Archive for the ‘Book Industry news’ Category

The Authors Guild on the Option Clause

September 23, 2015

Excellent statement from The Author’s Guild analyzing the odious “option clause” in the book contract. Most book contracts are “asymmetrical” in favor of the publisher. I.e. an agreement whereby the publisher gets the right to exploit the work of the author for the term of the copyright, life plus 70 years. In exchange they give the author a very small advance (usually)  against rather small royalties. One of the most asymmetrical conditions is the option clause, which requires the author to submit the next book exclusively to the contracted publisher for a given period of time, but doesn’t require any additional responsibility on the publisher to accept it. Sometimes a very limited option clause is ok. But there are some truly horrible ones out there.  Here is the complete text.

A few authors are lucky enough to sign multi-book deals worth six or seven figures. But many more writers, without really thinking about it, tie themselves to unprofitable multi-book deals in the form of one-sided options or “next book” clauses—and they do it for free.

Option clauses in publishing agreements vary, but generally they give the publisher first dibs on the author’s next book. Some options are relatively benign, granting the publisher rights of first look or first negotiation (i.e., the right to see the next book first and negotiate for a limited period of time after reviewing it). Others are never fair, in our view, such as clauses that grant the publisher a right of last refusal (i.e., even if the publisher turns it down at first, it can come back and match any other publisher’s offer) or the ability to wait until after the first book is published, or the second book completed, to make up its mind. Clauses that do so unfairly impede an author’s ability to write and publish.

We get that publishers want their investments in authors to pay off. When a book does well, it may be a credit to the publisher’s marketing efforts, as well as the author’s. In cases where the publisher actively builds the author’s brand, it may be fair to give it the right to further recoup its investment on the next book. But the terms have to reasonable. We have seen too many option clauses that overreach, binding the hands of an unwitting author for longer than she can afford when it comes time to sell the next book.

Option clauses can wreak havoc on authors’ careers. First, and most obviously, they prevent an author from selling her book on the open market and getting the best deal possible. In cases where the first book sold particularly well, unless and until the publisher passes on the next book, an option certainly precludes an auction from developing. And what if the publisher failed to market the first book effectively, or the author was dissatisfied with the edit? The author is left without recourse.

An option can also hold up the author’s ability to get a new advance—a necessity for full-time authors. Particularly egregious clauses require the author to submit a completed manuscript (as opposed to a proposal) of the next book for the publisher’s consideration. To make things worse, they give the publisher way too long to decide whether to publish the manuscript. The author is not permitted to submit a proposal to other publishers until after delivering an entire new book to the original publisher, which is given ample time to review it and, of course, to reject it. This means that the author is writing the entire book without an advance—defeating the very purpose of an advance, which is to provide an author with money to write the book in the first place.

Even worse are options that give the publisher the right to the author’s next book-length work “on the same terms” as the first. That is, if the publisher elects to exercise the option, the author must sign a contract with the publisher with the same provisions and payment structure as the current contract. This completely eliminates the author’s right to negotiate before the next book’s subject matter, length, and market potential are known. No writer should ever agree to such terms.

For absolute intolerability, option clauses including “last refusal” rights take the cake. These, as discussed above, actually allow a publisher to match a second publisher’s offer, even if the publisher who holds the option declines the author’s work initially. We don’t think a publisher should receive even one bite of this apple. But several? That’s crazy. Once a publisher passes on a book, no author should be obligated to disclose any offers received from others to the original publisher.

One Authors Guild member whose option required submission of an entire manuscript spent ten years without any financial compensation while working on a research-intensive non-fiction manuscript (an early advance for the “next book” is almost never part of the deal). His contract prohibited him from approaching any other publisher until the entire manuscript was done—a decade later. It’s preposterous to ask authors to bear that kind of risk.

Fiction writers aren’t immune. A few years ago, a major publisher used a next-book option (together with a non-compete clause, like the ones we’ve called out here) as an excuse to pull the plug on a novel already scheduled for publication. With her agent’s knowledge and blessing, the author decided to self-publish a previously-written but unpublished short story collection in order to make ends meet before the next installment of the advance for the novel was due. When her publisher—which had already rejected the story collection—found out, the author received a termination letter demanding immediate repayment of the advance, claiming that “by ignoring these essential terms of the Agreement and not informing your editor of your intentions, you have not only breached the Agreement, but also demonstrated your unwillingness to work in good faith with us toward the successful publication of the Work.” The novel clearly didn’t compete with the self-published short story e-book. And earlier, when the author presented the publisher with an outline for her next novel, the publisher had insisted on waiting until after the current novel’s release to see how it was received and whether it was worth picking up the next one.

Or consider the romance novelist who took a break from fiction to write a non-fiction book. Her non-fiction contract required her to submit her next book—a romance novel—to that same publisher, despite the fact that the non-fiction publisher had absolutely no experience with romance novels. The upshot was that the author was required to delay submission of the novel to publishers who would actually know how to handle it.

Fair “next book” clauses do exist and may be appropriate where the publisher invests in marketing, but they must be strictly limited. The clause should grant only a right to negotiate with the author for a next book of similar subject matter for a limited period of time. If the author and publisher can’t reach an agreement in that time frame, it is crucial that the author be free to quickly seek another publisher. Additionally, a fair option agreement generally will:

  • require that the publisher base its decision on a proposal or sample chapters of the next book (not on a completed manuscript);
  • require the publisher to make a decision within a certain number of days (e.g., 30) of receiving the author’s proposal or sample chapter(s);
  • allow the author to go elsewhere if no agreement is made within a limited number of days (e.g., 15) of the publisher’s offer;
  • allow the author to submit a proposal or sample from the next book for the publisher’s review when it is ready (the author should never be forced to wait until some period after publication of the first book, which may be way too far out for an author living on book writing alone); and
  • provide for new terms to be negotiated for the next book (the second deal should never be based on the terms in the contract for the first book).

If the publisher wants an option in any other circumstances, the publisher should pay an upfront option fee for it. We recognize this is not an industry practice—not yet, at any rate. But it should become one. A publisher should never have the right to prevent or delay an author from selling her next book unless it pays an additional amount to hold up that work for some period of time, as a film studio would when buying film option rights on a book.

Bottom line: option clauses are almost always in the sole interest of the publisher and not the author. In some cases, the option clause can hold the author’s writing career hostage to the publisher’s schedule for years. This amounts to an unacceptable restriction on an author’s freedom to write. If an author is agreeable to providing the publisher an option, it should be subject to the limits described above.

The Authors Guild on E-book Royalties

July 9, 2015

On June 17, we posted a statement by The Authors Guild about their new Fair Contract Initiative, in which they would be clarifying the issues in the typical book contract that are unfair to authors. Today The Authors Guild issued  their first analysis having to do with e-book royalties, which are substantially lower than the royalties on hardbacks, even though the costs of production and distribution of e-books is substantially lower. It’s worth reading. Here is the text in its entirety.

