No, Amazon isn’t doing the world any favours

stupidburnsA rebuttal to Matthew Yglesias

I haven’t written here in a while. That’s largely for three reasons. 1) My wife was pregnant and I was spending a lot of time just figuring out how to Dad. That process is ongoing now that my daughter is out in the world, but it was kind of a big deal around here. 2) There was also the most fraught municipal election in the history of the amalgamated city of Toronto going on basically for the last six months. Being a municipal politics nerd (yes, that’s a thing) I was a bit preoccupied by that. 3) The ongoing culture wars in genre were becoming exhausting to write about. Seriously, this particular SJW just needed a break from fighting in that battle because it’s a neverending cavalcade of misogyny, homophobia and racism that we seem to be dealing with. The Gamergaters and their ilk need to go away, and never come back. But, hey, The Amazon / Hachette thing is making the rounds of authorly social media once again and this article on Vox is just about the dumbest defense of Amazon I’ve ever read! That has almost nothing to do with the culture wars, but I can still get a chance to dust off the old snark. I’ll rebut it point by point.

Yes, publishing is big business, so what?

I’m not going to waste too many words on the first point because it’s a straw man argument plain and simple. There’s nobody sane criticizing Amazon because major publishers are mom and pops. Everybody even tangentially connected to publishing knows otherwise. This is simply not a significant part of the argument .

Amazon having competitors doesn’t mean it doesn’t have monopsony powers

Paul Krugman’s argument that Amazon, as the main buyer of goods, has the ability to manipulate the market as a monopsony is actually a very strong one, and more correct than those who have argued that Amazon is effectively a monopoly.

After all, Amazon HAS driven down prices. In fact, the opening volley of open conflict between the big four and Amazon happened when the big four (then five but there was a merger afterward) colluded with Apple in an effort to slow Amazon’s race to the bottom on book prices.

So, yeah, the big four tried to threaten to withdraw their products from Amazon if it didn’t stop pricing them into the ground. Amazon’s response was to cry to the courts that Apple was being unfair. Amazon derives its power in the market from being the dominant buyer and reselling the product, often at a loss, in order to grow at the expense of other companies. It’s a little bit insane, and it’s bad for the market in the long run.

And now for the obligatory self-publishing-or-bust section

I’ll lay this out simply: Every author needs an editor, cover art and marketing. Some authors are very good editors. They still need an editor. You just can’t edit your own work as well as another person can. You can’t. You’re too close. You miss things. Hell your brain infers details that aren’t on the page. And I’m talking both macro-level stuff (the setting looked fine in my head) and grammar level stuff (typed teh, never noticed even during proofing). Not every author can afford to hire an editor. Few authors are also cover artists. Many authors have day-jobs and don’t have time for the day job plus writing their books plus marketing their books, even if they know how. Some writers are not marketers by nature.

If you get rid of publishers you’ll turn writing into an art reserved for the wealthy and the deluded. I’d rather not see that.

Some publishers not being good marketers doesn’t make what Amazon does right

That much stands on its own. But furthermore books are more like commodities than you care to suggest. With the exception of a small cadre of “name” authors and the very different academic press market (which has its own set of pricing problems completely separate from Amazon’s) authors are sadly interchangeable. For the most part, for the mid list authors, their books get sold or some other similar authors books get sold instead and no consumer is likely to get too concerned. They want to read horror. If they can’t find horror book A they’ll find horror book B.

Frankly 99% of the working authors out there aren’t George R.R. Martin. If they don’t sell their books everywhere books can be sold they don’t get to influence the market. Instead they just lose money.

And, as I mentioned, some authors have no time to market their books. Even shabby marketing is better than absent marketing.

And what about authors who have no inclination to marketing? Should they just be excluded from their art? Honestly, there’s a deeply problematic misunderstanding of the lifestyle of the author in this section.

Advances are business, so what?

Yes, an advance isn’t a charitable contribution. Again arguing this is a strawman. Advances are more akin to futures stocks than to charity. A publisher is gambling that the future earnings of a book will be greater than the outset of cost for the advance on the book.

In exchange authors who dependably move copy get a slightly more stable income. It’s actually kind of win-win. And frankly it is NOT a loan. So to suggest that authors should take on debt (whether or not they can) to live while they wait for their royalties to roll on in is perverse.

Cheap books aren’t necessarily good for anybody

Amazon’s manipulation of the market does drive down costs for consumers. But books weren’t that expensive to begin with. I mean seriously, I read more than most consumers, and I buy print frequently. I buy hardcover and trade paperbacks when I buy print almost exclusively – IE: the expensive options – and you know what? \

It’s not an expensive hobby.

I don’t need to pay pennies for my four books a month, and most consumers can afford their one or two even at $10 for an e-book.

Yes, publishers profit from book prices. So what? They’re a business. We covered that at the top.

