It looks like Hachette's PR department has stepped up a gear. This subject has been covered several times before and I think this comment [1] did a good job of explaining Hachette and Amazon's positions. To summarise:
When Hachette's contract with Amazon expired, Amazon (rightfully) stopped ordering advance inventory for stocking, but continued taking orders for available titles and transmitted those orders to Hachette as they arrived. From there, it's Hachette's responsibility to deliver the orders to an Amazon distribution center. Once the books arrive, Amazon packs & ships them to purchasing customers as normal.
That's why, when Hachette's contract expired, all of their books were listed as "Out of stock: ships in 1 to 6 weeks" - that's how long it takes Hachette to deliver stock. That's slow as hell.
Amazon didn't "boycott" or "drop" or "betray" authors or "discourage" readers from buying their books - it ceased offering retail inventory management services to a supplier whose contract had expired, and made a rational and defensible business decision when it became clear that the supplier was not negotiating in good faith to establish a new agreement.
Krugman's point is summed up in another quote from the comment you linked to: "Hachette failed to come to mutually agreeable terms with [Amazon]. That's their most important job as a publisher, and they blew it, to the tune of permanently costing their authors 50-60%+ of sales they'll never recover."
When one buyer represents 50-60% of sales, the "most important job" of any seller is to come to "mutually agreeable terms" with that buyer. Is Amazon's "most important job" to come to terms with Hachette? Not even close. One party to the negotiation can walk away; the other cannot. So "mutually agreeable terms" is kind of a hilarious phrase meaning, "we will state the terms, and then you will agree to them. That is now your most important job."
And Hachette is the largest publisher, with something like 16% market share (2010 numbers). That's why this negotiation is even happening.
When Amazon talks to smaller publishers, this isn't even an issue. They are your boss; they tell you what to do; you do it. Except they're a little different from a normal boss, because they absolutely do not care about you; it is actively in their interest to see your business fail. People who survive in Amazon's buying department have to be OK with that -- the in-house name for Amazon's Small Publishers Negotiation Program was the "Gazelle Project," before the lawyers made them change it.[1]
Support publishers, don't support publishers, whatever. If you think authors will be better off without publishers that's a separate conversation. But if there's any industry you do like, you should be very concerned about Amazon gaining market share in that industry.
I normally love Krugman, but it seems like he skipped a step here. Amazon is squeezing publishers to push prices down, which is bad becuase... why?
I mean, the apocalyptic end game here is that publishers are forced out of business entirely and Amazon ends up buying content directly from authors, I guess. That doesn't sound so bad to me, nor like something that's going to "hurt America". Maybe then they might squeeze authors too, though that seems like something publishers are already able to do today, no?
What's the critical function provided by publishing houses that Amazon is in danger of disrupting?
The textbook answer to why monopsony is unhealthy is monopsony suppresses investment in production. In this case, the risk is dissuading authors from writing by suppressing their earnings.
Imagine a simplified supply chain: authors distribute through Amazon to reach readers. Amazon exerting pricing pressure on authors benefits readers in the short term by reducing their reading costs. But by reducing authors' profits, Amazon dissuades new entry. Authors with skills elsewhere write less; the diversity and quality of new books suffers. Monopsony, when it reduces producer profits below equilibrium (e.g. what these authors would earn with many Amazons fighting for their business), dissuades investment in production.
Reality is complicated by the middleman, publishers. Now we have authors contracting with publishers to distribute through Amazon to reach readers. There are multiple publishers competing for authors, so for now the authors don't appear to be squeezed as much as the middleman. Authors' continued use of publishers hints at the value of their services, which may be nothing more than collective bargaining.
Removing legacy middlemen is healthy. Skewing producers' bargaining rights is not. Disentangling publishers' rents (the fraction of publishers' profits which come from them being, before Amazon, authors' only choice for distribution) from authors' costs of production (what good authors need to be paid to compensate them for the time, skill and risk which goes into writing) is difficult.
The main point isn't one action or another but, and Krugman says it clearly, that Amazon has too much power.
Modern democracies usually strive to prevent concentration of power in few hands, especially if those hands aren't elected. The market, however, does often favor concentration of power, and when that happens, democracies should protect themselves.
