Give Customers What They Want

Two forces tug legacy industries from opposite directions. On the one side, you have customer demand. On the other side you have a mix of fear and laziness. In-between is where corporations and industries find themselves, and they face a choice. Sadly, in most cases, the fear and laziness win out. It’s left to radical new upstarts to provide customers with what they actually want.

The examples are numerous. Look at Tesla, a company that builds all-electric cars and wants to sell them direct to the consumer in order to keep the price down. These cars are sexy, great for the environment, and becoming more and more affordable. What’s the response from the competition? An appeal to the courts to block the skirting of dealership laws. An appeal to an old and wasteful system that means higher prices to the consumer and lined pockets for the middlemen. Check out what the New York Times had to say about these attempts:

Car dealers in New York, New Jersey and several other states are waging legal, legislative and regulatory campaigns to stop Tesla, the fast-growing electric-car company, from selling its vehicles directly to consumers. These moves are little more than attempts to protect an old retail model by limiting consumer choices.

How about Uber and Lyft? Having used these services, and having gotten around dozens of cities by cab, the most amazing shock to me is that taxis weren’t the ones who innovated here. With every potential customer holding a networked computer in the palm of their hand, the increased efficiency made possible by an app that handled dispatching, routing, and payment is a no-brainer. But fear and laziness win out, and now taxis are appealing to the courts to keep a system that is less efficient (which means worse for traffic and worse for the environment) and provides less customer satisfaction.

What does the New York Times have to say about this innovation and Uber’s pricing strategy with UberX?

The key to understanding Uber’s strategy is the concept of “elasticity of demand,” which is how people will react to a lower price. If consumers’ demand is highly elastic, it means that a slightly lower price will lead to people taking a lot more UberX rides.

Price elasticity. Lower prices will result in widespread adoption and greater profits. Interesting.

How about that great disrupter, Netflix? Having put video rental chains out of business and then proving that dropping an entire season of TV all at once can be a good thing, Netflix is now arguing that the classic program of “windowing” is not good for the film industry. Netflix wants to release the sequel to 2000’s smash hit Crouching Tiger, Hidden Dragon on Netflix as well as in theaters, all on the same day. The theaters (which are predominantly three companies) refused. Netflix appealed to the Imax chain, but Imax waived control of their screens to the same three aforementioned companies, who host their installations. Again, the companies refused. And again, the New York Times had fair coverage of the event, saying:

Theater chains in the United States have rallied against attempts to change the traditional model for releasing films, worried that movie fans might stay at home rather than pay for movie tickets. The theaters now typically play movies for three months without competition.

Netflix, Imax and the Weinstein Company, which is producing “Crouching Tiger,” said that movie fans were asking for new ways to watch films. “Going out to the movies is a very different experience than staying in,” said Ted Sarandos, chief content officer at Netflix. “Withholding access only invites piracy.”

In cable television, customers want a la carte (the ability to choose individual channels rather than packages bloated with programming they’ll never watch), but cable providers resist. More balanced coverage from the New York Times ensued, showing both sides of the argument, with their reporter writing: “I don’t watch Animal Planet or TruTV, but I pay for them as part of a package that includes the channels I do want. The cable industry books that inefficiency as profit. It is the lucrative lifeblood of the current entertainment business.”

When Aereo provided a workaround to direct access to over-the-air networks at an affordable price, instead of providing this service to its customers, the networks appealed to the courts. Screw the customers has become the mantra of those whose industries are being disrupted. The networks won, but at least the story was covered fairly in the print media, with Aereo shown as an innovator appealing to customer demand and networks described as “titans,” “powerful companies,” and “fixtures in American living rooms for decades.”

The stodgy and entrenched vs. the awesome new innovator. That’s how these showdowns are rightly portrayed.

Ah, unless it’s books. Unless it’s the publishing industry.

As these same trends hit my favorite pastime, it amazes me how bizarre and lopsided the coverage has been. When the six major publishers banded together to raise prices on consumers, charging upward of $14.99 for ebooks and getting hammered by the DOJ for collusion, the coverage was often sympathy for the publishers and lack of concern for the consumer. This article starts out not by detailing what publishers did, but by making the story about the DOJ’s aggressive response.

The Justice Department jumped directly into the fight over the future of digital books on Wednesday — and Amazon came out the winner.

In an action that could lower the price of e-books and shift the expanding market in Amazon’s favor, the Justice Department slapped Apple and five of the largest book publishers with an antitrust lawsuit, charging that the companies colluded to raise the price of e-books.

Note the “jumped,” “fight,” and “slapped.” How rude of the Department of Justice! And note that the winner in lowering prices, according to the New York Times, is Amazon, not the consumer. Reading the paper every single day, these differences in coverage jump out at you and clobber you over the head with a baseball bat.

