Richard Alan Dickson is a friend that I often turn to to check out my calculations on any business deal, or to talk with about the business of publishing. The reason is because he’s been in business, at the top of large businesses, and he knows what he’s talking about.
Rick sent me a short bio for this article that says he’s an author, a Divemaster, and a private pilot. Prior to becoming a full-time fiction writer, he spent over twenty years in international reinsurance, including ten as a corporate consultant specializing in liquidation, arbitration, work flow, and cash flow issue.
He worked nearly every desk in corporate finance, from accounting assistant to Vice President of Finance and Acting CFO of a Fortune 500 affiliate. Richard said he developed a rather unique view of financial statements and corporate interactions.
His writings range from traditional science fiction novels, like G-Blade and Gateway: Left Behind, to the more whimsical Love, Venusian Style and the Cat Patrol Delta series. He also writes stories for young adult in novels such as Mister Majestor’s Magnificent Menagerie and Diver Down!
You can find more about him at www.RichardAlanDickson.com.
The following article by Rick was actually sent to a private writers email list a couple of mornings ago. The moment I read it I asked him if I could put it here, and Kris also quoted from it in her blog. It’s not often you get the former CFO of a Fortune 500 company talking about the real meaning of a press release about publishing.
So read what Richard Alan Dickson has to say. Trust me, you will find it worth the read.
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A few of you probably saw the article PW ran this morning:
“Random House Profit Increases as Bertelsmann Plans To Reshape Company In Next 5-10 Years.”
The article mentions that Bertelsmann released its earnings statement for 2011. If you skimmed it, there were a few interesting things toward the end of the article that you might have seen.
Basically, Random House screwed up when it made Bertelsmann stop what it was doing and take notice of its business model. In business, that is ALWAYS a bad idea. Don’t do it.
Bertelsmann is not pleased. It seems that the gloves are off and another war is coming. Random House will feel pain, and so will we.
I have to admit that I didn’t notice when the Chairman and CEO of Bertelsmann was replaced in January. (It didn’t pass the WIBBOW test.) PW ran a quote from the new man regarding his “long-term reshaping plan:”
“Our primary goal is to grow the company faster, and to make it more digital and international. We plan to achieve this with four strategic approaches: First, by further consolidating and strengthening our portfolio. Second, by accelerating the transformation to digital of our core businesses. Third, by establishing new growth platforms. And fourth, by expanding into new geographic growth regions. On this basis, we will reshape Bertelsmann over the next five to ten years.”
Remember that this one simple statement was polished for weeks. They didn’t want to alarm their employees or their investors (status quo, rosy outlook, a brighter tomorrow, etc.), but they needed to put management on notice. That’s the way it’s always done.
Also remember that this is a new leader, which basically means that the old one either didn’t have the strength to climb yet another mountain, or that he argued against the need to even go there. (And keep in mind this leader runs the company that owns Random House, as well as a few other publishing houses out there.)
FWIW, here are my opinions of the spin (and they’re only my opinions):
Point #1) There’s still too much expensive overhead. Too much buck for the bang. Expect continued mergers and downsizing of the office space, along with a trend of moving out of those high-priced offices. This is a pretty clear message of, “There’s still too much waste. You said you’ve done all you can to stop it, but it isn’t enough. We’ll help. Step aside, little boy. We’ll show you how it’s done.” (Old leadership may have been satisfied. New leadership is not.)
Point #2) A big percentage of the readers may continue to read print books, but the infrastructure will no longer be driven by it. Things that NY feels are important, Bertelsmann does not. The core business model will turn its back to all of those long-term labor, shipping, and warehousing contracts that a few people on this list have mentioned. (Bertelsmann sees the coming of the Mass Market POD presses, too. The economies of scale may become upset in the near future. NY is being told to get with the program and get ready to bail out.)
Point #3) FOR THOSE OF YOU SKIMMING… STOP HERE.
When all those writers conceded all those e-book rights to NY, Bertelsmann noticed the profit margin. Boy, did they notice!
“Growth Platforms.”
NY may have told them why they can’t have more rights. The old leadership may have said the same thing. It doesn’t matter. Bertelsmann is not listening.
Bertelsmann is shocked by the money pouring in from the e-book “platform.” They see all the years that the money was NOT pouring in. They have no confidence that NY isn’t missing many other opportunities on many other “platforms.” There’s gold in them thar hills, and plenty of writers who’ve proven willing to sign it over.
