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.

Descartes, Plato and E-Books.

On February 7, Amazon.com 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.

Self Publishing at Book Santa Cruz Using the Espresso Book Machine

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 ebm@bookshopsantacruz.com.

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

The Authors Guild and the Book Publisher Antitrust Case

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.

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.

 

The Justice Department vs. Book Publishers: What This Really Means

The Anti-Trust Division of The Justice Department announced  this week that it is considering filing charges against Apple Computer  and 5 of the largest book publishers for violating anti-trust laws. The issue, at least as far as I can determine, is whether there were illegal agreements  made between Apple and the  5 publishers to  fix  the retail price on e-books.  It is illegal under anti-trust law to make agreements to “restrain trade”.

I know a little about anti-trust law. When I was a bookseller, I was involved for about 20 years in various anti-trust lawsuits having to do with unfair competition by chain stores. I won’t go into detail here about anti-trust except to say that the laws are incredibly arcane and usually hinge on “facts” that are murky at best. And I do not know the specific facts of this case that would either incriminate or exonerate the putative conspirators.

So let’s talk about what this means in the real world. Here’s the back story. In 2010 when Apple was poised to release the iPad, Amazon controlled about 90% of the e-book business. Amazon sold books in the proprietary Kindle format which could only be read on Kindle readers. If you had  a Kindle reader (and at that time most e-book consumers did), you had to buy your e-books from Amazon.

As is their wont, Amazon began selling newly released best selling e-books at $9.95, below their cost which was typically about $12.50. This was anathema to publishers for a number of reasons. 1) The prices were so low that it had the  potential effect of eviscerating  sales of the print on paper editions. Publishers recognized that e-books should be cheaper, but not that cheap. 2) Related to this, publishers felt that Amazon’s selling below cost would discourage entry of other  potential vendors in the e-book business. This would leave publishers  completely beholden to one vendor, Amazon, whom they have never really felt comfortable with.  3) Finally this kind of pricing would put into the heads of consumers that there was an inherent  value to an e-book of $9.95. Presumably Amazon had no intention of selling below cost forever and they would  eventually use their monopolistic power to  force publishers to reduce the prices on  e-books books.  Amazon would  then have a sustainable business model. But publishers probably wouldn’t.

Enter the Apple iPad. At last the publishers hoped that they could break the Amazon monopoly by throwing themselves into the arms of  the only company with the resources to compete successfully against Amazon. Apple Computer    has the highest capitalization of any company in America, probably the world. Compared to Apple, Amazon is a mere street peddler.  Apple and the publishers worked out an alternative system for selling books that was similar to the  relationship iTunes had with music publishers.

Most products for sale in  retail stores are purchased   at “wholesale” for a low price, and the retailer can set any price they want. Thus the old saw that all you need to know in retail is: “buy low, sell high”. But Amazon had the resources to buy low and sell lower,  to sell below cost for as long as it took to drive out the weaker competition. After all, they could make up  the lost profits by selling more Kindle Readers and driving business to their other products. Cameras, shaving cream, what have you.

Apple and the six largest trade publishers adopted a new model. Rather than giving a lower wholesale price to a vendor and letting the vendor set the retail price, under the new “agency” model, the publisher would set the retail price of the book and give the vendor (say Apple or Amazon) a 30% commission on the sale. There were many complicated deals made (that may or may not have been legal) that would force Amazon to accept this new “agency” model. Amazon would have to sell the e-books at the same price as their competition, thus defeating what has always been Amazon’s competitive strategy.

The Justice Department argues that this new “agency” model  is bad for the consumer because it tends to insure that e-books are selling at a higher price than they otherwise would if  the retailer was able set its own price. Publishers argue that the “wholesale” model would create an unhealthy monopoly by Amazon  that would not be in the long term interest of book buyers and society at large.

Yesterday, the Author’s Guild weighed in on this issue. The president of the Guild, Scott Turow, sent a letter    to all of its members calling the decision by the Justice Department to challenge Apple and the 5 publishers: “grim news”. As most of the followers of this blog know, I have frequently expressed my own concerns about the sometimes  unhealthy power of Amazon in the book business.

