Peter Donoughue on the publishing industry’s ‘shameful’ wars, and the future for small publishers

13 November 2012 Books+Publishing

Former Wiley MD Peter Donoughue gave the keynote address at the Small Press Network’s Independent Publishers Conference on 9 November. Here is an extract from his speech:

The Amazon narrative
I’m not so naïve as to defend everything Amazon has done and is still doing. It’s a ruthless, aggressive operation that rides roughshod over its competition and more particularly over its suppliers.

But I do want to lament the way the industry has dealt with Amazon since day one of the ebook take-off five years ago when the Kindle was first released. You all know the story. It’s become the trade’s standard, orthodox narrative:

Once upon a time Amazon invented an ebook reader and in a short space of time garnered nearly 90% of the market for the new, revolutionary ebooks. Amazon demanded 50% discount off the ebook price of around $25.00 yet they priced the bestselling ebooks at $9.99, way below cost.

The publishing community was aghast at this outrageous and cynical manoeuvre. ‘This will lower price expectations across the board,’ they lamented. ‘It must be stopped.’

Fortunately a major new entrant appeared, called Apple, with its amazing iPad. It said to publishers: ‘Use our app model: you set the price; we take 30% commission as your agent. However you must not allow any other ebook retailer to undercut us on price.’

The publishers rushed on board (whether after a boozy lunch at an upmarket Manhattan establishment is a debatable point) and forced Amazon to adopt the agency model. This would end the discounting, they yelped, and restore order and security to the book world.

Well of course we know how the story then unfolded. The US Department of Justice refused to believe the fairytale and in April this year condemned Apple and the agency publishers for their [alleged] collusion to restrict competition. It pronounced that the agency model had to be unwound.

The trade was aghast, and the condemnation of the DOJ has been universal. As recently as last week respected industry consultant Mike Shatzkin opined ‘the legal experts applying their antitrust theories to the industry don’t understand what they’re monkeying with or what the consequences will be of what they see as their progressive thinking’. Shatzkin demands they respect the ‘specialness’ of the publishing ecosystem. By removing Amazon’s ability to aggressively discount, the competitive landscape is enhanced. It allows other retailers to emerge and potentially flourish and not be crushed by a deep-pocket behemoth seeking dominance at all costs by indulging in ‘predatory pricing’.

But I go back to my Economics 101 basics: it is not the prerogative of a producer to so constrict—for whatever reason—a retailer from engaging in the age-old dynamics of customer satisfaction. So no matter how large, voracious, aggressive, ugly, or profoundly discourteous any particular retailer is at any time, a producer just has to live with that retailer’s consumer satisfaction strategy.

Let’s remember that, pre-agency, publishers were pricing their new ebooks at ludicrously high prices—often at the same price as the hardback—and in fact far higher than Apple demanded publishers price at if they wanted to deal with Apple. Ironically the consumer demand profile of recent times is unequivocally demonstrating that the greater volume of ebook sales occurs around the $10 mark, and falls off quite rapidly at price points beyond that.

Now, post the DOJ decision, the fear of many is that Amazon will return not just with renewed vigour but with a good measure of vengeance. Some commentators are indulging in truly awful effusions of doom and apocalypse, booksellers in particular, who for a variety of reasons have no reason to love this online enemy.

Beyond the agency model
But the agency model, like any price-fixing model, is a dead hand. My view is that if in the end we all trade in an open, unconstrained, free market then it is not naive to believe that we will all be better off in the long run. New, original, highly innovative business models will have a far higher chance of emerging if the dead hands of tradition, authority, stability and comfort are not privileged. Protective shells need to be broken to allow new life to emerge.

The industry went to war with Google; it’s still at war with Amazon; it’s at war with the US Department of Justice. Publishers are at war with authors over ebook royalties; they are at war with libraries over ebook lending. Even [with] consumers over DRM.

All these wars are shameful. But what really amazes me is how we have sniffily turned our backs on what has clearly been the greatest financial investment in books and reading ever seen.

Billions of dollars have been spent over the last decade alone in building a whole new digital ecosystem to take our content to millions of existing and, particularly, new readers around the world. Think of the enormous investment that Google has made into reaching into the content of virtually every book published since Gutenberg and making it discoverable and accessible to the entire world’s population. This could only be of be of benefit to publishers.

Think of the hundreds of millions of dollars Amazon, Apple, Kobo, Sony, Nook and others have made in bringing eReading technology to the world’s consumers. It’s a massive reach-out to the non-traditional, non-bookshop visiting consumer, particularly the young who can now be distracted from HBO, Showcase and BitTorrent, and can access content we publish on their must-have devices, including their smartphones.

Why haven’t we embraced, in fact, celebrated this? Why have we been struck by a paralysing timidity? An awful defensiveness? A demobilising moral panic? A reactionary urge to protect our dated, legacy business models? A tentativeness that borders on the absurd? Why haven’t we begun working positively with these behemoths to secure win-win outcomes of real benefit to consumers, and equal benefit to publishers? Eliminating DRM, closed systems, restrictive licensing arrangements, etc.

The future for small publishers
Here’s where small and medium independent publishers can and should take the lead. You are a dynamic and vibrant sector. You are the hope of the future.

You don’t have to worry about savagely cutting costs. You don’t have any to begin with. You are not captive to a corporate line, a groupthink. You don’t lack courage. You’ve chosen to be in publishing after all. You don’t have to adopt the conservative, timid, strategic postures of the corporates.

You can have a go. Take risks. Experiment. And your opportunity to thrive will grow stronger as the big publishers turn inwards and, under financial pressure, think only big. Ever more gems will be considered by them small beer and a distraction from core business. But these works are just as necessary to our cultural and social development as they ever were.

The full speech is available here.

Category: Features