The Future of Competition in Publishing: Be Very Afraid
Friday, July 04 2014 @ 04:12 PM CDT
Contributed by: Andy Updegrove
If you were to count up all of the earnest articles, blog entries, and even Colbert Report routines that have been dedicated to the Amazon vs. Hatchette dispute, well, you wouldn't have an accurate number, because more would have been written while you were counting. Curiously enough, almost 100% of them miss the point of greatest concern to authors. The real issue isn't whether the on-line retailer or the publishers win the current battle, but whether there will be any real competition in the marketplace in the future regardless of who wins. Right now, it's very hard for me to see how there can be. Here's why.
Authors today have only one real and one theoretical way to get their books in front of potential buyers. The real one (because it's available to anyone) is to self-publish, and the theoretical one (because first-time authors have at best a one in a thousand shot at success) is to somehow secure a contract with a traditional publisher of any size.
Despite those odds, the existence of traditional publishers still matters, however. That's because no matter how inept and unable to adapt they may have shown themselves to be in the face of Amazon, they still act as a brake on how much Amazon can cut prices. True, Amazon has been willing in the past to sell books below cost, but Wall Street has been losing patience with such practices, and the retailer has been under increasing pressure to start showing profits. You don't have to go too far out on a limb to conclude that this is why Amazon is putting the screws to Hatchette right now, or that it plans to do the same with each of the other publishers as its contract comes up for renewal.
That brings us back to the contract negotiation, and what the likely consequences of the outcome, one way or the other, is likely to be.
If Hatchette and the other big publishers are successful in holding off Amazon, then it's pretty safe to assume that not much will change with the way they do business. But if Amazon wins, the traditional publishers will be under severe financial pressure. Given the fact that they have steadfastly refused to innovate or change thus far, it seems more likely to assume that they will react by dramatically cutting overhead than by exercising creativity.
And they're certainly not going to react by raising royalties for authors, so the already increasing movement of published authors to self-publishing can only accelerate.
If cost-cutting fails to maintain the profit margins of the publishers, one would expect that the conglomerates that own them will either sell them, or, if they aren't happy with the price they can get, spin them off as independent public companies, distributing the stock to their current shareholders as a dividend. This isn't speculative; it's how corporations work. Just last month Time-Warner announced that this is what it would do with its magazine business. Next year, Time, Inc., the former crown jewel of the conglomerate, will become an independent public company instead of a drag on Time-Warner's earnings. A list of sales of insufficiently profitable subsidiaries and divisions would run into the tens of thousands.
Should authors care which outcome occurs? The answer depends on whether you're looking at the near or the long term.
The short term answer looks like this: if the publishers win, then Amazon will have an incentive to continue to innovate, making it easier and more profitable for authors to sell directly to Amazon. This will maintain incentives for more published authors to move to self-publishing.
On the other hand, if Amazon wins, publishers will be under further price pressure, and will presumably provide fewer, and not more, services to authors. As more and more authors shift to Amazon, and as more and more publishers go out of business or downsize or become even more selective in who they take on, Amazon's control of the terms under which authors are paid will dramatically increase.
So in the short term, the answer is yes - it matters. But how about in the long term?
That, I submit, is a different story. The reason is that no matter who wins, the degree of competition in the marketplace is going to continue to decrease. The only question is how quickly the traditional publishers continue to lose authors, because it appears increasingly true that they simply aren't offering a superior alternative to self-publishing. Either way, whether it takes two years or five, it seems certain that Amazon will end up with monopoly power, if only because the traditional publishers seem to be so incapable of taking any action to prevent it.
Once Amazon owns, say, 75% of book sales - or only eBook sales - or even just eBook fiction sales (if indeed it does not have this last percentage already) - it will have exactly zero incentive to maintain royalties at a higher level than traditional publishers, or to offer any new services.
And why should they, if they will receive the same amount of revenue either way? Every dollar spent on behalf of, or paid to, an author decreases Amazon's own profits. Always remember that first and foremost, Amazon's business model, like Wal-Mart's, is based on providing the lowest price possible to the customer. If you'd like to see what happens to product innovation when a company successfully acquires a monopoly, you might want to give a read to this: Why Johnny Can't Format (a book).
So where does that leave authors?
In trouble, and if you want to see what trouble looks like, take a look at the music industry, where indie musicians make pennies when their songs are played tens of thousands of times on the streaming services that are now dramatically cutting into download sales as well as CD sales.
What authors really need is more competition in the marketplace, and it's difficult to see where that will come from if Amazon ultimately succeeds in gaining effective control of prices.
So the moral of the story is this: it doesn't matter whether Hatchette is "good" and Amazon is "bad" or the other way around. And looking into the future, it doesn't matter whether Amazon has been "good" to authors in the past. What matters is to be clear-eyed in understanding what the future holds.
Amazon is a business, and it will act in exactly the same way that every other public company always has, and always will. If it can gain a monopoly through legal means, it will. And when it has succeeded in grasping that rarest of holy grails, it will take advantage of its monopoly power in every legal means available to it. That most assuredly will include lowering author royalties to the lowest price it can while maintaining the flow of new content.
Given the fact that authors always have, and doubtless always will, continue to write no matter how unlikely the prospect of financial success, you can decide how low those royalties will go. If you want my opinion, it will be lower than traditional publishers are paying now.
Can you come with a reason why I'm likely to be wrong? If so, I'd love to hear it.
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