Publishing-industry consultant Mike Shatzkin has posted the letter he has sent the Department of Justice in regard to its proposed settlement with three of the five original Agency publishers. Shatzkin spends much of the letter establishing his credibility as a consultant, then points out the two fundamental problems he sees with the settlement.
First is the one that he mentioned in his column the other day—if publishers sell directly to the consumer, they can’t sell at full price without Amazon eating their lunch, and if they discount Amazon may insist its own prices should be based on the publishers’ discount price rather than its wholesale price. “Indeed, only by eliminating price as a basis of competition can we have any ultimately have balanced competition in the real world of publishing as digital change has remade it,” Shatzkin writes.
The second problem has to do with the requirement Amazon must make a profit across a publisher’s entire line of books. Shatzkin astutely points out that in order to verify compliance, the government would have to be able to extract the sort of specific sales data from Amazon that it has never before been willing to release to anyone. And if Amazon fell out of compliance, how would it be penalized, and to whom would it have to pay restitution?
I certainly can’t fault Shatzkin for arguing for the publishers—as he points out in the letter, he has been in the industry for fifty years, and his father before him. From the point of view of the publishers, his argument makes a lot of sense. Of course, I suspect that most consumers would be inclined to take a dim view of it. Let’s face it, consumers like getting stuff cheap, and most publishers have done a really poor job of getting the consumers on their side so far.
The publishers have the right to set their prices. Individually.
They still do.
What they never had was the right to conspire to raise consumer prices.
Everything else we hear from the publishers and their apologists is just a smokescreen trying to distract from that simple fact.
So stop selling via Amazon already. Give me a product at my price *via a channel that’s usable* t’d I really won’t care if it’s Amazon or not. If a publisher can’t do that without Amazon undercutting on price, then stop selling via Amazon. Part of the point of online sales is that the specific middleman doesn’t matter.
If your competitors have the same problem and apply the same solution, Amazon’s power is broken and you can cut a new deal on your own terms.
If you competitors find a different solution that works with Amazon in the mix, copy it.
Why is this so hard?
— C
“Only by eliminating competition can we foster competition.” Let’s not forget the ways the cartel’s price-fixing model reduced competition by forcing retailers to shut down things like loyalty programs, to say nothing of leaving a lot of the smaller ebookstores with no product to sell for six months, hmm?
Every single opinion piece I have ever seen that is written by a publishing insider is filled with endless rationalization for setting artificially high prices.
Never have a seen a single word about the need to use modern technology to provide a higher quality and lower priced product to consumers. Never have a seen a single word addressing the actual desires of the people who buy their products.
A bunch of self-serving parasites whose demise cannot come too quickly.
I’d just like to point out that there’s still time to get your own letter off to the DoJ, in which you can say exactly those kinds of things. 🙂
Addressing his first point, assuming the DOJ case has merit, and the publishers colluded to raise prices, that means THEY BROKE THE LAW.
And now we’re supposed to feel sorry for them and how Amazon is eating their lunch? If they broke the law, they need to feel some pain. If they didn’t and the case has no merit, then bully for them.
I’m appalled at all the people who seem to be telling me to feel sorry for people who (allegedly) broke the law. How about we hold the crying until the case is settled one way or the other? (I know, speaking to the choir on this forum, but thanks for letting me get up on my soapbox for a moment.)
By the way, I do completely agree with his second point. The record keeping is going to be brutal, and as written, it looks completely unenforceable.
The “just don’t sell on Amazon” argument is valid, on the surface. But in reality for a publisher it is a lose-lose proposition.
Say one publisher stops doing business with Amazon; that’s a significant loss of revenue, and likely increases sales for all other publishers, since the amount of book purchases that consumers make on Amazon likely remains constant.
On the other hand, say all the other publishers follow suit. What’s to stop the Department of Justice from taking action against them once again, arguing collusion and/or restraint of trade ?
Moreover, in setting a mandatory price which Amazon cannot reduce, the Big 6 publishers were not doing anything that Amazon doesn’t already do to its marketplace sellers. If you have a product you wish to sell on Amazon, their terms of agreement prohibit you from selling the same product anywhere else (for example, eBay, Barnes & Noble’s marketplace, your own web site) at a price lower than that which you list it at Amazon.