The US in particular has had a history of businesses gaining too much power and seriously hurting the public. This is Krugman's main point:
[Y]es, I have Amazon Prime and use it a lot. But again, so what? The desirability of new technology, or even Amazon’s effective use of that technology, is not the issue. After all, John D. Rockefeller and his associates were pretty good at the oil business, too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential... The robber baron era ended when we as a nation decided that some business tactics were out of line. And the question is whether we want to go back on that decision.
Personally I think that exploitative practices by big business are making a huge comeback, in Silicon Valley in particular (see Google with privacy, Uber with workers, the SV non-poaching cartel and more). It is interesting to compare and contrast this with the Gilded Age robber barons. It's certainly not the same, but the robber barons are coming back, albeit in a new form.
In many ways, publishing houses are to new authors what accelerators and VCs are to startups. They not only vet and fund them, they give guidance, access to contacts, and specialized help in areas like law and marketing. They pick riskier, less proven concepts, knowing that the hits will compensate for the busts.
Well-known authors don't need publishing houses as much, but most of them would rather spend their time writing than publishing, and they know that their sales make it possible to bring in new faces.
The standard monopsony effect is on quality. Monopsonies push the price below the cost of production, so producers cut production costs to an unreasonable level.
In the case of books, you'd see that by cuts in editing, by authors shortening the amount of time that they spend writing a book, and through authors dropping out and leaving the field to less talented writers with fewer alternative income sources.
The textbook monopsony is government health care. Most visibly, the long wait times for some health care services.
Once the publishing companies are gone it is millions of authors selling to Amazon, classic monopsony. The competitive solution is millions of authors selling direct to billions of consumers without a powerful intermediary.
Whether the current situation with extra ineffectual intermediaries is much better I am not sure, probably not.
Yeah; I agree. He would have a good argument except for the fact that the value of a single piece of content is declining across the board. That is fucking with a lot of established business models, specifically with the publishers.
The value of a music album has decreased significantly because anyone can create one in their bedroom with free software and under $1000 worth of equipment. Same with a book - all you need is a laptop and you can self-publish either through e-books or on-demand publishing. Even video content - you can film entertainment content with your cell phone and distribute it on YouTube.
It's a zero-sum game with entertainment, because the public only has so many hours in a day that they can spend consuming media content. So 30 minutes spent watching YouTube videos where the author makes MAYBE $0.05 per view means 5 minutes less to spend watching content with a higher value.
Publishers will never go away for "premium" content: they do serve a marketing function where they can spread risk among a number of options. But their importance in a highly segmented market like book publishing is likely to decrease.
Somebody has to pay (almost) always - you raise your prices, your customers pay, you lower your prices, your employees or suppliers pay. It's not about hurting or not hurting but about distributing the pain well.
Like in the music industry, where a few hits fund a lot of up-and-coming bands publishing has a few hits and many smaller authors that may or may not get big but need up-front funding to try. It's like VC for authors.
Industrial organization is very interesting and important field to follow even if you are a layman interested in game theory, mechanism design and implementation theory. Market structure is big important part of efficiently working free markets.
The publishers are taking a far greater proportion of profits leaving authors a far less proportion of the profits with e-books compared with hardcopy books. Amazon is attempting to increase the author's share of profits on e-books while reducing the publisher's share. This is what Krugman is criticizing.
From the article linked below:
$27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author
$14.99 agency priced e-book generates $7.87 profit to publisher and $2.62 royalty to author.
Hardcopy: $9.87 total profit: approx 57.8% to publisher
Monopoly usually follows monopsony. I do not expect book prices to be kept low by Amazon, if Amazon manage to kill off the major publishing houses. And their willingness to make exceptions for politician's books in their corporate spats is outrageous.
Does it? For a business with a low barrier to entry like selling books? I'd like to see some examples.
The reason Amazon can have a monopsony is because it keeps prices low. It retains customers and forces publishers to go through them. If they raised prices, they'd lose their advantage, and there are plenty of competitors ready to take the market, including well funded companies (e.g. Apple and Google).
