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What Is The Authors Guild’s Endgame in Its War With Amazon?

In case you’ve been living under a publishing rock for the past few weeks (and, seriously, who hasn’t? They have great wifi!), a number of groups, including The Authors Guild, Authors United, and the Association of Authors’ Representatives, have taken up arms against Amazon. (Yes, that’s a staggering number of “A”s in one sentence. Damn the torpedoes! Full alliteration ahead!)

A lengthy letter has purportedly been sent to the Department of Justice in the wake of last year’s contract dispute between Amazon and publisher Hachette, calling for the DoJ to investigate the online retailer for “derail[ing] the benefits of a revolution in the way books are created and sold in America” among other things. Never mind that Amazon was at the forefront of the revolution in question.

There’s an excellent dissection of these organizations and their motivations in this article on TechDirt. I think it’s pretty clear, despite having “Author” so prominently in all of their names, that these groups truly have only a small number of actual authors among their constituency. Namely, those authors whose interests align with the Big 5 publishers.

The Authors Guild states, on a page devoted to the Hachette dispute (bolding mine):

It is to protect this value of books that we have spoken out against Amazon’s tactics in the Hachette dispute, its monopoly in the book market and its unfair treatment of independent authors. At the same time, we have also challenged the major publishing houses to revisit the parsimonious stance they’ve taken on authors’ e-book royalties. Though the Amazon-Hachette dispute was resolved in November 2014, the issue of fair compensation for authors remains a central concern.

Again, never mind that Amazon attempted on three different occasions to compensate the affected authors during the dispute. Saber rattling is an effective tool for drowning out logic, isn’t it?

Interesting is the attempt to include and welcome Indie authors under the AG’s umbrella of its actions. Indies have been vociferous in their defense of Amazon against the AG et al. They see a window of opportunity with the recent change to the Kindle Unlimited payout method, which has had many Indie authors up in arms. Maybe the AG is looking to boost its membership since they begrudgingly agreed to start admitting Indie authors who can successfully jump through a number of barrier-to-entry hoops.

But that can’t really be their endgame in all this. So, what do they hope to accomplish? Lee Child offered some insight in a comment on The Passive Voice blog recently:

The end-game I would like to see is a gentle nudge to remind them [Amazon] to behave like a fabulous retailer – equal and normal (by all means tough, combative and adversarial) treatment of all book suppliers, without the weird Gazelle Project agenda in the background, which is explicitly designed to bankrupt incumbent players to Amazon’s advantage.

The Gazelle Project he refers to comes from a book published in 2013 by Brad Stone, called The Everything Store. In it, Stone described Amazon’s attitude toward small publishers.

Mr. Bezos said Amazon “should approach these small publishers the way a cheetah would pursue a sickly gazelle.” A joke, perhaps, but such an aggressive one that Amazon’s lawyers demanded the Gazelle Project be renamed the Small Publishers Negotiation Program.

Many would view that as harsh, or ruthless, but those qualities are also often admired in business circles.

Child also says, in another comment from the same blog:

This isn’t about how Amazon treats products, or my book vis-a-vis yours. This is about a specific antitrust obligation that says a dominant retailer who chooses to also become a competitor must henceforth negotiate within an altered framework when dealing with a pre-existing supplier of now-competing goods.

The competition he refers to isn’t Indie authors, but rather Amazon’s own imprints — subsidiaries operating as essentially autonomous publishing companies in their own right — which include Thomas & Mercer, 47 North, and Montlake Romance, among others. These subsidiaries seek out and acquire books in much the same way that other publishers do, although, by all accounts, they offer much better contract terms to their authors than the standard New York fare. Child’s argument, or worry, seems to be that because Amazon is a direct competitor, as well as the largest single retailer, that their dealings with the Big 5 and other, smaller publishers, falls into a different category than it did before 2009 or 10 when Amazon started establishing itself as a publisher.

The concern is a valid one, I think, and something worth looking at, but if that is what the AG et al are really after, why not say that?

Here’s the list of main concerns from the Authors United letter to the DoJ from July 13, 2015:

In recent years, Amazon has used its dominance in ways that we believe harm the interests of America’s readers, impoverish the book industry as a whole, damage the careers of (and generate fear among) many authors, and impede the free flow of ideas in our society.