The difference in coverage must stem partly from direct conflicts of interest (more on that in a moment) but also from what Clay Shirky brilliantly points to as a brand of elitism. Clay says:

The traditional industry belief — if you don’t live in a big city and have a lot of money, you deserve second-class access to books — is being challenged by a company trying to say “If you have ten bucks, there’s not a book in the world you can’t read.” If the current industry can’t keep their prices high while competing with instant distribution of a vastly expanded literature — and that seems to be their only assertion worth taking at face value — then it’s time for them to figure out how to make a business out of improved access. They can drop DRM, sell ebooks directly to readers, add or improve their subscription services, offer print-on-demand—any strategy, really, except continuing to insist that readers must accept high prices and restricted access.

And:

The tension between their ordinary sympathies for the general public and their withholding of that support in this particular case stems from the duality of authorship as an open marketplace and a closed cultural arena. To criticize Amazon, the publishers and their defenders must simultaneously insist that literature is essential for society, and that a sudden increase in its availability would be a catastrophe.

Finally, quoting at length (you should read the entire piece. Here’s another link to it:

When Packer registers his concern for “books,” he masks the aristocratic core of his argument: fear of popular participation. Like Coll, he imagines a world where the current elites aren’t in charge, and he does not like it, ending his discussion of Amazon with a the question, “When the last gatekeeper but one is gone, will Amazon care whether a book is any good?”

To which the answer is obvious: Of course Amazon won’t care. That’s none of their business. And note well Packer’s concern: It is not that people will stop writing or selling books that rich, well-educated people want to buy (an unlikely outcome, in this or any market.) Instead, he is concerned that publishing will become too easy, that there will be no one who can stop the publication of dreck, and by dreck he means books he and I and our fellow members of the highly educated class won’t approve of.

So that’s the cultural elitism aspect of the one-sided coverage. The other is the direct conflict of interest. The same company that owns HarperCollins, one of the five remaining “major” publishers, also owns the Wall Street Journal. Hachette was part of Time Warner and is now owned by a French media conglomerate that runs newspapers and magazines around the world. Penguin and Random House have merged and are both owned by the Bertelsmann Group, Europe’s largest radio and TV broadcaster and one of the largest magazine printers. Simon & Schuster is owned by CBS, one of the handful of broadcast TV companies. MacMillan is owned by Holtzbrinck, another multinational media firm.

The “Big Five” are all wings of larger media conglomerates; they are not mom-and-pop book-creators. In fact, each major publisher is made up of dozens of imprints each, many of which used to be smaller publishers, some of them daring to publish affordable paperbacks until they were gobbled up and merged into the hardback-windowing high-margin machines we see today. These publishers, keep in mind, occupy some of the most expensive real estate in the world. In London, publishers are erecting towers along the Thames, despite real estate there being crushingly unaffordable for the general public.

So two things are at play here: The first is that innovation is happening everywhere, and the response everywhere has been for legacy industries to have as their “Kodak Moment” entrenchment, fighting against customer desires, banding together where possible, and appealing to the courts for protection.

We receive fair coverage of many of these trends, but completely busted coverage of what’s happening in the publishing industry. Instead, the New York Times sells $104,000 ads to wealthy authors and gives them in exchange article after article presenting only one side of the issue. It is rare when a member of the media presses with facts, and a disaster for the pro-legacy pundits when they do.

So what needs to happen? Someone in the media business needs to cover the publishing industry fairly. I’ve pleaded with David Carr to be that person, as he’s sharp enough and independently minded enough to pull it off. And I want to see my beloved New York Times at least dip a toe into the right side of history. The coverage can be fixed, I’m sure of it.

But what about the disruption taking place at the heart of the industry? What should we hope to see from publishers?

I’ve blogged before about what I would do, and it comes down to slashing the waste in the industry and passing those savings along to customers and artists. Basically Amazon’s strategy. Amazon gets hammered for making its employees (gasp) pay for candy bars in vending machines and for not taking large profits—choosing instead to focus on customer service, low prices, and better margins for authors. Publishers, meanwhile, set up in Midtown Manhattan and along the Thames, collude to raise prices on consumers, offer lockstep and horrid digital royalty rates, and they are the paragons of virtue. It doesn’t have to be this way. Any one of them could make an about-face immediately and change their corporate culture, and we should want them to.

Just as it should have been the taxis who embraced technology and linked up with customers through their cell phones, it should have been publishers who invented ereaders and celebrated a less wasteful and more affordable story delivery mechanism. And it’s not too late for them to innovate and lead rather than go to the courts and sue against progress.

