The Merger Apocalypse

29 November 2012

From The Digital Reader:

Editor’s Note: The following post is by Rich Adin, and it reflects the inside the industry viewpoint of a long-time professional editor.

In the past, consolidation has been very bad for professional editors. Somehow these mergers and purchases needed to be paid for and with supposedly declining sales in bookworld, the way to pay for the merger was to cut expenses. The primary way to cut expenses has been to cut costs in areas that consumers do not see or notice until too late, thus primarily in editorial and book production.

. . . .

The merger of Random House and Penguin, who combined will account for approximately 25% of traditionally published (as opposed to self-published) books, is likely to spur a second merger, that of HarperCollins and Macmillan (or perhaps it will be HarperCollins and Simon and Schuster), who combined will account for at least another 20% of that market. And when pricing for freelancers is set, it will be set companywide – it will make little difference which imprint of the RandomPenguin colossus a freelancer works for, the pricing will be fairly uniform, and increasingly depressed. Or so experience says.

. . . .

What if one or both of these megapublishers – RandomPenguin or HarperMacmillan – decides to combat Amazon and Apple directly? It strikes me that the way to do it would be to buy Barnes & Noble. Buying B&N would give them immediate access directly to consumers. They could set terms for distribution with their captive company (bring back agency pricing) and tell Amazon and Apple they, too, can have access to these books but on the same terms as B&N. It would put the publishers back into control quickly, and B&N could be bought cheaply – a couple of billion dollars ought to do it.

. . . .

It strikes me that if the Justice Department doesn’t think that Amazon dominates the ebook retail market in the United States and that it never did, it would be hard pressed to oppose these consolidations or even the purchase of B&N by a combination of the megapublishers because their market position would be less than that of Amazon.

Link to the rest at The Digital Reader and thanks to Ellen for the tip.

Passive Guy will explain for the billionth time that it is not against the law to be a monopoly. The legal problem that the Price-Fix Six had arose from combining together to fix prices. That is a violation of US antitrust laws and harms consumers because they had to pay higher prices for books than they would have absent the illegal collusion.

Buying Barnes & Noble is an interesting idea. Given the recent bad behavior of publishers, such a purchase would almost certainly be subject to careful scrutiny by the Justice Department and might not be approved.

The other problem with purchasing Barnes & Noble  is that the company tends to lose money and is in long-term decline. The question an intelligent publishing executive might ask is, “Why do we think we can run a chain of bookstores any better than experienced booksellers can?”

Before PG dismounts his high horse, he will also say that the toxic Big Publishing obsession with defeating Amazon is stupid. A far better use of time and talent would be to focus on innovative ways of becoming better publishers, particularly with creating much better ebooks, and figuring out what parts of the organization and infrastructure require radical reinvention to compete in a book world that is forever changed.

Amazon wants to sell lots of books. In particular Amazon wants to sell lots of ebooks. Publishers should want the same thing.

PG sometimes wonders if the hatred of Amazon is really a proxy for the hatred of change.

 

Amazon, Big Publishing, Bookstores, PG's Thoughts (such as they are)

30 Comments to “The Merger Apocalypse”

  1. If the Big less-than-six cannot figure out any other inventive way to survive in this e-World, except by becoming bigger and slower, buying B&N will just sink them faster. By the way I see no impact on the Indie Pubs, whatever the Bigs will do. It is the retailing that was unraveled by Amazon, not the actual book publishing (production) but the Bigs understand only the old business model and they are panicking, as they should.

    • I guess the big publishers really do believe size matters. They keep globbing up each other, hoping that the bigger they are, the more clout they will have. But their business analytics are hopelessly flawed at best. I mean, their idea of competing in the indi/self-publishing world is to acquire infamously bad vanity presses. And because they can’t compete, they collude to fix prices and get slapped down by the Justice Dept. It seems every decision they make is detrimental to them, the writers, and the readers.

      Amazon, on the other hand, has adopted practices that consistently put them on the forefront of technological and publishing/distribution innovations.

  2. “PG sometimes wonders if the hatred of Amazon is really a proxy for the hatred of change.”

    I heartily agree!

    • I agree, too.

      I also agree with PG that the Big Publisher focus on defeating Amazon is stupid. Amazon became SO successful precisely because it entered an industry where nearly all its competition was sluggish, mediocre, and arcane. ALL it had to do was be more flexible and more innovative than a bunch of businesses that are NOT flexible and NOT innovative.

      Surely recognizing the weaknesses and failings in industry models that made it so easy for Amazon to rise to an extraordinary level of success (even dominance) in less than 20 years of existence in this industry, and addressing those problems by BECOMING flexible and unnovative (and trying to become MORE so than Amazon is) would make a lot more sense than adopting a dominant industry strategy of , “Grr! Amazon! Evil! Bad! Kill….” Especially since the ONLY perceptible results of that strategy to date are enormous lawsuits against the major houses, and enormous legal expenses and settlements incurred by the major houses. Has ANYTHING been “accomplished” beyond this “result” with that strategy?