If this was what's usually called a "natural monopoly", maybe that could be argued, but book selling - and especially ebook selling - is anything but.
Monopolies and monopsonies only matter when they're difficult to overcome because their size gives them an insurmountable competitive advantage. Absent that, they only exist as long as people are happy with them.
Amazon is easy to bypass. The major publishers could set up their own online stores tomorrow if they wanted to. Authors could set up their own stores too. There are a ton of viable alternatives.
It seems like you're using a very liberal sense of the word "viable" if "Authors could set up their own stores" is considered a viable alternative to selling on Amazon.
A simpler explanation for Amazon offering 2 - 3 day shipping for Paul Ryan's book is that Amazon purposely avoided aggravating an influential Congressman. This is a much lesser accusation than systematically favoring books of a certain political bias with quicker shipping times.
Entirely ignoring whether or not a monopsony is OK or a good thing, or the exact details of this situation - are there any retail book sellers organised as co-ops operated by authors or independent publishers themselves?
Even if the co-op doesn't actually do any of the technical side itself, and outsources that, they could easily retain control over the code and the customer base, which would be a good thing for them.
Distribution channels are important, and editors will have to adapt to these new means.
I wonder if there was a way of cutting the middle man and selling the books directly from their website in a way that is readable in all e-book readers, hummm
Depends on what middleman you want to cut out. Authors can already sell directly via amazon, and there are editors for hire the authors can use if they want quality editing.
so Skip Amazon? But all users won't go to each publishing company's page to check for their new releases. That's how Amazon is sandwiched in the middle.
He compares it to standard oil. But Standard Oil drove down prices, and prices went up after they were broken up. They never abused their monopoly powers, in fact they were never a complete monopoly.
krugman cannot be trusted. everything he writes is with the angle of getting a job as federal reserve chair or treasury head.
economics is not a science and his nobel prize is on par with obama's nobel piece prize, given for every piece of the middle east he was about to surge with troops.
Paul Krugman is a foam at the mouth kook. He's consistently wrong, and only continues to be "relevant" because he promotes a particular view of the world, which is both absurd and popular because it is based on feelings and not reality.
Capitalism is based on grow and destruction. It is just as absurd to argue against Amazon as it would have been to argue for Blockbuster. Netflix comes along, and Blockbuster disappears. Markets are brutally efficient, and crying over the losers is a waste of time at best, and if this bleating results in government regulation, harmful.
You second paragraph is reasonable, but you have not supported your claim that "Paul Krugman is a foam at the mouth kook". Statements like that should not be made without justification.
[+] [-] gadders|11 years ago|reply
When Hachette's contract with Amazon expired, Amazon (rightfully) stopped ordering advance inventory for stocking, but continued taking orders for available titles and transmitted those orders to Hachette as they arrived. From there, it's Hachette's responsibility to deliver the orders to an Amazon distribution center. Once the books arrive, Amazon packs & ships them to purchasing customers as normal.
That's why, when Hachette's contract expired, all of their books were listed as "Out of stock: ships in 1 to 6 weeks" - that's how long it takes Hachette to deliver stock. That's slow as hell.
Amazon didn't "boycott" or "drop" or "betray" authors or "discourage" readers from buying their books - it ceased offering retail inventory management services to a supplier whose contract had expired, and made a rational and defensible business decision when it became clear that the supplier was not negotiating in good faith to establish a new agreement.
[1] https://news.ycombinator.com/item?id=8151181#up_8151480
[+] [-] JackC|11 years ago|reply
When one buyer represents 50-60% of sales, the "most important job" of any seller is to come to "mutually agreeable terms" with that buyer. Is Amazon's "most important job" to come to terms with Hachette? Not even close. One party to the negotiation can walk away; the other cannot. So "mutually agreeable terms" is kind of a hilarious phrase meaning, "we will state the terms, and then you will agree to them. That is now your most important job."
And Hachette is the largest publisher, with something like 16% market share (2010 numbers). That's why this negotiation is even happening.
