One of the best-attended breakout sessions of Digital Book World 2015 was the discussion called “Should Amazon Be Constrained, and Can they Be?” which shared the very last slot on the two day program. That conversation was moderated by veteran New Yorker journalist Ken Auletta, and included Annie Lowrey of New York Magazine, thriller author Barry Eisler, and Barry Lynn of the New America Foundation.
It turns out that the two Barrys, who have pretty much diametrically opposed positions on Amazon (Lynn wants them investigated by the DoJ as a competition-stifling monopoly; Eisler casts them, for the most part, as the heroes of the book business’s digital transition) have a common position on the Big Five publishers. They refer to them as a “cartel”. Eisler is sneeringly dismissive of “New York”, which he refers to the way Republicans of the 1980s referred to “Moscow”, as an obvious pejorative. He appears befuddled by how anybody interested in the well-being of authors and the reading public could take the side of these publishers who maintain high prices for books, contract with authors to pay them smaller percentages of sales than Amazon does (either through Amazon’s own publishing operations or through their self-publishing options), and notoriously reject a very high percentage of the authors who come to them for deals.
Perhaps because the focus was Amazon, perhaps because Eisler was both emphatic and entertaining in his roasting of the publishing establishment, and perhaps because the facts to defend them are not well known.
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I am not certain that Amazon can or should be constrained, but I am damn sure that the Big Five publishers are not villains, and they are certainly not a cartel. They do seem to be extremely poor defenders of their own virtue but they are doing yeoman work maintaining the value in the old publishing model — for themselves and for authors — while adjusting to changes in their ecosystem that require that they develop strong B2C capabilities while maintaining their traditional B2B model, the death of which has been greatly exaggerated. If I’d been on that stage, the discussion of Amazon would have been diverted when the trashing of the big publishers began.
I took the step of confirming in an email exchange my recollection of the counts in Eisler’s very entertaining, persuasive, and unchallenged indictment of the big publishers.
1. Their basic contract terms are all the same, which it felt at the time he was suggesting demonstrated collusion, but which in our subsequent exchange he clarified he interprets as evidence of “asymmetrical market power and a lack of meaningful competition”;
2. They pay too low royalties on ebooks, which he also attributes to their “asymmetrical power” and “an implicit recognition that publishers come out ahead if they don’t compete on digital royalties”;
3. They only pay royalties twice a year, rather than more frequently or more promptly, which Eisler also attributes to a lack of competition;
4. The term of big publisher contracts is normally “life of copyright”, which Eisler calls “forever terms”
. . . .
First of all, the Big Five have plenty of competition: from each other, as well as from smaller niche publishers who may but be “big” but certainly aren’t “small”. (That is why the big ones so often buy the smaller ones — they add scale and simultaneously bring heterogeneous talent in-house). They are all quite aware of the authors housed elsewhere among them who might be wooable. In fact, since we have started doing our Logical Marketing work, we have done several jobs which were big author audits commissioned by publishers who wanted to steal the author, not by the one which presently has them signed.
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But the big flaw in Eisler’s logic is the same one that dooms Hugh Howey’s“ Author Earnings” project to irrelevance: the assumption that the per-copy royalty terms and rights splits are the most important element of publishing contracts. In fact, they’re not. Actually, those terms matter in 20 percent or fewer of the agented author contracts with the Big Five. Why? Because the agents get the publishers to pay advances that don’t earn out!
In fact, I have been told by three different big houses what they calculated the percentage of their revenues paid to authors amounted to. We could call that thetrue royalty rate. The three numbers were 36, 40, and 42 percent. That includes what they paid for sales of paperbacks, all of which carry “stipulated” royalties of well less than 10 percent of the cover price (and therefore below 20 percent of revenue).
Take that on board. Big publishers are paying 40 percent of their revenue to authors!
. . . .
Not only were the authors’ collective royalty rates much higher than contracts stipulated, the authors got most of that money in advance, eliminating the authors’ risk. The only contracts on which the royalty terms matter are those that do earn out (and, arguably, those that are close). For all the others, most of Eisler’s list of complaints is irrelevant. And, for the record, I have never heard an author complain about that show of confidence, the work that follows in helping him or her reach an audience (which benefits all involved), nor the cash upfront.
More frequent accounting doesn’t matter if you aren’t owed any money. And if the solution to “forever” contracts were that you could buy your way out by paying back what you got in advances that your book didn’t “earn”, how many authors would do that?
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First of all, the standard terms in big house contracts are almost always more generous than the terms in smaller publisher contracts. Few — if any — of the smaller ones pay a hardcover royalty as high as 15 percent of list. Although higher digital royalties can sometimes be found, usually those are from publishers who have little capacity to deliver print sales, so digital royalties is all you’re going to get. (That might be okay for a romance novel where a big majority of sales could be digital. It would be disaster for the author of just about anything except genre fiction.) And some smaller publishers actually pay less than 25 percent for digital royalties.
So the Big Five terms are generally better and they routinely pay agented authors advances that no other publisher would attempt to match.
But, beyond that, the idea that they are a “cartel” (a characterization enthusiastically seconded by Amazon critic Barry Lynn after it was introduced by Amazon supporter Eisler), is really preposterous. In fact, the Big Five are, to varying degrees, federations of imprints that even compete internally for books, sometimes to the extent that they will bid against each other when an agent conducts an auction.
Everybody who believes that 80% of the authors publishing with Big Publishing are not expected to earn out their advances, please raise your hands.
And the price-fixing that the Price-fix Six engaged in with Amazon is the very definition of cartel behavior.