Expect contracts to get even more convoluted, with rights grabs into more areas. (Audio will be low-hanging fruit. Others will certainly follow.)
Point #4) New “Growth Regions.”
Yeah, okay, they could be talking about opening book stores in Tibet, but I wouldn’t expect that kind of thing to be mentioned in the bullet point of a strategic statement.
NY already failed by not capitalizing on the untapped e-book profits (the owner’s way of thinking). The Big B (not to be confused with the “Big 6″) now questions every other certainty that NY has ever presented.
More regions mean more rights. I would expect that international and foreign translation will be the low-hanging fruit here, although they would most likely combine point #4 with point #3. (I can see them smiling at the thought of getting the dominant piece of the action for that new Swedish board game based on your book.)
So, anyway, it was an interesting article. Remember, these are just my opinions regarding the new leader’s statement. It might be an hour of wasted typing. I’ve been out of international finance for a while, but once upon a time I did play the game. Having said that, I do know that some of you play it more often and better, but I also know that others might have missed a few things in the press release.
Oh, one more thing: In UNRELATED NEWS, PW mentions that Bertelsmann will be changing from a closely-held private company (AG) to a strict limited liability company (KGaA) by June. (Bertelsmann has always been a family business, but the change basically means that only the money that each family member keeps in the company remains at risk.)
I’ll let you draw your own opinions about whether or not Bertelsmann expects things to get ugly. I’ve probably talked long enough.
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Dean here: Thanks, Rick for letting me publish your opinions. Very much appreciated.
I’ll be back here with a new blog of opinions myself early next week after this workshop gets finished and these writers let me stop reading damn fine stories they keep writing.
thanks Rick and thanks Dean. Good analyses that are long overdue, at least for authors, I think. Very much appreciated.
I know the Mohn (sp) family owns Bertelsmann, and the family has gone through a whole raft of men to head up the USA operation staroing abck around 1994 after they fired Vitale. And we watched them fly off the turntable one by one for what seemed like ‘not pleasing the stockholders with dividends.”
I could be wrong, but that’s how it appeared. (One of the most interesting things about the early B. guys from Germany, I thought, was that their PhD.’s were in “Insurance.” I’d not yet heard about Doctorates in Insurance. We felt we were in trouble then, as the closest creative work most of us knew about even close to the idea of ‘insurance’ was Babbitt and also Willy Loman… and the tragedy of forced conformity.
About ten years ago, myself and a group of writers published by RH and B, asked could we buy stock in the B. company/ies that pub’d our books? The answer was, no. Top people from B told us that B was not traded publicly, although at the time we were told it might be traded on the stock market in Berlin, but that was off limits to us. We had thought to increase parity (as pathetic as that now seems) for we were casting about to find ways to augment the pitiful incomes most of us had on the bell curve once a book was published with all the ups and downs of that.
Over the last two decades, we’ve suffered through the various empires that came to RH et al, most recently Dohle, who held many of our rights captive and sent us all a letter making a huge e-rights grab that was not supported by clauses in actual contracts pre 1993 after Vitale put his foot down and wanted to claim ‘all forms/mediums not yet invented’. Man, that was scalding.
Rick and Dean, what do you think the steps are that RH/B will take in the immediate future. THey have fired many of their formerly venerable people, like Toni Burbank for instance. Sonny Mehta is a shrewd businessman, a Sikh from India raised in UK, and now probably in his 70s. So maybe they can count on him and a few other of the quite old guys there to be ‘the new builders?” I dont know. It already feels so arctic at the NY Hqs.
As we say in our family “¿estamos locos todavía?” “are we insane yet?” I fear many of us writers have already lost brain cells just wracking our minds, trying to extricate our works from the ongoing bulldozing done by RH/B. They have sent us demand letters, and absurdist ‘congratulations’ letters to us authors (congratulations you have been chosen to be in our new digital program!!…even though your contract says nothing whatsoever about ebooks).
These seem meant to be like tow-truck seizures of our writings, apparently hoping the humans who wrote them will just disappear I’m afraid, whilst RH/B claim-jump our works. It is so bewildering to keep fighting. But as we say (USAF)… ‘sonofaf-ing everything,’ we’re still going to try to fly ‘all balls out!’
There are other authors with me who are striving to fly against the B /RH winds. Please keep us in your thoughts. We’d appreciate it.