Let’s talk about solutions. When I worked in a bookstore, I lamented the choice publishers made to window book formats. Hardbacks came out first and paperbacks were delayed. Rather than give the customer what they wanted, the publisher made only the most expensive version available. $30 for a hardback that cost less than $3 to print. No affordable option during the window in which the bulk of the advertising dollars would be spent. It made no sense to me as a bookseller (or as a reader).

Giving customers what they want makes good business sense. It also makes sense to give customers a variety of experiences, not just because the audience is made up of a mix of people with different wants and financial means, but because of the effect of an upsell. If there are two versions of the same product, and one is in some way superior but costs more, the upsell means the price of the more expensive product is — in the mind of the consumer — equal to the difference between the two prices.

If I know I want a certain book, and the paperback is $15 while the hardback is $25, I tell myself that the hardback is “only $10 more.” The money I’m spending is now smaller amount than even the cheaper of the two options. The choice between two editions removes the choice of whether or not to buy the book. Now I’m deciding which format I want.

In the NYT article about Netflix’s Crouching Tiger release plans, a great analogy is made with professional sports. Being able to watch the game at home doesn’t stop the stadiums from being well-attended. It’s a different experience. In the publishing world, the reading experience across formats is becoming more and more similar, with even ebooks providing something closer and closer to print, but the ownership experience is still different. Hardback buyers are often collectors. Paperback buyers might read once and then pass the work along or sell it at a used bookstore. E-book buyers are free to hoard without worrying about clutter or the psychological weight of unread books staring them down from the bedside table.

Publishers obsess about hardback margins at the expense of customer choice. They do this despite the fact that the #1 breakout publishing hit of the decade was 50 Shades of Grey, a paperback original. The hardback editions came later and still sold, because not all readers are the same. When Simon & Schuster released WOOL in the US, they published the hardback and paperback on the same day, and both editions hit their respective New York Times bestseller lists and went into third and fourth printings.

It’s simple: Ask yourself what the customer wants, and give it to them. Stop running your business by the whims and needs of the middlemen. Treat writers and readers as well as possible, and refuse to do business with anyone who tries to squeeze you for making that decision. That means no windowing. It means free copies of the audiobook and ebook with the sale of every hardback. It means getting rid of DRM. It means ebook prices in the $5.99 – $6.99 range, even for new releases from top-selling authors.

What do we have instead? Publishers fighting against every one of these trends. We have appeals to the public and to the courts that get it all completely backwards. We have a part of a much larger trend of legacy industries fighting progress, working against the public’s best interest, all because fear and laziness win out over customer demand.

Start watching for these trends, and you’ll see them everywhere. And you’ll notice that there are companies (usually on the west coast), like Uber, Tesla, Netflix, Google, and Amazon that are trying their damnedest to provide a better experience at a better price with more choices. While other companies, in expensive towers built of stone, are conspiring with one another and appealing to the courts to do whatever they can to fool and rob their paying customers. Who do you think is going to win with those two strategies? Who should win? And what affect can a biased media play in the outcome?

 

 

COMMENTS (114)

Very curious, the Netflix thing… There are so many movies i want to see when they come out but hate going to theaters, I wish there was a way i could buy it the day it is first released. It would put bootleg sites like Thebigu out of business, where i go for new movies now, but that would be okay with me. I don’t like stealing movies, I just want to see them NOW, and I usually buy a copy later when available anyway, so i am not really stealing, just ‘early looking’, lol
It is funny because as much as I love Amazon, I feel this way about books too. Releasing ebooks the same day as the hardcover is destroying hard cover sales, but it isn’t killing profit for the writer(if he self publishes, anyway).
But I am not sure if i agree with the car dealerships. I am old enough to remember the birth of the internet, Every company promised lower prices because they would cut out the middle man, but is an ipad cheaper online then in the store? NO, even though it should be. So if it costs the same for a car from the manufacturer as it will from a dealer, then lets employ some dealers….

Affordable access kills piracy. I left out so many examples, because the post was already longer than any mortal could suffer through, but Valve’s Steam service is another great one.

The video game industry fought tooth and nail against streaming. Steam was supposed to be another colossal failure. Instead, it revolutionized PC gaming. Their summer sale events result in lots of earnings for games that might not even be played. And why pirate when a copy of every game you buy is saved in the cloud for you, so you can install it on every new computer without looking for the physical media?

What’s great about this example is that it was a video game company that revolutionized the delivery mechanism. Just what would have happened if Random House had embraced and popularized the ereader. Steam sells games from a vast array of other companies, helping them make more money by creating a great experience for customers. No reason a Penguin-produced ereader couldn’t have sold HarperCollins ebooks and made reading easier and more affordable.

