One Thing Hachette Can Do

There isn't much Hachette can do in their protracted negotiations with Amazon. Simply put, Amazon doesn't need Hachette. Whatever loss in profits Amazon sees from lost Hachette sales is a tiny fraction of their overall corporation. For that matter, even if losing Hachette sales did meaningfully affect its profit margins, Amazon has been comfortable with unprofitably for its entire existence, especially when considering potential growth, so I don't see them miraculously changing that pattern. Really it's like negotiating with someone holding a shotgun who also believes he's bullet proof.

Customer retention? A smile and a blow gun, of course.

If I had to guess, Hachette is holding out until whichever publisher is next in the staggered negotiation begins their own contract dispute. Obviously, Amazon is going to offer them the same terms being offered to Hachette and obviously that publisher will reject them. (Unless Amazon plays some very long divide and conquer technique, giving every other publisher but Hachette acceptable terms, then slowly driving Hachette and Hachette alone into some from of non-existence, but that would be some three-level chess stuff and potentially illegal.) The hope would then be a slow moving, 100% collusion-free compromising of more and more of Amazon's book sales with the result that either, Amazon offers better terms or book buyers begin switching to other retailers in significant numbers.

But I think, in the interim, there is at least one action Hachette can take that might give them something in their next round of negotiations, that also inherently strengthens the diversity of the book economy. Remove DRM from their ebooks.

One of the less talked about reasons from Amazon's dominance of the ebook market is the fact that they produced the first satisfactory, widely available, publicized ereader. You could argue that Amazon actually created the contemporary ebook market. Much of their current dominance has less to do with selling ebooks at a loss as it does just maintaining the head start they got with the first Kindle. Maintaining that head start is partially about prices, but it's also about DRM.

I'm illegally downloading the main ideas into my brain.

DRM (Digital Rights Management) is what prevents people from (legally) changing the format of the ebooks they have bought. (And copying them as well, but if you want to pirate a book, DRM is not going to stop you.) One reason why Amazon does not use the .EPUB ebook file, which has become the industry standard, is to lock customers into their content eco-system. Owning a Kindle essentially forces you to shop with Amazon. But those locks only work when customers are unable to convert their ebooks from one file to another. For example, if a Kindle owner, for whatever reason, wanted to switch to a different e-reader it would be almost impossible for them to (legally) move the library of ebooks they purchased to the new device. Likewise, it would also be (legally) impossible for a Kindle owner to take advantage of a sale Kobo might be running.

But once the publisher removes DRM it gets much, much easier for customers to leave Amazon. There might be lots of Kindle owners frustrated or disgusted with any one of Amazon's transgressions, but unless they are so frustrated that they are willing to give up their existing Kindle library, there really isn't a way for them to express their disgust. (As a reader, I don't think I could ever ask someone to give up their library.) Nor is there a way for them to, for whatever reason, buy an ebook elsewhere (like their local independent bookstore) and read it on their Kindle. In short, innovation gave Amazon a head start and predator pricing gave them dominance, but DRM sustains them.

Removing DRM does two things for Hachette. First, it makes it easier for customers to shop elsewhere. Second, given that DRM is important to Amazon it gives Hachette something (anything) to bargain with. I doubt there will be enough market movement for this to have a major impact on negotiations but something is better than nothing and right now, Hachette has nothing.

Life is an empty publicity stunt.

Which leads us, as nearly everything around this conflict will ultimately do, back to the DOJ's successful suit against publishers. DRM removal will really only have a major impact on the ebooks market if ALL publishers do it. A few customers might go through the effort of finding a Hachette book from Porter Square Books that can be read on their Kindle, but most customers want the books they want. Unless I can tell them ALL the books they buy from the store can be read on the Kindle (with a little help from Calibre) there won't be nearly enough cross-platform purchasing to make an impact. But I don't think any publishers have the stomach to risk another round of allegation, even though it doesn't take a backroom meeting somewhere in Manhattan to realize the value of ditching DRM. Even if they just made the change whenever their negotiations started, when seen from a certain perspective any action taken in common (except further consolidation, of course) will be seen as “co-ordination” or “collusion.” You know, like how early humans colluded over the spread of fire and agriculture. One of the many, many ironies of the DOJ case is that so many of traditional publishing's detractors vaguely argue for it's need to “evolve,” and “move into the future,” but fear of further litigation has essentially removed natural selection from traditional publishing; a good idea (still sticking with removing DRM) will have a much harder time driving innovation and evolution of publishing because the DOJ determined that “adopting best practices” is collusion.