      • The Big Publisher strategy seems to be helping writers earn money with their writing… by becoming an independent micro-publisher and selling direct to buyer. 🙂

  3. Maybe someone could also explain, for the billionth time, that the self-inflicted sufferings of one segment of the economy do not qualify as an apocalypse.

  4. The big… ummm… four are too sluggish to compete as it is. I fail to see how tying bricks and mortar to their coattails will make them nimbler.

    It’s like throwing an anchor to a drowning man.

  5. Hi PG

    I’ve been wondered about your statement that “it is not against the law to be a monopoly.” I can’t seem to reconcile it with the apparent spirit and intent of the Sherman Anti-Trust Act. I’ve posted the relevant sections below.

    It seems me that the original drafters of the Act make a clear delineation between monopolistic price fixing and attempts to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States” – and both appear to be considered illegal.

    Your thoughts?

    Section 1. Trusts, etc., in restraint of trade illegal; penalty

    Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

    Section 2. Monopolizing trade a felony; penalty

    Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

    • Tony – As used in US antitrust law, the terms, “monopoly” or “monopolizing” include some sort of bad behavior, not just growing larger by running an effective and competitive business.

      If you look at the Sherman Antitrust Act entry in Wikipedia, you’ll get a reasonable overview of the kinds of things that large companies or groups of large companies have to do to violate antitrust law.

      • As another example of legal monopoly… Consider patents, trademarks, and copyrights! Patents and copyrights in particular are just that, legally granted monopolies. As our gracious host points out, our law is not inherently inimical to monopolies. But, what many people don’t know about patents in particular is that there ARE restrictions on what a patent holder can do with their legal and enforceable monopoly to restrict competition. If a patent is necessary to participate in an industry, the patent holder had BETTER offer some kind of license to competitors, or they might get a cold shoulder from the courts. Now, this is quite rare, but it does happen.

        If you are a monopoly because your industry is naturally inclined to form around a single provider, or nobody WANTS to compete with you, the law is remarkably indifferent to the situation. It’s when reasonable competition is unduly damped that our system starts getting interested.

    • There are roughly two aspects to the law:
      A. Is something illegal and,
      B. Will anyone bring it to court.

      Bringing a antitrust case to court is incredibly expensive. Even in cases where the conduct is actually illegal the regulators often don’t prosecute.

      In the uk there is a law against cold calling. Since it was introduced a decade ago there has only been one prosecution. This was a prosecution brought by a private individual.

    • Large numbers of monopolies exist in different formats and are legal. If you have the first uranium mine in the US you have a monopoly on uranium and that’s not illegal. If you develope and produce the first Twinkie you have a monopoly on Twinkies. The problem comes if you engage in behavior to block anyone else from selling their cream filled pastry by coercing retail stores or distribution networks.

      Amazon having a popular ereader that basically created a new market from the a tiny stagnant one is not illegal. They can even use their clout to pressure suppliers for cheaper supplies like Walmart does. There are limits on what they can do but reducing to sell a porduct is not illegal.

  6. “What if one or both of these megapublishers – RandomPenguin or HarperMacmillan – decides to combat Amazon and Apple directly? ”

    What if two lumbering dinosaurs have sex? Will they produce the next human?

    “They could set terms for distribution with their captive company (bring back agency pricing)…”

    Yeah, screw the customers. Let’s tell them what to do. That’ll show them who is boss

  7. But, but, but …

    Now they can sign up Walter Isaacson and Ron Chernow for more of their indispensable, years in the making biographies.(laughs)

  8. I liked this in the article:

    “I think, however, publishers would blow it simply because they seem to blow everything else.”

    Ha! 🙂

    There’s alot of talk about how Indie authors are giving Publishers a hard time, but very little talk about how some Industry Insiders do the same thing. They used to do it anonymouly, but even that’s stopping.

    As usual, PG’s commentary reflects my opinion. I think that Publishers are so in danger of becoming obsessed with beating Amazon, that they will cut their own noses off their faces. They will look for solutions that hurt Amazon, rather than solutions that will save themselves.

    As for buying B&N, first, does B&N want to sell?

    And if they do, who would buy it, and how would that impact that other Big Four? So, let’s say House of Penguins buys it. How would that impact the other Four Biggies? One thing – it might impact competition – because all the authors who still want to publish traditionally, would want to publish with the one who owned B&N – maybe.

    Also, how would it work? Could the one who owned B&N agree to stock everyone’s books but Amazon?

    Or could they all chip in and buy B&N together? Don’t know enough of the law to know these things…

    Either way, it would be a big mess, and they would probably raise prices and drive consumers to digital books.

    I can’t see how any of this would hurt indie authors.

    • I suspect that B&N has desperately wanted to sell for several years now. For years they’ve been doing a lot of things that seem aimed making them look valuable and driving up their stock price,(such as making announcements year after year about how the Nook was going international, etc., without any follow through at all. And short term solutions like selling candles, pillows, and crockpots, which would ultimately hurt their bookselling business.) A lot of this seems like it was done with the sole purpose of attracting a buyout.

      That said, it seems pretty clear that neither B&N nor the big publishers are attracting the best and brightest in the management field!