Authors ALSO profit from book prices. How do you think publishers can afford to gamble $50,000 or more on an unknown product that might or might not pay off? They do it through scale. It’s a sad truth big publishers can afford big advances. Small presses, as much as I love them (and I DO love small presses) can’t afford big advances.

Amazon’s reckless growth without profit model is harmful to everybody. It hurts publishers, it hurts authors, it hurts competing distributors and ultimately it hurts consumers.

Because when the choices remaining are un-edited and un-curated chaff and the vanity projects of the wealthy consumers will find their options for alternatives extinct.

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Amazon, Books and Bubbles

Sad AmazonAccording to Melville House the investment luster is wearing off of the never-make-a-profit elephant in the room of publishing, Amazon.

The thing with Amazon is that it made a decision early on to forego profits in exchange for continuous, rapid growth.

You know what else grows and grows without deriving any benefit for its hosts? Cancer.

Ok, I know, that was an easy shot, but with the recent closure of the World’s Biggest Bookstore I’m in a grouchy mood. World’s Biggest was just about the original big-box bookstore. And it’s not the only large bookstore closing its doors in Toronto. If even big boxes can’t survive in a post-Amazon world that bodes poorly for anybody who ever wanted to walk into a bookstore, browse for an hour and come out blinking in the sun with an unfamiliar book.

This quarter Amazon reported a profit of $108 million; but off a revenue of $20 billion that’s well below where any other company of its size would be expected to be. And Amazon is poised to lose as much as $455 million next quarter. But they’ll continue growing!

Investors have been willing to allow this mass expansion for a long while. Now they’re finally departing, and investor reluctance over Amazon has splattered over onto other major online ventures like Netflix and the big-three of social networking.

Frankly, a lot of these companies may be over-valued. The behaviour of Facebook and LinkedIn post-IPO surely points to that. But here’s the thing, Wall Street has long gambled that Amazon will eventually have All-The-Market and will thus be able to return them All-The-Money (or at least all the money in he lucrative selling physical objects or their electronic reproductions to people market).

This reckless backing has done massive damage to the book market. It was the death of Borders and Barnes and Nobles. In Canada it led Chapters Indigo to downsize its operations and to aggressively pursue integration with Kobo.

Other writers are concentrating on the risk that Amazon’s change in fortunes might pose for the tech sector – warning signs indicate it might perforate the wall of the new tech bubble. As much as I don’t want to see Netflix go the way of Pets.com, this isn’t my core concern.

What worries me is not what damage might be done by slowing Amazon’s growth, by investors forcing a change in practice where the giant is required to make a profit (you know, by doing something shocking like raising the price of books to something near what they’re worth).

What worries me instead is the damage done.

Heady investors gambled on the idea that they could promote a monopoly with Amazon. They’ve very nearly got what they wished for. And it gutted an entire industry. Melville House points out that Amazon is very likely in the “too big to fail” category of business now (and how I wish that was a concept that we could expunge from our collective consciousness). But while I can’t count on Amazon to be allowed to collapse under the weight of its own hubris, I can hope for a receding Amazon – an Amazon that doesn’t undercut the very publishers whose books it sells.

And I can hope that this will be yet another cautionary tale about the toxic nature of an economy built on the backs of naked gambling, devoid of care for the end products, the users or the content creators.

I think I’ve chosen a side in the Amazon / Apple conflict

It looks like Amazon is getting into a bit of a price war with Overstock. And it looks like this could be very bad for authors and publishers, both in the short-term an as part of a larger trend.

A little while ago I weighed in on the Apple / Amazon model over agency pricing and the ruling that this was a price-fixing deal. At that time I said that I wasn’t sure which side I came down upon with the whole thing.

But if we’re going to be seeing more of this without agency pricing perhaps I do know which side I’m on. I am still unconvinced that agency pricing is that good for small presses or anybody other than Apple and the Big Five. But with that being said, with things like this happening this soon after the court ruling in Amazon’s favour I am beginning to think that, perhaps, Apple and the consortium with the Big Five is the lesser of two evils.

Still very interested to hear other opinions on this. I’m less divided now, but not undivided.

Thanks to Raw Dog Screaming Press for providing the link to the original article.

Barnes and Noble – Seriously, Print isn’t Dying!

I’m not the first person to write an article talking about the recent fiscal 2013 year-end earnings report from Barnes and Noble. But people who decry B&N’s loss as another nail in the coffin of bookstores everywhere are missing the lead.

Don’t get me wrong, Showcasing is kind of awful and it doesn’t help bookstores at all. But it’s not showcasing or Amazon killing B&N. It’s the Nook.

