Charlie Stross: Publishers "Cutting their own throats"

[kjk]

http://www.antipope.org/charlie/blog...n-throats.html

Anyway, my point is that the Big Six's pig-headed insistence on DRM on ebooks is handing Amazon a stick with which to beat them harder.

As ebook sales mushroom, the Big Six's insistence on DRM has proven to be a hideous mistake. Rather than reducing piracy[*], it has locked customers in Amazon's walled garden, which in turn increases Amazon's leverage over publishers. And unlike pirated copies (which don't automatically represent lost sales) Amazon is a direct revenue threat because Amazon are have no qualms about squeezing their suppliers — or trying to poach authors for their "direct" publishing channel by offering initially favourable terms. (Which will doubtless get a lot less favourable once the monopoly is secured ...)

[ilovejedd]

As ebook sales mushroom, the Big Six's insistence on DRM has proven to be a hideous mistake. Rather than reducing piracy[*], it has locked customers in Amazon's walled garden, which in turn increases Amazon's leverage over publishers. And unlike pirated copies (which don't automatically represent lost sales) Amazon is a direct revenue threat because Amazon are have no qualms about squeezing their suppliers — or trying to poach authors for their "direct" publishing channel by offering initially favourable terms. (Which will doubtless get a lot less favourable once the monopoly is secured ...)

I wholeheartedly agree. See Apple/iTunes for precedent.

[taustin]

Mr. Stross is a very wise man, and well informed about his profession and the industry that it is part of. Though I'm not sure that being locked in to Amazon is necessarily is bad for the publishers as he believes. They, too, can (if they play their cards right) benefit from a monopoly on Amazon's part.

[JoeD]

It's not just drm either, agency pricing means there's no longer a point in shopping around, so you may as well go for the store with the best eco system which at this time imho is amazon and the kindle. Agency pricing in a way is pushing more people to amazon making them even stronger in the market which will eventually lead to authors going direct via amazon and in turn put amazon in a position to drop book prices once more. Which is what agency pricing was aimed at avoiding.

Quite amusing really, publishers have a golden oppertunity with digital publishing to cut out the middle man, but instead they.ve made all the moves that could lead to them been the ones that are cut out (well not quite, i'm sure they'll wise up just before it's too late)

[HomeInMyShoes]

^A monopoly does not necessitate price dropping.

[jersysman]

True monopolies very rarely result in long-term price dropping.

[Andrew H.]

I'm not sure that any of his points matter much. When iTunes did away with DRM in 2008, they didn't suffer any loss of marketshare because they still executed better than anyone else. Specifically, they offered the best way (in the opinion of most people) of integrating their sales with their devices.

I don't think that things would be any different if the publishers did away with DRM - why would people with Kindles stop buying from Amazon? And of course non-Amazon customers could legally convert Amazon purchases to epub. (And vice versa, although I think the trend would be in Amazon's favor).

And I don't get the point about not using agency pricing - Amazon dominated in the pre-Agency pricing days in part because they offered NYT bestsellers for $9.99.

[carld]

I'm not convinced that the general ebook reading public cares that much about DRM. I think they care far more about ebook prices. Agency pricing is really where the Big 6 are setting themselves up for a serious throat cutting.

[JoeD]

Originally Posted by HomeInMyShoes

^A monopoly does not necessitate price dropping.

If amazon had a monopoly and thought dropping prices would increase sales by a bigger factor i'm sure they'd do that as opposed to pushing up prices and risking losing more and more customers and at the same time making the grounds more fertile for a competitor to re-enter the market who would now have the option of competing on price. As this is an entertainment market, customers still have a choice to just not buy any books, unlike a monopoly on some essential product (gas, electric, water...)

One other thing that might occur though rather than a price drop (or in addition to) could be the squeezing of author percentages.

Agency pricing may have been put in place to stop amazon getting a monopoly but combined with drm i believe it's going to have the reverse effect. They need to get rid of one or the other imo. In fact, they really need to get rid of both, since dropping drm will have little impact for customers if the book is still the same price from amazon and their eco system is better. Dropping price but not drm would like wise not impact amazon customers too much either since they've already bought and been locked into amazon's eco system and amazon would be able to match most price drops with their own sales.

