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

The 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”.

Indeed.

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Interview With Authors Guild General Counsel, Jan Constantine

Today we are going to speak to Jan Constantine, general counsel for the Authors Guild.

The Authors Guild is the largest and oldest organization representing authors in America. I love the Authors Guild, and as an agent, I am proud to be a member.  It is an amazingly robust, sometimes even militant, advocacy organization that fights for the rights of all writers. They engage in numerous activities including lobbying Congress on copyright and book piracy issues and advising writers on how not to get taken advantage of by publishers. In this brave new world of the Internet, where tech gurus tell us that “information wants to be free,” The Authors Guild fights for the quaint notion that the work of the writer, like all work, has dignity and deserves to be compensated. Everyone reading this blog should join. It’s only $90 a year.  Check out their eligibility requirements.

Andy: Jan, welcome to “Ask the Agent.”  I think the $90 membership fee for the Authors Guild is a pretty good investment for any writer. Can you tell me what that buys you?

Jan: Absolutely, Andy, and thank you for having me.  One of the things our members find most useful is our Model Book Contract.  It’s a manual that goes through a publishing contract clause-by-clause.  For every provision, we provide members with what we think of as a “model” clause, and then next to the model clause we provide a running commentary educating authors about what exactly is at stake in each part of the publishing contract.  It’s a very empowering tool that gives authors the knowledge and insight to successfully negotiate with publishers.

Andy: As an agent, I have to negotiate book contracts all the time, and I find the Model Contract an indispensible reference. Not to put too fine a point, a book contract is an asymmetrical agreement where the publisher agrees to give the author a pathetically small amount of money in exchange for the author’s intellectual indentured servitude for the term of the copyright. The Model Contract is a great tool for helping the author avoid the pitfalls. Of course the Model Contract and  representation by a good agent is even better. Can you just tell us a few of the issues in a book contract  that authors should be watching out for?

Jan: Our Model Contract advises authors to be wary of a number of one-sided provisions that are often present in publisher’s boilerplate forms.  One to look out for is a so-called “joint accounting” clause, which provides that any money the author might owe the publisher under contracts for other books can be deducted from payments due to the author under the current book contract.  Our position is that each publishing contract and book should be treated as a separate venture.

Non-competition clauses, if broadly-worded, can also be troublesome. Most book contracts have non-competition language that restrains the author from publishing a “competing” work.   We counsel authors to define a “competing work” as narrowly as possible, especially if they think they might write subsequent works on the same or a similar subject.

Another potential hazard is  the “satisfactory manuscript” clause, also present in most publishing contracts. It can be unfair to authors if it allows the publisher to reject the manuscript for any reason at all.  You don’t want a publisher to be able to reject your manuscript just because of a change in market conditions or a perceived shift in readers’ tastes.  You want to insert some sort of objective standard here, such as a clause stating that your manuscript must be “professionally competent and fit for publication.”

Those are a few issues that come to mind.  The bottom line is that a publishing contract is a joint venture between author and publisher.  A well-negotiated contract should reflect their mutual investment in each other.

Andy: So, Jan, what else does the Authors Guild do?

Jan: Of course there’s our lobbying, which you mentioned in your introduction, and our lawsuits.  Members also receive our quarterly Bulletin, which covers the publishing industry from the author’s perspective, and they have access to legal services, such as contract reviews and intervention in publishing disputes, at no cost.  Then there’s the Author’s Registry, a not-for profit that secures foreign royalties for U.S. authors.  All members are automatically enrolled.  Since 1996 the Registry has distributed more than $22 million to authors.  We have a program called Backinprint.com which lets authors sell their out-of-print books as print-on-demand paperbacks.  We offer web services that allow authors to build full-featured websites.  We host in-person and phone-in seminars to educate authors on all aspects of their profession.   That’s a long list.  We like to think that membership is a great value.

Andy: And you get all that for $90 a year!  Let’s talk about “information wants to be free.”  This cliché seems to express a kind of ethos going around the Internet. It’s exemplified by “Wikipedia.”  It’s a world where all people are experts and where people’s intellectual work is accordingly devalued and not worthy of compensation.   Do you care to comment on this?