Turow was speaking for the interests of authors, but he makes some powerful points about the ultimate impact of a de facto monopoly by Amazon. He is concerned, as are publishers, that predatory pricing of e-books will attenuate the ability of physical bookstores to compete. He says that it is as if: “Netflix announced that it would stream new movies the same weekend they opened in theaters.”

Turow goes on to say: “Marketing studies consistently show that readers are far more adventurous in their choice of books when in a bookstore than when shopping online. In bookstores, readers are open to trying new genres and new authors….A robust book marketplace demands both bookstore showrooms to properly display new titles and online distribution for the convenience of customers.”

He also points out that 2 years after the agency model was implemented Amazon’s market share of e-books is down to about 60%.  Barnes and Noble  has successfully entered  the market with its highly regarded Nook. Apple has an excellent e-book store. I can say first hand that the iPad is an insanely good e-reader. You can even buy e-books from your independent store through Google books – and at prices competitive with Amazon.

Last week we wrote about the fact that Amazon stopped selling 6000 titles from America’s second largest small press distributor, IPG, after a dispute over terms. Those books are simply not available to people with Kindle readers. I think this fact tells us all we need to know about what this dispute means to society at large.

Amazon.com Has Become a Publisher. Don’t Expect to Find Their Books at Your Local Bookstore Any Time Soon

There is some interesting news this week about the ongoing struggle within the book business to define the protean changes that are going on, mostly  having to do with  the exponential growth of the ebook market and of Amazon’s  seemingly inexorable march to  dominate book publishing at all levels.

Larry Kirschbaum

Last spring Amazon announced that it was creating a trade publishing division. They hired publishing insider and veteran, Larry Kirschbaum, to head it up. Larry had been for many years the CEO  of Hachette Book group, one of the “big six publishers.” He retired from that position several years ago and became a literary agent. He is about as much of an old school publisher as you could get. Prior to this, Amazon had been dabbling in publishing but they were more involved in the “self-publishing” end of the business.

This new development puts them in direct competition with the New York trade houses. Not to put too fine a point on it, the big publishers are not happy.  Maybe this is  simply sour grapes, maybe  the publishers just don’t want another competitor to split off their business and to steal their best authors. That is certainly a component of it. But Amazon has never been satisfied being a part of a larger whole. Their stategy has always been to be the whole whole.  And they have the money to do that.  Amazon’s market capitalization is moving north of 80 billion dollars. — Res ipsa loquitur. They also have the infrastructure. They pretty much control the retail end of the ebook business and they have surpassed Barnes and Noble as being the largest retailer of print on paper books as well.

And they don’t believe in open platforms. If you are going to buy a Kindle edition, you must buy it from Amazon. They won’t permit their competitors to sell it. And, of course, you can only read Kindle editions on a — Kindle.  In comparison, the iPad and Barnes and Noble’s Nook accept books in the Epub  open format  edition.

It  is true that Amazon over the past few months has been snagging some big name commercial authors and paying big bucks. Tim Ferris, Deepak Chopra, James Franco, and Penny Marshall are frequently mentioned.  And Amazon has announced that they will be bringing out over 100 titles in the fall. And that is just the beginning. Amazon has downplayed their threat to the publishers saying that for them [commercial publishers], “it’s always the end of the world.”

Well, of course Amazon is always savvy at business and they realize that in order to bring in the big authors and get on the best seller lists, they have to have their books available in all venues and in all editions. Since most  other bookstores loathe Amazon as much as  the publishers, one can assume that there might be some reluctance on the part of these stores to order Amazon titles from Amazon. So in January, 2012  Amazon announced that traditional publisher Houghton Mifflin would be distributing Amazon print on paper titles to the trade.

If Amazon really wants to encourage their erstwhile and ongoing competitors to buy Amazon Publishing titles in hardback and paperback, one might think that they would make nice about the e-book editions as well. No. Amazon will not publish their e-books in the Epub format. This means that Barnes and Noble  and pretty much everyone else selling e-books will not be permitted to sell the e-book edition of the Amazon Publishing titles.

This month  Barnes and Noble announced that they would not be carrying  titles by Amazon Publishing in their physical stores. They said that  any publisher who would not make all their editions available to B&N would not  have their books   represented  in their 700 stores. Today the second largest retailer in America, Books-A-Million announced  that they had made the same decision. One can assume that you will have difficulty finding these books in independent bookstore as well, even if the books are carrying the Houghton Mifflin logo, not Amazon’s.

