainly it would support sales of more new books.

Mr. Beatts says Amazon wants to avoid sales taxes. PG likes avoiding sales taxes. PG would bet that if he took a survey of visitors, most people would prefer not to pay sales taxes if they could avoid them.

Amazon does a lot of things to avoid paying sales taxes. Famously, General Electric does a lot of things to avoid paying income taxes. In fact, General Electric did not pay any income taxes during its latest tax year. Amazon did not pay any California sales taxes during its latest tax year. Individuals and organizations are perfectly free to avoid taxes by any legal means.

Passive Guy decided to explore Mr. Beatts’ feelings about sales taxes. He decided to order a book from Borderlands Books. By mail. Borderlands Books uses Biblio to sell its books over the Internet.

PG selected a nice Harry Potter book. PG decided to have it shipped to himself at an address in a state outside of California, where Borderlands Books is located. The state where the book was to be shipped has a state sales tax.

He was about to complete his purchase from Borderlands Books when – gasp – PG noticed that Borderlands was not collecting any sales tax on this sale. He was so persuaded by Mr. Beatts’ condemnation of Amazon not collecting sales tax that he immediately cancelled his order.

PG tried another experiment. He ordered the same Harry Potter book from Borderlands Books and gave a California address. He will spare you his gasp this time. No sales tax on that transaction either.

He concludes Mr. Beatts’ sales tax rule is designed to apply only to Amazon.

What Mr. Beatts again forgets to consider is who ends up benefiting if Amazon is not legally required to collect sales taxes. You guessed it, Amazon’s customers. After all, who pays sales taxes? Is it Amazon? No, it is people who buy from Amazon.

Everybody should pay more taxes. Everybody should pay higher prices. What a wonderful world.

PG has violated his initial intent when he started this response. He will conclude his rant by simply stating that if Amazon had not made indie publishing easy, the number of people making a living and hoping to make a living from their writing would be much smaller than it is today.

This does not mean that Amazon is a perfect company nor does it mean that Amazon will always be a good friend to writers. Today, however, PG suggests that Amazon is an indie author’s best friend.

He can’t say the same about Mr. Beatts.

She had a lot of face and chin

29 September 2011

She had a lot of face and chin. She had pewter-colored hair set in a ruthless permanent, a hard beak, and large moist eyes with the sympathetic expression of wet stones.

Raymond Chandler, The High Window

The Condition Every Art Requires

29 September 2011

The condition every art requires is, not so much freedom from restriction, as freedom from adulteration and from the intrusion of foreign matter.

Willa Cather

Kindle Fire Commercial

29 September 2011

Passive Guy is giving up. Amazon’s tablet gets two days.

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