Simon & Schuster has reached a multi-year distribution agreement with Amazon, according to reports today by the Wall Street Journal and Business Insider.
Neither Amazon nor Simon & Schuster have publicly announced the deal, but Publishers Lunch reports that it marks a return to the agency pricing model, allowing the publisher to set its own ebook prices.
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Under the terms, which according to Publishers Lunch involve Simon & Schuster authors “retaining the same share of income — 25% of receipts that are 70% of the consumer selling price — that they have had since the publisher first moved to agency in 2010,” Amazon’s prerogative to discount the publisher’s ebooks is sharply limited.
The book business believes that Amazon is unfair in the way it sells books. It believes, in fact, that Amazon in its sales practices — pressuring the book publishers to lower their prices and profits — is the enemy. Amazon’s ultimate design, publishers believe, is to ruin them or to wholly shift the center of gravity in the business from the creators of books to Amazon, the dominant seller.
And this seems to be truer than not.
The book business response has been to protest hotly and try to wage a moral war against what it sees as an immoral competitor — having, for instance, its writers sign petitions and ads. To its credit, few believed usually inefficient publishers could ever mount such an impassioned defense. But if the adage about not being able to win at the negotiating table what you can’t win on the battlefield is correct, book publishers don’t have much of a chance against Amazon’s dominance. In fact, their efforts to fight what they perceive as the Amazon monopoly have only succeeded in getting publishers charged with antitrust practices in their combined effort to have Apple help bail them out.
No, it would seem that the only clear avenue to fighting Amazon is for publishers themselves to do the one thing that they have, to their consistent disadvantage, wanted someone else to do: sell books.
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Books, alas, will always be at a marketplace disadvantage if book publishers lack the leverage to control the way they are sold.
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Amazon is still buying books from publishers at something around a 50% markdown for physical books. Discounted beyond that, Amazon begins to lose serious money, whereas publishers have further room to discount and yet still profit.
Publishers have, for a long time, mostly agreed not to compete with booksellers — in fact, monopolistic booksellers have grown so strong they’ve insisted publishers not compete (or else!). Now, however, seeing the ultimate outcome, all bets and accommodations should be off.
And why not go into selling books? The remaining few, consolidated, publisher houses are all surely in a position to create and fund physical bookstores that might compete with Amazon, in sensibility, taste, style and pricing.
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Amazon is trying to control the book business through e-books. It wants to control e-books not least of all because they are not books. Migrating people to this medium means Amazon will own a potentially unlimited new entertainment platform — which, along the way, will have compromised the very form and meaning of a book. Indeed, publishers, one might suspect, want not so much to protect the book, but to also enjoy the upside of wherever the new e-book form will lead.
But their future, if they have one, will only be in real books. In rebuilding a market for the physical object. Making better objects. Rebuilding the culture of books (for which an actual bookstore is necessary).
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Publishers, it must be said, have been poor stewards of books. Their restlessness with the form has turned books into a bastard entertainment product, with every celebrity a credible author. It is an easy jump from there to a multimedia screen, far from the world of a printed page — which is the publishers’ world, whether they like it or not.
PG says the talents necessary to be successful as a book publisher and those required to create and operate a cutting edge retail establishment that can compete with Amazon overlap in no way that he can think of.
There’s a reason why Silicon Valley venture capitalists won’t fund any company that has “compete with Amazon” in its business plan. It’s a horrible investment.
Now, PG would never compare the intelligence and business savvy of a typical big publisher with that of a top VC partner, but even publishing executives will eventually come to the conclusion that pouring money into trying to beat Amazon with a bunch of physical bookstores is a losing proposition. If not the publishers, their owners at big international media conglomerates would nix that idea in an eyeblink.
If the printed page is the publishers’ world, then traditional publishing has no future whatsoever. How did all those printing presses work out for USA Today? Its online circulation is about double its print circulation. A significant portion of its print circulation comes from essentially putting USA Today inserts into Gannett’s 80-odd local papers and counting the inserts as print circulation.
In 2007, Steve Ballmer, then-CEO of Microsoft, emphatically predicted that Apple’s new phone would fail. “There’s no chance that the iPhone is going to get any significant market share,” he said. “No chance.”
The volume of Ballmer’s voice makes him a popular target in technology, but he wasn’t an outlier, just the loudest guy in crowd of skeptical experts. RIM CEO Jim Balsillie said the iPhone would never represent “a sort of sea-change for BlackBerry.” Cellphone experts writing in Bloomberg, PC Magazine, andMarketwatch all said it would flop.
No one had seen something like the iPhone before. One large screen? With no keypad? That tries to be everything at once, but actually offers a poor call service, slow Internet speeds, and worse camera quality than your existing devices? The experts were certain: This will not work.