Let’s take that one step further and see if there’s something coming down the pipes that publishers could embrace. I think there are three areas they could tackle in order to profit in the future and be more in control of their industry:

1) Audiobooks. This is the growth sector in the book trade. Hook readers on audiobooks by giving them away with hardback sales and by drastically lowering the price. Create a partnership with Apple for audiobook-specific devices that come pre-loaded with content or have book-specific features like sleep timers, organizational tools, scrolling text screens, noise-canceling earbuds, etc.

2) Short stories. Another potential growth sector, where reading will become more and more like a web experience. Sell “baskets” of stories together, or buffets where readers assemble their own collections. Foster discussions. Price them right (3 stories for a dollar). And funnel readers to similar works and longer reads from the same authors. Offer free content in the form of newsletters. Put video readings up on YouTube. Sponsor contests. Amazon has made moves with the Singles program, but there is room to out-compete them here.

3) Self-publishing. Drop crummy partnerships with Author Solutions and create open platforms for readers and writers to create and share content. Anthologize the most popular works into very inexpensive ebooks. Collect reading habit data and customer email addresses; find out which stories are getting the highest reading rates; and then move those stories into print anthologies.

When I was a kid and gasoline was cheap (35 cents/gallon), gas stations used to:
– pump your gas,
– check your tires,
– wipe your windshield
AND give away freebies like glasses, Christmas albums (we’ve still got one) because they wanted you to buy your gas from their stations.

You can’t imagine a gas station doing any of that today and we pay close to $4 per gallon.

My point is your suggestion of publisher giveaways is something that all industries have done with great success and it didn’t financially bankrupt them.

Just the opposite, it creates loyal, happy satisfied customers. That’s why for a long time my Dad would only bought his gas from Shell. :)

Steam is great, may i ask if you have played DayZ yet?

I haven’t. I’ve been out of the gaming scene for a while. Just get to play a couple a year these days. Dabbled in WASTELANDS 2, which rocks.

Check out a DayZ Standalone video on youtube, I have a feeling it is a game you would enjoy. You start on a beach, the clothes on your back and a flashlight. You have to avoid zombies until you find a way to defend yourself, also avoid people because they will kill you for your flashlight. You can go into the less populated areas and live a quiet life of survival, or head to a big city and go to war.
Not a big gamer myself, last game was Team Fortress about ten years ago, lol, but once I watched a number of DayZ videos by Frankieonpcin1080p, i was hooked.

And not only that, but Steam actually lets other online stores, like Green Man Gaming or the Humble Indie Bundle, sell games that are fulfilled through Steam—and doesn’t lockstep them on pricing, either. It’s not unusual to find a Steam game selling at full price on Steam’s own store, but offered at a considerable discount through Green Man.

You end up having to watch sites like steamgamesales.com to find out where stuff is the cheapest at any given time. But given that means multiple chances for any game to be discounted at any given time, that’s pretty darned good for the consumer.

Media outlets like the NYT and WaPo need to protect their own livelihood and will not expose the publishing industry for the bully it is. Remember, print media companies have been railing against those uncouth bloggers and internet news sites for several years. I mean, come on, who is going to write good news articles and then give them away for free?

Does that sound familiar? I mean, who’s going to write good books and give them away for free?

There is a kinship between print media and publishing that allows them to see a common enemy. That enemy is anyone that is willing to produce content and provided at a lower cost than they are willing to do themselves.

What an amazing time it is to be alive. Thank you Hugh for being a voice, please keep it up.

I am firmly in the camp of “if you make it easier than free, then more people will stay away from pirated content”. I work in IT, so I have many friends who still download content over bittorrent or Usenet or whatever, but why would I search for content from dodgy torrent sites, download movies that I have no real idea what quality that they are or what viruses that they contain when I can just pull up the Netflix or Amazon app on my phone and just watch what I want, when I want it?? Economically, spending $10 a month ($12.99 for us, actually) is way easier and more economical for me than “free” content that I have to spend time hunting for and converting to different video formats or encodings to get it to play on my TV or my phone, or whatever.

Netflix took the route of asking “what do customers want?” back in the day, and we answered: we wanted to have a list of DVDs that would be sent to us automatically without us taking our lazy asses to the store, we didn’t want to deal with late fees or the small selections of movies available at the local Blockbuster. We wanted DVDs that would have made no sense for Blockbuster to waste shelf space on, like obscure anime DVDs and DVDs of full seasons of old TV shows that haven’t been on the air for 20 years. Then they asked us: “do you want all of this same content streamed to your house instead, so you don’t have to wait 3 days for the next DVD to arrive?” And we said HELL YES TAKE OUR MONEY!!

Amazon asked the same question. “What do customers want?” We answered: “We want to browse through a massive online library of EVERY SINGLE BOOK EVER WRITTEN and pay a reasonable price to have that book in our hot little hands within 3-5 business days”. Then they asked: “do you want us to sell other products like that?” and we said HELL YES TAKE OUR MONEY I NEED A NEW PAIR OF SOCKS AND A DOCTOR WHO COFFEE MUG BUT I DON’T WANT TO GO TO THE STORE RIGHT NOW AND I DON’T EVEN KNOW WHO SELLS DOCTOR WHO COFFEE MUGS IN MY TOWN!! And then they did the same for ebooks.