Although it is always troubling to see fewer outlets for any book, most of us in publishing seem to be feeling a kind of exquisite sense of schadenfreude at what appears to  be  Amazon’s overreach. About 70% of all books are still sold in physical bookstores. I think authors are going to think twice about signing a book contract with Amazon Publishing knowing that their books will not be available at most stores nationwide.

Amazon and Library E-book Lending

The latest chapter in the ongoing saga of  the  uneasy relationship between book publishers and Amazon.com began to unfold last week.  Penguin Books  announced that they were suspending their distribution of new digital books in the Kindle format to libraries. Penguin  and other major publishers will continue to license e-books in Adobe EPUB format, the format favored by all e-reader vendors except Amazon. If you have an Apple iPad, a Sony Reader, a Nook or use any of the readers running Android operating systems, you will be reading EBUB formatted books. If you are using a Kindle, you can only read books in the Kindle format.

The reasons given by Penguin are opaque; they mentioned “security considerations” (whatever that means.) As in all matters associated with e-books,  there are lots of issues and interests at stake in this decision. Let’s try to  ferret out the real back story of all this.

Publishers have always been uneasy about licensing e-books to libraries. They will tell you that they support libraries as the institution in America that creates readers and builds literacy that, in turn, allows  publishers to flourish. Most people won’t argue about this. However with the advent of e-books and e-book library lending programs, publishers are  concerned that this will harm their own  sales of e-books. The reason that they are more concerned about this  than they have been about traditional library lending is because it is so much easier to check out an e-book than it is a physical book, and an e-book is always in pristine condition no matter how many times it is lent out. The reader need not worry about those nasty spots and  unsanitary stains that populate the margins of the pages of a typical library book.  In the past in order to check out a library book, the reader must actually go down to the library and go through the normal hassles, parking, stepping over undesirables, etc.,  in order to be told that the few  titles  that the customer would actually want to read have  waiting lists for the next 3 months. Using the library e-book check out service, you can get a copy of your favorite book while at home  by downloading it  any time day or night.

To be perfectly fair, libraries have managed  in their new e-book services   to recreate every reason that you have avoided   going  to the library in the first place.  I belong to the Oakland Public Library and have availed myself of the service from time to time. And it is convenient when a book I want to read  is in stock and available.  I lie in bed, I hit a button on my new iPad, I get my book. Sweet! However, as with traditional books, the financially hard pressed libraries can only order a limited selection of popular titles and those in  small quantity.  So I still have to wait weeks or even months for the books I want to read.  Of course there  are always lots of books immediately available that are less in demand. In Oakland, most  of these books seem to be  in Chinese or Spanish and accordingly are not of great  interest to me. They have a pretty good selection of Berenstain Bears titles as well.

The e-books  at libraries are being managed by a company called Overdrive. When the programs first began last year, books were only available in the EPUB format and the largest segment of e-book customers, Kindle owners, were not able to participate. Earlier this year Amazon allowed the libraries to license Kindle editions. But  as is  Amazon’s wont, they managed to design the system so that the customer could not just hit a Kindle button on the Overdrive site. Rather they were directed to the Amazon site where there are a myriad of buttons encouraging the library patron to buy the book instead of borrowing it and, while there, to buy a plethora of other Amazon merchandise from cameras to condoms.

This is standard operating procedure for Amazon (and good retail marketing too). Amazon discounts selected items heavily, even using them as loss leaders, to get customers to the website where they then engage in an orgy of buying from Amazon’s vast selection. So Amazon has  been heavily promoting the Kindle library lending program. Sure, it takes away book sales a little bit. But a few lost book sales is a small price to pay for a magnet to bring customers coming back for more stuff.

For now the other major publishers are sitting on the sidelines. Some of them aren’t participating in the Overdrive program at all. Others, like Random House, have responded with even more obtuse comments than Penguin (“We are always evaluating all of our publishing programs.”)

