Sunday, July 19, 2015

Joe's Letter to the Assistant Attorney General

The Hon. William J. Baer
Assistant Attorney General for the Antitrust Division
United States Department of Justice
950 Pennsylvania Ave., NW
Washington, DC 20530

Dear Whomever Has The Thankless Job Of Sorting Through Worthless Letters to Assistant Attorney General Baer:

My name is Joe Konrath, and I'm a professional fiction writer of more than forty books.

I'd like to apologize for the group who call themselves Authors United, who recently sent you a letter pleading for you to investigate Amazon.

To be blunt, Authors United are a bunch of whiny little babies with overblown senses of entitlement, and they deserve derision, ridicule, mockery, and contempt, and my tone in this letter of response will reflect that. They're wasting your time with their nonsense, and they only speak for a tiny fraction of professional writers. I'm truly sorry you have to deal with them.

I don't know if you're required to take their bogus complaint seriously, or if you can simply dismiss their bad logic, ridiculous examples, and outright lies. If you've already seen through their nonsense, you can stop reading this letter right now, and toss it into the garbage on top of theirs.

But, if their letter prompted you to seek more information about Amazon and its role in the publishing industry, maybe I can save you a bit of time by explaining a few things.

For the past fifty years, a handful of big publishers have functioned as a cartel, controlling the majority of what has been published. They did this by having an oligopoly over paper distribution. If a writer wanted to get their work into a bookstore, the only way to do so was to sign a contract with them.

My best guess is that out of every 1000 books written, only 1 was published. That meant 999 out of 1000 books were effectively deep-sixed, prevented from ever reaching the public.

Those writers lucky enough to be picked by a publisher were forced to sign one-sided, unconscionable contracts that required giving up rights for the length of copyright (the author's life plus 70 years), among other onerous terms such as non-compete and termination clauses, in return for poor royalties. All publishers offered the same, lockstep terms, and writers had no choice but to accept them, or never reach readers.

In short, the publishing industry effectively censored the majority of writers, and screwed most of the rest.

But there were a few exceptions to the abuse. Over the years, some authors were lucky enough to become bestsellers, which gave them tremendous wealth.

Some of these writers signed the Authors United letter you received.

As successful members of the status quo, these rich jerks want to retain their spots in the pecking order. Except, now they have an obstacle in their way.

Amazon.

By putting the customer first, Amazon has grown to become the largest retailer of books in the world. They've done so by offering a wide variety of books at low prices, coupled with terrific customer service. They also, almost single-handedly, invented the ebook market, which readers love.

At first, publishers liked this new revenue stream. The publishing cartel thought they could control the price of ebooks the same way they controlled the price of paper books. A hardcover book costs less than $2 to print, but publishers stamp $29.95 on the cover (what other industry puts prices on their products?) and expect retailers to sell it for that amount. They wanted to do the same with ebooks.

Amazon, realizing that ebooks had no printing, warehousing, shipping, or delivery costs, rightfully felt ebooks should cost less.

Publishers didn't like that, eventually colluding illegally to force Amazon to accept their pricing structure, keeping the price of ebooks high.

The DOJ wisely spanked the publishers for their collusive ways. But a small group of boneheads, acting out of greed or stupidity or a combination of the two, still want to blame Amazon for their problems.

I'm going to go through their short letter and explain why they're wrong. Their nonsense in italics, my counterpoints in regular text.

From the beginning of our nation, Americans have understood the central role that open and competitive markets play in promoting freedom of expression and protecting our democracy. The country's founders, Congress and the Supreme Court have repeatedly made it clear that a concentration of private power over any marketplace of information is incompatible with American ideals of liberty, free speech, and the unfettered flow of ideas.

Amazon earned its current market position by innovating, offering a wide selection and great customer experience, and keeping prices low. But Amazon's power is only a result of people choosing to shop there. Insisting that Amazon controls the "marketplace of information" is ridiculous. There are thousands of bookstores in the US, and thousands of online retailers that sell books. Amazon doesn't control anything.

Today a single company, Amazon, has gained unprecedented power over America's market for books. We are not experts in antitrust law, and this letter is not a legal brief. But we are authors with a deep, collective experience in this field, and we agree with the authorities in economics and law who have asserted that Amazon's dominant position makes it a monopoly as a seller of books and a monopsony as a buyer of books. 