Unfortunately, the people who make money doing things “the way we’ve always done it” are short-sighted but they have power and money and it doesn’t help that they are part of these big media conglomerates.

Next time, I have you write my blog post in 1/10th the words with twice the clarity. :)

Absolutely.

It’s what customers want. Netflix and Amazon and Uber put their customers first and are reaping the benefits. Not because they particularly love the customer but because they want the customer’s business. These disruptors saw margins they could eat into and saw unmet customer need and desire and preference.

The legacy system in each industry put maintaining its empire first, and thus relegated the customer to the last position or somewhere near the bottom. This is the explanation for the Big 5 (6) colluding to raise the price of eBooks to discourage their adoption and buttress the print book infrastructure.

We’ll see in the coming years how special their snowflakes really are or whether books are, after all, truly just one more consumer good, like toasters and hammers, CDs and DVDs…

I think there’s also a ridiculous law regarding televised broadcasts of sports games – namely, that if the stadium hasn’t sold out, the TV channels aren’t allowed the air the game (because, of course, how dare someone want to watch at home when there’s tickets left).

I think its called the Blackout Law – and I think it’s also being repealed: http://arstechnica.com/business/2014/09/fcc-repeals-sports-blackout-rule-challenges-nfl-to-stop-screwing-over-fans/

Although the NFL can still enforce Blackout clauses in their private contracts. As if any of that is in the customers best interests!

The FCC rescinded that rule this week. The NFL said it will continue to operate as before. I had this in a rough draft, but it was just too much info.

Matthew McKinley

And a couple of Senators have said, “Not so fast, NFL. This bill we’re sponsoring Will repeal your antitrust exemption. Still want to continue with the blackouts?”

Yup. The threat today was that they’ll abide or face serious consequences. I love it. Congress doing something positive.

For a change.

Alas, they’re just siding with the bigger gorilla: the broadcasters. Being good for the Average Joe is a welcome side-effect.

The problem here is that “what the customer” wants changes very quickly over time, thanks to technology, new possibilities, etc. Heck, most of the time the customer doesn’t know that he wants that before that doesn’t even exist.

That’s what startups are for. It’s not fair to criticise publishers too much on their lack of innovation and change (it is fair to criticise them harshly in this fight for higher ebook prices because that is simply going against business common sense, on top of the democratisation of reading).

I really liked a previous post here a few weeks ago on publishers being big, slow tankers and authors and new companies being jet skis. That’s exactly my point about startups. The solutions will not come from publishers, they will come from the new companies that are being created in this industry every day and effectively trying to either offer what the customer currently wants (i.e. reading Hugh’s blog post on “Stuff I want from Amazon” and saying: “well, we’re going to offer this, this, and this, that Amazon is not offering yet), or alternatively try to guess what the customer will want in a year or so (and trust me, that’s much more fun and rewarding).

And startups are always applauded by the press. Everyone loves startups. Even Amazon has been applauded for years. The difference now is that they are an established player, and one that is meddling with big media companies (publishers), so the sympathy of the press for them is gone (except from the one dedicated to startup and startup-thinking companies: Techcrunch for example).

I love you, Hugh Howey, that is all. It’s what I’ve been screaming about on every corner. DO WHAT THE CUSTOMER WANTS. MAKE THE CUSTOMER HAPPY. YOUR READERS ARE YOUR CUSTOMERS. But of course, since I’m fairly new to self-publishing, my voice doesn’t have much weight. Yet. So thank you for tooting this horn. Onward.

Your voice has plenty of weight with me!

How films window and how books do it isn’t analogous (At least not yet). I agree with a lot of what’s being said here. But I’m kinda hung up on the movie release analogy.

Hugh, you point out that Wool went on to hardback after it had been successful. After it had a Simon&Schuster deal. This is akin to the film being released after video/DVD, after cable, after that tiny little seeing it on airplanes window. The current model doesn’t support that. The forerunner is the film, and the advertising from the film helps advertise the other venues — that’s part of what is being paid for — not just the movie itself, but the exposure. “Hey, FX has the latest Marvel movies!”

And maybe I’m arguing semantics, but as you point out, the choice between Hardback, paperback, and eBook is a choice between format. However, the choice between Film and Television isn’t just a choice between format — it’s also a choice between CONTENT. I can’t watch Blacklist in the theaters, despite how much I may want to. In fact, there is no way for the current TV model to support this (as revenue is made from commercials).