At the very least, removing DRM would be a meaningful gesture (as opposed to an empty publicity stunt) to readers. It will enable debate about how we administer the economy of ebooks and it will highlight how Amazon and others seek to capture customers rather than convince them. And, it's doing something, anything, to demonstrate activity. Hachette right now, needs to be patient, but it will be a lot easier with at least one thing to do.

A Total Absence of Surprise: On Amazon & Hachette

How do you transfer market share to profit? The most direct way is to charge higher prices for whatever you sell in the regions where you dominate the market. But what if the way you gained that market share was not through the highest quality products and services at fair market prices, but by underselling all of your competition? What if your whole rasison d'etre is low prices? What if your entire public persona is based on the idea of “putting the customer first?”

For it's entire life, Amazon's business model has focused entirely around infinite growth of market share. Relentlessly, obsessively, ruthlessly, using low prices to gain retail market share, first in the book world (because the ISBN metadata of books is perfect for online databases) and then, in every aspect of the retail, and now, media world it can. It has been able to sustain itself on razor thin profit margins through the extra sales generated by blatant but technically legal tax avoidance, low pay and poor treatment of its warehouse workers, and Wall Street confidence in its ability to some day, some how, any-day-now-even-though-we've-been-waiting-for-fifteen-years, start turning a profit. (A compliant Department of Justice and a disturbingly sympathetic federal judge helped too.)

If money were infinite, there would be no poor people.

But now, the tax loophole that was a basic building block of Amazon's business model, is being closed, state by state, with the likelihood of federal tax fairness increasing by the year. In the UK, awareness is being raised and pressure is being put on Amazon over how much tax they DON'T pay, by technically basing their European division in Luxembourg. And people have noticed how awful Amazon treats its workers, including the workers suing Amazon over the lost break time in America, and organizing the hell out of shit in Germany. And Wall Street is finally starting to notice that Amazon isn't making any money. Not enough to do anything meaningful yet, but the Stock Market has the emotional stability of a 13-year-old, so the risk is always there that one day Amazon will wake up no longer allowed to sit with the cool kids.

Wait. That's what "communism" means?

No matter how efficient your business is, there is an overhead floor. There is a cost to doing business and even Amazon must pay it to keep doing business. So if they can't raise their prices how do they meet that floor? The same way Walmart does, by pressuring its vendors for more advantageous contracts. Hachette just happens to be, for whatever reason, the latest vendor to feel Amazon's pressure. To anyone following Amazon's progress to “Walmart of the Internet” this should not be a surprise. To anyone with a basic understanding of retail economics, this should not be a surprise. Really, anyone who takes a second to think about Amazon's discounts, shouldn't be surprised either. If there is anything surprising at all about this most recent conflict its that the public hasn't heard about more of them. This is the natural consequence of a business model based entirely on market share with unsustainably low prices. The result is like milfoil in a pond; Amazon is sucking the money publishing needs to survive out of publishing.

Sorry, today is my day off from crippling cynicism.

But that money goes to the consumer right? And if it's good for the customer, it's good for the economy, right? You'll spend the money you save through cheap books on Amazon, elsewhere, right? When Amazon pays its vendors less, everyone downstream makes less. (Have you heard about the shrinking author advance?) When Amazon pays its employees less, every economy impacted by those employees has less wealth. Though you personally might economically benefit from Amazon's low prices in the short term, and might reinvest those savings in other aspects of your local economy, that money came from somewhere. At best, Amazon's (and Walmart's) cheap prices are a zero sum gain for the economy, but more realistically, they starve states and municipalities of tax dollars, pull money out of the economy into Bezos' space alien death laser compound, and deprive a primary, fundamental, vital mechanism of human expression the resources needed to publicize and distribute that human expression.

Unless something changes, Hachette will not be the last publisher stressed by Amazon. Even if Hachette “wins” this particular conflict, Amazon will just pressure some other publisher when that contract comes up. How would something change? Ideally, Amazon would start acting like it is a member of society, but I don't see that happening any time soon. Even less likely, is the use of existing federal anti-trust regulation to stop Amazon's predatory pricing. So, again, it comes down to readers thinking in the slightly-longer-than-short-term and shopping elsewhere, at least some of the time. Now seems like a pretty good opportunity to start. If Amazon is telling you there is a three-week wait time on a popular book, go to IndieBound and buy it from an independent bookstore. You'll get the book faster, you'll buy it from a company that acts like its a member of human society, and you'll help support the publishing industry as a whole. Of course, the whole success of this strategy is based on readers thinking through the consequences of their actions more than one step removed. Readers are still people, and if our attitude towards human driven climate change is any indication, even just one step removed is apparently too much to ask.