At least they admit they aren't antitrust experts. But that doesn't excuse them for misunderstanding what "monopoly" and "monopsony" mean, or from wasting your time.

According to published figures, this one corporation now controls the sale of:

• More than 75 percent of online sales of physical books.

• More than 65 percent of e-book sales.

• More than 40 percent of sales of new books.

• About 85 percent of ebook sales of self-published authors.

Amazon is not a monopoly. They have plenty of competition, including Apple, Google, Walmart, Barnes & Noble, Books A Million, Kobo, Smashwords, Scribd, Oyster, and more than 2000 independent bookstores.

And even if Amazon were a monopoly, its 20 year track record has shown a consistent effort to keep prices low.

You can guess why publishers, and their lackies, don't like this tactic.

With its own traditional imprints and its near-total control of self-publishing, Amazon has also become the largest publisher and distributor of new books in the world.

This is a very important point. Remember those 999 books out of 1000 that could never reach readers because the publishing cartel rejected them? Amazon allows those authors to self-publish those titles, and make them cheaply and easily available to the public. And now those authors that the publishing industry passed up are outselling the books published by the major publishers. Visit http://authorearnings.com for the figures.

In recent years, Amazon has used its dominance in ways that we believe harm the interests of America's readers, impoverish the book industry as a whole, damage the careers of (and generate fear among) many authors, and impede the free flow of ideas in our society.

This is bullshit.

Amazon has allowed more readers access to more books than any other company in history.

Amazon hasn't damaged the career of any author. They don't have the power to. They've certainly never targeted authors, or retaliated against authors who have spoken against them. Look at all of the Authors United signatories; all of them have books for sale on Amazon.

The only fear Amazon has generated is in publishers--overpaid middlemen who refuse to innovate, collude rather than compete, and are no longer needed because Amazon and its retail competitors have broken their oligopoly by allowing writers to reach readers without them. And a small minority of authors who Big Publishing has made rich don't like this.

Amazon has no control over ideas in our society. They don't control the Internet. Or the media. Or the government. Or the content of books. Or the distribution and sale of books.

Amazon is a retailer that readers, authors, and publishers choose to deal with. No one is being forced to deal with Amazon, and Amazon has scores of competitors.

Amazon, to pressure publishers over the past eleven years, has blocked and curtailed the sale of millions of books by thousands of authors;

First of all, Amazon can't block book sales. As a retailer, it has the freedom to decide what it wants to sell, and for how much. To suggest that Amazon somehow sent out an armed militia to prevent a book from being sold is insane.

Amazon, during its dispute with Hachette in 2014, appears to have engaged in content control, selling some books but not others based on the author's prominence or the book's political leanings;

What Authors United doesn't mention is that Amazon's contract with Hachette had expired months earlier. It was under no obligation to sell Hachette's titles, but it continued to do so in good faith. As negotiations dragged on (and you can guess what they were about--Hachette wanted to control the price of ebooks and charge more for them), Amazon no longer stocked some Hachette titles, and no longer offered pre-orders for some Hachette titles. After all, why should they stock or sell books when they might not be able to negotiate a new contract?

Authors United also failed to mention that on three different occasions, Amazon offered to monetarily compensate Hachette authors for lost sales while Hachette dragged its feet during negotiations. Hachette rejected Amazon's offers.

Amazon has used its monopsony power, and its ability to threaten punishment, to extract an ever greater share of the total price of a book from publishers;

Wait a second... a retailer negotiating with a supplier violates anti-trust laws?

Of course it doesn't. But Authors United doesn't let facts get in the way of a good story.

If you're curious, this is how the current ebook payout structure works:

Amazon gets 30% of the list price of an ebook.

Authors get 17.5% of the list price of an ebook.

Publishers get 52.5% of the list price of an ebook.

Compare this to self-published authors, who get the full 70% of list price.

A much better argument is that Big Publishing used its oligopoly power to keep author royalties low. Since no publisher ever offered authors higher royalties, authors had no choice. It didn't matter if a writer went to Penguin or Hachette, both offered the exact same royalty rate. And it didn't matter if a reader bought a Penguin or a Hachette book, they were both the same price, conveniently printed on the cover.

this has resulted in publishers dropping some midlist authors and not publishing certain riskier books, effectively silencing many voices;

This is just plain ridiculous. No author is being silenced. Any author who has been dropped or rejected by a publisher can self-publish on Amazon, B&N, Kobo, Smashwords, Scribd, Oyster, Google, Apple, etc. And they'll make much better royalties doing so.