Y sus pensamientos?? I’d be honored to hear your thoughts Rick and Dean, on ‘what next’ hatchet-storms may be unleashed soon and later at RH/B… and do you have any map-scrap on how we authors might manage to stay out of “The Bertelsmann Triangle’…if at all possible?
Thank you
dr.cpe
i should add, the field of ‘insurance’ I realize now is far more vast and venerable than what i saw on display at B/RH, the advisors of B/RH have been at least ten years behind in the new game. Also, remember only in 1992 did RH/Vitale begin literally buy and set up actual computers in the RH offices and training editors etc to use them. Late. Truly late.
Thanks for sharing this great analysis, Rick. Very valuable.
Thanks for the info,
Since I have never been into International Finance, this piece has been an eye opener for me. It makes me wonder about Hunger Games and other books that are making the movies right now. Another low-hanging fruit?
Very interesting,
Cyn
Thank you for posting this.
It really hits on some things I’ve suspected about the direction publishing would go. The rights grab and new platforms should be obvious, I’d think. I expect publishers to start acting more like big media/entertainment companies — they want exploit properties properly, and they want the control to do it.
The days of lazy publishers who exploit the writers but not the rights can’t survive, imho. And when publishing gets more aggressive about translations and “new platforms” again, that will attract a lot of writers.
The first thought I had when I read the part about Random House being noticed as a bad thing was, “Merge (staff cuts), purge (all staff is eventually gone), or spin off (did I mention staff cuts?).
Not that I’ve reached the heights Mr. Dickson has; I’m a temp worker at the moment, and in some companies that’s equated with dirt. But I digress. I agree with Mr. Dickson. I’ve been in the corporate world for a long time and seen (and unfortunately been a part of) the whole merge/purge/spin off decision.
It ain’t pretty.
It’s going to be very interesting to see how this shakes out in the coming months and years. I could see the merge happening, where some staff will be moved to other departments or division; I could see the spin off, too, where it won’t be easy for the people from RH trying to fit in with the culture to whomever they’re sold to. Purge? I don’t think that will happen, except maybe for a really small division.
No, I don’t have a degree in business, but I’ve survived in the corporate world for over 2 decades, and I haven’t done that with my eyes and ears shut.
Thanks, Dean, for posting this fascinating article, and thanks to Mr. Dickson for writing it.
Comment from Frank Dellen that did not get through:
So, what’s the possible consequences for the writers willing to do business with big traditional publishers?
If I get it right, you can take point 1) as an argument for higher royalties: “What, after all this downsizing and efficiency stuff, I still get only 8%? §$%& you!” Probably not a successful argument – since the person you’re negotiating with has to do the work of two previously fired people now – but I’d still try it.
2) It will be even more unlikely now that they’ll let you keep e-rights or give them back after some time.
3) Read your contracts even more careful as there will be even more hidden traps.
4) Related to 3): Forget your foreign rights, they’re ours now.
Well, that sure sounds inviting.
Reminds me of the seagulls in Finding Nemo:
http://www.youtube.com/watch?v=H4BNbHBcnDI
Makes me want to write to Mr Bezos, asking when he will bring over Createspace to Germany. (With the POD services over here you can’t sell a POD book with a profit AFAIK)
I guess this will make some waves internationally – Blanvalet for instance, a RH imprint, is quite big with fiction in Germany. Also, other publishers will follow.
It will be interesting to see if writer’s unions will still continue their anti-Amazon crusade or will finally consider re-adjusting their loyalties. (On that note: What Mr Turow said read like a translation of the statements the head of the german writer’s union said in an interview, two or three weeks before Turows speech)
There is no need to discuss the german-specific points in my post, I just thought I’d add some dimension. And I had to get rid of it, to be honest.
Thanks Rick and Dean for sharing the post with us.
It reminds me very much of when Hasbro put Wizards of the Coast on notice. WotC tried really hard to show how they were implementing what (I assume) Hasbro had told them to fix. I remember sitting in a sales meeting in Seattle, listening to a pitch about their plans for D&D 4th Edition and how they were going to focus on moving players from 3.5 over to 4, and thinking, No, everything you’re doing is good for recruiting new players, but it’s not going to do much to win over the existing crowd. Apparently Hasbro agreed with me, because they “purged” a huge part of the company later that year. A lot of really good people were casualties of that, some of which made my jaw drop.