We announced our Fair Contract Initiative earlier this summer. Now our first detailed analysis tackles today’s inadequate e-book royalties. At the heart of our concern with the unfair industry-standard e-book royalty rate is its failure to treat authors as full partners in the publishing enterprise. This will be a resounding theme in our initiative; it’s what’s wrong with many of the one-sided “standard” clauses we’ll be examining in future installments.

Traditionally, the author-publisher partnership was an equal one. Authors earned around 50% of their books’ profits. That equal split is reflected in the traditional hardcover royalty of 15% of list (cover price, that is, not the much lower wholesale price), and in the 50-50 split of publishers’ earnings from selling paperback, book club, or reprint rights. Authors generally received an even larger share than the publisher for non-print rights (such as stage and screen rights) and foreign rights.

But today’s standard contracts give authors just 25% of the publisher’s “net receipts” (more or less what the publisher collects from a book sale) for e-book royalties. That doesn’t look like a partnership to us.

We maintain that a 50-50 split in e-book profits is fair because the traditional author-publisher relationship is essentially a joint venture. The author writes the book, and by any fair measure the author’s efforts represent most of the labor invested and most of the resulting value. The publisher, like a venture capitalist, invests in the author’s work by paying an advance so the author can make ends meet while the book gets finished. Generally, the publisher also provides editing, marketing, packaging, and distribution services. In return for fronting the financial risk and providing these services, the publisher gets to share in the book’s profits. Not a bad deal. This worked well enough throughout much of the twentieth century: publishers prospered and authors had a decent shot at earning a living.

How the e-book rate evolved

From the mid-1990s, when e-book provisions regularly began appearing in contracts, until around 2004, e-royalties varied wildly. Many of the e-rates at major publishing houses were shockingly low—less than 10% of net receipts—and some were at 50%. Some standard contracts left them open to negotiation. As the years passed, and especially between 2000 and 2004, many publishers paid authors 50% of their net receipts from e-book sales, in keeping with the idea that authors and publishers were equal partners in the book business.

In 2004, we saw a hint of things to come. Random House, which had previously paid 50% of its revenues for e-book sales, anticipated the coming boom in e-book sales and cut its e-rates significantly. Other publishers followed, and gradually e-royalties began to coalesce around 25%. By 2010 it was clear that publishers had successfully tipped the scales on the longstanding partnership between author and publisher to achieve a 75-25 balance in their favor.

The lowball e-royalty was inequitable, but initially it didn’t have much effect on authors’ bottom lines. As late as 2009, e-books accounted for a paltry 3–5% of book sales. Authors and agents ought to have pushed back, but with e-book sales so low it didn’t make much sense to risk the chance of any individual book deal falling apart over e-royalties. We called the 25% rate a “low-water mark.” We said, “Once the digital market gets large enough, authors with strong sales records won’t put up with this: they’ll go where they’ll once again be paid as full partners in the exploitation of their creative work.”

E-books now represent 25–30% of all adult trade book sales, but for the vast majority of authors the rate remains unchanged. If anything, publishers have dug in their heels. Why? There’s a contractual roadblock, for one: major book publishers have agreed to include “most favored nation” clauses in thousands of existing contracts. These clauses require automatic adjustment or renegotiation of e-book royalties if the publisher changes its standard royalty rate, giving publishers a strong incentive to maintain the status quo. And the increasing consolidation of the book industry has drastically reduced competition among publishers, allowing them more than ever to hand authors “take it or leave it” deals in the expectation that the author won’t find a better offer.

The elephant in the room

And then there’s the elephant in the room: Amazon, which has used its e-book dominance to demand steep discounts from publishers and drive down the price of frontlist e-books, even selling them at a loss. As a result, there’s simply not as much e-book revenue to split as there was in 2011when we reported on the e-book royalty math. At that time, publishers made a killing on frontlist e-book sales as compared to frontlist hardcover sales—at the author’s expense—because, as compared to today, the price of e-books was relatively high.

When we analyzed e-royalties for three books in the 2011 post, “E-Book Royalty Math: The House Always Wins,” we found that every time an e-book was sold in place of a hardcover, the author’s take decreased substantially, while the publisher’s take increased.

Since 2011, we have found that publishers’ e-gains have diminished. But the author’s share has fallen even farther. Amazon has squeezed the publishers, to be sure. The publishers have helped recoup their losses by passing them on to their authors.

These were our calculations for several books in 2011. The trend was obvious. Compared with hardcovers, each e-book sold brought big gains to the publisher and sizable losses to the author when the author’s royalties are compared to the publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

Author’s Royalty vs. Publisher’s Profit, 2011

The Help, by Kathryn Stockett

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book.

Author’s E-Loss = -39%

Publisher’s Margin: $4.75 hardcover; $6.32 e-book.

Publisher’s E-Gain = +33%

Hell’s Corner, by David Baldacci

Author’s Standard Royalty: $4.20 hardcover; $2.63 e-book.

Author’s E-Loss = -37%

Publisher’s Margin: $5.80 hardcover; $7.37 e-book.

Publisher’s E-Gain = +27%

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book.

Author’s E-Loss = -17%

Publisher’s Margin: $5.45 hardcover; $9.62 e-book.

Publisher’s E-Gain = +77%

What’s happening now? We ran the numbers again using the following recent bestsellers. Because of lower e-book prices, the publishers don’t do as well as they used to, though they still come out ahead when consumers choose e-books over hardcovers. But authors fare worse than ever:

Author’s Royalty vs. Publisher’s Profit, 2015

All the Light We Cannot See, by Anthony Doer

Author’s Standard Royalty: $4.04 hardcover; $2.09 e-book.

Author’s E-Loss= -48%

Publisher’s Margin: $5.44 hardcover; $5.80 e-book.

Publisher’s E-Gain: +7%

Being Mortal, by Atul Gawande

Author’s Standard Royalty: $3.90 hardcover; $1.92 e-book.

Author’s E-Loss= -51%

Publisher’s Margin: $5.10 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%

A Spool of Blue Thread, by Anne Tyler

Author’s Standard Royalty: $3.89; $1.92 e-book.

Author’s E-Loss: -51%

Publisher’s Margin: $5.09 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%[1]

Exceptions to the rule

It’s time for a change. If the publishers won’t correct this imbalance on their own, it will take a critical mass of authors and agents willing to fight for a fair 50% e-book royalty. We hope that established authors and, particularly, bestselling authors will start to push back and stand up to publishers on the royalty rate—on behalf of all authors, as well as themselves.

There have been cracks in some publishers’ façades. Some bestselling authors have managed to obtain a 50% e-book split, though they’re asked to sign non-disclosure agreements to keep these terms secret. We’ve also heard of authors with strong sales histories negotiating 50-50 royalty splits in exchange for foregoing an advance or getting a lower advance; or where the 50% rate kicks in only after a certain threshold level of sales. For instance, a major romance publishing house has offered 50% royalties, but only after the first 10,000 electronic copies—a high bar to clear in the current digital climate. But overall, publishers’ apparent inflexibility on their standard e-book royalty demonstrates their unwillingness to change it.