Publishers do not create content. Writers create content. Publishers are overpriced middlemen. Once they were essential to authors, because of their paper distribution cartel, and they took terrible advantage of us. Now, thanks to companies like Amazon, publishers are nothing more than a very expensive value-added service.

Amazon routinely sells many types of books below cost in order to acquire customers for unrelated lines of business and to drive less well capitalized retailers - like Borders - out of business.

Amazon did not drive Borders out of business. Lousy management put Borders out of business. And loss leaders aren't illegal. Twenty years earlier, Crown Books became the third largest chain in the nation by discounting books.

This practice, extending over many years, has caused price deflation across the industry and reduced the amount of revenue available for publishers to invest in new books, thus depriving readers of wider choice;

See what they did there? This isn't about authors. Amazon's insistence on low prices for its customers is hurting publishers. Which is great, in my opinion. Publishers have parasitically lived off the blood of tens of thousands of authors over the last five decades. The alternative Amazon and its competitors present--self-publishing--coupled with Amazon's ongoing efforts to make books affordable and available to everyone in the USA, has broken Big Publishing's stranglehold on writers and readers.

Before, readers could only choose books that Big Publishing selected, at the price Big Publishing insisted upon. Now, we finally have a free market, with competitive pricing and previously unavailable books able to reach readers.

Amazon offers readers more choices, not fewer. Publishers were the ones depriving readers of choice. Publishers were the ones marking up the cost of books over 1000%. Publishers were the ones preventing writers from reaching readers.

And now publishers are hurting? Boo hoo! Get the hankies! But even if every publisher in the world went out of business, it wouldn't deprive readers of choice, because writers can reach readers without publishers.

Amazon routinely uses its market power to steer readers toward its own books and away from books published by other companies;

Hold on, can businesses be forced to sell products they don't want to sell?

Penguin Putnam is the largest publisher in the world. They've used their market power to steer readers toward their own books, and away from mine. Can the DOJ go after them for me? Please?

Amazon dictates pricing to self-published authors, requiring them to price their books within a specific range or be subjected to a 50 percent cut in royalties.

Translated: Amazon incentivizes authors to keep ebook prices within a certain range by offering them higher royalties for doing so. Authors can choose a 35% royalty, or a 70% royalty.

Contrast this with publishers, who offer no choice; authors are stuck with 17.5% of a price the publisher sets.

So for a $3.99 ebook, a self-published author on Amazon earns $2.78. A $3.99 ebook published by a Big Publisher earns the author $0.68.

The present inaction by regulators is not in keeping with the history of government response when a single company has come to dominate a venue for communication. In the 20th century, Congress repeatedly passed laws that prevented a concentration of ownership in vital informational markets, including newspapers, radio and television.

Amazon is not an information market. Amazon does not control authors or books or readers. Amazon is under no obligation, legal, fiscal, or moral, to sell anything.

But the precedent for this thinking extends back to the First Amendment and in 19th Century law. In 1866, long before the creation of antitrust law, Congress passed the Telegraph Act, which blocked a private company from gaining monopoly control of this very first electronic medium of communication.

Amazon is not a utility. Readers, authors, and publishers choose to deal with Amazon, and it is completely voluntary. Readers, authors, and publishers also can choose to deal with Amazon's many competitors. Amazon doesn't prevent that.

The courts have regularly found that existing antitrust laws can and should be used to protect information markets from private monopoly. Justice Anthony Kennedy, in the 1994 Turner Broadcasting v. FCC case, articulated the reasoning. He wrote: "Assuring that the public has access to a multiplicity of information sources is a governmental purpose of the highest order, for it promotes values central to the First Amendment… The First Amendment's command that government not impede the freedom of speech does not disable the government from taking steps to ensure that private interests not restrict, through physical control of a critical pathway of communication, the free flow of information and ideas."

So, by selling more books than any other retailer, and allowing more books to be published than any other time in history, Amazon is somehow controlling information?

WTF?