I think your example of how reversible the windows are for books shows the major difference. The ordering of windows in Film is very important, particularly because of the cost of a film.

With film, there is definitely a premium marketplace. Right now, that’s the theater. Should that change, windowing will still largely be in effect, just the order will swap.

For books however, the order doesn’t make much difference. If people want the hardback, they buy the hardback. If they want the eBook, they buy the eBook. By and large, the order doesn’t really affect the ones before or after it (which is your point. My point is–for Film and TV, the order in which these rights are sold matters quite a bit).

Also, I think your example hedges on what Joe Konrath has been saying for some time — that Hardbacks will become an ancillary market.

Just some lingering after thoughts… To me, as a reader, there’s a lot less difference in the content between book formats (as in virtually none). I don’t find this to be true with film (and maybe I’m in the minority here). But film and television do not approach content in a similar vein. The content held within is a result of the format — this isn’t true for books.

Transplanting from one to the other is — “a movie on television” vs. ” a TV movie.” (Isn’t it weird, how just making that comparison, we already know and can picture the difference between these two?)

I disagree. The revenue for films shown elsewhere can make up for lost cinema ticket sales. Theaters should sell the DVD and Blu-Ray right outside the theater, when you’re totally hyped up from seeing the film. Get you at the peak of endorphin flow.

Windowing doesn’t protect anything except for the non-competing market. It protects theater-owners, not the movie business. But film companies can’t risk pissing off the theater owners, so they have to limit their overall business by adhering to windowing terms. The same thing publishers have to do to appease bookstores.

You’ll see all this change in the next ten or twenty years. More films will release direct to streaming sites like Netflix. There will be more film + DVD release experiments until it becomes relatively common. Planes and hotels will show more in-theater films at premium prices. The oligopoly of distribution will be busted up by too many new revenue streams to resist.

>>Windowing doesn’t protect anything except for the non-competing market. It protects theater-owners, not the movie business.

This may be true… But I don’t want to see theaters go away. I want to be able to see movies on the big screen with a (respectable) audience.

I’m not sure there is enough profit in selling DVDs at the concession stand to keep cinemas afloat without a windowing advantage. There are plenty of us who do care about the cinema experience, but a large percentage just want to see things as soon as possible.

I’m okay with big chain bookstores going away because I can still get my books from Amazon (and independent bookstores!). But if movie theaters go away, something will be lost. I won’t be able to get the same experience from even a really fantastic home theater that I can get from watching a life-size dinosaur march across a 60-foot wide screen and munch a lawyer off of a toilet.

” I won’t be able to get the same experience from even a really fantastic home theater that I can get from watching a life-size dinosaur march across a 60-foot wide screen and munch a lawyer off of a toilet.”

Watching lawyers get munched by dinosaurs just never gets old…

My TV has the same viewing angle as a cinema (sit close enough to a 52″ TV, and you get that). My sofa is more comfortable. My wife can get to the bathroom and back in a minute. People don’t talk or check their cell phones. I even have 3D.

The movie watching is far superior in my home than it is in any theater (when you factor in the talking). All they have is windowing. It’s nuts. Charge me $30 to watch it at home on DirecTV, and I’ll pay it. 99 cent bag of popcorn and a beer, and I save money.

Hey! I recent that remark about eating lawyers! :-)

Hugh, you have 3D at home? I’ve never heard of that. Do you and your wife wear those funny glasses while sitting on your comfy couch?

I prefer the theater for a big screen experience. Then again, I only turn on the TV about three times a year….

Fantastic article, as usual. Thanks for reading and assimilating the info for the rest of us. Pass the popcorn, I’m watching the latest Hachette/Amazon inning. Is the game over yet?

Don’t agree there, I have a 9 foot pull down screen and an HD projector, I find watching 9 foot movies from ten feet away a lot better than sitting in a theater with sticky floors and old people saying “what he say?” “Who is that?” “Where am i”

“Theaters should sell the DVD and Blu-Ray right outside the theater, when you’re totally hyped up from seeing the film. Get you at the peak of endorphin flow.”
—–

I have wondered for YEARS why they don’t do this with kid movies, at the very least. How many parents wait and buy the DVD so their kid can watch Finding Nemo/Frozen/Robots/Monsters, Inc./etc. a bazillion trillion times? I know they hold out to create “events”, like putting movies out on DVD for the Christmas gift giving rush, but I am WAY more likely to drop $22 on a DVD with two kids grabbing my arm and begging as we leave the theater than I am any other time.

“I disagree. The revenue for films shown elsewhere can make up for lost cinema ticket sales.”

These are different venues though. A theater sells a movie going experience, not the film itself. A theater that loses money in ticket sales isn’t compensated through alternative means (DVD sales, licensing rights, ancillary markets mean nothing to a theater).