We know and respect the fact that publishers—especially in this era of media consolidation—need to meet their bottom lines. But if professional authors are going to continue to produce the sort of work publishing houses are willing to stake their reputations on, those authors need a fair share of the profits from their art and labor. In a time when electronic books provide an increasing share of revenues at significantly lower production and distribution costs, publishers’ e-book royalty practices need to change.

[1] In calculating these numbers and percentages for hardcover editions, we made the following assumptions: (1) the publisher sells at an average 50% discount to the wholesaler or retailer, (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number—if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.

Likewise, in calculating these numbers and percentages for the 2015 set of e-books, we are assuming that under the agency model—which is reportedly the new standard in the Big Five’s agreements with Amazon—the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher. The unit costs to the publisher are simply the author’s royalty and the encryption and transmission fees, for which we deduct a generous 50 cents per unit.   


The Author’s Guild on the Book Contract

June 17, 2015

Most of us who have ever negotiated a book contract will tell you that these agreements are unfair to authors. Contracts are classic asymmetrical agreements whereby the publisher gets the rights to exploit your writing in all possible manner and in all possible venues for the term of the copyright (life plus 70 years). They have the right to keep you from publishing any other book that they deem will compete against the contracted work. They will attempt to restrain you from showing your next work to another publisher until they have had an exclusive opportunity to look at it and make an offer. They will claim the right to reject the book for any reason and require you to return the advance paid. In exchange, they will give you a teeny bit of money. No wonder authors are claiming that they are better off self publishing.

To combat this, The Authors Guild, my favorite author organization, has developed a new program to shine a light on the unfair elements of the book contract. Today they published an outline of the Fair Contract Initiative and describe the areas that they will be analyzing going forward. It’s worth a read.


“On May 28 we announced the Authors Guild Fair Contract Initiative. Its goal is to shine a bright light on the one-sided contract terms that publishers typically offer authors and to spur publishers to offer more equitable deals. This is not an abstract issue: today’s contracts directly affect authors’ livelihoods and ability to control their works. As standard terms have become less favorable to authors in recent years, their ability to make a living has become more precarious.

Authors are among our more vulnerable classes of workers. Book authors receive no benefits, no retirement income or pension, and there are no unions to protect them. They live or die by copyright—their ability to license rights to publishers in exchange for advances and royalties. While copyright is meant to give authors control of how and on what terms others can use their works, publishing agreements tend to be negotiable only around the edges, and even then only by well-represented authors.

“Standard” contracts—the boilerplate offered to un-agented (or under-agented) authors—are even worse than those that most authors with agents or lawyers sign. That’s because agented agreements traditionally start off with the many changes that the agent or lawyer has previously negotiated with a particular publisher. One agented contract we’ve seen includes at least 96 changes from the original “standard” language, plus seven additional clauses and two additional riders. Every one of those changes is a point that the agent has negotiated in the author’s favor.

Why do publishers insist on offering their newest partners more than a hundred conditions so dubious that they’ll quickly back down on them if asked? It largely boils down to unequal bargaining power and historic lethargy. Anxious to get their works published, authors may wrongly believe that the contract their editors assure them is “standard” is the only deal available, take it or leave it. And much of that “standard” language has been around for years thanks to institutional inertia; as long as somebody signs an unfair clause that favors the publisher, the firm has no interest in modifying it. But even contracts negotiated by agents and lawyers often include longstanding “gotchas” that live on only because “it’s always been that way.”

It’s time for that to change. We’ll be highlighting particular clauses in the weeks to come. For now, here are just some of the issues we’ll be looking into:

Fair Book Contracts: What Authors Need

Half of net proceeds is the fair royalty rate for e-books
Royalties on e-books should be 50% of net proceeds. Traditional royalty rates reflected the concept that publishing is a joint venture between author and publisher. But despite the lower production and distribution costs associated with e-books, publishers typically offer only 25% of net. That’s half as much as it should be.

A publishing contract should not be forever
We think contracts should expire after a fixed amount of time. Publishers may pretend to consider this an unreasonable request—yet it’s precisely what they demand when they license paperback rights to others. Today’s contracts are generally for the life of copyright (meaning they essentially last at least 35 years, at which point copyright law gives the author the right to terminate the agreement). That’s too long.

Thanks to clever contractual language, it has become increasingly difficult for authors to get their rights back if the book goes out of print. “Out-of-print” clauses may be easily manipulated in this day of e-books and print-on-demand technology. At the same time, it’s more important than ever for authors to reacquire their rights so they can make e-book and print-on-demand titles available from their backlist. Unfortunately, we have heard too many stories of publishers refusing to revert rights or to make their authors’ books meaningfully available. Publishers should not be allowed to hold a book hostage; their contracts should provide clear language stating that if a specific royalty minimum is not paid within a certain period of time, then the book is defined as “out-of-print.”

A manuscript’s acceptability should not be a matter of whim
In standard contracts, whether a manuscript is acceptable or satisfactory is often in the “publisher’s sole judgment”; that means a new editor or management can reject a book on a whim and refuse to let the author publish it elsewhere until the entire advance is refunded. This can happen after an author has invested several years of work in the book, foregoing other opportunities in the meantime. Under some contracts, the publisher can even have the book rewritten at the author’s expense, decide whether or not to credit the new author, and maintain its own copyright to the additions and revisions. This is patently unfair. A publishing agreement based on a proposal is not an option, it is a contract to publish and pay, assuming the author delivers.

Advances must remain advances
Once upon a time, advances were typically split into two payments: one on signing of the contract, and one on acceptance of the manuscript. In recent years, we’ve seen three-part payment schedules: one-third on signing, on acceptance, and on publication. Now we’re seeing four-part payments: signing, acceptance, publication, and paperback publication. Slower payments shift risk from publisher to author. They also defeat the whole purpose of advances: to enable authors to devote themselves to completing their books without having to take on other work to make ends meet.

Publishers should share legal risk
No author can afford to put his or her entire net worth on the line, but that’s what many authors do when they sign publishing contracts. Authors are asked to assume the risk of suits for infringement or libel. This is true even where the publisher has lawyers who have vetted the book. Investigative journalists are most at risk. Forcing authors to assume the risk of a lawsuit can amount to a restraint on their speech. Publishers’ liability insurance should also cover authors. The author’s share of the risk, if any, should never exceed the total amount of the author’s advance.

Non-compete clauses must let the authors write
Authors must be free to write. The non-compete clause—an attempt to restrict the author from publishing work elsewhere that might cut into the current title’s sales—is no longer reasonable in the era of instant publishing. The clause should be simple: only the publisher can publish the current title, long excerpts from it, or a substantially similar work. Anything more is an unfair restriction on the author’s livelihood.

Options must be fair and paid for
Anything that keeps writers from publishing is simply unacceptable. That means option clauses should disappear. If a publisher wants an option on a future book, it should offer a separate payment for it and a quick decision on whether to offer a contract on it. Today’s standard option clauses often let the publisher delay the option decision until the current work is published. That can keep the author in limbo for years; it’s deplorable.

The author must have final say
When it comes to the text of the book, the author should have the final cut—that is, no changes in the text should be made without the author’s approval. The publisher should submit jacket flap and advertising copy to the author for approval. And the author should have the chance to approve any biographical material used in the book and/or publicity produced by or for the publisher.