So I’d imagine there will be a good deal of moving around for Bertelsmann’s publishing companies. I wouldn’t be surprised to see imprints absorbed into other imprints, or imprints with overlapping focuses being parsed and re-focused. I would expect at least one personnel purge, wherein there will be people let go who probably shouldn’t be, and there will be others who manage to stay onboard that should have been let go. That’s pretty much how those always go, which is why they are often followed up a year or so later ba second, smaller purge.
Overall this may be a very good thing for RH in the long run. Much will depend on who ends up at the top, deciding what direction the company runs. But in the meantime a lot of calcified thinking will get tossed overboard, and the bloat that accumulates when a business has been around that long will get trimmed down. But it will be rocky for a few years (at least) while the reorg happens.
I will be interested to see what happens with royalties. If they get some more tech-savvy people in charge, I think we might see an increase. (Tech-savvy people tend to pay attention to things like competition from internet-based businesses.) But I also think we’ll see more rights being retained (or maybe optioned). My hope is that they’ll at least be paying for them. However, I’ve long expected publishing to move to more Hollywood-style accounting, so offering higher royalties might not hurt them very much.
Excellent and helpful analysis.
One point I’d like to make, having, in a prior life, worked for a large subsidiary of Reed Elsevier, another huge international media conglomerate: The folks from Bertelsmann may not be that smart about the business either.
My experience with top European managers is that they’re very numbers-oriented and have no hesitation at all to whack departments, products, people, strategic initiatives, etc., whose numbers don’t make the cut. This finance orientation tends to be very tactical and short-term – next quarter, this year, etc., rather than having any sort of long-term strategy beyond making more money in five years than they make today.
A strategy like Amazon’s to sacrifice profits to build substantial volume and market position doesn’t compute for the media conglomerate managers I knew.
I don’t think authors can expect any better treatment as Random House becomes more Bertelsmannized. This is all a big company mentality and individuals outside the controlling shareholders are pretty irrelevant to their world. Authors may be necessary, but they’re not terribly important.
This type of management oversight from Europe puts local executives into a giant vise to increase quarterly profits. One bad year or even half-year can mean the executive ash heap. Under such pressure, local executives will cut all sorts of corners. One possibility might be increasing underpayment of royalties.
The warnings about the terms of future publishing contracts are very well taken.
“Richard Alan Dickson – Bertelsmann sees the coming of the Mass Market POD presses, too.”
I would love to have cost effective Mass Market POD. I have not been able to figure out how to do Ace Double style books using 6×9 format. Then I could do 75k novels rather than being forced to go 125k just to have a great spine.
BTW, Rick Dickson is an awesome pen name, I wish I’d thought of it. HA!
As they say, it’s going to get a whole lot worse before it gets better….and better does not look like it’s anywhere in the foreseeable future.
Thanks, Dean and Rick,
I agree with Rick’s analysis 100%. These corporate media releases are very carefully scrutinized before they go to ensure the right messaging is delivered. I’d say a lot of heads are going to roll up and down the Big B (love that, Rick) food chain and there are going to be rough waters ahead for writers who sign with NY houses. And forget about agents they want to survive like anyone else, and if the publisher grabs all worldwide rights so what? They still get their 15% to help their bottom-line. Writers thinking of signing with NY should fire any agent who says “this is normal” or “that’s the way it’s done”. It means they don’t give a crap about you regardless of what they say to the contrary.
I think writers need a trained IP lawyer to negotiate with NY and must be prepared to walk away. Alas, I think many writers will not walk away and far too many still think they must have an agent. But I’m ever the optimist.
The take-away I get from Rick’s guest column is that Bertelsmann is about to do unto Random House what Random House has been doing unto authors.
How does it feel to be a mid-list subsidiary, RH? Rather like being a mid-list author I’d imagine.
Thank you everyone for your comments.
Archangel, I probably won’t hazard a guess. The thing to keep in mind is that RH and B are separate entities (obviously). Management is paid quite a bit of money by owners to fix problems. The owners will probably take a moment to sit back and assess how well management reacts.
Marching orders at that level are often very general. During my last year in that type of an arena, my performance appraisal said only, “Ensure the company maintains at least a 20% return for the year.” If I knew how to do it, I was the right person for the job. If not, I wasn’t.
In my case, none of the operational or sales units worked for me. My job—for the stockholders—included developing a plan and motivating the other executives to stick to it… convince, cajole, threaten, plead… whatever it took to do the job. No excuses. Get it done. I’d imagine we’re looking at the same thing here.