You are correct, a production that loses money in theatrical release can make money elsewhere. But then we’re starting to talk about the things I was bringing up — when the theaters go away, you are no longer talking movies. That venue is dead.

You’re making television. And streaming direct content. These are different things.

Pretty much agree with Geoff Jones on this one.

Watching a film at a theater vs. watching it at home isn’t synonymous with the hardback vs. eBook experience. Something is lost.

And there’s a reason films want to protect the theater-owners. It’s the same reason Indie authors want to protect Amazon and KDP. It’s the venue and distribution they provide that make the product possible in the first place.

As you have said so many times before in the book arena, Hugh, the theaters would have to innovate to remain vital and make the movie-going experience superior to the home one. My Great-grandfather was in the movie theater business. During the fifties, it was the distributors dictating strong-arm tactics to squeeze profits from theater owners, along with my Grandfather’s pride and stubbornness to change, that destroyed his business. Instead of trying new things, he consciously and unconsciously resisted, and therefore never recovered. When streaming digital movies to the theater becomes the standard, we’ll see new possibilities for live events being broadcast all over the world.

You haven’t heard of flywheel?

People want free books, free TV, free movies, free houses, free everything. Of course! New TV shows are routinely pirated the moment they hit the screen, in unbelievable numbers, regardless of being available “free” via commercially supported broadcasts.

So giving the customers what they want may sound good, but it means nothing. Goods and services have actual production costs. People who create and deliver products have bills to pay. In the real world, publishers and even Amazon! have stockholders to answer to. You bet your bottom nickle Amazon gives customers what they want–but only in so far as it makes money for Amazon.

Meanwhile, self-publishing via Amazon is sinking into a quagmire of shrinking margins and gimmicks that funnel cheap content into Amazon’s maw while benefiting even fewer writers than before. But it’s easier to keep ginning up inaccurate views about the other “side” than to address that factory world for authors, where they write for pennies so that Amazon and other corporations can make more money and, oh yes, the customers will “always get what they want.”

I guess authors can go with small presses (similar to yours) that suddenly stops paying people, goes into bankruptcy, and sues anyone who dares blog about it. Right?

I give people free books all of the time.When you’re a complete unknown, it’s less risky bet than paying for advertising. Suggesting that there is only one business model is absolutely ludicrous. Trad publishers are being dumb not using different strategies for their midlist than they use for the blockbusters. This is why they are going to lose those midlisters to self pub, because then the author can use a more sensible strategy to build their brand.

“Meanwhile, self-publishing via Amazon is sinking into a quagmire of shrinking margins and gimmicks that funnel cheap content into Amazon’s maw while benefiting even fewer writers than before.”

Prove it.

And you’ve managed to miss Hugh’s point entirely. You said “So giving the customers what they want may sound good, but it means nothing. Goods and services have actual production costs” and then “You bet your bottom nickle Amazon gives customers what they want–but only in so far as it makes money for Amazon.” Hugh’s point was… any of the big publishers could have BEEN Amazon. Maybe take a deep breath and try again? With supporting evidence, you know, like in a persuasive argument?

Don’t hold your breath waiting for a reply. Deborah Smith’s nickname on the internet is Drive By Deb. She stops by self-publishing oriented blogs to leave inflammatory and ill-informed posts and then never stays around to respond to the debate she often ignites. Many now treat her posts as purely a form of entertainment.

I know. That’s why it’s so easy to answer her points. Just ask for proof or reasoning, which she never provides.

Pennies, Deb?
I can’t decide if you’re purposefully portraying yourself as so out of touch, on if you’re really that out of touch.
Thanks to Amazon, I earned over $8,200 in September, and I was earning dollars per sale, not pennies.

She knows everything she posts is bunk. Which is why she doesn’t respond to inquiries. She’s a troll.

What stinks is that her publisher controls the writers’ track at DragonCon, which is why there isn’t a single self-pub panel at a con whose genre is killing it with the indies and is all about cosplay and fan interaction. Worst programming I’ve ever seen at a major con, and it’s because they’ve had a small press in charge of putting it all together.

One of the panels I was on was moderated by Deb’s boss, and people in the audience were laughing at how ridiculous she was being. Just no interest in what the audience was interested in. Instead, she invited a friend from the audience to come up and join the panel to discuss Georgia’s tax exemptions for film companies. It was surreal. And a really bad reflection on Deb’s publisher.

They’ll be the next EC to go under when their authors realize they’re far better off self-pubbing. Hence the concerted effort to smear the publishing option on the web, the attacks on anyone pro-self-pubbing, and the shoddy programming at DragonCon. It’s pathetic.