Payments must move into the 21st century
Publishers’ methods of accounting have inevitably favored the publisher. Royalty statements and payments to authors typically appear only twice a year on income the publisher received between three and ten months previously. And the publisher can delay payment still further by invoking what is inevitably called a “reasonable reserve for returns”—that is, an estimate of how many books it will get back—without ever defining what “reasonable” means. The result is that it can be up to two years before an author is paid royalties for a sale. We think it’s time for royalties to be paid at least every three months with a limited delay and that every contract should clearly define “reasonable.”

“Special” book sales must not be at the author’s expense
Book contracts include a variety of royalty rates for different types of sales. Contracts routinely allow high-discount deals (such as selling a bulk load of books to a big-box store or a book club) to reduce the basis of the author’s royalty from the list price of the book to the much smaller net amount the publisher receives. Crossing the discount threshold from “normal” to “high” can magically reduce the author’s cut by more than fifty percent, giving the publisher a strong incentive to take that step. Why should an author accept this?

The above is just a taste of what we’ll address in the coming months. In addition to the standard book contract, we’ll also be identifying unreasonable provisions in self-publishing and freelance journalism agreements.

We’d like to hear from you. If a publisher has handed you especially egregious contract terms, please let us know. You can contact us here. But if your contract includes a non-disclosure clause, please don’t violate it. By the way, we don’t like those clauses, either.

Ultimately, we hope this initiative will create a climate of “just say no” to egregious contractual terms. We’d like you, the authors, to understand what you’re giving away when you sign your contracts, what you’re getting in return, and to make self-interested judgments about what’s fair. Of course, you just want to sign that agreement and get on with writing, but in the long run it’s in your interest to take a deep breath and to stick up for your rights, and for those of your fellow authors.”

The PEN – Charlie Hebdo Award Controversy

April 29, 2015

I’m so angry I could spit!

This year the PEN America Center, a writers’ organization whose mission is to defend the free expression of ideas in literature decided to bestow it’s Freedom of Expression and Courage Award to the staff of Charlie Hebdo.

In protest, six prominent authors: Rachel Kushner, Peter Carry, Michael Ondaatje, Francine Prose, Teju Cole, and Taije Selasi announced that they would not attend the ceremony. Thus began one of those periodic literary dust ups that only we few band of brothers in the book world care about. But, as they say, “ the politics is so vicious because the stakes are so low.”

Low, indeed, but I’m still so angry I could spit.

None other than Salman Rushdie launched the counter- attack. He said, “What I would say to both Peter and Michael and the others is, I hope nobody ever comes after them.”  Salman got down and became a little earthier on Twitter when he characterized the PEN 6 as “Just 6 pussies. Six authors in search of a bit of Character.”  [hear, hear Salman!]

Francine Prose responded on Facebook by throwing out red herrings expressing her shock that Rushdie would use the sexist term “pussies.”

Meanwhile short story writer Deborah Eisenberg weighed in with a letter to PEN executive director, Suzanne Nossel opposing  PEN’s giving the award to Charlie Hebdo. Depending on how you feel about the subject, her letter was either nuanced or unintelligible. I prefer the latter characterization.

During this entire affair,  when the world rallied in outrage over the Charlie Hebdo murders, when the leader of Hezbollah and the Likud Party in Israel both agreed on something for the first time in history, there was an ugly current among some left wing intellectuals that insisted on defining the offending caricatures in Charlie Hebdo as Islamophobic and undeserving of – well- anything. Most of them, like Deborah Eisenberg, were at pains to point out that they don’t believe in murder. And I’m sure this is true and also beside the point. But, as Salman points out, I wonder how deep is their commitment to free speech.

My favorite comment by an author and the one that I feel most reflects my opinion and feelings was by Geraldine Brooks. She said:” The point of free speech is that it’s free. Free to be offensive, to be misguided, to be crude or wrong. If you start to cherry pick which kind of speech is worthy of defending, you might as well be ISIS. I’m thoroughly shocked that a group of writers I admire have castigated a free speech organization for recognizing artists butchered because of their commitment to free speech.”

I  decided to say my peace on the subject. I wrote this letter to PEN executive director Suzanne Nossel:

“Dear Ms. Nossel,

I want to express my support for PEN in honoring Charlie Hebdo and also my indignation at the authors who have decided not to attend the awards in protest. I read the exchange of letters between you and Deborah Eisenberg. I thought her opinions that she expressed were unintelligible and indefensible.

The issue isn’t just a matter of abstract principle for me. I’m a literary agent. But before that I was the owner of Cody’s Books in Berkeley for 30 years. In 1989, Cody’s was bombed for carrying The Satanic Verses. It was another creative work that satirized religion and was no doubt extremely offensive to certain people. We were probably the first victim of Islamic terrorism in the United States. Afterwards the Cody’s staff had to decide whether we should continue carrying Satanic Verses. It wasn’t an easy choice at all. No one wanted to be martyrs to the cause. But the staff voted unanimously to keep carrying the book. Rushdie and the entire writing community stood united with us, and gave us courage.

I am glad you have honored Charlie Hebdo for showing their courage as well. I’m sorry those six writers have such short memories and such a weak and confused commitment to the values that PEN exists to defend.

I hope you will reaffirm your commitment to those values and to your decision to honor the courage of Charlie Hebdo.

Andy Ross”

Suzanne Nossel responded to my letter by saying: “Don’t worry. We are hanging tough.”

PEN has put up a website, a forum where people can make their own opinions known. I encourage you all to do so.

The Amazon – Hachette Dispute: What’s at Stake for Authors?

May 23, 2014

bezos_bookstore-620x412The book industry has been abuzz with the latest news of Amazon bullying book publishers. According to an article in The New York Times on May 8, Amazon has been involved in tough negotiations with Hachette Book Group, the fifth largest publisher in the United States. In order to pressure them for better deals, Amazon has engaged in a number of practices to make it harder  for Hachette to sell books through Amazon. This includes “slow walking” Hachette titles — delaying reorders of out of stock books in order to  slow down delivery. Normally Amazon ships books within 24 hours. On some Hachette titles, Amazon is saying that delivery will take as long as 5 weeks. Examples include new and backlist titles and even some best sellers.

Today we learn Amazon has removed the pre-order function for many not yet published Hachette titles. Also typically Amazon discounts books 20-40%. Since the dispute began, there are many Hachette titles being sold at list price.

In the past Amazon has taken the “buy” button off titles — making them effectively unavailable  in order to pressure publishers for better terms. They seem to be doing the same thing but using subtler methods in this instance.

No doubt Amazon is trying to induce authors to pressure publishers into capitulating to Amazon demands. If an author’s book is not available on Amazon for 5 weeks, it could be quite distressing, particularly if it is a new title with sales being driven by publicity. But in this instance the industry –  including the authors –  seems to be outraged by Amazon and inclined to support Hachette hanging tough.