In those types of scenarios, owners often listens to the phrases management uses as much as to the plan, itself. For example, I would not expect to hear the phrase, “cost-cutting efforts,” in the RH plan. Consolidating expenses is fine, but it could be argued that there’s no such thing as “cutting costs” (even if politicians and the media use the phrases interchangeably).
Costs are necessary components of revenue. Cut costs; cut production; cut revenue. (What… you build trucks, but you plan to save money by sending them out of the factory on three wheels, or with only five spark plugs in a six-cylinder engine? Um… tell me again how this brilliant plan is going to work.)
An executive who is right for the job has a greater chance of naturally using the right terms. That person has a picture in mind of how the plan is supposed to come together. An executive who consistently misuses terms might give the impression of having a fuzzy or incomplete picture, and might end up getting the axe without truly understanding why.
…and you thought there were trick questions in school!
Thanks, Michael. Hope the writing is going well for you.
Cyn, I’m not sure about that one. It’ll be interesting to watch, as you say.
Hi, Camille. I would agree that the current model is a bit broken. One of the biggest problems I’ve had in making the switch to writing has been to understand (and accept) all the idiosyncrasies of this particular industry.
As Dean pointed out in my bio, I spent some time helping to coax failing insurance companies back to life, and to pull the dead ones apart so the assets could be salvaged for the policyholders. I saw a number of systems that failed. Generally, I found that when things weren’t working, companies were more successful in their rehabilitation efforts when they reached for a clean scratch pad and a pencil than for a box of bandages.
That’s just my opinion again, though (as is all of this). It’ll be interesting to see what types of new systems eventually evolve.
Nancy, thanks for the thoughts, and congratulations on two decades in business. That’s quite an accomplishment. All the best.
Frank, as you suggest, I’m not sure I could comment about the German-related points, but they do bring up some interesting issues. I definitely like the idea of having counsel help with contracts. The other thing writers might keep in mind is that they should carefully consider what they will accept from a contract before walking into the negotiations, and then be prepared to walk away if the offer drops below that level.
Over here, publishing has a pretty long pipeline. Last I heard, it was around 18 months from the time a manuscript was purchased to the time the book rolled out. You might recall Dean’s post a few days ago, where he reminded us that none of what we’re seeing today was possible two years ago.
By my math, the publishing world changed on some writers after they signed their contracts, but before their books came out. That’s pretty amazing. There’s no telling what will materialize abroad in the next 18 months. Keep the faith.
Mercy, thank you for the thoughts. Either way, it’ll be interesting to see how this situation plays out. It might be a bumpy ride, and as you pointed out with WotC. (Being a resident of the Seattle area, and an avid gamer since the days of “Pong” in 1972, I watched that whole situation play out. To me, it was sad.)
Hello, Passive Guy. Thank you. Excellent points, as usual. It’s a business. These are business people. I originally wrote the post on that writing list to help point that out. Thanks for clarifying.
…although… just to add a bit of flavor so people might better understand the personality types of the executives at the level were talking about…
You mentioned that the Amazon model wouldn’t fly back there. I nodded my head, but at the same time I heard a little voice back there whisper, “I bet I could do it.” Some problem solvers never say die.
Thanks again everyone. I appreciate the interesting comments.
Interesting points.
I’ve worked in various sectors of the corporate world (at the lowest levels) for the past 20 years or so, in the UK, so I recognise the sort of language used in the original message. But I’ve come to sense an underlying current within the austerity of the last few years which is becoming a riptide.
How’s this for an example: Corporate training has moved online.
The corporation makes a one-off payment to a training provider for the license to access their courses. No more five-day courses with trainers and presenters hosted in a 3* or 4* hotel on 24-hour rate.
Those being trained don’t travel to the hotel or stay there overnight; they fit the training around their normal workload, working from home on a laptop or their own personal computer. They feed themselves, and keep their own lights on, and use their own heating and broadband.
Staff costs in the corporation are reduced because there’s no need to make event bookings and process the expenses afterwards.
Nobody passes on their hard-won years of experience over evening drinks at the end of the day’s seminar. No round of drinks in the hotel bar, no cornish pasty from the train station canteen, no tankful of petrol from the motorway service station. Nobody supplies the hotel with the food and drink and staff for extra bartending and catering, and this continues all the way down the supply chain to the farmers and pesticide makers.
Those businesses, large and small, all lose out.
You want coffee with your meeting? Bring your own.
You want lunch with your all-day conference? Bring your own.
The money stays with the corporation.
This is what corporations mean when their leaders say “cut costs”.
