Sunday, July 10, 2011

Cooks Law Of Media Mis-Action

Having accumulated enough evidence, I'm ready to propose a new law, which I have (with shocking immodesty) named Cook's Law Of Media Meltdown. To wit:

When faced with a disruptive technology which threatens their business, entrenched media companies can be counted on to do the wrong thing.

This is a remarkably consistent response. It may involve fleets of lawyers filing flurries of lawsuits, or it may involve using coercion or their market power to try to enforce silly rules to bolster the media company's position. It is often illegal, if the FTC or other appropriate bodies decide to look. But as inevitably as the sunrise, the media companies try it. And they almost invariably fail while the media death spiral continues.

Case in point: The major book publishers and ebooks.

Operating under the rubric of the "agency model", five of the six major publishers have banded together to fix prices on their ebooks. Under the rules publishers must set non-discountable prices for all their ebooks and at least 30 percent of the price must go to the retailer. This is in sharp contrast to bookstore pricing of print copies, which is a free-for-all.

There are two things to note about the agency model

1) It is almost certainly illegal.
"Almost certainly" because the authorities haven't investigated it yet. However the agency seems to fall under the established rules barring restrictive trade practices in most cases.

2) It is designed to keep up the price of ebooks to eliminate the competition with print books.
The publishers' problem is simple. Ebooks are much cheaper to produce. So much so that they threaten to decimate sales of conventional books. By artifically keeping up the price of ebooks publishers are trying to keep ebooks from "cannibalizing" the sales of print books.

There's a third thing to note as well:
3) This is an idiot scheme which is guaranteed to fail and damage the publishers in the process.

The basic flaw is that the big publishers control an ever-shrinking percentage of the ebook market. It doesn't really matter what the big boys do, the small publishers and independent authors are going to price their books as they please. That means plenty of ebooks available at attractively low prices.

It also means that most independent ebooks will be priced well below the price of their competitors from the large publishers. Since ebooks are highly price sensitive this means that the sales of independent ebooks will out-compete the major publishers' books on price alone.

But wait a minute! Isn't each book a unique item, not subject to substitution?

The publishers believe that but they've been drinking their own kool aid and lacing it with LSD to boot. In one sense it's quite true. No book is exactly like another one. But for most readers of non-fiction books are what economists like to call a fungible good. In other words there are lots of substitutes available.

I can't get the new Sookie Stackhouse (or I'm not willing to pay for it in hardback), so I pick up another paranormal romance from an independent author. If the difference in price is, say, $10 for Charlene Harris, and $3 for the independent, is that enough to influence my buying decision.

For most books the answer is clearly "yes". If I'm really hooked on Sookie Stackhouse, I may buy her latest adventure despite the price difference. But most readers aren't in that category. For that price different they'll forgo Charlene Harris' work, good as it is, and get two or three of the independent authors books instead.

In other words, what the mental giants in publishing have done with their agency agreement is to guarantee sales for independent authors, even if no one has heard of them before.

Typical dinosaur behavior.


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