Jan: Well, I think Wikipedia may not be the real enemy here.  That’s a situation where people are donating their expertise with no expectation of financial compensation.  We’re more concerned with piracy—theft—making copyrighted works available for free, in violation of the author’s right to distribute her work and her right to make a living from her work.  And yes, this type of piracy does seem to be encouraged by those who rally behind that slogan, “information wants to be free.”  But you know what?  That’s only half of it.  They get that slogan from Stewart Brand.  But what Brand was talking about was this tension that won’t go away.  Information wants to be free, he said, because it’s so cheap to distribute now.  But on the other hand, he said, information wants to be expensive.  Why?  Because it’s so valuable to the recipient.  And this is a tension that is embodied in our nation’s copyright laws in a very productive way.  The author has exclusive rights, sure, but there’s also fair use, and exceptions for schools and libraries, and the fact that copyright doesn’t last forever.  It’s a tension that’s expressed in the Copyright Clause in the Constitution, and it’s a tension acknowledged by Congress every time it brings different stakeholders to the table to discuss what needs to be changed in our copyright law.

Andy:So what kinds of things is the Authors Guild doing to combat piracy?

Jan: Well, I just mentioned Congress.  The Authors Guild has been working with legislators and private companies for years to develop a more comprehensive solution to online piracy.  Two bills proposed in 2012—SOPA and PIPA—would have done something to diminish Internet piracy, and we supported them.  Search engines and Internet service providers are profiting daily from linking to and hosting pirate sites, and the  Digital Millennium Copyright Act, the 1998 law that addresses this problem, is doing little to stop them; the Copyright Alert System is doing little to stop them; and they certainly aren’t policing themselves.  For example, an international recording industry group recently announced it sent its 100 millionth piracy notice to Google—with no noticeable demotion of pirate sites in search results.

Andy: I hear a lot of people who seem to think book piracy is no big deal. I think it’s stealing and no different from shoplifting books from a bookstore. What do you think? (That’s a rhetorical question, obviously.)

Jan: We couldn’t agree more.  The only difference is the extent to which this type of theft is accepted, or at least ignored.  And that seems to be at least in part a result of the “information wants to be free” ethos.

Andy:  One of my pet peeves is Amazon.com. It seems to me that they have cultivated a notion that books cost too much, that e-books have a kind of inherent value of about $2.99. I don’t think this price recognizes the value added that goes into a professionally written and published book. Can you explain why books, electronic and paper, might merit a higher price?

Jan: The real problem is that Amazon is selling books at an artificially lowprice.  A look back at Amazon’s tactics over the years makes it very clear they’ve always used books as a loss leader.  Amazon has sold print books at a loss for years in order to drive its market share.  It’s doing the same thing with e-books.  It’s an artificial market.  This shields it from competition with any but the biggest competitors and makes it incredibly difficult for brick-and-mortar bookstores to enter the e-book market. And you’re right, the danger is that consumers get the notion that the inherent value of a book is cheaper than it actually is.

Andy: Recently the United States sued Apple and the major publishers for trying to fix prices. The publishers lost. The Authors Guild was supportive of the publishers in this instance. How come? Shouldn’t we be encouraging free market competition?

Jan: Well, our position was that the strategies pursued by Apple and the publishers were increasing competition.  Apple and the publishers were offering a new model for the sale of e-books, where Apple would act as the publisher’s sales agent, with no authority to discount e-book prices.  In the two years after this new “agency model” was introduced, Amazon’s share of the e-book market fell from 90% to 60%.  Barnes & Noble introduced a tablet to compete with Amazon’s Kindle during this time.  Brick-and-mortar stores began partnering with Google to sell e-books to their customers at the same price they were being sold from Amazon.  These look to me like the effects of a free market.

Andy: Jan, thanks. This is just a small sampling of what the Guild is doing. You should check out their website and blog.

Ask the Agent — The Book

If you look over there on the right, you will see the cover for my new (and only) book, Ask the Agent: Night Thoughts on Writing and Book Publishing. It’s an e-book  collection of the best writings from this blog.   It required a considerable amount of editing and rearranging, and I added some new material as well.  Last week I launched a “that attack” on the manuscript,  managed to identify the word “that” over 500 times, and eliminated 350 of them. Designing the cover was easier than I thought. Of course, I had to use Photoshop, which takes months to learn. I took some old leather-bound  books off my shelf and photographed the spines as the background and then superimposed the text. I had to crop it so that the ratio of height to width was 3:2.