So what does all this mean? For librarians this is about the fact  that they just want their e-books available and don’t want to get caught in a dispute, not of their making,  between the publishers and Amazon. For publishers, already uncomfortable about the e-book library program, this  is about the fact that they don’t want Amazon using free books to drive traffic to their web site to the detriment of e-book sales. For internet gurus and geeks,  this is an example of  the  “legacy” media dinosaurs fighting another losing battle against the brave new world of internet where “information wants to be free”.  For authors this is about whether they have a right to be paid for their work, just like everybody else. (European libraries give authors a small royalty every time their book is checked out. See my previous blog post: Revenge of the Killer Librarians ).

The Indie Publishing Option

Laurie McLean is a literary agent specializing in genre fiction and  middle-grade/young-adult children’s books. She has really become a guru on this subject and is the agent I always turn to when I need to know the ever-changing fads and fashions of fantasy, science fiction, supernatural fiction and young adult fiction. A few months ago we had a great interview with her about the subject on “Ask the Agent.”  If you want to know whether the vampire train left the station, ask Laurie. 

Laurie has been a literary agent for 6 years and works at the Larsen Pomada Agency in San Francisco.  She has a fantastic blog, Agent Savant,   which is a good place to start learning about genre fiction.

Laurie has started a new consulting business separate from her agency called Agent Savant Inc. She specializes in creating custom digital marketing plans for eBook authors, authors with significant back lists of titles who want to get their rights reverted and sell them as eBooks and POD books, and midlist authors who want to know how they can market their books more effectively online.

Today the publishing landscape is changing almost weekly. Commercial publishers are struggling to redefine themselves in the new digital marketplace. And new venues seem to be sprouting up almost daily that give writers alternatives to traditional publishing. Today I want to talk about what these transformations mean to writers. Both the challenges and the opportunities.

 Andy: First of all, Laurie, congratulations on your New York Times best seller. Tell us a little about it.

 Laurie: My client, Julie Kagawa, writes amazing young adult fantasy. Her Iron Fey YA series, with The Iron King, The Iron Daughter and The Iron Queen out now and The Iron Knight coming out in the fall, has really resonated with today’s teens. She put her own spin on the traditional mythology of Oberon, Mab and the summer and winter fairy courts by adding a new dimension—The Iron Fey. They are cobbled together out of what kids truly believe is magic today: technology.  The Iron Queen is the book that landed Julie on the NYT bestseller list a mere year after her debut, and we just sold three more books in this series plus three more in a new post-apocalyptic series.

 Andy: It seems to me that there is an awful lot of good writing being done today and most of it is having a hard time getting published in traditional channels. That’s true isn’t it?

Laurie: That’s one of the reasons I am so bullish on digital publishing and eBook publishing. A writer commented during a writers conference workshop I was giving several years ago that the worst part of my job must be reading so much bad writing, and I replied, “No. The worst part of my job is reading good or very good writing and knowing that I was going to have to reject it because it either wasn’t marketable at that point in time or because it wasn’t perfect.”  The bar has been placed so high for writers,  it’s made it nearly impossible for even the strong writers to break in. You must be good at every facet of writing and marketing and know the publishing business inside and out to even have a chance at the brass ring. But now opportunities have opened up with eBook and POD (print on demand) indie or self publishing, and the successes of some of the early adopters have destroyed that notion of who is a published author and how you can make a living as a writer. You can publish your book on Kindle Direct Publishing,  Smashwords,  or Barnes and Noble PubIt! sites and, voila, you are now a published author. Does that mean you don’t have to put in the hard work of always improving your craft and marketing your books? Hell, no. Cream will always rise to the top. You still have to learn and grow and pay attention and be diligent.

Andy: I know this changes every week, but can you go over the kinds of options available if you can write great books and still can’t find a publisher?  Tell us the pros and cons of each.  (POD, ebooks, smashwords, etc.)