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To be fair, predicting the future is hard. But what if the industry experts here were wrong about the iPhone, not just because of the uncertainty of predictions, but also because they were experts? What if they were blinded by their own knowledge, so confident in what was already working that they couldn’t contemplate the feasibility of something new? In 1997, Clayton Christensen coined the term “the Innovator’s Dilemma” to describe the choice companies face between incrementally improving their core business (perfecting old ideas) and embracing emerging markets that could upend their core business (investing in new ideas).
But what if the innovator’s dilemma is part of something bigger—a creator’s dilemma, an innate bias against novelty?
Indeed, it turns out that our aversion to new ideas touches more than technology companies. It affects entertainment executives deciding between new projects, managers choosing between potential projects or employees, and teachers assessing conformist versus non-conformist children. It is a bias against the new. The brain is hardwired to distrust creativity.
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The researchers found that new ideas—those that remixed information in surprising ways—got worse scores from everyone, but they were particularly punished by experts. “Everyone dislikes novelty,” Lakhami explained to me, but “experts tend to be over-critical of proposals in their own domain.” Knowledge doesn’t just turn us into critical thinkers. It maybe turns us into over-critical thinkers. (In the real world, everybody has encountered a variety of this: A real or self-proclaimed expert who’s impatient with new ideas, because they challenge his ego, piercing the armor of his expertise.)
Link to the rest at The Atlantic and thanks to Iola, who suggests this applies to the Big Five and their camp followers, for the tip.
Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.
O.K., I know that was kind of abrupt. But I wanted to get the central point out there right away, because discussions of Amazon tend, all too often, to get lost in side issues.
For example, critics of the company sometimes portray it as a monster about to take over the whole economy. Such claims are over the top — Amazon doesn’t dominate overall online sales, let alone retailing as a whole, and probably never will. But so what? Amazon is still playing a troubling role.
Meanwhile, Amazon’s defenders often digress into paeans to online bookselling, which has indeed been a good thing for many Americans, or testimonials to Amazon customer service — and in case you’re wondering, yes, I have Amazon Prime and use it a lot. But again, so what?
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Does Amazon really have robber-baron-type market power? When it comes to books, definitely. Amazon overwhelmingly dominates online book sales, with a market share comparable to Standard Oil’s share of the refined oil market when it was broken up in 1911. Even if you look at total book sales, Amazon is by far the largest player.
So far Amazon has not tried to exploit consumers. In fact, it has systematically kept prices low, to reinforce its dominance. What it has done, instead, is use its market power to put a squeeze on publishers, in effect driving down the prices it pays for books — hence the fight with Hachette. In economics jargon, Amazon is not, at least so far, acting like a monopolist, a dominant seller with the power to raise prices. Instead, it is acting as a monopsonist, a dominant buyer with the power to push prices down.
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Book sales depend crucially on buzz and word of mouth (which is why authors are often sent on grueling book tours); you buy a book because you’ve heard about it, because other people are reading it, because it’s a topic of conversation, because it’s made the best-seller list. And what Amazon possesses is the power to kill the buzz. It’s definitely possible, with some extra effort, to buy a book you’ve heard about even if Amazon doesn’t carry it — but if Amazon doesn’t carry that book, you’re much less likely to hear about it in the first place.
As attorneys and law school professors who know a great deal more about antitrust law than Mr. Krugman does have repeatedly explained, Amazon is not even close to being a monopsony.
A whole lot of people associated with Big Publishing first learned the word, monopsony, a few months ago without understanding its definition, but that hasn’t stopped them from slinging it around because it sounds bad and nobody knows what it means.
The argument against Amazon seems to rest on the proposition that if trad-pubs aren’t awarded excess returns, over and above the actual free-market value of their products, then there will be no money to pay authors to write “serious literature,” irreparably harming our culture and society.
This is really a very dense proposition with all kinds of unstated and unanalyzed assumptions behind it. It would take a lengthy and complex essay to thoroughly deconstruct all these notions, and few would have the patience to read it. But it’s worthwhile to quickly review some of the main issues.
1. How much “serious literature” do advances truly subsidize?
There isn’t any comprehensive public accounting but from various sources we get a general impression of where advances actually go. A large portion is paid to popular novelists like James Patterson and John Grisham and popular nonfiction authors likeEdward Klein. Another big slice of the advance pie is served to entertainment and sports celebrities who put their names to various books that are supposedly nonfiction. And prominent politicians often get remarkably large advances for memoirs and ruminations. Calling any of this “serious literature” is stretching the term to the point of rupture.
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2. Why do the publishers have to act as investment banks for books anyway?