Since Amazon won’t cooperate with anyone else, I had to format it and upload it twice. Once for Amazon’s Kindle Direct and once for Smashwords. The Amazon edition only works on Kindles. All the other major readers (iPad, Sony, Nook, Kobo) use the epub format which is available on Smashwords.  It should be  up on iTunes, Sony, Kobo, Indiebound, or from your local independent bookstore in the next few days.

Preparing it  for Amazon Kindle Direct was easy. You take your MS Word manuscript and make a few formatting changes  using Amazon’s simple instructions. When you upload the file, you can preview it on a viewer and see exactly how it will look on the various Kindle readers. That’s important to make sure the formatting is correct. Then you upload your cover and provide copyright information.

A few hours after I uploaded the file, I received an e-mail from Amazon telling me that they saw   that much of the information in the book was already posted on line. They requested that I email them back with an explanation. Since I wrote all of  the material and it is  on the blog, there were no copyright infringement problems. But it’s good to know that Amazon is trying to do something about piracy. I wrote them an explanation and was back in business within 24 hours. I’m not sure how the technology for identifying this works, but it is nifty.

Formatting for Smashwords is more complicated but very do-able. Since Smashwords makes the text available in a wide range of formats, it has more stringent formatting requirements. Smashwords provides a step by step style manual that is written in plain English. When you upload the file, Smashwords will inform you if there are specific formatting issues.

I hope some of you will buy the book. I arranged it so that it’s much easier to read than the blog. I organized it into 4 sections that more or less coincide with the topics I’ve been writing about. The first section includes my agent-y advice to writers on getting published and finding an agent. There are  numbered tips on query letters, book proposals and the like.  The second section has writings about writing. The third is about book publishing. And finally I have written some recollections about my 35 years as a bookseller.

Thanks for reading this blog. I’ve had almost 200,000 page views since it began in 2009. I hope you enjoy the book.

The Day I Debated Grover Norquist (And Whipped His Ass).

It’s true. In 2000, I debated Grover Norquist,  The Lord of Darkness, himself,  and   got the better of him, thank you very much. The subject of the debate was whether Internet companies should collect sales tax.

It was a big legal and economic issue back then. Remember that America was smitten with Internet – mania driven by the irrational exuberance of stock speculation.  Internet gurus were getting interviewed on TV and saying in all seriousness that the Internet was the most important invention since the wheel.

The  Supreme Court had weighed in on this issue in Quill v. North Dakota (1992) before the Internet even existed  and had ruled that under the Commerce Clause of the Constitution a state couldn’t require an out of state business to collect state sales tax.  But  back in 2000 there were a lot of brick and mortar businesses that had  created related Internet sites but were still not collecting sales tax for online sales. Barnes and Noble had the chutzpah to argue that their Internet subsidiary, barnesandnoble.com,  had no real relation to the physical stores. (They were  totally separate  entities, the BN spokesman said, that just happened to be owned by the same family, run by the same executives, and shared the same offices and warehouses. Sure.)

Of course the big enchilada, then as now,  was Amazon.com. Amazon didn’t have physical stores . And they made sure to put their warehouses in states that didn’t collect sales tax. But they did have hundreds of thousands of affiliate programs in every state. Pretty much every PTA and church group signed up as affiliates and   were actively soliciting orders for and receiving generous commissions from Amazon.

Amazon was putting out  a lot of  grandiose pronouncements to justify its practice, which in reality  was simply a strategy  to undercut competition. Sometimes Amazon  described the Internet as a juggernaut that was “driving the new economy”  and  taxes would kill the goose that laid the golden egg. At other times they said that the Internet was a sort of frail bird that could be crushed if  Internet commerce had to collect  sales tax. I pondered how the Internet could be both a juggernaut and a frail bird simultaneously. Amazon  also seemed utterly flummoxed about how they could possibly calculate  the various sales tax rates that existed in different districts. This,  from a company that knew the individual  reading habits of 20,000,000 customers.

I got involved in the issue because I thought Cody’s was getting a raw deal. But as is often the case with me, I very quickly lost perspective and became obsessed with the issue. I pretty much   came to know more about the subject than anyone in California. Leslie got very concerned that I was alienating all our friends by  droning on about the details of tax policy till they were stupefied with boredom.

A number of businesses and trade associations got together to form The e-Fairness Coalition. The mission statement  said that it represented small businesses nationwide.  The American Booksellers Association was a member in good standing. But the real money for this operation was coming from the International Council of Shopping Centers and Walmart.  Normally not my favorite people. But as they say in the Middle East, “The enemy of my enemy is my friend.”