As far as I know, other than certain types of pornography, Amazon sells practically every book ever written, with the exception of those authors and publishers who freely choose not to sell on Amazon.

Should those publishers and authors be forced to sell their books on Amazon, because Authors United apparently thinks Amazon controls the the free flow of information and ideas in the USA?

It's also worth noting that Amazon allows third-party sellers to sell books on its website, effectively competing with itself. So if Amazon ever did decide it didn't want to sell a certain book, third party sellers could still sell it on Amazon.

For example, if Amazon hadn't reached a contractual agreement with Hachette and stopped selling Hachette titles, third parties could still sell Hachette books on Amazon. This makes it impossible for Amazon to block anything.

Americans are just as opposed as ever to seeing private interests gain control of any marketplace of information. In February this year, the FCC, responding to the strong consensus view of the American people, ruled that no private interest should be allowed to manipulate the flow of information across the Internet, and established rules for "net neutrality."

This example actually made me chuckle. So Authors United supports the idea that there should be no government regulation of the Internet, yet it is demanding government regulation of Amazon.

Really? They don't see the irony there?

Only a few months ago, your Division was reportedly among the regulators who opposed excessive consolidation of ownership in broadband Internet, which halted the merger of Comcast and Time Warner Cable. As recently as 1999, the FTC made clear that such principles also apply specifically to the book business, and blocked the purchase of Ingram Book Group, the country's largest wholesale book distributor, by Barnes & Noble, the country's largest retail bookstore.

This is United Authors making good on their confession that they aren't anti-trust experts. Neither am I, but I do know that monopolies per se don't violate US anti-trust law. If monopolies use their power to, say, raise prices (like the publishing cartel did), that violates the law. Or if a company attains a monopoly by merging with competitors, as in the above referenced instances, that also violates the law.

Don't any of the geniuses at Authors United know how to use Wikipedia? Perhaps it's good that they don't, because they might call upon you to break up Wikipedia for controlling information and ideas...

For two centuries, America's book business was the freest, fairest, and most competitive in the world. More than a business, it was a marketplace of ideas, with publishers acting as venture capitalists, advancing funds to give authors the freedom to write books, and thereby hoping to make a profit. In this way the profit motive was put in service of a vital national interest and our fundamental rights. 

And now, thanks to new technologies such as ebooks, retailers such as Amazon, and readers having more choices than ever before, publishers just aren't needed.

But rather than try to innovate and compete, publishers and their lapdogs in Authors United want government intervention to suppress progress and freedom.

Thanks to Amazon and its many competitors, writers no longer need venture capitalists to invest in them. Anyone can publish a book, for free. If a writer needs venture capital, they can raise it via Kickstarter or Indiegogo. And best of all, writers can now keep their rights, and they get the lion's share of the profits.

This doesn't sit well with the minority of Richie Rich bestsellers who made millions through the old system. So now they are wasting your time by shouting "monopoly!"

"The best test of truth," Oliver Wendell Holmes wrote in 1919, "is the power of the thought to get itself accepted in the competition of the market." What Americans seek, Holmes said, is "free trade in ideas."

Amazon is one of the major reasons we finally have a free trade in ideas.

Over the years, Amazon has benefitted (sic) readers and authors in many ways. But no temporary price cut can compensate for the costs to free expression and the health of America's book industry that have resulted from Amazon's abuse of its dominance in the world of books. Accordingly, we respectfully request that the Antitrust Division investigate Amazon's power over the book market, and the ways in which that corporation exercises its power, bearing in mind the very special constitutional sensitivities that have historically been applied to any business that has established effective control of a medium of communication.

I humbly request the Antitrust Division look at the publishing industry, and the practices they used to control the book business for decades. You'd be surprised how badly authors have been exploited, prior to Amazon's entrance into the marketplace.

I know Authors United also wrote a longer, stupider letter. If you're interested, I took that letter apart piece by piece here:

http://jakonrath.blogspot.com/2015/07/authors-united-epic-fail-o-rama.html

It is also my understanding that the Association of Authors Representatives, and the Authors Guild, sent letters to you, backing Authors United. It's worth noting that one of the reasons authors have been so exploited by the publishing industry is that we have no advocates or organizations to help us. The AAR and Authors Guild have repeatedly sided with publishers over authors on many important issues.