The publishers rig the game in such a way that in most cases authors can turn only to them for advance funding, even for books that clearly have major sales potential. They do this for bestseller-potential titles by setting royalty rates so low that there’s little chance that the nominal royalties will ever catch up with the advance. Thus if a bestselling author financed her book from another source she couldn’t make enough from royalties on sales to pay a good return on the investment; the publisher would simply appropriate most of the value of the book. (Big-name authors could push back on royalty terms, but most find it simpler and safer just to go for big advances.)
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This is not of course what we hear from Foer or other attempts to justify trad-pub without actually understanding much about the business. It’s only the benign, benevolent publishers who would advance authors money against unwritten books, they claim. This is remarkable nonsense. Players in finance long ago learned how to make good profits by investing money in risky propositions. If the publishers ever paid economic royalty rates there would be no shortage of sources of advance funding for books that had even modest prospects for success. And the financial system would certainly do a better and more efficient job of it.
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3. Is Amazon threatening the excess profits publishers need?
Trad-pubs need to collect substantial economic rents — excess profits over and above their costs of operations and capital — so they can bestow generous largess on worthy authors. Or so they and their apologists would have us to believe. (Most of them no doubt believe it themselves, as they don’t seem to be very deeply knowledgeable or analytical.)
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How does Amazon generate large cash flow? Not by pricing high, but by buying cheap and selling large volumes. The publishers, however, believe it serves their objectives to charge high unit prices. Amazon thinks the publishers lose more through reductions in the number of books sold than they gain by jacking up the price per book — and they know that Amazon does. In the end Amazon believes that both they and the publishers will make more by selling more books at lower price per book, and they have data from their immense volume of book sales to back this up. Data-schmata, the publishers say: they simply want higher net prices per book.
PG would suggest that Big Publishing is also trying to prop up its physical book store distribution channel which has been shrinking over many years. The Borders bankruptcy happened about three years ago and caused 399 large bookstores to disappear almost overnight. Barnes & Noble is closing about 20 large bookstores per year and another batch will disappear after Christmas.
Amazon-style pricing won’t support the high overhead of a physical bookstore.
For all intents and purposes, Big Publishing and some larger independent publishers have pretty close to a monopoly in distribution to large numbers of physical bookstores where discounting from list price tends to be more limited than in the online world. Smaller publishers often use the resources of larger publishers (for a price) to access sales and distribution channels to physical bookstores.
Big Publishing lacks a similar dominant position in online sales and authors understand that publishers don’t add any material distribution value with Amazon.
BPH-think says that prices have to be forced higher on Amazon so more people will go to physical bookstores.
PG is pretty certain that a great many of the smarter people in Big Publishing understand it is highly unlikely that the decline in the the number of physical bookstores can be stopped or reversed. The inherent economic advantages of ebooks and etailing are simply too compelling to save more than a relative handful of boutique bookstores in major metro areas.
However, as subsidiaries of large international media conglomerates, Big Publishers are servants to quarterly and annual sales and profit numbers. If BPH executives are judged on short-term results, they tend to develop short-term strategies.
If only enough pressure can be applied to Amazon, the decline of sales in physical bookstores can be deferred for a few more quarters and the Armageddon of a book business that is almost entirely online won’t happen quite so soon.
So Big Publishing trots out its pet 1% authors to decry Amazon as part of a marketing strategy to persuade a few more people to shop at Barnes & Noble for a few more months.
My agent’s exact words were a bit different, but the message was clear: if I weighed in on Amazon’s side in its battle with Hachette, no publisher would ever publish another book of mine. That is a risk worth taking, because publishing is an industry that seems bent on eating its young.
The fight between Amazon and Hachette is ostensibly about e-book pricing. In reality, it is about much more: innovation, the business model, and the future of publishing.
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Amazon’s tactic seems to have backfired. Some 900 authors, most of them not published by Hachette, signed a full-page ad in The New York Times criticizing Amazon for using authors as human shields in what is essentially a contract dispute between two giant corporations.
I’m supporting Amazon. I think Amazon is far more likely to come up with innovations that may actually save book publishing. And publishing is in desperate need of being saved. The long-term trends are not encouraging: people are spending less time reading books (even including e-books;) unit sales are down; and per-capita spending on books continues to shrink.
Yet book publishers seem unwilling or unable to recognize the implications of these trends. What other consumer business responds to flat or decreasing unit sales by increasing prices? But that is precisely what book publishers do year after year. Between 2003 and 2013, the price of the average hardcover fiction title rose 49 percent to $26.63; non-fiction books are priced even higher.
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Traditional book publishing is, at best, a quaint business. The people who work in the industry are generally quite bright and typically nice. But as a category, book publishing needs to be saved from itself. Its business model and processes are relics of a long-ago era: the returns system – where retailers can return unsold copies at any time for a full refund – is a remnant of the Great Depression. Such marketing basics as price-testing and package (cover) testing are non-existent. Until Nielsen introduced Bookscan a few years ago, publishers really didn’t know how many books they sold; they only knew how many copies they shipped. Returns could come back at any time.