They needed a spokesman and felt that probably the vice president of Walmart for tax issues would not be an effective voice. So they enlisted me. My first job was to show up at a debate before a large business group in Walnut Creek. I would be speaking in support of the principle of  Internet   sales tax collection. And the spokesman for the other side would be Grover Norquist.

Norquist was a pretty formidable figure even then.  He was a little too intense for my taste. He hated all taxes and loved the Cayman Islands.  And he was an early and passionate advocate for Internet sales tax evasion. I knew what his arguments were. The usual stuff that Amazon put out, the juggernaut driving the new economy, etc.  He also ranted about  how whenever liberals discover something cool, they just want to tax it.

It was pretty easy for me to refute   these arguments. All I had to do was lay out the classic conservative economic nostrum that government should not be picking winners and losers. The free market should be picking winners and losers. I also pointed out the corollary,  that tax policy should be based on the principle of a level playing field. It was an irrefutable argument politically, economically, morally.

I’d been listening to Norquist going around the country laying out  his talking points. He said that people in California shouldn’t have to be subject to decisions by tax administrators in Alabama. I still  have no idea what that meant except that it had something to do with states rights. But when I heard it, I sensed opportunity.

I knew he was going to bring it up in our debate. And I was ready for it.  And of course he played right into my diabolical plan. As soon as he said it,  I looked down at the podium, shaking my head with an expression more of sadness than anger. Then I looked up at the audience and very slowly said: “You know….that’s old argument…and not a pretty one…. In 1860…they said that to justify slavery…. A hundred years later….they said it again to defend segregation…. And now my friend here is using it to justify this discriminatory tax policy…

I have to say my timing and the cadence of my voice were perfect. Norquist went wild. He started screaming.  It was terrifying to behold. I tried to breathe slowly and evenly to quiet my heart, to find my center. Norquist’s face turned red. Beads of perspiration started dripping down his cheek. A stench came off his body like the carcass of a rabid dog rotting at the gates of Hell. — Hmm. Maybe not quite.

He finally recovered and started on the next sound byte, the one about the Internet being the most important invention since the wheel. I was ready for that one too. I responded by asking the audience a simple question: “When your toilet overflows, what would you rather do, call a plumber or surf the Web?”

The Random House – Penguin Merger

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 Amazon.com. (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.

Mary Mackey Talks About E-book Publishing

Mary Mackey is the author of six collections of poetry and thirteen novels, including New York Times and San Francisco Chronicle bestsellers. Her books have been translated into twelve foreign languages and over a million and a half have been sold in hard copy. This spring, nine of her novels and her latest collection of poetry Sugar Zone were simultaneously re-released as Kindle e-books.  By the end of the summer they will be available on Nook, Kobo, iPad, and Android. We are going to talk to Mary today about how she got these books back into print and what her experience has been.

Andy: Nine of your novels and Sugar Zone, your most recent collection of poetry, were recently published as e-books.  How did this happen?

Mary: The short version is that my agent Barbara Lowenstein first negotiated two deals: one with Amazon.com, which publishes Kindle books, and another with Vook, which publishes e-books in the Epub format on all other platforms. She could only do this because she had retained my electronic rights when the books were originally sold to traditional publishing houses. The moral of this story is that every writer needs a great agent to draw up contracts and make deals with publishers.

Andy: How did you get your books into Kindle and other e-book formats? Did you do it yourself?

Mary: No, thank heavens, I didn’t have to. Barbara’s assistants worked with me for several months to get the files ready, and then Amazon did the actual conversion. I had to proofread everything to catch errors and make sure nothing was left out.

Andy: Were most of these books out of print before they were published as e-books?

Mary: Yes, it was a kind of resurrection. Even A Grand Passion, my novel about ballet which made The New York Times bestseller list had been hard to get. But the strangest experience was having my first novel Immersion available again after being out of print for 38 years. Shameless Hussy Press had published about 1000 copies, but very few were still available and those were so expensive I could rarely afford to buy one for myself. Then, bang. Immersion came out as an e-book, and suddenly people who would never have stumbled on it in a bookstore were buying it.

Andy: How are the books selling?

Mary: Very well. They’ve only been available for a short time, but every month at least a third more units have been sold than in the previous month. The first month Amazon sold over 700 copies. This approaches bestseller status for newly released e-books if you don’t count blockbusters like Fifty Shades of Grey.