I have been reading Shatzkin’s thoughts for about a year or two. Now and again he writes something thought provoking and worthwhile. But on the whole it seems to be mostly insider industry navel gazing, and I find his delusions about commerce and business outweigh any ‘experience’ and expertise he carries.
“. . . only by eliminating price as a basis of competition can we have any ultimately have balanced competition in the real world of publishing as digital change has remade it.”
The principles of the free market have proven themselves a million times over throughout the last century across every corner of the world. The evils and damage of collusion, conspiracy and fraud among suppliers have been similarly proven in the awful affect they have on the people and society.
Arguing for price fixing is to conjure up a fantasy world more irrational than Alice in Wonderland. The weight of history and of the history of commerce is a colossal hammer that smashes all such attempts to smithereens.
Shatztkin’s letter is not even a well written one or a well argued one. He rambles on about ‘imbalance’, yet the only imbalance he manages to demonstrate is the superior business model and acumen of Amazon and the persistent incompetence of the publishers.
“With Amazon as their single biggest wholesale customer, that puts publishers in a Catch-22. If they sell direct at full price, Amazon will undercut them and make them look foolish to their customers. But if publishers discount, they invite a double-whammy. Amazon can still out-discount them, but Amazon (and other retailers) might also insist that the wholesale prices at which Amazon purchases from publishers, which are based on discounts-from-retail, be based on the price the publisher is actually selling for.”
He he exposes the vacuousness of his argument. Basically he sets out to the DoJ that if Publishers chose to sell through Amazon, then Amazon can do a better job of it than they can because they want to sell at an inflated price and Amazon don’t have to. This despite the fact that they actually haven’t bothered to try. It is embarrassingly ironic that Shatzkin studiously avoids the elephant in the room, which is the clear and evident choice that the Publishers have of not selling through Amazon at all. He doesn’t want it discussed because he doesn’t want it recognised as a choice, because the truth is that the publishers make too much money by selling through Amazon and would lose their socks if they stopped. It is really very amusing to follow his argumentary gymnastics, as one might call it.
The core truth in this sorry saga is this:
A motley collection of Legacy publishers produce a range of products that they want to sell to the public. They used to have a monopoly on the market, because retailers were so small and powerless that the Legacy Publishers could put them out of business overnight if they refused to play the Legacy Publisher’s game, which was to set high prices to the public and to make huge profits for them and easy cozy profits for the small retailers. Everyone was happy … except of course the suckers in the game … the public.
Now there is a super sized retailer that is very very good at selling these products to the public, but there is a problem – they won’t play the Legacy publisher’s game and insist on selling at low prices because that is what the public want and the public buy mega tons of products that way.
The Legacy Publishers are now in a bind. They can cut off this new super retailer the way they would have the other retailers. It’s easy for them to do so. But the problem is they earn so much from this super retailer that they would be cutting off their nose to spite their face. And they know it.
They could stop supplying the nasty super retailer, and open their own stores and sell directly to the public. But they can’t seem to get out of bed in the morning to actually do that. It’s all too much trouble and effort … and well, they have other things to do, like hold seminars and conventions and more seminars and more conventions, and long lunches, and wine tasting brunches.
So they whine to Mommy, with crocodile tears, and scream “It’s not fair Mommy ! We want to sell at high prices; prices that WE want to pick so that we have nice clothes and big houses and fast cars and big leather offices !” And Mommy says “Well don’t give them your products any more …” And they say ” Ehhhhh cough cough, but Mommy then we wouldn’t have our nice cars and houses and offices ….” And Mommy says “Well children … the choices are yours to make. And by the way .. dinner’s ready !! “
Lost in all the price-fixing debate is that (high) fixed prices favor the large, high-efficiency retailers like Amazon because their lower overhead means higher profits. Unlike the conspiring publishers, these retailers aren’t going to pocket the money or spend it on glasshouse tower Headquarters in Manhattan; they are going to invest it in growing the business.
They might even use it to acquire exclusive content, set up their own publishing arms, buy related businesses, forge international partnerships. (And they have.)
The end result is even bigger advantages over their retail competitors and further concentration of retail power. (Witness the decline into near irrelevance of all the smaller independent ebookstores and reader vendors. The most noticeable result of the Price Fix conspiracy in the use is the near total domination of the walled garden reader devices, the marginalization of Adobe ADEPT devices and ebookstores, and the foreclosure of the market to hardware-only reader vendors.)
The fundamental flaw of the price fix schemes is they assume the target of their schemes is run by passive idiots that will just sit there doing nothing.