    • Amazon, to pressure publishers over the past 11 years, has blocked and curtailed the sale of millions of books by thousands of authors;

    • Amazon, during its dispute with Hachette in 2014, appears to have engaged in content control, selling some books but not others based on the author’s prominence or the book’s political leanings;

    • Amazon has used its monopsony power, and its ability to threaten punishment, to extract an ever greater share of the total price of a book from publishers, which has resulted in less revenue to support midlist authors and certain kinds of books, effectively silencing many voices;

    • Amazon routinely sells many types of books below cost in order to drive less well capitalized retailers — like Borders — out of business. This practice, known as “loss-leading,” also harms readers by reducing the amount of revenue available for publishers to invest in new books.

    • Amazon routinely uses its market power to steer readers toward its own books and away from books published by other companies;

    • Amazon dictates pricing to self-published authors, requiring them to price their books within a specific range or be subjected to a 50 percent cut in royalties.

Six items there, the first five of which are directly related to how publishers and Amazon’s competitors are treated by the company, with authors only obliquely mentioned. The last bullet point, about how self-published authors should price their books sold on Amazon, neglects to mention that the “50 percent cut” still comes out to be about twice the royalty offered in the standard Big 5 contract to their authors. Point five hints at Mr. Child’s objection, but is more of a complaint about unequal advertising and promotion rather than concern about how the company treats with someone who is a competitor as well as a supplier.

The last several paragraphs of the letter drone on about Amazon somehow controlling the flow and content of ideas on the Internet (really?) and ends with:

…no temporary price cut can compensate for the costs to free expression and the health of America’s book industry that have resulted from Amazon’s abuse of its dominance in the world of books. Accordingly, we respectfully request that the Antitrust Division investigate Amazon’s power over the book market, and the ways in which that corporation exercises its power, bearing in mind the very special constitutional sensitivities that have historically been applied to any business that has established effective control of a medium of communication.

Price. Amazon is pricing books, and more specifically ebooks, too low for the tastes of AU/AG/AAR/ABA/and all the other “A”s (read Big 5 Publishers). The biggest book seller on the planet, who got to that position by selling books at lower prices and making more money for publishers and authors in the process than they’d seen for the previous two decades or more, has somehow become the bad guy to several groups who claim to have the best interests of authors at their heart. Come again?

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But let’s get back to my original question: what’s the endgame? What outcome do Authors United and the Authors Guild see as a benefit from the DoJ presumably finding Amazon guilty of some, or all, of the nonsense they proposed?

The two antitrust cases I can find that even remotely correlate to this (one of which AU mentions in its letter) are Standard Oil and AT&T. In both cases, the government decreed the break up of the companies in question into several smaller companies. In both instances, however, years later, through mergers and acquisitions, the end results were nearly the same as when the whole process started. Technology disrupted the phone industry and Exxon eventually gobbled up many of the Standard Oil pieces to become one of the largest corporations in the world.

If Amazon was broken up into a number of smaller companies, would that enable and foster more competition? How would that even work for books? Would they propose splitting it up by fiction and nonfiction? Maybe by genre? I know! Let’s have a separate store for each section of the Dewey Decimal System!

Coming back to pricing, which we must because that’s the real cornerstone to the house of cards the AG and AU have constructed, control, and even fixing, is the desired result here. They can’t come out and say that, of course, because price fixing is illegal and is essentially what got the Big 5 in trouble, in cahoots with Apple, a few years ago. Publishers regained some control over pricing in this last round of negotiations with Amazon, resulting in higher prices for many ebooks and subtlety denoted by Amazon on its site by the “price set by the publisher” appellation which now appears on thousands of books. Evidently, whatever control they wrestled away from Amazon wasn’t enough, otherwise I’m sure Hachette would be quietly advising Doug Preston to pipe down and go sit in the corner.

The bottom line is: all these people want you, the reader, to pay more for books. And especially ebooks. Because reasons, and logic, and, and, and because they said so, dammit!

My personal take? Don’t trust any group with the word “Author” in its name. None of them speak for all, or even most, of us.

Books Parallel Music Once Again

If there’s one thing that Amazon’s better at than selling books, it might be stirring up controversy.

For those who don’t know, last year, Amazon unveiled a subscription reading service called Kindle Unlimited (KU). For a monthly fee of $9.99, users can download and read as many books as they want, ten at a time. Once you “return” one of those ten borrowed books/stories, you can download another. For voracious readers, the service is a godsend, saving them tens, or even hundreds, of dollars a month on books, depending on their reading habits.

But, where does the author stand on this? While I do have a book that is available for free, it wouldn’t make any sense for me to have all my books available for free. Call me old fashioned, but I’m rather fond of eating and having a roof over my head.