Andy: I understand that when most authors publish e-books, they only sell a few copies. To what do you attribute your success?  How are people finding your books among the more than a million books available on Kindle and the ten million in other e-book formats?

Mary: We think there are several factors. First, I’m a writer with a well-established readership. I already have a reputation—fans, readers who have enjoyed my work in the past and are interested in anything new I might write. Some of my novels, like A Grand Passion or The Year The Horses Came have a cult following Second, I’m a current writer. I’ve had two novels and a collection of poetry published in the last five years. If people have read The Widow’s War (Berkley Books, 2009), they might search for me by name and find my other books all priced at $2.99, and think: “Why not take a chance? I liked her other books, and if for some reason I don’t like this one, it costs me less than a small Frappuccino at Starbucks.” I mention the price because it’s the third factor and vitally important. To sell a lot of e-books you need to set a price low enough that everyone can afford them.

Andy: How can authors who don’t already have an established literary reputation help readers find their e-books?

Mary: The algorithm that Amazon uses to decide which books to recommend to readers is a secret, but certain things seem to help. For example, my books are highly rated. They’ve been given a lot of stars by people who liked them and been reviewed numerous times, mostly quite favorably. In addition, readers have tagged each novel with words they associate with it. For example, A Grand Passion is tagged with the words “ballet,” “bestseller,” “dance,” “historical fiction,” “Russia,” “romance,” “passion,” etc. Getting good reader tags is important because they guide other readers to your books. Anyone publishing on Kindle should also establish and maintain an Amazon Central Author Page. I say this with guilt because I need to find time to update mine. Other things that help are getting both your name and information about your work out there on the web, getting reviewed, establishing an author presence on Facebook, using Twitter, blogging, and so forth.

Andy: Is there anything else an emerging author can do?

Mary: Yes, be patient. Don’t publish your work as an e-book until it’s polished. Readers enjoy good writing. They like to read books by authors who care about craft and structure and who can create crisp, fast-moving plots and interesting characters.  If you’re self-publishing and can afford it, hire an editor. Great editors are like great agents. They’re invaluable. If your book is really good, sooner or later the word will get out.

More Letters Against the Department of Justice Anti-trust Action

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, Amazon.com. 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 Backinprint.com 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 Amazon.com, 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 Book Publisher Antitrust Suit Point by Point

Today Penguin filed its answer to the Department of Justice antitrust suit against Apple and the US book publishers (MacMillan and Penguin). Prior to this both Macmillan and Apple  responded to the suit. The Penguin response is 75 pages long, so I won’t be going over it point by point. But it is particularly enlightening in that it restates the government  allegations and responds to each of them. While I was reading the documents, it struck me how much it really addressed the big issues of this litigation.  Penguin did a lot more than simply make the obligatory categorical denials to each of the 103 government  allegations.

Antitrust law is exceptionally arcane and frequently difficult to understand even  by those who specialize in such matters. There are so many exceptions that have been carved out over the years that it is always difficult to determine what the outcomes are likely to be. I know. I have been a plaintiff in 3 suits and a consultant to the Federal Trade Commission in an antitrust investigation, all of them  against  – would you believe? – the book publishers.

Let’s go over some of the key allegations and the Penguin responses.

United States allegation #2.  The government asserts: that e- book sales have been increasing “ever since Amazon released its first Kindle device in November of 2007…..One of Amazon’s most successful marketing strategies was to lower substantially the price of newly released and bestselling e-books to $9.99.”

Penguin response: Penguin admits that e-book sales have been increasing and further  “admits that Amazon’s below-cost selling of certain newly released and best-selling e-books for $9.99,… was a successful strategy for locking consumers into its proprietary Kindle platform and raising a significant barrier to entry.”

[My comment. This is a very revealing response by Penguin. Framed as an admission of the government’s allegation, it includes some  twists on Penguin’s part that go to the heart of their defense. The government implies that Amazon is simply pursuing a typical market strategy to offer  lower prices and  sell more books. Penguin emphasizes that the practice is very selective and that the strategy was initiated to lock consumers into purchasing Kindles and keeping other potential competitors from entering the market. In other words, Penguin is pointing out that the real threat to competition is Amazon, not them.]