There is another possible threat to author royalties in all this. Every publishing contract has a so-called  “deep discounting” provision. Typically the contract stipulates that if a publisher sells a book to a retailer at very high discount, then the royalty to the author will be cut, in some cases as much as 50%. These kinds of transactions have traditionally been limited to wholesalers and non-returnable bulk sales to big box stores like Target, Wal-Mart, and Costco. But if Amazon is successful in extracting ruinous terms from publishers, we can expect more sales to fall under these deep discounting provisions and author royalties to be reduced accordingly.

Today the Authors Guild, the largest organization representing the interests of book authors, came out with a statement unequivocally attacking Amazon’s strong arming Hachette. They characterize Amazon’s tactics as “blackmail”.


Descartes, Plato and E-Books.

April 2, 2013

On February 7, announced that it had patented a way to sell “used e-books, music, videos, and other digital objects”.  I was puzzled by this. Digital files aren’t really “used” in the same sense as a physical book or a music cd. They don’t get dog eared. They never have disgusting stains or other unknown but probably unsanitary items stuck to the pages. They don’t get mildewed like Leslie’s boxes of old feminist tracts from the 70s still moldering in our basement. Hmmm. What’s going on with this?

My mind started to spin. I began thinking about the great philosophical systems. Plato. Buddha. Aristotle. Descartes. Immanuel Kant. The English empiricist Bishop Berkeley (pronounced “Barkley”) who famously said that if a tree falls in a forest and no one hears it, there was no sound. But there is the even more famous anecdote by Samuel Johnson who said to Boswell as he kicked a stone: “Thus do I disprove Bishop Berkeley.”

What is real? That is the first and fundamental question of all philosophy. And now, thanks to the endless ingenuity of Internet entrepreneurs in their ongoing efforts to exploit all potential digital markets, we now bring this question to the virtual world. Is a digital file a physical object or is it an idea in the mind of the creator (creator, that is, the creative artist, not the Lord our God).

Let’s backtrack. There is a legal concept ( section 109 of the Copyright Act) called “the first sale doctrine”. Under this provision, ownership of a physical copy of a copyright-protected work permits lending, reselling and disposing of an item but does not permit reproducing the material, because transfer of the physical copy does not include transfer of the copyright to the work.

Can one legally sell a used copy of a digital product or is it simply a reproduction and a violation of the Copyright Act? On March 30, Judge Richard Sullivan of the First District Court of New York issued a judgment in Capital Records v. ReDigi in which he categorically rejected the right to apply the “first sale doctrine” to the reselling of digital products. The issue before the court was music downloads, but the language in the judge’s decision would equally apply to e-books.

ReDigi dubs itself as “the world’s first pre-owned digital marketplace.” The model is simple. Users can upload their old iTunes to ReDigi servers, a process which at the same time removes the tracks from the user’s computer. The company then offers the music for sale at a “used” discount keeping a commission on the final sale price. ReDigi claims that it migrates a file from the user’s computer to its Cloud Locker, so that the same file is transferred and no copying occurs.

Judge Sullivan rejected this argument, calling ReDigi “a clearinghouse for copyright infringement”. He said that “when a file is moved from one material object to another, a reproduction has occurred….Similarly, when a ReDigi user downloads a new purchase…yet another reproduction is created.”

He made an interesting distinction by pointing out that digital files can still be sold if it resides on a hard disk, an iPod, or other device onto which the file was originally downloaded and which is being sold a the same time.

Who wins and who loses? It’s a big victory for authors, publishers, and copyright holders. A defeat for ReDigi and probably for pirates. And I guess you would have to say it is the triumph of Descartes over Plato.

The Random House – Penguin Merger

October 28, 2012

Note. This is an update from yesterday’s post which was written before the announcement of the merger between Random House and Penguin.

The big news in book publishing this week, probably the biggest news all year, was the announcement that Random House and The Penguin Publishing Group are in negotiations over a possible merger.  Random House, owned by the German company, Bertelsmann AG,  is the world’s largest book publisher and the largest US book publisher by far. Penguin is owned by  the British company, Pearson PLC,  and is the second largest US book publisher.

What does this really mean? The new company will have sales in the US of over $2 billion dollars.  It would have an estimated 17% market share of the general book publishing  business. But expect the share of best sellers to be even higher. In 2011 Random House and Penguin together had 45% of all bestsellers on the Publishers Weekly list.

I think such a merger will be bad news for authors, booksellers, and book lovers. Both Random House and Penguin have a huge number of imprints. By my count, Random House has 56 and Penguin 39. (Imprints are units within these publishers that operate independently, essentially as separate publishers. For instance Knopf and Ballantine are imprints within Random House. They have their own editors and  their own styles and cultures. Sometimes they even compete against each other.)

A lot of these imprints overlap  with  one another. There is likely to be some consolidation and elimination of some of some  imprints that would allow the new super-publisher to reduce overhead. Agents are understandably distressed that less competition will mean smaller advances. That will certainly be true. But more significantly,  I worry   that fewer imprints with fewer editors is going to mean fewer books. The big name brand authors: Stephen King, James Patterson, Janet Evanovich, John Grisham, Malcolm Gladwell, etc.  will always be there.

The pressure will be on the midlist. These are the books that never become bestsellers, but I suspect these are the books that most of you like and admire. There just won’t be as many slots in the catalogues for these kinds of books. It astonishes me, really. Whenever I go to New York to talk to editors, they are always telling me how much they want “new talent.” Smaller midlist opportunities mean fewer chances for new talent to break out and fewer chances for book lovers to discover this new talent.

Still,  these are but  the  parochial concerns of the editors, the people on the creative side of publishing. They have some rather quaint and old fashioned values. They love books, for instance. The mergers are being driven by the business side and probably at the level of the parent corporations, giant multi-media conglomerates.

There are probably a few silver linings  in all this. Certainly a lot of the midlist is going to be picked up by independent publishers. And we have to hope that all this available midlist  talent will help these midsize publishers to thrive. And since a lot of these midsize publishers will care more about these authors than the mega-publishers, it might even turn out to be a blessing in disguise.   One might even suppose that by strengthening these publishers, we will paradoxically end up with a more diverse and robust  commercial publishing universe. But one ought not to get smitten by this possibility.

This is probably very bad news for (Which is usually good news for everyone else.) The new Random House/Penguin would be so powerful that Amazon couldn’t threaten to remove the buy button from their titles if they don’t agree to Amazon’s draconian trade terms.  I suppose that the best defense against Amazon’s monopolistic intentions is another monopoly.

In a related story, Simon and Schuster announced this week that they were merging 3 of their imprints into other imprints. Most notably the extremely prestigious Free Press is being combined with the Simon and Schuster imprint. Whether Free Press will still retain any independent identity is unclear. But several very good editors, I mean editors with towering reputations, have already left. Not a good sign.

The advocates of self-publishing, who issue jeremiads with increasing frequency  about the imminent  fall of  “legacy publishers”, seem to be excited about all of this. But for them, the misfortunes of other publishers  always seem to be a revelation of a new and radiant future. Self publishing will continue to grow with or without the demise of commercial publishing.  And there is much to be said for self-publishing. But  the choice to self-publish comes with some big negatives as well. However,  that is the subject for another blog on  another day.