      • I suspect B&N has been desperately trying not to sell itself for several years. Remember, B&N is not an organism; it hasn’t got a mind. It only has the minds of the people who work for it, and it doesn’t want most of those.

        In any large institution, the majority of the people are there to contribute the labour of their bodies, and of the small fraction of their minds that happens to be occupied with the skills needed for their work. The power of making petty decisions is reserved to managers, and the power of making policy decisions — that is, using one’s whole mind to decide not only how to do things, but what to do — is reserved to a handful of senior executives. The senior executives at B&N have been making an absolute pig’s breakfast of their business for years. They surely know that if the company were taken over, most of them would be fired or demoted, and the new owners would install their own people in all the key positions.

        It is in the interest of management to keep management employed. When that management is incompetent, it isn’t in anybody else’s interest — not the employees’, not the customers’, and certainly not the shareholders’ — but it then becomes a question of survival for the managers themselves. They are without allies even inside the company, and know that they could never find such a soft billet or such high pay anywhere else, their incompetence being known; so they fight like cornered badgers to preserve what they have.

        Big Publishing, for the most part, is also run by incompetent managers. Everything I have just said applies to them. Is it any surprise that the cornered badger lashes out at Amazon, and so bites the hand that feeds it?

  9. “PG sometimes wonders if the hatred of Amazon is really a proxy for the hatred of change.”

    I think you’ve pretty much hit it.

  10. Why buy anyone at all? That M&A takes a lot of management attention and cash. My experience is a merging company is out of competition for at least eighteen months while they sort themselves out.

    The whole catalog of all fiction ebooks that Amazon has fits within 2 Terre-bytes of hard drive storage (which the electronic store down the street retails at $150). Now of course you want redundancies and small satellites spread out to speed downloads, you need to rent some closets and spin some cooling fans, and you’d buy drives in bulk wholesale prices, and run the system on Linux for speed, stability, and cost … but why buy into any M&A at all? Is it the old titles in their catalog?

    I know ten year old stories sell but readers have mostly finished those and are looking for new books – biggest sellers on Amazon today were published in the last six months, not a Twain or Dickens to be found. So the challenge is not M&A but how to capture the most new and ‘bestest’ content.

    The way this usually works is there is already a company out there right now that is too small to be visible that has built the business model and is busy honing tools that will kill the old publishers and give Amazon pause. Keep your eyes peeled —

    • I get my “Twain and Dickens” from Project Gutenberg now. I’m not going to be tracked by traditional methods. No more so than when I grab copies at the local second-hand/charity store.

      I’m not necessarily disagreeing with the rest of your post, but more suggesting that the classics are actually surprisingly popular even in ebook form. But the savvy electronic reader knows they can get most classics for free.

      • … ok, I should have used Dashiell Hammett or that Chandler fellow that are still under copyright.

        One blogger estimated that topping this sales popularity list
        http://www.amazon.com/gp/bestsellers/digital-text/154606011
        takes 10,000 purchased downloads a day – so a lot of money spits out of it from recently released titles – many published within the last six months and the rest likely within less than a year.

        .

  11. The editors and freelancers who will be affected by the upcoming mergers should think about merging themselves.

    A group of enterprising and quality editors, copy editors, and proofreaders getting together and forming an editing service for independent authors at reasonable prices would be most welcome.

    I would love to be able to choose from several small editing cooperatives for my next book. I would love to have a firm that I could use for the rest of my career.

    Surely a few of you out there can figure out how to start your own small business. There are a lot of us here who would love to support you!

    • Actually, I’ve been thinking that a clearinghouse match-making service that tracked (and vetted?) freelancers would be a welcome development for both writers and service-providers.
      And a great counter to the BPH’s scam operations.

      • Felix, this may not be exactly what you had in mind, but there is a professional organization of freelance editors called the Editorial Freelancers Association. I found my editor through them by searching their directory for editors with experience in my genre. My editor has been very professional and a great help in improving my work.

    • Indeed. I’d love to have a services company with a track record and faces behind the skills they offer, rather than vanity publishing “services” that are likely outsourced if they’re actually done at all or hunting down freelancers with either no track record or fees that seem to be entirely whimsical in nature.

  12. That was the sound of the hammer hitting the nail square on its head. That cool “proxy hatin’ thang” PG said. 🙂

  13. “They’ve also removed books from e-readers to get back at a competitor”

    Can you provide me with a reference for this? I have heard of only one or two instances in which books were removed from e-readers and in neither case was it retaliation against a competitor.

    “they refuse to treat independent bookstores with any sort of fairness”

    Again, I need a reference as I am not sure what relationship they would even have with independant bookstores? Do independant bookstores buy from Amazon?

    I’ll agree that Amazon are not saints but these two examples don’t convince me of anything.

  14. A far better use of time and talent would be to focus on innovative ways of becoming better publishers, particularly with creating much better ebooks

    Amen.

    On the other hand, if they manage to jack prices up high, I’m still a better bargain at $4.99 and below. Do point that rifle at your foot, publishers, do!

    (I suspect that a chunk of the hatred publishers have for Amazon is not for “change” alone, though. I think it is the hatred that suppliers have for a company exerting — or credibly threatening to exert — monopsony power upon them.)

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