In order for Amazon, or any other subscription service, to have content available to the consumers, they must compensate the content provider in some way. Initially, Amazon chose to utilize a system where, if a reader downloaded and read a book up to a certain point (10% of the text), they paid the author a portion of a substantial “pot” of money each month. That piece of the pot (which started out around $2 and eventually landed in the area of $1.37) was the same for each qualifying download, regardless of length. A short story received the same slice as an epic doorstop.

Naturally, many authors saw this as an opportunity to put out tons of shorter works, be they single short stories or novels transformed into serials. Less reputable folks uploaded short Wikipedia articles and ridiculous non-fiction “books” to take advantage of the 10% payout trigger. Readers began to complain about having a hard time finding something of quality to read. Longer form authors complained about not being compensated fairly.

Now, Amazon has upset the KU apple cart and updated the payout system to a slice of the pot for each page read. Length of the whole work no longer matters. Authors get paid for engagement. If the doorstopper-writer loses the interest of the reader after 20 pages, they earn the same amount as the short story-writer whose 20-page work is read clear through.

Understandably, short form writers are upset by this change. To earn the same $1.37 they got before from one download read to 10%, they have to accumulate approximately 240 pages read — according to the best guess at the pot slice we have at the moment which is $0.0057, or a little over half a cent per page. Novel writers will get paid more than the previous $1.37 if their book gets read all the way through. Writers will now be rewarded for reader engagement.

To all those up in arms about the change, let’s step back and look at the music industry.

Say you hear a song on the radio and decide to purchase it. You see that the artist has a number of other songs available as well. (Us old folks used to call those “albums”) You certainly wouldn’t expect to purchase all the songs for the same price as the one, right?

“Okay,” you say. “But purchasing is different from renting or streaming.”

You’re right, it is. So, let’s look at how artists get compensated for streamed songs.

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Taylor Swift showing her support in the ALA Celebrity Read campaign from 2014. Learn more about the American Library Association at http://www.ala.org.

Spotify is currently paying approximately $0.006 per play (sound familiar?) according Spotify (the artists get much less than that depending on the contract with their label, much like traditionally published authors are paid a small fraction of the money earned from a book). We can argue about whether the number itself is fair or not, but how does this model apply to books?

Think of a page read as a song play. If the listener/reader likes what you have to offer, they’ll listen again (i.e. read more). Then they get to the end of the chapter, or the short story, and think, “Man, this is really good! What happens next?” Just like if you’ve listened to a particular song from an artist a few times and wonder what else they might have available. That performer has made a fan out of you. Our books have the opportunity to do the same thing for readers. If we catch their eyes and engage them with interesting characters and plot, they will come back for more.

Many of you authors out there are probably still not convinced, so let’s look at it from one more angle. Everyone in the equation has to be compensated somehow. Namely, the readers (who get content to consume), the authors (who provide the content to read), and the platform (who creates the method of getting the content to the consumers). Spotify and Amazon have chosen to be compensated directly from the end consumers in the form of a subscription fee and they, in turn, compensate the artists/authors for product consumed.

Another company, YouTube, has taken a different approach. They provide all their content for free, but compensate themselves and the artists through advertising. Imagine if Amazon went this route. Would you want your book to be interrupted every 20 pages by an ad? As a reader, I know I wouldn’t put up with that for very long, even if it was free for me. Take a look at this brilliant info graphic, at the bottom of this article from the Guardian, to see how many more views/listens a song has to have on YouTube for an equal level of payout from the streaming services. It’s quite eye-opening.

What does this all mean? I think subscription services are here to stay. Spotify and Netflix are popular with consumers. The battleground is content and how much to pay those content providers. Scribd’s model for books, while attractive to authors and publishers, is clearly flawed as we’ve seen with them eliminating much of their most-read content this past week. We are only guessing at Amazon’s payout at this point in time. We won’t know what the actual number is until mid-August and the number will undoubtedly fluctuate over the next several months and settle at a point that Amazon is comfortable with. Whether authors will be comfortable with it remains to be seen, but books are only locked into the program for 90 days. If you aren’t happy with what you are seeing, drop out and try other avenues.

I have one series in KU and one not. I’m looking forward to see the dynamics of how all this plays out through the rest of the year. In the meantime, I need to get busy writing. This next book isn’t going to finish itself!

Please let me know your thoughts on KU, Spotify, how much authors and musicians deserve to be paid, or anything else that comes to mind in the comments.

Content Is King

Twitch_Logo_thumbnailAmazon just spent nearly a billion dollars — yes, that’s with a Carl Sagan “B” — to acquire Twitch.tv. What is Twitch? It’s a site used mostly by gamers to live stream and record videos of themselves playing video games. Some of the users have hundreds of thousands of subscribers to their channels and sometimes tens of thousands of people watching at any one time. Not only can you watch the action, but there is a chat function as well where the streamer can interact with his/her viewers and the viewers can interact with each other.