Self Publishing at Book Santa Cruz Using the Espresso Book Machine

August 22, 2012

Casey Protti and the new Espresso Book Machine at Bookshop Santa Cruz

Today we are going to speak with Casey Protti, owner of Bookshop Santa Cruz, one of the truly iconic independent bookstores in America. The bookshop just acquired an Espresso Book Machine, a new technology which is able to create a perfect bound paperback book in minutes. The quality of the books produced are indistinguishable from paperbacks published by major publishers.  It’s a new technology that has the potential of redefining the role of local bookstores.

Andy: Casey, Can you tell us a little bit about the Espresso Book Machine.

Casey:  I’m really excited about our new machine. It is a remarkable technology that allows Bookshop Santa Cruz to print books on site, and on demand.  We can just hit a button and it prints, binds, and trims a paperback book in just a few minutes. What I love about this technology is not only the convenience factor of being able to give a customer a book when they want it, but more importantly, our ability to become a community publishing center- a place to have human to human interactions to create and distribute books.

Andy: The machine allows the local bookstore to become a self-publishing venue? Really.  Tell us about that.

books printed and bound in 5 minutes on the Espresso Book Machine

Casey: For those authors who have a novel or memoir or book of poetry that they want to make into book form, we can help them to bring their work to life through every step of the publishing process.  And not just people who think of themselves as authors. This could mean people who want to create family histories, compilations of family recipes, businesses who want to customize journals, student groups who want to make zines or graphic novels, or teachers who want to put together an anthology of their students’ work.

Andy: Other than self-publishing, what else can you do?

Casey: There are 8 million titles available including works in the public domain and hard to find and self-published titles.  Just the other day we had a man who had been searching for a hard to find book for over 20 years in used bookstores.  We had it on the EBM and printed it for him in 5 minutes.  Although other stores with Espresso Book Machines have seen self-publishing account for 80-90% of all the activity on the machine, more and more publishers understand the EBM as a good way of keeping their backlists available.

Andy:  That’s a good point. It seems to me that as publishers get more commercial and media –obsessed, they are putting their slower moving back list titles out of print faster. Will Espresso change that?

Casey: I think publishers see the EBM as good way of keeping their backlists available even if demand for a given title has waned. It’s economical for them, because they don’t have to warehouse titles or incur shipping and handling costs.  With EBM  we only produce as many copies as are sold.   We want to be able to sell a book that a customer asks for right away. It is of huge benefit to us, to publishers, and to the customer. And he gets the book a lot faster than he would if he purchased it online. And   we’d love to bring books back in print that have local significance and could sell well to the community but that may not  warrant a traditional print run.

Andy: What’s the quality of the books produced by the Espresso?

Casey: Books produced on the EBM are virtually indistinguishable from traditionally produced paperbacks.

Andy: Some people have said that this is a real transformative technology. Can you tell us what this means.

Casey: Six years ago, when I took over Bookshop from my father, I could never have imagined a technology like this.   In the age of the Internet,  our customers are looking for instant gratification, but also personalized services that you can’t get online. The EBM plays to the typical strengths of indie bookstores in terms of community connections and relationships with local authors but then brings it further with new products and services that meet new customer needs.  Our hope is that as more publishers add content to the EBM, we will one day be able to say that we can print any book ever published on demand.  That’s transformative!

Andy: What about ebooks? Aren’t they going to make print on paper books obsolete? That would make the Espresso machine a kind of dead end technology.

Casey: It has been  fun to see people  so excited at watching a physical book being made. Seeing this excitement puts to rest the idea that the book is dead.  Although people rightly want to publish their books electronically, they’d be shooting themselves in the foot if they didn’t also want people to see their books in physical form in bookstores.   Publishers will tell you that local bookstores are the showrooms for books. Online  stores can’t duplicate that experience.

Andy: Let’s say that you want to use the machine to publish your own book. What do you need to bring to the bookstore?

Casey: The EBM machine prints from PDF files that authors can either choose to format themselves (following the EBM submission guidelines) or by getting help from their local EBM operator.

Andy: And how about distribution of the book after it has been printed? Is the store involved in this?

Casey: Authors using the EBM can upload their titles to the main EspressNet catalog making their work available at other EBM locations worldwide and  authors printing their books  at Bookshop Santa Cruz can also enroll in the consignment program to have their books added to the shelves of our store.

Andy: How will Espresso allow Bookshop Santa Cruz to compete with companies like Lightening Source and Create Space?

Casey: The self-publishing services we offer are much more one-on-one and personalized then most of the online self-publishing companies. We can walk through a project with an author insuring that we are able to assess and meet all his needs from cover design to purchasing an ISBN number. The authors never need to go it alone. They can easily reach their local EBM operator for trouble-shooting help and project support in person, over the phone or via email.  This part of the EBM service package is completely in line with what indie bookstores do best – building relationships, customizing services, and providing that human connection that you can’t get online.

Andy: How much does a book cost per copy?

Casey: The base printing price for the EBM is $5.00 + 4.5 cents a page, although we do offer some bulk discounts and price breaks depending on the nature of the project.  We also have publishing packages which include various levels of service including graphic design, proof copies, obtaining an ISBN, etc.

Andy: How long have you been operating the machine in the story? How much business has it been generating.

Casey: The Bookshop Santa Cruz EBM has been operational for about a month, and on a typical day we print anywhere from 20-50 books.

Andy: I hear that these machines are incredibly expensive. How much do they cost? Will they really support a viable business model?

Casey: Typically the machine, software and installation runs $100,00-$125,000. American Booksellers Association members receive a discount on the software.  With just over a month under our belt, it is too soon to determine profitability.  However, since the opportunities to connect with the community to publish works are endless, we think there is a good chance that the machine will be a profit center for the store.  In addition, the feeling amongst your customers that the store is trying to remain relevant and innovate is priceless. Since the margin is so small on books, bookstores of the future need to move further into a service-based model in order to survive.  This is a step in the right direction.

Andy: If you want to find out more about the Espresso machine or if you have a self-publishing project and want to work with the Bookshop, call Sylvie Drescher at the Bookshop at 831-460-3258  or email her at

Thanks, Casey. We’ll check back in a few months to see how this new technology is unfolding.

More Letters Against the Department of Justice Anti-trust Action

June 26, 2012

Two very thorough, compelling,  and eloquent letters were sent to the Department of Justice today criticizing their lawsuit against Apple Computers and the book publishers. Hundreds of letters have been sent by people and organizations in the book business criticizing the DOJ for attacking the victims  in their misplaced efforts to oppose monopolistic practices in the industry. Letters have been prepared by trade associations, publishers, authors, agents,  and booksellers, all sending the same message: this lawsuit will do nothing but enhance the market power of the only entity that poses a monopolistic threat to the book business, I suppose we owe a debt of gratitude to Amazon for bringing together parties who have historically been wary of one another. Chain and independent bookstores are united on this as are almost all publishers and, with few exceptions, authors and agents.