Laurie: Boy, I could blog about this for weeks on end, Andy. So instead I will challenge your readers to discover how easy it is to post an eBook themselves. And I’m not doing this to be mean. Part of do-it-yourself publishing means you have to roll up your sleeves and actually do it! No agents or editors or cover designers or sales force will be there to hold your hand and make it happen. Give one more polishing edit to that  work in progress –or to an old manuscript, novella, short story or article that has been sitting in a digital drawer on your computer–and at the very least go to Kindle Direct Publishing  and then Smashwords  and see how simple and straightforward it is to take your MS Word document, cobble together a cover from clip art or the like,  and publish that book. Oh, and did I forget to mention that  IT IS FREE TO DO THIS? Well, it is. Price your book anywhere you like it or give it away for free to generate some buzz. Then dive into social media (Twitter, blogging, Facebook, etc.) to let the world know you’re out there. If readers request a print copy of your book, go to Lulu.com, CreateSpace, Author Solutions or directly to a printer and make POD available. Some options will give you a number of books in return for a price and then you keep 100% of the sales dollars, like in the old days of vanity publishing, but newer options like Lulu cost you nothing up front and you collect a small royalty on each book you sell and they ship.

 Andy: So it is pretty cheap and easy to get your book published either in print on paper or in e-book format. But the real challenge is how do you get the word out. Can you give some advice to the reader on marketing your books?

Laurie: Here’s a link to my blog post  that presents a digital marketing plan writers can use as a starting point. I spent 20+ years in high tech marketing and publicity before I became an agent, so this has a lot of knowledge behind it.

Andy: Internet gurus used to use the term “disintermediation” to describe the new world of Internet commerce. What they meant was that the Internet would eliminate the middleman and allow consumers to buy direct from the producers at a reduced cost. It hasn’t exactly come out that way. In our business Amazon.com is a classic middleman. A typical retailer, really. But with the explosion of self-publishing, disintermediation seems to be a real possibility, no?

Laurie: That’s the billion-dollar question, Andy. How will this incredibly disruptive technology change the publishing industry? No one knows the answer, even though many offer their guesses daily. My informed opinion is that indie publishing will progress along the same lines as indie movies and indie music. You’ll have some overnight indie sensations that either thrive (for example American Idol megastars Carrie Underwood or Jennifer Hudson) or fizzle (can anyone remember AI runner ups?). For every  self published Amanda Hocking superstar (and if you don’t know who she is, please find out), you will have hundreds of eBook authors making a decent wage and doing what they love without the baggage of being a household name. Yet, like Carrie Underwood, 26-year-old Minnesotan Amanda Hocking now has an agent who is about to sell her next series to a traditional publisher for seven figures.

Andy: Laurie, if Amanda Hocking is doing so well self publishing, why on earth should she bother to sign a contract with a commercial publisher. I bet she is getting better royalties on her own.

 

Laurie: Why? Because Amanda would rather spend her days writing than tweeting, giving media interviews, working with cover artists and editors, and negotiating with foreign publishers. There is so much work that must be attended to if you want to become successful in publishing—whether indie or traditional. And so when fame finds them, I predict indie authors will eventually straddle the line. They may continue to self-publish work that the traditional publishers don’t think will sell (short fiction, non-fiction, blogged books of advice, experimental writing, co-authored work, etc.), but their bread and butter mainstream books will come out in digital and print from established multi-national conglomerates. That’s why this chaotic stew is driving publishers insane. It’s impossible to predict the outcome of any decision. Everyone’s experimenting from authors to agents to publishers. I think your concept of  “disintermediation” is really a fancy word for do-it-yourself. And some DIY projects look homemade, while others look crafted. It all depends on skill level and attention to detail.

Andy: Other than Amanda Hocking, are people really making money doing this kind of self-publishing?

Laurie: Some are, some are not.  Self-publishing juggernaut Author Solutions estimated that the average number of books sold by their customers last year was 150. That’s not a lot. It’s not going to make you rich. But one of my new clients, Kait Nolan, sold 1,000 copies of an e-novella herself in January at 99 cents each. And she’s sold more copies of her three short stories in the first three months of 2011 than she did in all of 2010. So her momentum is growing to the point where I found her because of her awesome social media presence last month and offered her representation before she had even written one query letter to an agent or editor! The point is that some indie authors who really work at it are making money. Some are not. Which one will you be?

Andy: You have set up a separate business recently to help people navigate the new landscape. Can you describe what you do?

Laurie: Anyone interested in Agent Savant Inc. should  check it out. For a flat fee I help authors discover their unique author brand; I help them publish their writing online as an eBook; and then I create a customized digital marketing plan to help them sell their eBooks and POD books more effectively. I don’t do the work for them. I create the plan and get them started. Sometimes all it takes is a push with some direction behind it to take off.