I guess in short, publishers are screwed :P

[GreenMonkey]

Originally Posted by carld

I'm not convinced that the general ebook reading public cares that much about DRM. I think they care far more about ebook prices. Agency pricing is really where the Big 6 are setting themselves up for a serious throat cutting.

They won't care until it bites them in the ass. Why do you think it took so long for people to turn against Apple itunes DRM? It takes a while before people start getting burned and get cranky about it.

Over time, you'll have more people wish to move from the Kindle store to something else (or from the itunes store to Kindle, or whatever) and they won't be very keen on re-buying books.

I hadn't thought of DRM being bad for the publishers in this way, but it makes sense. Amazon wants a piece of the publishers' pies.

[Andrew H.]

Originally Posted by GreenMonkey

Amazon wants a piece of the publishers' pies.

But so do consumers. And authors.

In fact, it's basically bellum omnium contra omnes.

Publishers want to make money, so they squeeze authors, retailers, and consumers. Authors want to make money, so they squeeze publishers and consumers (they tend to lack direct contact with retailers). Retailers want to make money, so they squeeze publishers and consumers (again, little direct contact with authors). Consumers want to save money, so they squeeze authors, publishers, and retailers.

Publishers are often unhappy with Amazon, because Amazon squeezes publishers harder than they squeeze consumers. So the publishers instituted the agency model, which compelled Amazon and other retailers to squeeze consumers harder. Consumers tend to like Amazon because they tend to squeeze suppliers harder than consumers.

[fjtorres]

Originally Posted by JoeD

If amazon had a monopoly and thought dropping prices would increase sales by a bigger factor i'm sure they'd do that as opposed to pushing up prices and risking losing more and more customers and at the same time making the grounds more fertile for a competitor to re-enter the market who would now have the option of competing on price. As this is an entertainment market, customers still have a choice to just not buy any books, unlike a monopoly on some essential product (gas, electric, water...)

One other thing that might occur though rather than a price drop (or in addition to) could be the squeezing of author percentages.

Agency pricing may have been put in place to stop amazon getting a monopoly but combined with drm i believe it's going to have the reverse effect. They need to get rid of one or the other imo. In fact, they really need to get rid of both, since dropping drm will have little impact for customers if the book is still the same price from amazon and their eco system is better. Dropping price but not drm would like wise not impact amazon customers too much either since they've already bought and been locked into amazon's eco system and amazon would be able to match most price drops with their own sales.

I guess in short, publishers are screwed :P

There is one other complicating factor: in a competitive-pricing environment, Amazon will *always* be cheaper than competitor retailers. That was the thinking behind the Agency Model Price Fix scheme. (Which, yes, helps Amazon way more than it hurts them.) Even without factoring in Amazon's (theoretical) ability to live off profits from other revenue streams, Amazon's Kindle store is more efficient than any (non-Apple) competitor can muster: their data center is self-funding, for starters, and they don't pay the so-called Adobe Tax on ebooks *or* hardware. And, since the rest of Amazon's online empire is also self-funding, Amazon doesn't need to divert ebook revenue to subsidize other parts of the business (like fading B&M storefronts; a concern Kobo is newy-freed from), and thus Amazon ebook margins can always be leaner than a competitors. Oh, and then there is the "small" matter of economies of scale.

Not really sure *all* publishers are screwed, though.
Yes, their *traditional* business model is under extreme stress. They need to evolve it ASAP before it drags them all down.
Their biggest problem is that the longer they wait to change their ways, the harder it'll be to adopt the most effective solution: disintermediate Amazon themselves. In other words: get into ebook retailing themselves.
Harlequin does it to good effect. If Amazon ever got too pushy, Harlequin has enough brand identity that they could easily do without Amazon and survive. For *them* cutting Amazon out of the loop is always an option and Amazon knows it.

Why is Amazon getting into publishing and hardware and everything in between? Because they know that the only indispensable elements in reading are authors and readers; everybody else has to sing for their supper. So they are looking to make themselves more useful, more important, to both authors and readers, than the traditional publishers.

eBooks are truly disrupting the entire industry. The old balance of power based on publisher's gatekeeping is just about dead. (Just ask Ray bradbury.)
And it truly is every player against all others.
At least until a new balance of power emerges.