When Amazon talks to smaller publishers, this isn't even an issue. They are your boss; they tell you what to do; you do it. Except they're a little different from a normal boss, because they absolutely do not care about you; it is actively in their interest to see your business fail. People who survive in Amazon's buying department have to be OK with that -- the in-house name for Amazon's Small Publishers Negotiation Program was the "Gazelle Project," before the lawyers made them change it.[1]
Support publishers, don't support publishers, whatever. If you think authors will be better off without publishers that's a separate conversation. But if there's any industry you do like, you should be very concerned about Amazon gaining market share in that industry.
[1] http://bits.blogs.nytimes.com/2013/10/22/a-new-book-portrays...
[+] [-] Tyrannosaurs|11 years ago|reply
[+] [-] ajross|11 years ago|reply
I mean, the apocalyptic end game here is that publishers are forced out of business entirely and Amazon ends up buying content directly from authors, I guess. That doesn't sound so bad to me, nor like something that's going to "hurt America". Maybe then they might squeeze authors too, though that seems like something publishers are already able to do today, no?
What's the critical function provided by publishing houses that Amazon is in danger of disrupting?
[+] [-] JumpCrisscross|11 years ago|reply
Imagine a simplified supply chain: authors distribute through Amazon to reach readers. Amazon exerting pricing pressure on authors benefits readers in the short term by reducing their reading costs. But by reducing authors' profits, Amazon dissuades new entry. Authors with skills elsewhere write less; the diversity and quality of new books suffers. Monopsony, when it reduces producer profits below equilibrium (e.g. what these authors would earn with many Amazons fighting for their business), dissuades investment in production.
Reality is complicated by the middleman, publishers. Now we have authors contracting with publishers to distribute through Amazon to reach readers. There are multiple publishers competing for authors, so for now the authors don't appear to be squeezed as much as the middleman. Authors' continued use of publishers hints at the value of their services, which may be nothing more than collective bargaining.
Removing legacy middlemen is healthy. Skewing producers' bargaining rights is not. Disentangling publishers' rents (the fraction of publishers' profits which come from them being, before Amazon, authors' only choice for distribution) from authors' costs of production (what good authors need to be paid to compensate them for the time, skill and risk which goes into writing) is difficult.
[+] [-] pron|11 years ago|reply
Modern democracies usually strive to prevent concentration of power in few hands, especially if those hands aren't elected. The market, however, does often favor concentration of power, and when that happens, democracies should protect themselves.
The US in particular has had a history of businesses gaining too much power and seriously hurting the public. This is Krugman's main point:
[Y]es, I have Amazon Prime and use it a lot. But again, so what? The desirability of new technology, or even Amazon’s effective use of that technology, is not the issue. After all, John D. Rockefeller and his associates were pretty good at the oil business, too — but Standard Oil nonetheless had too much power, and public action to curb that power was essential... The robber baron era ended when we as a nation decided that some business tactics were out of line. And the question is whether we want to go back on that decision.
Personally I think that exploitative practices by big business are making a huge comeback, in Silicon Valley in particular (see Google with privacy, Uber with workers, the SV non-poaching cartel and more). It is interesting to compare and contrast this with the Gilded Age robber barons. It's certainly not the same, but the robber barons are coming back, albeit in a new form.
[+] [-] rubinelli|11 years ago|reply
Well-known authors don't need publishing houses as much, but most of them would rather spend their time writing than publishing, and they know that their sales make it possible to bring in new faces.
[+] [-] bryanlarsen|11 years ago|reply
In the case of books, you'd see that by cuts in editing, by authors shortening the amount of time that they spend writing a book, and through authors dropping out and leaving the field to less talented writers with fewer alternative income sources.
The textbook monopsony is government health care. Most visibly, the long wait times for some health care services.
[+] [-] raverbashing|11 years ago|reply
Editors
Having a "everybody can publish anything" model is great. But it doesn't fit all cases.
Yes, an editor is really helpful. Revision, pagesetting, etc, as well.
[+] [-] davidiach|11 years ago|reply
[+] [-] justincormack|11 years ago|reply
Whether the current situation with extra ineffectual intermediaries is much better I am not sure, probably not.
