Amazon: malignant monopoly, or just plain evil?

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[The corporatocracy complains that government interferes with non-existent free markets. In fact, government should exist to protect the public interest against a profoundly undemocratic autocracy of greed. From 3 years ago, and considered by the writer to be an update of what he wrote 5 years ago. For the current context, see this Atlantic piece from Friday: When Does Amazon Become a Monopoly? *RON*]

Charlie Stross, Charlie's Diary, 26 May 2014

(I've written before on this blog, notably in 2012, about how to understand Amazon's business strategy. Consider this an update.)

Last week, Amazon.com began removing the pre-order links from titles by the publishing group Hachette. This is a cruel and unpleasant action, from an author's point of view; if you're a new author with a title about to come out, it utterly fucks your first-week sales and probably dooms your career from the outset. And if you're someone like me, with a title about to come out, it frustrates and irritates your readers and also damages your sales profile and screws your print run (because if Amazon don't order your books in advance in dead-tree form they don't get printed, and if they aren't printed and in the warehouse they can't be sold elsewhere). Make no mistake: Hachette may be hurting, the the people who take the brunt of this strategy are the authors.

(Disclaimer: I am published by Orbit, a Hachette imprint, in the UK. Amazon is not currently removing the pre-order option from titles sold through amazon.co.uk. My Orbit books in the UK are published by Ace, part of Penguin group, in the USA. And I've got another series published (on both sides of the pond) by Tor. However, Amazon have played this nasty trick on Tor, Ace, and Hachette at different times: I've been caught up in it more than twice, and if they extend this strategy to amazon.co.uk again, my UK readers are going to be unable to buy "The Rhesus Chart" from Amazon.)

Forbes mostly calls it right, at least at the corporate level, and until the end of this paragraph, where their 'free-market' knee-jerk kicks in and they bottle it:
What we're really seeing is a battle between the people who make the product and the people who distribute it as to who should be getting the economic surplus that the consumer is willing to hand over. Like all such fights it's both brutal and petty. Amazon is apparently delaying shipment of Hachette produced books, insisting that some upcoming ones won't be available and so on. Hachette is complaining very loudly about what Amazon is doing, entirely naturally. The bigger question is what should we do, if anything, about it? To which the answer is almost certainly let them fight it out and see who wins.Planet earth calling: Hachette is the publishing arm of a gigantic multinational group, Lagardère, which boasts an annual turnover of €7.37Bn. However, as Lagardère's components include a hefty chunk of EADS (part-owners of Airbus) plus TV channels, duty-free shops, newsagents, sports clubs, and magazine publishing it shouldn't be much of a surprise to discover that Hachette turned over €2.1Bn in 2012. That same year, Amazon's sales topped $61Bn (or around €45-50Bn).
So, point one is that this is not a battle of equals: it's a big-ish corporation being picked on by a Goliath more than ten times its size, in an attempt to extort better terms.

But it's not that simple, either.

Forbes seem to think that Hachette is a producer and Amazon is a distributor. This isn't quite true. I am a producer. From my perspective, Hachette is a value-added wholesale distributor: they supply editorial, production, packaging, marketing, accounting, and sales services and pay me a percentage of the revenue. (I could do this myself, and self-publish, but I don't want to be a publisher, I want to be a writer: we have this thing called "the division of labour", and it suits me quite well to out-source that side of the job to specialists at Hachette, or Penguin, or Macmillan.) Amazon is not a value-added wholesale distributor: it is a retail distributor. They have a publishing subsidiary and allow me—if I want to self-publish—to use them as a sales channel, and will even pay quite well if I accept extremely onerous terms. But they don't do much else for me and in particular if I were to self-publish through Amazon I would be vulnerable to exactly the same pressure that Hachette is currently on the receiving end of, but with less recourse.

Amazon's strategy (as I noted in 2012) is to squat on the distribution channel, artificially subsidize the price of ebooks ("dumping" or predatory pricing) to get consumers hooked, rely on DRM on the walled garden of the Kindle store to lock consumers onto their platform, and then to use their monopsony buying power to grab the publishers' share of the profits. If you're a consumer, in the short term this is good news: it means you get cheap books. But if you're a reader, you probably like to read new books. By driving down the unit revenue, Amazon makes it really hard for publishers—who are a proxy for authors—to turn a profit. Eventually they go out of business, leaving just Amazon as a monopoly distribution channel retailing the output of an atomized cloud of highly vulnerable self-employed piece-workers like myself. At which point the screws can be tightened indefinitely. And after a while, there will be no more Charlie Stross novels because I will be unable to earn a living and will have to go find a paying job.

TL:DR; Amazon's strategy against Hachette is that of a bullying combine the size of WalMart leaning on a much smaller supplier. And the smaller supplier in turn relies on really small suppliers like me. It's anti-author, and in the long term it will deprive you of the books you want to read.

Final note: some time in the 1980s the US Department of Justice's anti-trust lawyers changed their focus from preventing monopolies from forming to preventing companies from colluding to preserve their margins ("price fixing cartels"). As a result, Amazon very nearly gained a monopoly of ebook sales; they're still around the 85-90% mark in the UK, and peaked at over 80% in the USA. (The irony of the DoJ-Apple iBook store settlement is that the DoJ went after the market incomer with the higher prices and 10% market share, rather than the near-monopolist who was using predatory pricing to drive their competition out of business.) It's hard to argue against low prices, but consider this: texts are a cultural medium, and the production of new texts is not something amenable to automation or mass production. I can't go out and hire twenty people off the street and install them in a cubicle farm extruding Charlie Stross branded fiction product. (I can't even hire twenty SF novelists and train them to do that. Our product is bespoke and highly idiosyncratic.) It used to be the case that cultural activities like writing fiction benefited from some barriers against marketization, but a corollary of the global free trade regime we live in these days is that no field is exempt. The net book agreement was declared illegal decades ago: my product has to compete for your attention and money in the same market as the X Men movie franchise and Assassin's Creed games. Neither of which have a near-monopoly incumbent like Amazon squatting between them and their customer base, trying relentlessly to depress prices and force them out of business.

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