Charles Stross Weighs in on Amazon-Hachette

charles-stross2[1]As the Amazon Hachette contract dispute enters its Nth round this week Charles Stross weighed in and he is perturbed. Mr Stross is published by Orbit Books (a Hachette imprint) so naturally he is a tad biased in how he views the current situation. Nevertheless, I think he missed a few important details.

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.

Mr Stross neglects to point out that Amazon's future plans also include outsourcing their anti-piracy efforts to the NSA. Amazon will weaponize their delivery drones and pursue a permanent solution to the piracy issue.

Amazon also plans to outsource their author management division to the CIA. All authors who sell through Amazon will be shipped to Guantanamo Bay, where they can be kept in a controlled and productive environment (you should see the specs for the electro-shock collars) and receive regular beatings so they know their place.

Seriously, does anyone know when Mr Stross stopped writing fiction in his books and started writing it on his blog? I ask because the dystopia he describes is not just implausible; it is impractical.

Mr Stross glosses over a number of points, including that if Amazon had a monopoly or monpsony, they would likely be sued by the DOJ. He has also mistakenly implied that Amazon uses DRM for its own means, when in fact it is optional on ebooks and in fact it is the publishers who require the DRM.

I would also suggest that you consider the possibility that the current ebook platforms are Android, iOS, and everything else - and not Kindle, iBooks, etc as Stross assumes.

It is far too easy for readers to install a second and third reading app on their device, thus circumventing the Kindle lock in. There are hundreds of millions of tablets and smartphones out there that aren't locked in to Amazon, and I think the value of these devices as a pool of potential customers is underrated.

And finally, Mr Stross neglects to take his dystopia a step further and consider what would likely happen after Amazon achieves a monopoly. Pando Daily played out the scenario a couple months back:

As an example, imagine a Bezosian fantasy in which Amazon did in fact manage to close down every bookshop around the world and drive out of business every competing online retailer. Jeff Bezos honks with glee as his plans come to fruition and starts to demand vast margins from the publishers simply because he can. Is there any shortage of capital for someone to try and enter that business? No method by which someone could lash together a website and hire UPS to do the deliveries? Imagine that Amazon starts trying to charge 70 percent margins on books: Seriously, how long do you think it would be before there are a half a dozen people clutching VC checks with the aim of gnawing on some of that monopoly profit?

Because people can still enter the business, Bezos cannot exploit that monopoly that he’s created. He’s got to continue to act as if there will be competition to ensure there isn’t any. That is, you can’t exploit a contestable monopoly.

Hat tip to Chris Meadows for writing about this very topic back in March.

In short, that last stage of forming a monopoly, exploiting market control for financial gain, is probably outside of Amazon's reach.

But Nate, what about audiobooks? Amazon is already behaving monopolistically in that market; they lowered royalty rates several months ago.

This is true, but Amazon doesn't have a monopoly in audiobooks. Sure, Audible is the leading retailer of digital audiobooks, but as a reader reminded me only last week physical audiobooks are nearly as big of a niche in the US as downloadable audiobooks (or so says the AAP). Also, Amazon still has competitors in the digital audiobook market, including Random House Audio, Audiobooks.com, and Downpour.com.
You don't have to deal with Amazon/Audible (and I don't, thanks to their DRM issues).

Really, it comes down to a situation as simple as that. If you don't like how Amazon is doing business, don't deal with them. Shop elsewhere and sell your content elsewhere.

Yes, that will likely hit you in the pocketbook, and that actually brings me to another way in which Mr Stross is wrong.

If Amazon were really successful in its economic exploitation, they would engender a situation where creators would suffer no loss from avoiding Amazon entirely. You can be sure that Amazon is aware of this possibility, and that it will act as a check on Amazon's actions. They will never push their demands past the point at which creators see a greater benefit from saying no.

