If you love books then you should be rooting for Amazon, not Hachette or the Big Five

Gigaom

As Amazon continues to tighten the screws on book publishers like Hachette — by making its books difficult to find, impossible to pre-order, and so on — the conventional wisdom seems to be that the company is an aggressive and possibly illegal monopoly aimed at killing publishers, and that its behavior is also bad for authors and probably consumers as well. The only problem with this view is that most of it, if not all of it, is completely wrong. What Amazon is doing is not only good for book-loving consumers but arguably good for authors as well — and even for some publishers (although not Hachette and its ilk).

Is Amazon a true monopoly? Not in any meaningful sense of the word — not any more than Walmart has a monopoly on sales of toothpaste. Yes, the electronic retailer has a large share of the ebook retailing market, but this is also a market that it effectively invented, because publishers like Hachette and other members of the traditional “Big Five” cartel (formerly the Big Six, before Random House and Penguin merged) showed no interest in doing so.

And even after the major publishers were dragged kicking and screaming into that market, they have continued to try and keep prices high and their gross profit margins large — to the extent of engaging in illegal collusion in order to do so. To quote Amazon CEO Jeff Bezos: “Your margin is my opportunity.”

Book buyers benefit, and that’s what matters

This isn’t much different from what happened to the music industry when Apple came along: it recognized that the market was changing, and created the iPod to take advantage of it. Eventually, the major labels had to play ball with Apple — which used many of the same negotiating tactics as Amazon has — in order to access that market, because they had failed to do so themselves. And they tried in vain to keep the price of digital music higher and royalties lower, and by doing so dug themselves an even deeper hole. Meanwhile, music buyers benefitted.

Even if Amazon does have a large market share, and is either a monopoly or a “monopsony” (the term for a market in which there are many sellers but only one large buyer), from a legal perspective the primary benchmark for whether a monopoly is illegal is the impact on consumers, not the impact on the large competitors who are being disrupted or having their margins narrowed. And by almost any measure, Amazon’s entrance into the book publishing and distribution market has been nothing but good for consumers — because it has meant both lower prices and more choice — and arguably for many authors as well. As author Barry Eisler put it recently in The Guardian:

“Legacy publishers pay authors only twice a year [and] they generally pay us only 12.5 percent in digital royalties, compared to the 70 percent we get from Amazon. They insist on taking control of our copyright not for a reasonable term, but forever. They’ve done all they can to try to keep the prices of books artificially high, which hurts consumers and costs authors money. They have a record of zero innovation. And they’ve run the industry for decades in a way that has benefited the few while stifling new opportunities for the many.”

It’s true that Amazon has a large ecosystem it has constructed around books, with the Kindle and other devices and services, and that has helped create a form of “lock-in” for book buyers. But even here, traditional publishers like Hachette have been the architects of their own destruction, by requiring that Amazon use punitive DRM restrictions on their books — which author Charlie Stross has argued gave the retailer “a stick with which to beat them.” Unfortunately, as my colleague Laura Owen has pointed out, getting rid of DRM isn’t much of a solution at this point because the horse has not only left the barn but is already in another county.

At the simplest level, what Amazon is doing with Hachette is no different than what any other retailer does with a supplier: namely, negotiate a better deal when that supplier’s profit margin seems overly fat compared to its costs (Amazon reportedly wants a higher commission than the 30 percent that Hachette has been paying). As Amazon noted in a recent post about its dispute:

“Negotiating with suppliers for equitable terms and making stocking and assortment decisions based on those terms is one of a bookseller’s, or any retailer’s, most important jobs…. a retailer can feature a supplier’s items in its advertising and promotional circulars, ‘stack it high’ in the front of the store, keep small quantities on hand in the back aisle, or not carry the item at all, and bookstores and other retailers do these every day.”

If Amazon is bad, the Big Five are worse

As a number of authors have pointed out, including Hugh Howey, the biggest competitive threat in the book business isn’t the electronic retailer, it’s the Big Five publishers. They’re the ones who have tried desperately to keep book prices high — especially ebook prices — and yet continue to pay their authors a fraction of what Amazon does. As Howey says: “The culture of the Big 5, which was built by gobbling up successful small presses and rolling them into imprints, left the door wide open for Amazon, a company that dared to sell direct to consumers, innovate the way we read, and pay authors a living wage.”

What makes Amazon’s dispute with publishers different from a typical battle between a retailer like Walmart and a supplier, of course, is that books are not toothpaste or toilet paper. They are a cultural artifact that brings all kinds of emotional baggage with it, involving the struggling author, the nature of the creative impulse and other intangibles. And yet, they are also a physical product — one that is going through the same kind of wrenching change that any other kind of content is, from newspapers to music. All we know for sure is that the market cannot remain the same, and the forces that are trying desperately to make it do so are on the wrong side of history and are likely doomed.

Does this mean that writing will become a low-margin business that fails to attract the kind of creative output it has in the past? Author Charlie Stross argues that the risk of Amazon’s dominance is that it kills publishers and then authors have no intermediary to look out for them, at which point many leave the industry and Amazon reigns supreme. Or as Evan Hughes describes it:

“The Amazon–Hachette dispute is different from a battle over terms between, say, Walmart and Coca-Cola: Diet Coke has a set formula of ingredients, so the actual beverage is not going to get worse if Walmart drives a hard bargain. That’s not necessarily the case with books, each of which is a unique product. If publishers make less money on every book, they are going to pay people less to write and edit them, and talented people will decide to do something else with their time.”

Could this happen? Perhaps. But that vision of the future seems awfully pessimistic to me. I think it’s more likely that small publishers like Martin Shepard — who has defended Amazon as a friend of small businesses when compared with the Big Five — and authors like Barry Eisler and Hugh Howey will not only continue to do well but could potentially do even better in the kind of environment Amazon envisions than they would under the old regime. Publishers like Hachette and the rest of the Big Five could do less well, but that is as much their fault as it is Amazon’s.

Post and thumbnail images courtesy of Shutterstock / Vladimir Melnikov, as well as Thinkstock Vasabii and Thinkstock / Worac

Image copyright Shutterstock/Vladimir Melnikov.

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