What it will mean for publishing, I can’t say – but Dean, with your years of experience within the business sector, I reckon you might have a few ideas.
Thanks for your great ‘second wind’ response Rick. That gives even more insight and perspective to us. Appreciate greatly you and DWS taking the time to offer us your experienced views. Youre both so good to do so.
Also other commenters here adding their personal experiences, helps too.
Thank you and may you both be guided on your further adventures, keeping your functional instrumentation if ever you need to fly through “the publishing triangle” going on now
drcpe
Allynh, give it time. After I finished one of my computer programming courses in college a bunch of years ago, I remember throwing away a fun program that I’d written. It needed 16K of memory to run. Nobody was rich enough to afford a machine with that much power. Look at us now.
Hi Ramon. Like I said, I’m hoping to be proven wrong. We’ll have to wait and see. Thanks for stopping by.
Thanks, Russ. Good to hear from you. I enjoyed your thoughts.
Lee (Allred), thanks for the laugh. I hadn’t thought of it that way.
Lee McAulay, good points. You’re exactly right. That’s exactly what they mean. Sometimes, it’s so ridiculous that it makes for great movies.
In 1987, Michael J. Fox starred in “The Secret of My Success.” He was the young visionary working up through the ranks of the corporate world. His uncle, played by Richard Jordan, was the rigid corporate executive trying to hang onto his crumbling company. Jordan’s motto was, “cut, cut, cut.” Fox kept saying, “You’re wrong. We gotta expand.”
It was a fun movie, but also an interesting look at two leadership styles. The Fox character always had his eye on a clear goal. The Jordan character’s goal was less clear (to be generous). It had the perfect ending too, especially with the reaction of the “money men” of Wall Street.
This is one of the reasons I thought Bertelsmann might step back to see how RH handles things. What will be important to the current RH leadership? Its plan, along with the proposed means to achieve it, will speak volumes.
Unfortunately, I don’t know the RH leadership well enough to know how they’ll react. I’ve seen a lot of pretty silly business decisions from people who I’d have thought should be excellent leaders. However it shakes out, my opinion is that there’ll be changes (which was why I originally raised my hand on that writing list Dean mentioned and pointed to the press release).
With respect to your examples (which I’ve also observed), “cutting” for the simple sake of cutting is seldom wise, even if it is often the “go to” action of those who don’t know better. I could choke this list with stories, but I’m pretty sure Dean would object if I wrote a 50,000 word essay on his board. I’ll simply say that a good leader, like the Fox character in that movie, is always moving toward an objective. Everything he does is with that objective in mind. If he cuts coffee from the meetings, it is not because he wants to save two dollars. It’s because coffee no longer fits the vision.
People might not truly appreciate the size of the numbers big companies deal with. When I prepared those financial statements back in the day, I never rounded to anything less than the thousands. Most of the time, I rounded to the millions. A few of the internal reports were actually higher than that, if I remember correctly.
How impressed am I with the management team that calls me up to tell me they’ve solved my problem by cutting free coffee from the meetings?
(Since the goal should be to keep everyone charging just as energetically toward the corporate objectives as the right leader, I’m not sure I would have agreed that spending a couple of bucks on a caffeine delivery system during the weekly staff meeting was a waste of money, anyway. I’d probably have expected that particular management team to share itsr revised vision with me. If it was focused, I might have been impressed. If it involved a simple “cost savings,” however, I’d have had some decisions to make after I hung up the phone. Trick questions….)
Thanks again for the thoughts.
Archangel, my pleasure.
Rick
“establishing new growth platforms”
I’m less concerned with Bertlesmann cutting costs and royalties, since I’m not signed with them. I’m more concerned with B’s long-term expansion plans. Specifically, I’m worried about what B, and its large brothers and sisters in this market, have in mind vis a vis Amazon and other online retailers. I’m concerned that traditional publishing may decide to use its considerable muscle with Amazon and others to force Amazon to stop carrying books by indie and self-publishers. We’ve already seen Amazon go head to head with MacMillan. Amazon is in a fight right now with IPG, the distributors of dozens of small and independent presses. How much more pressure will be brought to bear on the world’s largest online retail book outlet? Why would Bertelsmann NOT try to force Amazon to stop carrying books that B sees as competition, especially if those books are written by writers with Bertelsmann contracts?