Don’t believe me? Look at the numbers:

Sales
Retail $ 947,677 1,052,533 $ 4,568,243 4,852,913
College 252,295 227,891 1,763,248 1,743,662
NOOK 107,950 163,617 776,237 933,471
Elimination (30,901 ) (64,331 ) (268,723 ) (400,847 )
Total $ 1,277,021 1,379,710 $ 6,839,005 7,129,199

Gross Profit
Retail $ 259,304 329,353 $ 1,397,859 1,452,804
College 76,131 69,781 405,076 395,311
NOOK (107,000 ) 999 (122,293 ) 68,065
Total $ 228,435 400,133 $ 1,680,642 1,916,180

Selling and Administrative Expenses
Retail $ 208,244 262,244 $ 1,023,633 1,130,311
College 72,341 69,600 293,618 279,364
NOOK 69,895 77,988 353,125 329,777
Total $ 350,480 409,832 $ 1,670,376 1,739,452

EBITDA
Retail $ 51,060 67,109 $ 374,226 322,493
College 3,790 181 111,458 115,947
NOOK (176,895 ) (76,989 ) (475,418 ) (261,712 )
Total $ (122,045 ) (9,699 ) $ 10,266 176,728

Net Loss
EBITDA $ (122,045 ) (9,699 ) $ 10,266 176,728
Depreciation and Amortization (55,725 ) (58,968 ) (227,134 ) (232,667 )
Interest Expense, net (9,510 ) (8,629 ) (35,345 ) (35,304 )
Income Taxes 68,639 20,381 97,407 25,600
Total $ (118,641 ) (56,915 ) $ (154,806 ) (65,643 )

As you can see from the above, Retail and College are actually doing alright. The problem is that B&N is taking such a bath on NOOK that it’s dragging down the rest of its business.

Why is Nook failing?

In short it’s because Barnes and Noble is trying to be a better Amazon than Amazon is and they’re not going to succeed at that. Amazon is just too far ahead in that space.

Nook was not ever going to be sufficient to let B&N compete in Amazon’s space with Amazon. As a result the retail and college segments have to carry the losses posted by the (expense heavy) hardware and the not-particularly profitable ecosystem of the Nook.

What should B&N be doing instead?

Barnes and Noble is doing one thing right by cutting back on the Nook tablet business, contracting out development of co-branded tablets to a third party. I’d go a step further and also do the same with the black and white e-readers but they’re a dying technology to begin with.

What B&N should be doing is concentrating on ways to increase foot traffic into stores and ways to get those walk-ins to buy.

And I’m going to suggest something crazy – B&N should be looking to the model of smaller, local shops for a way forward.

Establishing smaller stores in high traffic urban areas, populating those stores with educated and engaged sales staff (and putting some of that staff on the floor) and then giving local stores control over at least 50% of inventory so that the stores have diverse content could help with this.

If people are going to showcase anyway give them the opportunity to do so more easily – but then put a friendly and well-read salesperson right there to try and convert that cover search into a book buy on the spot.

You know, add value.

Apple E-Book Antitrust Ruling

The big publishing news from today is the ruling against Apple, who were have found to have violated antitrust rules by colluding with the big five to raise e-book prices.

In short form, and as un-judgementally as possible, Apple made a deal to transition from a store-set pricing model to an agency pricing model, which means that the publisher would set the price of the e-books. They also included a “most favoured nation” clause in their contracts with Apple guaranteeing that Apple would be able to sell books for the same price the books were available in any store. The publishers then approached Amazon and threatened to withdraw their books from the Amazon store if Amazon didn’t also raise e-book prices.

You can read a more complete analysis of the ruling here.

I am of two minds on this.On one hand, it’s all too easy to vilify Apple. Steve Jobs was not a nice person and quotes like:

I can live with this, as long as they move Amazon to the agent model (meaning the publishers, and not retailers such as Amazon, could set prices) too for new releases for the first year. If they don’t, I’m not sure we can be competitive.

certainly point toward a level of collusion between Apple and the big five. Setting up a price consortium consisting of a favoured retailer and the five companies responsible for producing the vast majority of the content within an industry is a pretty clear example of anti-trust.

On the other hand, much ink has been spilled regarding Amazon’s possibly predatory pricing and the impact it has had on the industry.

So really, who are the good guys here? The people driving the price of e-books up or the people driving the perceived value of books down? It’s a difficult issue. On one hand, as a reader I like to buy cheap books. I like to have a large selection of books. I like buying books to be convenient. At two books a week, even a small mark-up in book prices will have a negative impact on my pocket book. 

However as a writer I understand the amount of time and effort that goes into producing a book. <hyperbole>I put two years of my life into something, I’d like to think it’s worth more than $0.99. </hyperbole> Agency pricing models prevent Amazon from using loss-leaders to drive business out of competitors funnels and into their own. These could ultimately end up being anti-monopolistic practises.

As I said before, I’m undecided. I am not entirely comfortable with Amazon or with Apple. I’m not entirely certain that either company has the best interests of readers or of authors in their hearts. Instead I think we see two companies known for aggressive and monopolistic practises using the courts to try and get one up on each other.

And Amazon appears to have won this round.

Since I honestly don’t know what to think about all this I’d be interested to hear your opinion. Leave a comment and let me know whether the ruling against Apple ultimately help or harms readers, writers and publishing.