About Nate Hoffelder (11372 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader: "I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

21 Comments on Charles Stross Weighs in on Amazon-Hachette

  1. Just one more author to go on my do not buy list. There were a few of those this past week.

    • That’s a shame. He’s one of the more original voices in SF today, and a very sharp writer.

      • Yes, it is a shame and I know in the short term I’ll miss reading him but he’s not going to get any more dollars from me. I have moved on.

        Maybe you could forward your monopoly/monopsony PSA to him or even a link to this post.

        ETA: Thank you for your industry coverage. I don’t always agree with you but you always give me something to think about.

        • I’ve already had it out with Stross in a friendly discussion on Twitter. He then went and wrote this post, and included a number of points which I debunked (market share). I don’t think he is inclined to listen.

      • He’s a very good fiction writer, but it’s impossible to take his polemics on publishing seriously.

        Amazon’s DRM, which can be trivially disinfected, is the height of evil for locking you into a walled garden – you can only access your Amazon books on a hardware Kindle, iOS device, Android device, PC, Mac, Blackberry, or anything with a Web browser, after all.

        Apple’s DRM, the disinfection of which is significantly more complex, and which locks you into Apple hardware isn’t worth a mention.

        When Apple rose to a dominant position in the then-new tablet market by essentially creating it, this was because Steve Jobs was a brilliant technological innovator. When Amazon did the same thing in the then-new ebook market, it was because Jeff Bezos is a predatory monopolist.

        He points out, quite rightly, that comparing the total turnover of Lagardiere (the body of the corporate octopus of which Hachette is a tentacle) to that of Amazon is absurd, since Lagardiere has interests in everything from airplanes to TV stations. He then goes on to compare Hachette’s book sales to Amazon’s total turnover in products ranging from automotive parts to TV shows and concludes Hatchette is the oppressed underdog.

  2. “It is far too easy for readers to install a second and third reading app on their device, thus circumventing the Kindle lock in.”

    Except Amazon’s proprietary DRM prevents third party reading apps from legally accessing their content.

    “In short, that last stage of forming a monopoly, exploiting market control for financial gain, is probably outside of Amazon’s reach.”

    This doesn’t matter one lick. A monopoly is a monopoly according to US antitrust law. MacOS and Linux still existed in the 1990’s, but Microsoft still ran afoul of antitrust laws because of the way they were acting. Amazon is in the same boat.

    Using “someone might get into the market someday so we don’t have a monopoly” is the most idiotic defense I’ve ever heard, and if Amazon actually tried to use it the court system would laugh at them all the way to the jailhouse.

    • And of course readers can’t use the other apps to buy content elsewhere; that is simply impossible.

      • If Amazon is driving the prices of products to below sustainable prices (predatory pricing), yes, it becomes functionally impossible for competition.

        • Except Amazon isn’t actually engaging in predatory pricing, so your point is irrelevant.

          • flyingtoastr // 27 May, 2014 at 6:00 pm //

            Sure, except for setting their bots to continually set diaper prices to 30% lower than Diapers.com to force a sale of the company and Bezos admitting in an interview with Wired in 2010 that the $9.99 price point for ebooks was below costs…

            Amazon has shown every indication that they’re happy to use the exact same pricing tactics that Wal Mart did in the 80’s and 90’s.

  3. The link to the source article isn’t working but Google is.

    I’d like to see one of the authors question why their books were being released in the middle of a contract dispute. I bet they got JK’s approval that her book would be used as a pawn in the pissing contest. The rest of the authors probably weren’t told to wear a raincoat. Who picks the release date? It must be Amazon’s fault.

  4. He also leaves out the pesky facts that NO device owner is locked INTO Amazon/Nook/etc. It’s usually user laziness/convenience factor/1-click buying opps that keep a person locked “into” a device.