The Authors Guild, the major organization representing book authors, and Bill Petrocelli, owner of Book Passage (and a leader in the historic efforts by independent booksellers to stop anti-competitive practices) have made some new and telling points. Check out the complete texts of these. Bill Petrocelli’s letter  and The Authors Guild letter.

The Authors Guild reminds us of a practice by Amazon of pulling the “buy” buttons from print on demand books being published by iUniverse publishers and printed by  Lightningsource. Lightening Source was the first major company to offer this new technology for self-published books. When Amazon created its own service, Booksurge, to compete, they played hardball and temporarily refused to sell selected Lighteningsource titles. Here is what Authors Guild described:

“The Guild had launched in the summer of 1999, allowing authors for the first time to republish their out-of-print books without incurring any set-up costs. (The Guild had negotiated an agreement with on-demand publisher iUniverse to prepare the books for on-demand printing.) The service was an immediate hit with members; within two years, more than 1,000 titles were available to readers again, including books by Mary McCarthy, Thornton Wilder, William F. Buckley, Jr., and Victor Navasky….

Sales of all on-demand books grew steadily in the early 2000s. By 2005, sales of on-demand books had reached a new high. Backinprint titles sold 41,000 units that year. Amazon, the storefront for most on-demand sales, took notice. It purchased BookSurge, an on-demand printer, to compete with Lightning Source, the industry-leading on-demand printing service run by Ingram.

Three years later, however, few on-demand publishers had moved their printing to BookSurge. Small wonder, since it charged more for its printing services than Lightning Source and had a reputation of offering lower quality service. So Amazon turned to aggressive tactics to win market share, reportedly removing the buy buttons from all iUniverse titles during the 2008 AWP conference. Author Solutions, which had acquired iUniverse, saw its sales plummet. It quickly agreed to use BookSurge for its Amazon sales, and Amazon restored access to its millions of customers. ”

The Guild also pointed out some troubling practices by Amazon who recently purchased the rights to sell some very important titles and imprints that Amazon would be able to sell exclusively:

” With the launch of the Kindle Fire, Amazon’s drive to acquire exclusive rights to books, by acquiring publishers with substantial backlists and other arrangements, has taken on a new urgency.

In September 2011, Amazon’s acquired the exclusive digital rights to one hundred popular DC Comics graphic novels. If a customer wanted to read any of these on an e-device, it had to be on a Kindle Fire. Barnes & Noble, trying to break into the e-device market with its Nook, retaliated by pulling all print copies of DC Comics titles from its shelves. Books-a-Million, the third largest bookseller, followed suit. “As Amazon seeks over the next few years to expand its tablet line,” predicted the New York Times, “these collisions over content are likely to become routine.”

Amazon is moving quickly. In December, Amazon entered the children’s book market, acquiring more than 450 titles of Marshall Cavendish Children’s Books. In April, Amazon announced it had acquired the exclusive North American rights to publish Ian Fleming’s James Bond novels — in both digital and print formats. Earlier this month, Amazon expanded its holdings of genre fiction, purchasing the publisher Avalon Books and the exclusive rights to its 3,000-title backlist of romance, mystery and Western fiction.

Balkanization of the literary market is something new and deeply troubling. “Bookstores used to pride themselves on never removing any book from their shelves,” reported the Times, “but that tradition—born in battles over censorship—is fading as competitive struggles increase.” Awful as it is for our literary culture, the balkanization of the book market is but a logical extension of Amazon’s no-prisoners approach to competition.”

Bill Petrocelli, owner of Book Passage in Corte Madera, California, put some historical perspective on the actions of the government:

” To put the issue in its starkest form, does a shaky claim of collusion under Section One of the Sherman Act take precedence over a clear violation of Section Two of that same act? I am aware that the DOJ has characterized the actions of the publishers as a per se violation, but the invocation of that label should not be a substitute for clear thinking. The creation of a monopoly in the book business is a far more serious offense than the claim of collusion alleged in this case, because it creates a permanent, anti-competitive situation that is extremely difficult to dislodge.

And this leads to the question of the role of the DOJ. What is the Justice Department doing in this case? Why – of all the potential cases it could be pursuing – did it decide to take this one? Amazon. com – the supposed aggrieved party in this case – is one of the largest, richest companies in America. It is perfectly capable of protecting its own interests and asserting any claims it might have in the courts. So why, then, has the Justice Department decided to align itself with this monopolist?

The actions of the DOJ are especially galling in light of the fact the Justice Department and its sister agency, The Federal Trade Commission, have turned a blind eye to anti-competitive activities in the book business over the last forty years. There has been substantial evidence of anti-competitive uncovered practices uncovered by lawsuits initiated by Northern California Booksellers Association and by the American Booksellers Association. There were two investigations conducted by the staff of the FTC, but in both cases the recommendations of the staff were turned down by the Commission itself. The Justice Department is certainly aware of these investigations, because Christine Varney, the immediate past head of the Anti-Trust division, was a Commissioner on the FTC at the time its investigation was curtailed.

So once again, why now? Why has the Department of Justice decided to ally itself with the interests of a monopolist? By placing the power and majesty of its office on the side of, the Justice Department is undermining that fabric of the book business and signaling to all future monopolists that concentrated, anticompetitive behavior will get a free pass from the government. “

The Authors Guild and the Book Publisher Antitrust Case

June 4, 2012

Today The Authors Guild issued a statement of position on the antitrust case ititiated by the United States against Apple, Penguin, and Macmillan. It is a very thoughtful and elegant analysis of the competitive dynamics book publishing from the point of view of the largest organization representing writers. Here it is:

Agency pricing, in which the e-book vendor acts as the publisher’s “agent,” with no authority to change the retail price of the book, was a reaction to a specific anticompetitive provocation – Amazon had been routinely selling frontlist e-books at below cost. Amazon’s predatory tactic wasn’t scattershot; it was (and remains – Amazon continues to deploy this weapon with the titles of non-agency publishers) highly targeted. When not constrained by agency pricing, Amazon chooses to absorb substantial losses on e-book editions of a specific subset of new hardcover books: those that are most likely to be stocked by traditional bookstores.
The Justice Department’s proposal, which would permit Amazon to resume using the frontlists of three major publishers for anticompetitive purposes, appears to be based on a fundamental misunderstanding of the market for trade books, particularly the interplay between the online market for print books and the e-book market. Amazon, which has long commanded 75% of the online market for print books, clearly understands that relationship well. The story of the introduction of the Kindle is largely a story of Amazon exploiting its dominance in the online market for print books to gain control of the e-book market.
Frontlist, Backlist, and the Rise of Online Bookselling
To understand the U.S. market for trade books, one needs to understand how online retailing has radically altered the competitive landscape of bookselling.
The literary marketplace has traditionally been divided into two broad submarkets: frontlist (the season’s new books) and backlist (everything else). Retailers faced the most competition in selling frontlist books – new hardcovers and new paperbacks were the most likely titles to appear on the shelves of stores (bookstores, airport newsstands, and big box retailers, among others) across the country. Backlist books were far less likely to be on store shelves, except for the relatively rare “core backlist” titles that had become steady sellers (To Kill a Mockingbird, Green Eggs and Ham, What to Expect When You’re Expecting, for example). “Deep backlist” books, a subcategory of backlist books that were sold almost exclusively through special orders or at used bookstores, were the least commercially available books.
With the rise of online bookselling, these categories still largely existed, but online booksellers, with endlessly long bookshelves made possible by inexpensive warehouse space and on-demand printing technology, came to dominate the market for backlist and especially deep backlist titles. For nearly all backlist books, representing roughly 90% of all in-print titles, the online market had become the market, and Amazon owned the online market. The deeper one traveled down the backlist, the more complete Amazon’s dominance. Amazon had even gained control of the furthest end of the long tail – out-of-print books – by buying up the major competing online used bookselling networks.
Online Print Book Dominance Dictates Amazon’s E-Book Tactics
From Amazon’s perspective, as it prepared to launch the Kindle, the print book market had two components: the part in which it faced significant competition (the market for new books and core backlist titles) and the part in which it didn’t (everything else). Amazon would leverage its online print book dominance to conquer the e-book market, protecting its profits on 90% of titles by focusing its predatory tactics on the other 10%, the books that were most likely to be on store shelves.
Brick-and-mortar bookstores were in the crosshairs, jeopardizing vital participants in the literary ecosystem. Bookstores remain critical showrooms for works by new or lesser-known authors and for entire categories of books, such as children’s picture books. Marketing studies consistently show that readers are far more open to trying new genres and new authors when in a bookstore than when shopping online.
It seems to come down to browsing versus searching. Brick-and-mortar bookstores are optimized for browsing; the stores’ “search engines” – their information desks – aren’t what draw in customers. A reader browsing the shelves and tables of a bookstore is often hoping to discover something unexpected. Virtual bookstores, on the other hand, are optimized for search – browsing isn’t the attraction. Readers behave accordingly, tending to use virtual bookstores as search engines to find books they’ve discovered elsewhere.
Publishers were aware of much of this and that the health of brick-and-mortar bookstores relied heavily on frontlist hardcover book sales, but Amazon persuaded them to break with established practice and release books in digital form at the same time they released them as hardcovers. The protection for the hardcover market (and brick-and-mortar bookstores) was implicit: Amazon agreed to pay the same wholesale price for e-books that it did for hardcovers.
Things didn’t work out. As Amazon launched its Kindle in November 2007, publishers learned that it would be selling a long list of frontlist e-books at a loss. As Scott Turow said in his letter to members on March 9th:

It was as if Netflix announced that it would stream new movies the same weekend they opened in theaters. Publishers, though reportedly furious, largely acquiesced. Amazon, after all, already controlled some 75% of the online physical book market.

Amazon quickly captured the e-book market as well, bringing customers into its proprietary device-and-format walled garden (Sony, the prior e-book device leader, uses the open ePub format). Two years after it introduced the Kindle, Amazon continued to take losses on a deep list of e-book titles, undercutting hardcover sales of the most popular frontlist titles at its brick and mortar competitors. Those losses paid huge dividends. By the end of 2009, Amazon held an estimated 90% of the rapidly growing e-book market. Traditional bookstores were shutting down or scaling back. Borders was on its knees. Barnes & Noble had gamely just begun selling its Nook, but it lacked the capital to absorb e-book losses for long.

The publishers had made a huge mistake.
Taking Aim at One Percent
Even as it targeted the 10% of titles sold in bookstores, Amazon would be selective. Amazon could get the most bang for its buck by taking aim at the narrow band of books on which its brick-and-mortar competitors were most dependent – those new titles from larger publishers that bring readers into bookstores. Once in the stores, a reader might choose to purchase other books within the list of 10% of titles in which Amazon faced competition: it was best, from Amazon’s perspective, to keep readers out of bookstores and safely online, on Amazon’s turf.
So Amazon’s predation focused on a slice within a slice of the literary market. Amazon would sell at a substantial loss the electronic versions of select new hardcovers: the new bestsellers, near bestsellers, and might-become bestsellers from commercial publishers. Our best estimate was that Amazon’s predatory tactics focus on less than one percent of in-print titles.
Amazon’s highly selective predation not only conquered the e-book market, it paid immediate dividends in the print book market. Marketing studies confirm what Amazon no doubt guessed: readers who buy Kindles tend to dramatically shift their print book purchases to Amazon.
The strategy was brilliant, a predatory feedback loop in which online print book dominance allowed Amazon to absorb selective losses to gain control of the e-book market, which in turn gave Amazon an ever-larger share of the print book market. It was a tactic Amazon could continue indefinitely, as it offset its losses on the most recognizable new e-books by taking profits on e-books by lesser-known authors, on backlist e-books, and on its growing share of print book sales.
After Two Years of Predation, Agency Pricing Opens the E-Book Market
For more than two years Amazon’s predatory pricing went unchecked. Then, in January 2010, one month after B&N shipped its first Nook, Steve Jobs introduced Apple’s iPad, with its iBookstore and its proven iTunes-and-apps “agency model” for selling digital content. Five of the largest publishers jumped on with Apple’s agency pricing, even though it meant those publishers would make less money on each e-book they sold. Again, from Scott Turow’s March 9th letter:

Publishers had no real choice (except the largest, Random House, which could bide its time – it took the leap with the launch of the iPad 2): it was seize the agency model or watch Amazon’s discounting destroy their physical distribution chain. Bookstores were well along the path to becoming as rare as record stores. That’s why we publicly backed Macmillan when Amazon tried to use its online print book dominance to enforce its preferred e-book sales terms, even though Apple’s agency model also meant lower royalties for authors.

Agency pricing brought real competition, steadily loosening Amazon’s chokehold on the e-book market: its share fell from 90% to roughly 60% in two years.
Agency pricing allowed cash-strapped B&N to make substantial investments in e-readers with the reasonable hope of earning a return on those investments. Customers are benefiting from the surprisingly innovative e-readers those investments have delivered, including a tablet device that beat Amazon to the market by a full twelve months.
Authors in Amazon’s Kindle Direct Publishing program benefited as much as anyone, as Amazon more than doubled its royalty rates to match Apple’s agency model royalties.
Most importantly, agency pricing has prohibited Amazon from using the most popular new books from six large publishers to undermine the economics of bookselling. Agency pricing has given bookstores a fighting chance.
The Proposed Settlement Allows Amazon to Resume Its Predatory Practices
The Justice Department’s proposal undoes all of this. Its settlement with three large publishers would require the publishers to allow Amazon (and other e-book vendors) to sell e-books at below cost, so long as the vendors don’t lose money on the publisher’s entire list of e-books over a 12-month period. Amazon, a far richer and more powerful corporation than it was even two years ago, has every motivation to revert to its prior ways – it will take losses on the books that bring customers into bookstores, and make it back on less popular and backlist books. It will lose money on the one percent, and make it back on the rest.
The Justice Department is sanctioning the destructive, anticompetitive campaign of a corporate giant with billions in cash and boundless ambitions. The situation is bizarre, and without precedent, to our knowledge: the Justice Department is intervening to help entrench a monopolist.


Get every new post delivered to your Inbox.

Join 702 other followers