[JoeD]

Yes, agency was supposed to (at least it feels that way, I don't know for sure) counter amazons dominant position and prevent them using it to force others out of the market with lower prices. Publishers likely feared if that occurred, consumers would grow used to the lower prices.

Sadly, combined with DRM it's actually aiding amazon, but even without DRM amazon will continue to grow since other companies cannot compete on price and currently don't have the same eco system that amazon does. Apple perhaps been an exception.

Not really sure *all* publishers are screwed, though.
Yes, their *traditional* business model is under extreme stress. They need to evolve it ASAP before it drags them all down.
Their biggest problem is that the longer they wait to change their ways, the harder it'll be to adopt the most effective solution: disintermediate Amazon themselves. In other words: get into ebook retailing themselves.

I agree. My "screwed" comment was more in relation to traditional publishers failing to adapt, they risk their business shrinking heavily or been replaced entirely by newcomers who will step in to fill their shoes with different business models that can still provide the services many authors want/need.

I'm not sure Amazon will fully take on the role that traditional publishers fulfil. But they can replace them for many authors that are happy to cover those aspects themselves and self publish with Amazon. What remains to be seen is whether publishers will adapt before Amazon or a new entrant does decide to take on that role. It would likely be terrible if amazon did fill that roll though (e.g. with advances to noted authors), as the result would probably be exclusives for at least a limited amount of time.

[fjtorres]

Originally Posted by JoeD

I'm not sure Amazon will fully take on the role that traditional publishers fulfil. But they can replace them for many authors that are happy to cover those aspects themselves and self publish with Amazon. What remains to be seen is whether publishers will adapt before Amazon or a new entrant does decide to take on that role. It would likely be terrible if amazon did fill that roll though (e.g. with advances to noted authors), as the result would probably be exclusives for at least a limited amount of time.

The biggest challenge that Amazon poses to *all* publishers, not just the BPHs, is in royalties. And that is one development that cannot be rolled back.

In turning the Agency Model's 70-30 pricing into a weapon against its originators, Amazon has exposed forever just how little *authors* have lately been getting as a return from traditional publishers.
That is one djinn that ain't going back into the bottle.

The royalty fights are just starting.
Just wait until the "big name" authors' contracts come due for renewal. If ebooks' share of the narrative text market grows any higher, 50% royalties are going to be the baseline for most negotiations, with the implied threat to take the ebooks to Amazon (for 70%) the open fallback position.

This will, of course, bring in Hollywood-style creative accounting and preemptive auditing and...

Its kinda like quicksand: the more the traditional publishers thrash about, trying to protect their high-overhead model, the quicker and deeper they're likely to sink.

I tend to believe that fear and loathing of Amazon ignores the fact that what Amazon does, as a *publisher*, can and will be done by others. And *is* being done by others, and not just B&N and Kobo, but the likes of Open Road, Carina, Mysterious Press, and plenty others to follow.

Some, like Carina, will be appendages of the traditional publishers operating under the new rules of publishing as a service to authors, others will come from the ranks of the literary agents or retailers, and some will be like Pottermore, true partnerships between author and publisher. (Rowling is hardly the only author that is a brand unto herself; I find it innevitable that hyper-prolific authors like Patterson, Roberts, and King will be following in her footsteps in setting themselves up as online ebook destinations/retailers.)

And that, is the real danger to traditional publishing; the loss of the cash cow "bestseller" catalogs they have built their entire business around.

Amazon is rocking the boat, but it is the defecting authors that can sink it. Focusing on Amazon simply highlights the inefficiencies of the current model and just how much better established authors can do without them. Rowling has been either gracious enough or conservative enough to work with her pbook publishers on Pottermore giving them at least a piece of that particular pie, but it should not be lost on anybody that it was done by *her* choice.
That, folks, is as much the future of publishing as what Amazon is doing.

[TheLongshot]

After doing a lot of thinking about it, I don't know I agree with Stross that DRM hurts publishers, rather than help retailers like Amazon. I don't think it helps publishers any, since those who are break DRM are going to. We all know how ineffective it is for those with the knowhow.

There is an interesting article linked in the comments that claim that the biggest beneficiary of the Agency model was Barnes & Noble, who didn't have to worry about going on a price war with e-books with Amazon, since the publishers set the price.