    If someone takes five minutes to do a little reading, they can figure out how to buy from ANY direct-sell publisher (like many indie publishers are, and even more and more self-pubbed authors), buy the format that works for their device, and transfer it to the device by whatever method works. And for those on tablets, as has been stated already, you can get the apps. I have an iPad, and I can read .pdf and .epub natively in their iBooks software (files purchased elsewhere that aren’t locked by DRM), or I can one-click on the ‘Zon’s site in Safari and read in the Kindle app. (I do have some older Nook books in that app.) Before Sony went belly-up in ebooks, they even had an app for that, if I remember correctly. I’ve never purchased Kobo books so I don’t know how their app is.

    The point being, people wrongly assume that if you buy a site-specific device that you are locked into buying from that vendor.

    Nope.

    • Well, that depends on your definition of “locked in.” The vast majority of people are too lazy to be bothered to find out how to do anything harder than click a link to buy and download. That’s why Baen found it worthwhile to cripple its own e-book store so it could get its books directly into Amazon Kindle. There were so many people who felt that Baen’s e-books weren’t available at all if they “weren’t on Kindle” that they were losing more money from not being there than they did from angry Webscription customers in the wake of the switch.

      • Precisely.
        That’s the reason why Microsoft got into hot water in the EU over the default web-browser. It’s very simple to install another one, but if Internet Explorer is presented as The Choice, the others are most of the time ignored.

  5. Bart Anderson // 27 May, 2014 at 2:11 pm // Reply

    Of course, Stross is right. What do you expect? Bezos is a brilliant, ruthless businessman, and of course he’ll go after a monopoly where Amazon would be able to control the market as much as it can, before getting flak from the government.

    It’s the logical thing to do.

    I think that both Stross and Nate misconstrue the reasons behind this move, however. It would not be just money. Bezos himself has more financial assets than a medium-sized country.

    I think the reason is that Bezos and the Amazon culture are hyper-competitive. Once they start playing the game, there is tremendous inertia to continue playing until they win.

    They don’t have to get 100% of the market to win, nor do they have to have an air-tight technological lock on distribution. 80 or 90% would be good enough, and they could claim that they weren’t really a monopoly.

    At some point, Amazon is going to have to turn real profits, if they want to keep their astronomical share price from crashing. Whether they will be able to get much profit from the book business is hard to say, but I think they will try their darndest by squeezing their partners.

    Personally, I don’t care too much about the economic aspect. The publishing business is not that big, and doesn’t affect that many people.

    What is of concern is that anyone who has market dominance in publishing can control the flow of ideas.

    The key clue is the purchase of the Washington Post by Bezos. Another brilliant move. It was very cheap, and is the most influential source of information for people involved in the US government.

    Exactly why Bezos wants this influence, I don’t know. He doesn’t seem to be particularly ideological.

    • It’s the profit margin. To outrun their competition when selling physical goods, they have to stick to very, very low profit margins.

      But with ebooks, they basically sell the same file over and over again. With very small file sizes, storage and transfer costs are practically non existent, making them almost 100% pure profit.

    • Oh my gosh, the influence of BOOKS in the flow of ideas is so horribly outdated as to be laughable. If Amazon collapsed the book publishing industry TOMORROW and no new books were ever written, do you REALLY think that would cripple the “idea” marketplace? Really?

      Have you heard of the internet?

      Books, for anything other than pleasure reading, are at BEST the third option for consuming information nowadays.

  6. “if Amazon had a monopoly or monpsony, they would likely be sued by the DOJ.”

    No, they wouldn’t. By and large, the US government no longer concerns itself with monopoly and monopsony issues beyond approval of large mergers. This is especially true in the online space, where it’s easy to argue that barriers to entry are laughably low, so almost anyone could start up a competitor if they wanted to. Also, there is no law against having a monopoly or monopsony; only in abusing that position.

    I don’t think that either DoJ or FTC has won a significant monopoly or monopsony lawsuit in many (25?) years. I don’t think they’ve ever even tried to bring one in the online space. The FTC did investigate Google relative to its control over what got installed on Android phones, especially in regard to search engines, but didn’t find sufficient cause to bring suit. The antitrust rules in modern-day US are pretty liberal.

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