Why is this significant? Other than the huge chunk of cash, it shows a glimpse of where Amazon is headed. They recognize that content is king. The more content they have available on their devices (Kindle, Fire TV, Phone, etc.) the more Amazon becomes a destination for their customers. Rather than creating the bulk of that content themselves, Amazon is looking to the grass roots — Indies— to fill their gadgets with fun and interesting things to see and do.

Twitch streamers are almost directly analogous to Indie authors. They are creating content and trying to find an audience. Each has their own personality, talent, and unique ideas on how to present their channel.

Books aren’t special snowflakes as some have bandied about recently. They are entertainment. As such, they compete with every other source of entertainment out there for the attention of the public. Writing a good book is a difficult task. So is writing a song, or creating a video or a game. We’re all vying for eyeballs. The big difference these days is we don’t have to have middlemen (publishers, record labels, distributors, etc.) to make it happen. We have direct, immediate conduits to those eyeballs and I, for one, am immeasurably grateful for those conduits.

Windowing: Why Big Publishers Can’t Jump On Board the Ebook Train

I really should be writing, but the misinformation and outright lies being tossed around the Interwebz drives me to distraction.

Hachette CEO Michael Pietsch responded in Digital Book World to all those who answered Amazon’s email plea and sent him a message this weekend. He said several questionable things, but I want to focus on the last bullet point in his letter:

• The invention of mass-market paperbacks was great for all because it was not intended to replace hardbacks but to create a new format available later, at a lower price.
As a publisher, we work to bring a variety of great books to readers, in a variety of formats and prices. We know by experience that there is not one appropriate price for all ebooks, and that all ebooks do not belong in the same $9.99 box. Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.

This bit: “create a new format available later, at a lower price” is referred to as windowing and it’s something readers have railed against since mass-market paperbacks were first introduced. We all know the drill. Our favorite author writes a new book. First, it gets released in hard back. Then, sometimes more than a year later, it finally is released in paperback. Why do the publishers do this? Profit.

Let’s look at a typical bestseller hardback new release. I am going to use generic, made-up numbers for this example. There are always exceptions to every rule. Most new hardbacks these days are priced at about $28. Publishers sell them to distributers/retailers (like Amazon, Barnes & Noble, and Ingram) at a 50% discount, meaning the publisher gets $14 for the book. Mr. Pietsch states above that print books have production costs of $2-$3 per book attached to them, in addition to the fixed costs he states, such as editing, design, etc. (We’ll ignore the fact that he uses warehousing and shipping twice in his argument) Those fixed costs, in normal accounting procedures, would get amortized over the projected sales of the book. For argument’s sake, I’m going to use a figure of $6 per book to cover those “investment” costs — and I think I’m being generous here. Remember that the author’s royalty is baked within that figure because the publisher has paid the author an advance already, so about $4.20 of that $6 is being used to pay down that advance. That leaves $1.80 for the other costs. If the book is expected to sell 100,000 copies, that’s $180,000 for editing, design, marketing, blah, blah, blah.

So, we have a final “cost” of the hardback book at roughly $9 and the publisher gets $14. Pretty good deal. Here’s the problem though. The paperback version of the book retails for around $10 these days. Meaning that the publisher gets about $5. That figure doesn’t look so good against the $9 cost we established earlier, yet Mr. Pietsch claims they recoup those fixed costs he mentions from “sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook.” Even if we assume the production cost of a paperback is a little less than the hardback, it still doesn’t make financial sense. What are we missing?

Windowing. Because the book is only released in hardback initially, the publisher guarantees it sees that nice number for the first several months to a year of the book’s existence. Contrary to what Mr. Pietsch is claiming, the publishers don’t amortize those fixed costs over all formats — at least not equally. They make their money with that initial hardback release.

Image from Amazon.com

Image from Amazon.com

Now, ebooks enter the picture. People expect to have access to the ebook version of a new release at the same time as the hardback. To make that happen and still get the profits they want from a new release, publishers have to jack up the price of the ebook beyond reason. Let’s look at the numbers. We had a figure of $9 for production/fixed costs of our hypothetical new book, but we can take out that $3 needed for printing and distributing the paper version, so we’re down to the $6 fixed cost figure. Amazon would like to sell ebooks for no more than $10 ($9.99), of which, they take 30% instead of the 50% for paper copies. That leaves $7 for the publisher. Profitable, but nowhere near the $9 vs $14 we saw with the hardback. Ah! But if the publisher says, “Let’s charge $15 ($14.99) for the ebook,” then we have something. Now, they are getting about $10.50 from Amazon for that book vs. the $6 cost, which is nearly the same as the hardback profit margin. (This doesn’t take into account the lower author royalty dollar-wise for the ebook, which amounts to about $2.65 instead of the $4.20 we showed earlier, meaning the publisher actually does better on the $14.99 ebook than the hardback.)