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Amazon has given all authors – not just the big-name writers – a better chance of being discovered, and making more money. Hachette is trying to maintain a paper publishing business model on an increasingly e-book world. Authors – and not just Hachette authors — aren’t pawns in this battle between two giants who have very different visions of the future. They are the potential beneficiaries of an industry that needs to be reinvented. I’m willing to risk siding with the innovator.
From The Volokh Conspiracy blog at The Washington Post:
I agree with most of the points made in co-blogger David Post’s excellentcritique of Franklin Foer’s attack on Amazon. As David points out, Amazon’s efforts to squeeze suppliers in order to cut costs end up saving consumers money. And there is no evidence that Amazon has somehow monopolized the market for either e-books or hard copies, given that both can easily be purchased at numerous other websites, including those of publishers themselves.
But the debate over Foer’s article has largely neglected one even more important benefit of Amazon’s efforts at cost-cutting. By reducing the price of new books, it facilitates the spread of ideas. Thanks to Amazon and its various imitators, books can now be bought more cheaply and quickly than at any time in human history so far. Moreover, the search technologies developed by Amazon greatly reduce the costs of finding new books that might interest readers. That, too, expands our access to the marketplace for ideas.
One of the nightmare scenarios posited by Foer is that Amazon might push prices so low that it will end up “deflating Salman Rushdie and Jennifer Egan novels to the price of a Diet Coke.” I for one would be thrilled to see that happen. It would mean more people can read more good books than ever before. I will be very happy if someday it becomes economical to sell my books, for the price of a Diet Coke too. That means a lot more readers for my ideas.
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In reality, of course, there is no evidence that falling prices have deterred authors from writing “quality books.” Admittedly, quality is hard to measure. But it seems highly likely that the number of quality books published today is greater than in the pre-internet age – in part because the possibility of reaching a much larger audience increases the incentive to write and publish them. That certainly seems to be the case in the fields that I follow regularly, such as books on constitutional law, property, and political participation.
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I don’t doubt that some authors of “serious nonfiction” prefer “the old system.” But some of us hold exactly the opposite view. By lowering prices and search costs, Amazon and other similar websites have enabled our books to reach a much larger audience than they likely would have otherwise. All my recent books involved negotiations in which I pushed hard to get the publisher to set a lower price, so that the book can reach more readers. When Amazon or Barnes & Noble discounts the prices of my books or offers a cheap Kindle or Nook e-book, I am happy to see it. In one case, I even successfully pushed them to lower the price of the Kindle version. For authors whose main reason to write books is to reach readers and influence public debate, Amazon’s efforts to lower prices are a feature, not a bug.
THE LITERARY-INDUSTRIAL complex cannot abide Amazon CEO Jeff Bezos. To paraphrase Oscar winner Sally Field: They hate him. They really hate him.
Here are the latest developments in the ongoing morality play called “Hand-Wringing Writers Fulminate Against Seattle-based Book Monopoly Bent on World Domination.” When we last tuned in, a small group of authors angered by Amazon’s roughhouse tactics against the publisher Hachette had mushroomed into a movement a thousand strong. Literary superagent Andrew Wylie has jawboned many of his successful clients, including Philip Roth and Orhan Pamuk, into calling for a Justice Department investigation of Amazon.
“If Amazon is not stopped, we are facing the end of literary culture in America,” Wylie told The New York Times. Ungraciously, the Times reminded us that as recently as 2010, Wylie himself was negotiating sweetheart e-book deals with Amazon. How times do change.
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I’m also not the first to point out that, in battling the French conglomerate Hachette over e-book pricing, Amazon isn’t exactly kicking sand in the face of a 96-pound weakling. Hachette has profit margins of over 10 percent on $2.6 billion of annual sales. It’s not exactly running a writers’ cooperative, if you gather my drift. How did it get to be the good guy?
What are Amazon’s sins? It has changed the terms of trade in BookWorld, and the Establishment is ticked off. Amazon loves its customers — hey, I’m a writer; they are my customers, too — and it loves to shake up marketplaces. By championing self-published authors and providing them with an efficient, online marketplace, Amazon has shrewdly incited a range war between the Manhattan-centric minions of Big Lit, and the diffuse guerrilla armies of do-it-yourself writers, whose names often pop up in Amazon’s aggressive web promotions, such as the Kindle Daily Deal.
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“Amazon has caused some serious pain to bookstore owners,” I said, “but Bezos is the devil to compete with.”
“He’s a genius,” Mike Buglio, the owner of The Book Rack, piped up, unprompted. Buglio later elaborated: “Bezos trained consumers to wait for shipments, figured out how to make those shipments faster, and figured out how to warehouse better than anyone else.”