I want to be wrong. I want to be reassured that my paranoia is unfounded. I want someone to tell me that Amazon, Barnes & Noble, et . al. will fight to keep their self-published writers as a viable sales channel. But I get this nagging feeling that Amazon is as likely as not to cave in to pressure from its major suppliers. After all, Amazon doubtless makes a lot more money selling books published by Bertelsmann than it does selling books published by me.
Sarah,
Luckily, there are a thousand reasons you are wrong, not the least of which would be a hundred different laws. Your thinking on this goes wrong right from the start. You think an indie publisher is just a lowly writer, beat on like always by the traditional publishers. And that’s the attitude that so many of us are trying to change, but for some reasons, writers have it in spades. In indie publishing, you are not just another lowly writer, you are a PUBLISHER. You are a business, and so are all the other indie publishers, whether they think of themselves like that or not. Under the law, businesses can compete. Period. Running another business out by doing better business is fine. Fair in business. But what you suggest just won’t happen, at least on any scale.
So stop worrying about that kind of thing.
I wish, just once, indie publishers with this fear would stop and think from a business perspective. Let me put it simply. Say you own a store and you get free inventory for your store, NO MONEY UP FRONT, and you only have to pay for the inventory if it sells. And your cost of holding that inventory is fractions of a fraction of a cent. So you think it would be good business to tell all that free inventory to GO AWAY???? Nope. Amazon gets free inventory that costs next to nothing to hold until it sells. It is a fantastic business plan and one that is working. And most smart businesses on the planet would wish for the same free inventory.
Dean, Amazon has, in fact, turned publishers away. Their dispute with IPG right now shows that. Nor did they hesitate to pull MacMillan’s books off their virtual shelves, regardless of the reason. But let’s look at your analogy through another lens:
I have a store where people give me free merchandise to sell. Delightful. But most of my sales come not from the free suppliers but from large producers who offer merchandise that sells much better. If the large producers decide that they won’t sell to me as along as I’m accepting the free inventory, I’m screwed. I can’t match the income from my free guys against the income I get from the large suppliers. Or to put it in less abstract terms, all the books published by Smashwords can’t compete against the books published by HarperCollins, Random House, etc. Are you really going to argue that, given the choice between carrying a bunch of small, independent publishers and Nora Roberts, Amazon is going to choose us over La Nora?
The fact that inventory is free does not mean it is sellable. Right now, Amazon probably does not care if a book sells or not; as you say, it costs virtually nothing to keep it in inventory. But what happens on the day when it DOES cost Amazon, not in terms of money but in terms of access to that inventory that DOES sell?
You say it’s all about competition. Of course it is, Dean. Duh. I’m not stupid. I’m looking at this from the point of view of a company like Random House, that might be concerned if some of its more profitable writers wised up and started refusing contracts, started publishing themselves. Imagine how much money La Nora or Stephen King could make if they published their own novels. Imagine how much money legacy publishers would LOSE if this started happening. If they don’t feel pressured or threatened now by the publication of thousands of indie novels by people they never heard of (and even some that they have heard of), they will definitely sit up and pay attention when some big names start leaving the fold. In fact, they have already started to pay attention — that’s part of what Richard was noting in the Bertelsmann memo.
So I’ll say it again, Dean (and I’d appreciate a response less along the lines of patting me on the head and telling me not to worry): forget about how Amazon benefits from free inventory. My concern is not that Amazon is going to wake up stupid some day and dump its indie publishers. My concern is that they are going to be pressured by their suppliers — suppliers who have a definite impact on their bottom line — to drop indie publishers. How long do you think Amazon could hold out if HarperCollins pulled something like this?
Of course the publishers would be risking a lot, pulling their inventory from the world’s largest bookstore. It would be an act of desperation, a last-ditch effort to stop the revolution. In the long run, it would not work. But there’s nothing to stop a large corporation from making a dumb, desperate move. They make stupid mistakes all the time. In this case, the people who would suffer the most would be the small and independent publishers whose whole market is Amazon.
It’s not an entirely unrealistic scenario. In the recent PayPal flap, at least one distributor dropped all indie titles just because they didn’t want the hassle of fighting a big outfit like PayPal. If they’d been risking a huge sales loss by keeping the indies, I doubt they would have done it. One small publisher, Wings Press, has an excellent discussion of the impact of the IPG/Amazon fight here:
http://mrzine.monthlyreview.org/2012/milligan130312.html
Believe me, I’m not just thinking like a writer. I’m also Wavelength Books, and I try to think like a publisher. I’m old enough and cynical enough to think that nothing lasts forever, especially a great deal like indie publishers are getting now from Amazon. I’ve seen a lot of thriving small businesses wither on the vine when larger corporations noticed them and started changing the terms of the playing field, started throwing their weight around. Do I even have to mention what happened to small, indie bookstores when Barnes & Noble came to town? Or what happened to small groceries when Wal-Mart opened down the street?