Andy: Thanks, Laurie. Now if you’ll excuse me, I’m going to have to go make a phone call to Amanda Hocking to see if she needs a new agent. I think I’ll tell her that I can get her an 8 figure deal!

E-book Wars, Episode 10: Revenge of the Killer Librarians

Your local librarian

Book publishers, take cover. The librarians are at the gate. The issue is, like almost everything else in publishing right now, e-books.

 If you go to your library website, chances are that you will see that it has a new program where you can check out e-books. Cool! Right? Hey, I’ve done it.  It’s free. All you have to do is select the book you want, hit the button, download the book, and voila!

 And you  can avoid the usual inconveniences that detract from the library experience. You  don’t have to go into one of those shabby old buildings , filled up with shabby old people,  and try to find one of those shabby old books. (Who knows what person may have been picking his nose while reading it last?) Furthermore the library rarely has a copy of the book you really want anyway, right?  Sure, if you are looking for  The Muncie Indiana Junior League Cookbook of 1954, you are likely to find one – or more than one. Maybe an old broken spine volume of Funk and Wagnall’s Desk Encyclopedia.  But if you are looking for  Freedom by Jonathan Franzen,  get  in line. You’re number 205 on the waiting list. And when you lose the book,  or maybe your kid cuts it up and makes paper airplanes out of it,  or when you just  bring it back late (which you almost always do), ka-ching!

The new e-book checkout program gets around all that. You do it all  from your home or maybe from the beach in Hawaii with your slick new  iPad2 with 3G .  Hit the button. Read the book. And  if you forget about it, the book automatically gets checked back in after 14 days. No muss, no fuss. No lost books.  No late fees.

 I went to the e-book check out site for the Oakland Library.  It wasn’t perfect. It is, after all, still a library. There were some of the usual library annoyances. The selection wasn’t great and half the titles available were in Chinese. And the books I really wanted were all on hold. But the list is growing, and it’s going to be pretty nifty.

Publishers have been concerned about this and with good reason. These  new library e-book lending  programs, which are all managed by a wholesaler called “Overdrive“,  are so easy that it really is the same experience  as buying one from a bookseller.  It’s just like going to Amazon.com – except no charge.

This week, HarperCollins decided to put the brakes on this. They implemented a new policy where instead of just selling the library  an e-book like they do to bookstores, they will only sell libraries a license to download the book 26 times. That is the estimated number of times that an ink-on-paper  book would be checked out in a year. After that, the library would have to buy another copy. Harper would also impose rules that the libraries could only provide this service to members located in the communities they serve.

The librarians are pissed. They and their knuckle dragging goons are already planning  to punish HarperCollins. They’ve even launched a boycott.  Check out the website. Josh Marwell, Harper’s president for sales pointed out that with the millions of e-reading devices expected to be purchased by consumers in the coming year, HarperCollins decided that the terms of sale of e-books to libraries “if left unchanged, would undermine the emerging e-book ecosystem, hurt the growing e-book channel, place additional pressure on physical bookstores, and in the end lead to a decrease in book sales and royalties paid to authors.”

Look, I don’t want to say anything bad about libraries. Just like I don’t want to say anything bad about puppy shelters.  But dammit!  I’m tired of all these people who think that authors shouldn’t get paid for their work. “Ask the Agent” has previously written about the noxious idea that “information wants to be free.” It is a view espoused in books by Internet gurus who get paid quite well for promoting this idea.

The United Kingdom has a curious notion that authors should – well — get paid. In 1979 parliament passed the Public Lending Rights Act   that mandated that authors receive a royalty every time their book is checked out of a public library.  The royalty  amount is 12 cents per check out with a yearly maximum of  about $10,000 US. Other countries that offer some form of compensation to writers for library check outs are: Germany, Netherlands, Israel, Canada, Australia, and Denmark. Civilized societies who honor intellectual labor. And what countries do not pay royalties for library check outs? Libya, Yemen, North Korea, and The United States of America.

Librarians, listen up! It is written. “He who troubleth his own house shall inherit the wind.”