US allegation #3. “Publisher defendants feared that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, or other consequences the publishers hoped to avoid….Publisher Defendants teamed up with Defendant Apple which shared the same goal of restraining retail price competition…”

Penguin response: Penguin admits that they had concerns about Amazon’s pricing practices. They point out that Amazon was selling some of these books “well below the prices paid by Amazon to Penguin…for these titles.” They believed that Amazon’s practices were “anti-competitive and detrimental to the long term process of expanding opportunities for developing authors and creating more content.” They also point out the Government’s complaint  “is careful to avoid stating, prior to Apple’s entry, Amazon’s share of eBook sales was 80 to 90 percent.”  Penguin goes on to argue  that Amazon’s practices  were “undercutting the margins and incentives of other booksellers, fostering a perception of eBooks as lower cost commodities, and threatening the viability of book publishers and authors, as well as other bookselling outlets vital to the marketing and promotion of books.”

[My comment. Penguin pointedly mentions  that the government avoids bringing up an inconvenient fact:  that Amazon had 80-90% of e-Book sales prior to Apple’s entry. Again, they are emphasizing that the real competitive danger lies with  the “monopolist-Amazon” and that the result of the publishers – Apple relationship was to increase competition, not to restrain it.]

US allegation #5. The government alleges that Apple and the publishers “jointly agreed to alter the business model governing the relationship between publishers and retailers. Under the old “wholesale” model, “publishers sold books to retailers, and retailers, as the owners of the books, had the freedom to establish retail prices.” Under the new model, “publishers would take control of retail pricing by appointing retailers as ‘agents’ who would have no power to alter retail prices set by publishers.”

Penguin Response. Penguin denies there was any agreement  among the publishers to change the pricing model. They again reiterate their position that “the allegation that there was a ‘robust retail price competition’ before  the adoption of the agency model ignores the indisputable fact that the ‘competition’ was nothing more than the below-cost, predatory, market-domination strategy of a monopolist distributor [Amazon].”

[ My comment. This gets to the heart of the government’s case that the publishers jointly conspired to establish a system that fixed prices at a higher level than would otherwise be the case. Certainly if  the government can establish the factual basis for such a joint agreement, then they will be in a very strong position. Penguin claims here and repeatedly in their answer that there was no joint agreement and that they were simply responding individually  to the anti-competitive practices of  the “monopolist”, Amazon.]

US allegation #8.  The government alleges that after executing the new trade model with Apple, “the Publisher  Defendants all then quickly acted to …[impose the new model] on their other retailers. As a direct result, those retailers lost their ability to compete on price, including their ability to sell the most popular e-Books for $9.99…”

Penguin Response.  Under the new model, “price competition has moved from the retail level to the publisher level. Price and non-price competition both among publisher and among eBook retailers has exponentially increased as a result of the move to the agency model.

[My comment.  Penguin’s apparent argument that price competition continues to be robust because it is practiced at the publisher level, as distinguished from the retail level seems to be a bit of a strain, even if true.  But they do point out that outside of the very limited class of best sellers that Amazon had been selling for $9.99, there is increased price competition. And furthermore the government has not considered the competitive benefits of more players in the market selling more types of electronic readers and even more types of book formats, like enhanced e-Books that did not exist until the iPad.]

Ok. That’s enough for this blog. The complaint goes on with numerous allegations of specific facts that the government hopes  will prove  their case. Probably the most conspicuous allegations (at least from the point of view of publisher tittle-tattle are #39-45, where the government describes repeated meetings  attended by publisher CEO’s at fancy New York restaurants. The government complaint fails to show exactly what was discussed over Chardonnay but insinuates that this was the venue where the agreements were made.

I hope this gives you a little flavor of what the issues are in this case and how the two parties frame those issues.

 

My Letter to the Department of Justice

Everyone in book publishing has been talking about the anti-trust litigation and proposed settlements initiated by the United States against Apple and 5 major book publishers. The government’s case alleges that the defendants agreed to fix prices on e-books and  that these agreements  had the effect of raising prices to consumers. Most people in our business believe   that the United States’ position is misdirected, that the lawsuit will enhance the market power of Amazon.com and that this is the real anti-trust threat to the industry. The Authors Guild representing authors, the American Booksellers Association representing independent booksellers and now the Association of Author Representatives representing literary agents are on record as opposing the position of the Department of Justice. I decided to weigh in, myself, with the letter below. The DOJ is required to consider these letters, so any of you who wish to express your opinions should write to  John Read at the address below.