If you'd like to learn more about how Amazon has benefited authors and readers, and how these organizations have harmed authors and readers, I've written extensively on this subject. You might find the following posts of mine interesting or helpful. I apologize that there are so many; there has been a great deal of hate directed toward Amazon over the last few years by the media, and by several of the rich authors behind Authors United.

http://jakonrath.blogspot.com/2012/05/unconscionability.html
http://jakonrath.blogspot.com/2012/05/exploited-writers-in-unfair-industry.html
http://jakonrath.blogspot.com/2012/05/aar-fail.html
http://jakonrath.blogspot.com/2014/10/the-publishers-guild-strikes-again.html
http://jakonrath.blogspot.com/2014/08/for-authors-guild-other-legacy.html
http://jakonrath.blogspot.com/2013/12/konrath-and-eisler-vs-richard-russo-and.html
http://jakonrath.blogspot.com/2013/04/scott-turow-and-politics-of-cowardice.html
http://jakonrath.blogspot.com/2014/07/must-stop-stupid.html
http://jakonrath.blogspot.com/2014/07/konrath-and-eisler-vs-richard-russo.html
http://jakonrath.blogspot.com/2012/03/barry-joe-scott-turow.html
http://jakonrath.blogspot.com/2012/03/presumed-inane.html
http://jakonrath.blogspot.com/2014/07/so-real-authors-guild-is-amazon.html
http://jakonrath.blogspot.com/2012/05/joes-letter-to-doj.html
http://jakonrath.blogspot.com/2014/05/fisking-lilith-saintcrow-and.html
http://jakonrath.blogspot.com/2014/05/fisking-charlie-stross-more-on.html
http://jakonrath.blogspot.com/2014/11/amazonhachette-negotiations-finally-end.html
http://jakonrath.blogspot.com/2014/07/amazon-hachette-sounds-of-silence-guest.html
http://jakonrath.blogspot.com/2014/10/is-nyt-coverage-of-amazon-vs-hachette.html
http://jakonrath.blogspot.com/2014/08/amazon-vs-hachette.html
http://jakonrath.blogspot.com/2014/07/amazons-latest-proposal.html
http://jakonrath.blogspot.com/2014/06/the-hachette-job.html
http://jakonrath.blogspot.com/2011/10/guest-post-by-barry-eisler.html
http://jakonrath.blogspot.com/2014/07/authors-behaving-badly-and-authors-who.html
http://jakonrath.blogspot.com/2014/07/douglas-prestons-blood-money.html
http://jakonrath.blogspot.com/2014/09/nonsense-united.html
http://jakonrath.blogspot.com/2014/05/amazon-speaks.html
http://jakonrath.blogspot.com/2014/10/agents-behaving-badly.html
http://jakonrath.blogspot.com/2014/08/william-ockham-fisking-michael-pietsch.html
http://jakonrath.blogspot.com/2014/06/i-understand-and-sympathize.html
http://jakonrath.blogspot.com/2014/10/fisking-salon-and-rob-spillman.html
http://jakonrath.blogspot.com/2013/12/konrath-and-eisler-vs-richard-russo-and.html
http://jakonrath.blogspot.com/2015/07/fisking-douglas-preston.html
http://jakonrath.blogspot.com/2015/07/more-authors-guild-nonsense.html
http://jakonrath.blogspot.com/2015/07/douglas-prestons-fail-thon-continues.html

But hopefully you'll find no need to wade through thousands of words I've written just to reach the inevitable conclusion that: Amazon isn't a monopoly, Amazon is beneficial, the real harm has been done by the publishing cartel, and now a bunch of rich whiners are about to be disintermediated, so they're wasting your time with this silly Hail Mary pass.

Again, I apologize for my peers. I know you have better things to do. But unlike Authors United, I actually do care about my fellow authors. It is worth noting that I am not employed by Amazon, nor does Amazon know I'm writing this letter. I do offer my self-published books on Amazon.com, and Amazon has published several of my books. I've also been published by many other big publishers. I don't speak for Amazon in any way, shape, or form. I'm also openly critical of Amazon, and have publicly chastised them for doing stupid things the same way I've chastised Authors United and their ilk.

Thank you for your patience, and feel free to reach out to me if you would like any more information or clarification.