Squatting on the distribution channel.

/Squatting on the distribution channel.

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.

–Charlie Stross on how to understand Amazon.

As you can probably tell, I’m mostly in agreement with Stross on this one, with two minor quibbles. The first, later on in his article, is where he states that:

texts are a cultural medium, and the production of new texts is not something amenable to automation or mass production. I can’t go out and hire twenty people off the street and install them in a cubicle farm extruding Charlie Stross branded fiction product.

And, well. Actually, you can do that; this is exactly how James Patterson makes millions, for example. Also see Hardy Boys “author” Franklin W. DixonThe Vampire Diaries, and Alloy Entertainment, amongst others.

But that’s sort of by-the-by.

The second quibble is about called Amazon a “monopsony“, i.e. a sole buyer in a market rather than a sole seller. This is vogue at the moment, intended as a kind of counter to people who argue Amazon “can’t” be a monopoly (at least in the bookselling space) because Barnes & Noble exists or whatever.

Except, actually that’s not, strictly speaking, how a monopoly (or monopsony, for that matter) is calculated; a monopoly doesn’t have to be the sole seller in a market–as is the Conventional Wisdom–it just has to be a majority seller according to an arcane formula they teach in business and law schools called the Herfindahl index (HHI). I can’t find if anyone’s done any exact HHI numbers for Amazon in the bookselling space at the moment, but given I’ve never heard an estimate of Amazon’s dominance there being less than 50% (and much, much higher in ebooks) then I’d wager they’d rate pretty high on the index.

The problem here is that monopolies/monopsonies in-and-of themselves aren’t “illegal”. Antitrust laws only come into play when companies use monopoly power in certain ways that certain government jurisdictions dislike on any one given day. In the US, this is generally related to the cost of goods as purchased by the consumer. Which is why Apple and the Big 5 got slapped with their antitrust suit for collusion to, in effect, attempt to break Amazon’s monopoly over ebooks.

I know, right?

Again, this is sort of a minor quibble, and somewhat tangential to Stross’ point; I still think his conclusion is correct.

Basically, authors lose.

(Whether readers lose or not is more subjective. What people like Stross and myself are essentially talking about when we talk about Amazon’s market power is the growing trend towards “blockbuster” consolidation in the publishing industry. Think Hollywood films or “Triple A” videogame titles or Marvel/DC for comic books for examples in other industries; i.e. bigger, more expensive, more uniform products but less of them overall. Whether this bothers you, as a consumer, or not is something I guess only you can decide.)

2018-06-26T13:12:23+00:0025th July, 2014|Tags: amazon, books, business, pop culture, publishing|Comments Off on Squatting on the distribution channel.