Competitors compete, one way or another.
Block one road, they’ll find another.
Or worse, they’ll *build* a freeway around the blockage.
All the fuss over fixed pricing is a waste of effort on a tactic that is never going to work anyway.
Felix, while I agree with almost all of your points, it’s the one I don’t agree with that tempts me to comment 🙂 such is life … LOL
“Lost in all the price-fixing debate is that (high) fixed prices favor the large, high-efficiency retailers like Amazon because their lower overhead means higher profits. ”
Not necessarily …… Amazon knows that lower prices means selling more, and ultimately generating more profit. In a way you were tempted into the opposition camp there because it is they who don’t grasp the whole dynamic of how prices drive sales. They themselves have this brain-dead attitude that higher prices means higher earnings and higher profits. The Amazons of this world know that this is simply not the case.
Howard: I think what Felix was trying to show that while the publishers thought that having higher prices would be an effective counter to Amazon’s dominance, it ended up allowing Amazon to earn greater profits. Amazon then used these higher earnings to expand their businesses and further disrupting the traditional publishing model. Sure Amazon knows that lower prices can drive greater sales, and has used that effectively in the past, but they since they were forced to have higher prices due to the agency model, they took advantage of that.
@Howard: Conversations come from the differences, otherwise we just nod in unison. 🙂
My point is that, all else being equal, in a price-fixed retail environment, the more efficient retailer will *net* more from their sales that they can then use to make their business more attractive.
Sure, low prices drive sales–but it’s not the *only* driver. And in the absence of price competition, it is the other things that will drive sales. And in such an environment, the more efficient retailer gets to “keep” more of the revenue–their costs per unit are lower–and thus can invest more in attracting consumers.
Going to the specific: Amazon’s industry leadership is not due solely to their low prices as their enemies would like to pretend. They are more efficient across the board, have lower costs, bigger catalogs, deliver faster, offer better customer service.
These are all areas where the large, high efficiency retailer can steamroller the “cute and cuddly” small storefront. And if the smaller player loses the ability to discount, to bundle and cross-promote, to run loyalty programs…
Of all the ways to “help” small players, price-fixing is the absolute worst because it institutionalizes their scale and logistics disadvantages *and* gives the big guys even more resources to run them into the ground with.
If low-prices were Amazon’s only competitive tool, price-fixing should’ve killed them.
It didn’t because it isn’t.
Instead, it crippled everybody not named Barnes and Noble.
(And even they didn’t get much help. They were on their last gasps before MS came into the picture.)
Felix – you are absolutely right in what you say.
“And in the absence of price competition, it is the other things that will drive sales. And in such an environment, the more efficient retailer gets to “keep” more of the revenue–their costs per unit are lower–and thus can invest more in attracting consumers.”
Which is the added irony of Shatzkin’s misguided letter, I guess.
Exactly.
The traditionalists in the industry are so focused on the elephant’s trunk they are blind to the rest of the creature.
If we look at Amazon’s US market position pre- and post-conspiracy we see that it is way stronger; Kindles are selling for half price or less, their ebook catalogs are bigger, the KDP catalog alone is bigger than the combined ebook catalog of several entire nations, and self-publishing has been legitimized.
More, by focusing solely on retail pricing and ignoring authors’ interests (the conspirators *knew* their authors would be selling less books and making less per book but went ahead anyway) they reduced their value-add to new authors. The debate has moved from book pricing to book *contracts* and people are shining light in some very dark places.
The result?
An entire cohort of *new* writers is entering the business in partnership with Amazon and the New Publishing houses instead of the traditionalists.
There is a generation gap taking shape among authors with the newer authors no longer willing to sell 100+ years of copyright of their works at take it or leave it terms. The new writers *know* they don’t have to take the traditional terms.
This gap was going to emerge anyway, but the conspiracy and its aftermath are accelerating and institutionalizing the divide.
We are now in pure Murphy’s Law territory and the Law of Unintended consequences is having free reign. Tradional publishing has stepped into a pool of quicksand and the more they struggle, the faster they’ll sink.
The good news (for authors and consumers) is that a shift that might have otherwise been phased in over 10-20 years is now accelerated and will likely take hold in 5-10.
The conspiracy was a bad idea; defending it tooth and nail is even worse.
Time to cut the losses and look at the full elephant and the forest around it.