With me so far? Everything sounds like it works out just fine for the publisher, right? Except for one thing: people get really pissed off at paying $14.99 for an ebook.

Amazon knows this. People leave nasty one-star reviews by the droves whenever a book gets priced over $10.  People also get pissed off when publishers have tried to window ebooks — in other words, not release them at the same time as the hardback. The publishers can’t stomach the $9.99 price point because their business model falls to pieces.

Guess what? It’s time for a new business model. Ebooks aren’t going away and neither is the average reader’s desire to not pay more than $9.99 for it. Until the big publishers grasp this concept, they are going to continue to butt heads with Amazon.

The Indie Authors’ Guild, or Cat Herding For Fun & Profit

Like thousands, or maybe even millions, of others, I received an email from Amazon explaining their side of their dispute with book publisher Hachette this morning. In it, Amazon tells us they’ve set up a website called ReadersUnited.com (I imagine in response to the “Authors United” group, championed by Douglas Preston, et al) and ended with a call to action of emailing the CEO of Hachette to voice our opinions regarding ebook pricing and two or three other issues.

I have my views about this dispute and have posted them here in the past, but I’m not going to talk about this latest salvo in the Amazon vs. Hachette heavyweight bout. More accomplished pundits than I will hash it out in blogs and forums over the coming days. And I have no doubt that you are capable of forming your own opinion regarding this latest letter and the dispute overall.

No, I wish to expound on an observation I made while reading initial reactions to this letter over the last couple of hours. (Time I probably should have spent outlining the back half of my next book, but the Internet is soooo SHINY!)

Until now, this debate has largely fallen along “party” lines. Established, traditional authors (like Preston, Patterson, and the signatories of the Authors United letter) have tended to side with Hachette, while the Indie rabble rousers (Konrath, Howey, and many others, who forged their own letter at Change.org) have tended to side with Amazon. On first blush, one might assume the Indie author group would, by and large, embrace this latest tactic of Amazon’s to reach out for support from the Kindle community.

That reasonable assumption, however, would be dead wrong.

In perusing my Facebook author groups, a blog post from the Passive Voice, and the first ten pages of comments from the Writers’ Cafe thread about this on the Kindle Boards, I saw a surprising diversity of reactions from my peers. On display were everything from abject apathy, to disgust, to disappointment, to unabashed outrage. Mixed in with these were also voices of support, both modest and wholehearted. After recovering from my initial shock at the huge range of opinions and emotions on display, my thoughts turned to another subject which has been bandied about in these same forums over the past several weeks and months: that of an Indie Authors’ Guild.

An organization calling itself the Authors’ Guild has been in existence for over 100 years, yet it is anything but what its title purports it to be. Often, it has been a mouthpiece for publishers, rather than authors, and is arguably more selective in its membership than the Augusta National Golf Club. Many Indie authors have expressed a desire for either the current Authors’ Guild to reform and allow Indies membership, or to create a new organization which is Indie friendly. Such an organization might provide legal advice, help in finding independent contractors for things like editing, cover design, etc., and be an advocate for the thousands of Indie authors if companies like Amazon or Barnes & Noble ever changed the terms of their distribution agreements to be less than favorable. All of these sound like laudable and worthwhile objectives.

Yet, I feel it’s workable in ideal only. After seeing the multitude of reactions today to Amazon’s plea — a company that has almost single-handedly given writers an opportunity to make money doing something they love and many never thought possible — how on Earth can anyone expect this diverse, opinionated group to come together to form a cohesive guild, union, or treehouse club? There’s not enough money in the world to pay someone to head up such an organization. You’d have more success herding ten thousand cats without the use of milk, tuna, or catnip. Every decision would be lambasted by some, lauded by others, and greeted with disinterest by still more.

I do think a directory listing site for those contracted services, along with some educational help for those new to self publishing, is doable for someone willing to put in the work to gather up that information, but I just can’t see a unified voice ever coming about for a group who, by definition, are a bunch of free-wheeling mavericks who march to the beat of their own drums.

What do you think? Is establishing a cohesive Indie Authors’ Guild an achievable goal? How would you go about it? I’d love to hear your thoughts.