One of the facets of being a publisher is learning economies of scale. Right now, all of us indie publishers together can’t outweigh Bertelsman et. al. If they decide to throw their weight around, even if in the long run it proves self-destructive on their part, I fear that by the time the smoke clears a lot of us will be gone, our outlets will be gone, our platform will be gone.
Dean, I’m totally behind indie publishing, and love reading your comments. And I really appreciate our guest writer’s elucidation of the multicorporate mindset. Don’t think I’m panicking out here just because pressure is being brought to bear on Random House (and others). I’m only asking that this question be considered, soberly and rationally:
What happens when Big Publishing feels threatened enough to strike back?
Sarah, because they can’t. And that’s what you are missing. You are thinking that “big publishing” as you call it is a massive unit. Sorry, not so, which is why I did my best to shout at the myth of the “Big Six” because of this kind of thinking. “They” (meaning the thousands of major publishers and publishing corporations) can NOT work in tandem and if they try the laws and repercussions are huge and sometimes deadly.
Amazon is getting “free inventory” from the big guys as well. What the fights are over are just terms of profit and who controls what when and why. It’s all negotiation, nothing more. The fact that some of the negotiations become public is just a strategy in the negotiations.
And using IPG in any argument with me just makes me laugh, since they screw writers worse than most publishers. Trust me, I’ve dealt with them from the other side of a desk and their business practices are not ones I agree with. Sorry.
As for treating your worry about Amazon suddenly just shutting out all indie publishers, my question is HOW WOULD THEY DO THAT? You tell me how they would decide that WMG Publishing is less a publisher than thousands of University Presses with only one or two titles out???? WMG Publishing has 250 plus titles with seven authors. We are a corporation. So tell me how Amazon can cut out group of publisher’s in mass??? And how many millions of lawsuits would that bring to show cause? You know, all that legal reasons why your worry can’t happen, as I have said before.
Can any business do exactly what they want, serve exactly who they please? Sure. It’s their business. But a major business can not do as you suggest, fall under uniform pressure from a thousand big publishers at once.
And the business opportunity for a hundred major start-ups to fill their place would be like a tidal wave and faster. Sure, might hurt a few indie publishers for a short time, but the demand is there and this is a supply and demand world.
And, on top of that, it would KILL Amazon. The bad press, the bad word-of-mouth, the anger would be so strong as to destroy an already near-the-edge business.
So, even with all that, how about we look at the path Amazon has been firmly on since it’s start. It wants to sell EVERY BOOK on the planet and it also now wants to sell every product as well it seems. It has invested billions in this path. To suddenly change from that business plan and belief would take years and would be clear. And would have to be dealt with on the stockholder level as well.
Now, one more point addressing where I think your worry is just misplaced. Amazon is a big player here in the States. But they are far, far from the biggest player in the world. They are trying to move out into the larger world, but they are behind. In other words, even though the Kindle Boards think Amazon is the only player, they are not. And as you said, things change all the time. I doubt Amazon will be the biggest player in five years. And honestly, I don’t think the biggest player has even started up yet. That’s how new we are in this stuff.
Will there be bumps? Yup. And stupidity from major corporations? Yup. But the key is not worry about it and focus on the writing. Pay attention, yes, but don’t get lost in the details. And that’s why I have trouble answering your post with anything but a shrug. Sorry, I know you are worried, but honestly, to me, all this is just a detail out of my control in a major negotiation. Nothing more.
I hope I addressed your worries in enough ways as to allow you to pull them back some. Big publishing (traditional publishers) are not one big unit, the thousands of corporations are not allowed under law to work together to change the market, Amazon’s set business plan is to publish all books forever, and the new articles are nothing more than negotiations over price structure and discounts between two major parties with a ton of weight and the press to toss around.
Sarah, forgot one major fact.
‘Big Publishers” do not feel threatened by the indie publishers, and in fact, many are making plans to use the indie publishing as the future slush piles. Not sure where your assumption that traditional publishers feel threatened by writers publishing their own work. They do not. Many are happy about it. Honest. So what pressure would they bring to stop something they find good and useful to them?