John R. Read
Chief, Litigation III Section
United States Department of Justice
450 5th St NW
Suite 4000
Washington DC 20530

Dear Mr. Read:

I am writing regarding the proposed settlement between the three book publishers ( Simon and Schuster, HarperCollins, and Hachette Book Group)  and the United States regarding e-book pricing.

I feel that it is wrong for the Department of Justice to focus its anti-trust efforts against Apple and the major book publishers for their implementation of the so-called “agency model” for pricing. There are restraint of trade issues in our industry, but this litigation is misdirected and likely to exacerbate those issues.

The decision by each book publisher to implement agency pricing was in response to Amazon.com’s policy and practice  of setting prices on e-books below cost in order to drive other potential sellers of these products out of the market, thus giving Amazon a virtual monopoly on the sale of e-books. This strategy was  enhanced by the manner in which Amazon designed and marketed it’s Kindle format editions of e-books,  so that those books could only be read on Amazon’s proprietary Kindle book readers, and only purchased on the Amazon web site.  Amazon  refused to allow other potential competitors in the e-book business to sell Kindle edition titles. At the time that publishers began contemplating implementation of the agency model, Kindle Editions accounted for 90% of  book sales on e-book readers.

Amazon was able to  sustain this otherwise ruinous pricing policy, because it could  offset its losses by driving people to its website where they would also purchase more profitable items.

The dangers implicit in this strategy  can be demonstrated. Amazon has shown its willingness to stop selling titles by publishers who will not agree to Amazon’s trade terms. This happened recently with 5000 Independent Publisher Group titles.  As a result, these e-books  are simply not available to the 60% of  all e-book readers who read e-books on their  Kindles.

Amazon’s policies have already had a devastating effect on community based bookstores including the recently bankrupt Border’s, Barnes and Noble, and the thousands of independent booksellers across the country.

The United States should be pursuing policies that discourage excessive concentration in industries, particularly when that concentration will reduce  the free dissemination of ideas in the country. The current litigation and settlement agreements against the major book publishers is doing quite the opposite.

Andy Ross

Andy Ross Agency

The Media Speak Out on the Book Publisher – Apple Anti-trust Suit — And They Are Not Amused

The New York Times and The Wall Street Journal finally agree on something, and so does most of the mainstream media.  That suing the  book publishers for anti-trust violations  is inexplicable.  The problem is that if the DOJ succeeds in forcing the publishers to change their business model, the only party that will benefit from this is Amazon.com which is the real threat to competition in the book business.

David Carr, writing in The New York Times called the lawsuit “the modern equivalent of taking on Standard Oil but breaking up Ed’s Gas ‘N’ Groceries on Route 19 instead.” He  wonders “why the crumbling book business is worthy of so much attention from Justice while Wall Street skates is a broader question we’ll leave for another day.”  Carr continued, “after a week of watching the Justice Department and Amazon team up, I’ve learned that low prices come with a big cost.”
Holman Jenkins Jr.   in The Wall Street Journal said, “in essence, Justice says that, beginning in 2008, several plankton, in the form of five publishers, conspired against a whale, Amazon, whose monopoly clout had imposed a $9.99 retail price for e-books…. Given Amazon’s dominance, it’s hardly offensive that all five used the opportunity of Apple’s arrival in the market to reclaim that power….

“Justice calls it collusion. In reality, publishers have nothing to collude about, except maybe Clive Cussler’s next advance…. let’s face it: Publishers have every reason to fear Amazon’s exploitative behavior…”

Jenkins closes with: “Judging by Justice’s slobbering over Amazon, as if whatever Amazon wants is the Lord’s ordained order in the e-book market, many of those résumés are headed to Seattle.”

Barry Lynn at Slate says “the DoJ got this issue…spectacularly wrong…. Now this vital marketplace is, for all intents, under the sway of a single boss. One that has a direct interest in stripping capital from publishers. One that has a direct interest in gouging all writers who must ride its rails. One that has a direct interest in suppressing any work of reporting that questions its power, or for that matter the political economic regime that enabled such concentration of power. One that is swiftly capturing direct control over much of the rest of the U.S. economy as well.”

Michael Shermer in an op-ed piece in The Los Angeles Times said: “The Justice Department should have left things alone. Essentially, two titans —Apple and Amazon — clashed, and competition was working…. Amazon will gain a government-aided advantage over the competition…. What this lawsuit probably will do instead is return to Amazon the power to monopolize the e-book market through predatory pricing to the detriment of publishers, authors and, ultimately, readers.”