[+] [-] higherpurpose|11 years ago|reply
[+] [-] exelius|11 years ago|reply
The value of a music album has decreased significantly because anyone can create one in their bedroom with free software and under $1000 worth of equipment. Same with a book - all you need is a laptop and you can self-publish either through e-books or on-demand publishing. Even video content - you can film entertainment content with your cell phone and distribute it on YouTube.
It's a zero-sum game with entertainment, because the public only has so many hours in a day that they can spend consuming media content. So 30 minutes spent watching YouTube videos where the author makes MAYBE $0.05 per view means 5 minutes less to spend watching content with a higher value.
Publishers will never go away for "premium" content: they do serve a marketing function where they can spread risk among a number of options. But their importance in a highly segmented market like book publishing is likely to decrease.
[+] [-] onthedole|11 years ago|reply
[+] [-] danbruc|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] AlexandrB|11 years ago|reply
Like in the music industry, where a few hits fund a lot of up-and-coming bands publishing has a few hits and many smaller authors that may or may not get big but need up-front funding to try. It's like VC for authors.
[+] [-] naringas|11 years ago|reply
"Walmart is squeezing manufacturers to push prices down, which is bad becuase... why?"
[+] [-] nabla9|11 years ago|reply
Industrial organization is very interesting and important field to follow even if you are a layman interested in game theory, mechanism design and implementation theory. Market structure is big important part of efficiently working free markets.
[+] [-] davidf18|11 years ago|reply
From the article linked below: $27.99 hardcover generates $5.67 profit to publisher and $4.20 royalty to author
$14.99 agency priced e-book generates $7.87 profit to publisher and $2.62 royalty to author.
Hardcopy: $9.87 total profit: approx 57.8% to publisher
e-book: $10.49 total profit: 75% to publisher
https://web.archive.org/web/20130713080118/http://aardvarkno...
[+] [-] wiredfool|11 years ago|reply
[+] [-] lotsofmangos|11 years ago|reply
[+] [-] icebraining|11 years ago|reply
Does it? For a business with a low barrier to entry like selling books? I'd like to see some examples.
The reason Amazon can have a monopsony is because it keeps prices low. It retains customers and forces publishers to go through them. If they raised prices, they'd lose their advantage, and there are plenty of competitors ready to take the market, including well funded companies (e.g. Apple and Google).
If this was what's usually called a "natural monopoly", maybe that could be argued, but book selling - and especially ebook selling - is anything but.
[+] [-] mikeash|11 years ago|reply
Amazon is easy to bypass. The major publishers could set up their own online stores tomorrow if they wanted to. Authors could set up their own stores too. There are a ton of viable alternatives.
[+] [-] chc|11 years ago|reply
[+] [-] fraserharris|11 years ago|reply
[+] [-] amrrs|11 years ago|reply
[+] [-] lotsofmangos|11 years ago|reply
[+] [-] raverbashing|11 years ago|reply
[+] [-] vertex-four|11 years ago|reply
Even if the co-op doesn't actually do any of the technical side itself, and outsources that, they could easily retain control over the code and the customer base, which would be a good thing for them.
[+] [-] raverbashing|11 years ago|reply
I wonder if there was a way of cutting the middle man and selling the books directly from their website in a way that is readable in all e-book readers, hummm
[+] [-] ianlevesque|11 years ago|reply
[+] [-] yxhuvud|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] amrrs|11 years ago|reply
[+] [-] Houshalter|11 years ago|reply
[+] [-] nateabele|11 years ago|reply
Translation: I absolve myself of all responsibility as a consumer for the business I choose to conduct.
[+] [-] __Joker|11 years ago|reply
[1]http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/06/h...
[2]https://www.opensecrets.org/orgs/summary.php?id=D000023883
[+] [-] teslaberry|11 years ago|reply
economics is not a science and his nobel prize is on par with obama's nobel piece prize, given for every piece of the middle east he was about to surge with troops.
[+] [-] kuni-toko-tachi|11 years ago|reply
Capitalism is based on grow and destruction. It is just as absurd to argue against Amazon as it would have been to argue for Blockbuster. Netflix comes along, and Blockbuster disappears. Markets are brutally efficient, and crying over the losers is a waste of time at best, and if this bleating results in government regulation, harmful.
[+] [-] seanflyon|11 years ago|reply