To clarify: there is an app that links up taxis with your phone. It’s called flywheel. The problems some of us have with uber and lyft is that the drivers are unregulated and often untrained, unmonitored, and there is no regulation on how the cars may be maintained, and in many cases there is no-one guaranteeing liability coverage for the passenger and/or driver. Just saying “progress” while ignoring the actual perils inherent in some unregulated markets is as silly as saying the existing way is the only way– it is a straw man. Uber and Lyft actual pose risks; there is a way to marry new technology and new methods to existing markets without creating new risk, and without totally breaking the market– unfortunately, that way is typically regulation. Think of it this way: do you want an Uber for airlines, with the FAA totally out of the picture? I don’t– but in fact you are far more likely to die on an Uber, Lyft (or taxi) ride than in a plane crash. Make it more efficient– but NOT less safe.

On your other points, I wholly agree with you– but content production and distribution is NOT AT ALL the same thing as conveying people at high speeds from place to place in a massive chunk of metal. The risks are very different.

I was also going to mention that taxis are different because of licensing, but my conclusion is different. I’d say the smooth operation of Uber over some time have shown that all those regulatory requirements for cabs don’t add to safety and are pointless and should be scrapped. Not something that the cab drivers themselves can do, so they are in an unfortunate position – they have higher costs than those unregulated uber drivers but are expected to charge the same price.

For me, the saga crystallized this week when NYT quoted mega-agent Andrew Wylie:

“It’s very clear to me, and to those I represent, that what Amazon is doing is very detrimental to the publishing industry and the interests of authors,” the agent said. “If Amazon is not stopped, we are facing the end of literary culture in America.”

Breathtaking cognitive dissonance. And talk about playing-to-type…

But seriously, Amazon is responsible for the end of literary culture? Amazon. Really.

The sad truth is that Mr. Wylie is correct, according to his worldview. This is the end of ‘literary culture’ as he and his brethren define it.

Every empire proclaims the end of civilization just before they go down.

You gotta love how the #1 bookseller in the world is “destroying bookselling.”

The more of it they do, the more in danger it becomes!

And let’s not forget that just a few years ago Mr. Wylie was pleased as punch to threaten to sell e-books of his clients’ backlist titles through Amazon, even going so far as to list a few of them, right up to the point where the publishers with the print rights came through with the royalty rate concessions he desired, at which point he pulled them all.

What a hypocrite.

Interesting stuff out of Neflix today, doing a film deal with Adam Sandler. FWIW

http://www.ign.com/articles/2014/10/02/adam-sandler-signs-exclusive-four-movie-deal-with-netflix

Saw that in my Times this morning. Great coverage. Fair and balanced.

Not sure what in the world Adam meant by “wet chicks,” though. Bizarre.

Bodacious babes in bathing suits? Whatever it takes to get eyes on the films… :-P

I actually joined the Dollar Shave Club that you talked about in your post about razor blades being like books. They have over a million Facebook likes. Crazy smart business model they have going and no wonder they’re stealing business from Gilette. I think I might post a review on my blog at some point on their blades and if they’re fairly comparable to Mach 3 blades (which is what I currently use), I will try to get my friends to join. Gotta love getting razors when you know the company is making Amazon-thin margins. I just need to determine if they work ok and then I’m done overpaying. Oh and this is for shaving my head… real men have beards or goatees. :-P

Traditional publishers are absolutely guilty of being lazy entrepreneurs. They apply a one size fits all model to the majority of their books. Windowing makes extraordinary sense for high demand properties. Blockbuster films and books from proven authors that are going to be number one out the gate should be held back from lower cost release. There is high demand for these properties, and they should guarantee that they extract the highest price from people that place a high value on them. Those who are more price sensitive will wait for the DVD or paperback or eBook. There will be pirating, but the product will not be very good, so anyone with serious demand will pay or wait for a quality experience. eBooks actually present a problem for windowing, because they create a quality pirating experience compared to bootleg videos from a theater. This only makes the calculations more complex and probably requires a rethinking of how long windowing should occur.

The windowing model does not make sense for the vast majority of media. Most properties don’t have the massive social impetus behind them to justify holding back product. For most, even those who are popular, but not overwhelmingly so, it probably is better to not turn customers away by not offering alternatives. The pertinent question that needs to be asked when making pricing decisions is: Am I building a brand or monetizing one that’s already been established? Everyone exists somewhere on a continuum between these two extremes. Windowing is about monetizing and availability is about building visibility for the brand. Strategies need to reflect the reality of each individual product.

Quite frankly, I don’t see either side acknowledging or understanding that business is not a one size fits all proposition. Without agreeing that the other side’s strategy is good in some cases and pressing the point that there is nuance which requires different strategies in different circumstances, there will be no common understanding and both sides will continue to be wrong at least part of the time.

I disagree that windowing is ever a good idea. If there is a market for hardbacks, prove it by releasing both editions at the same time. A good analogy would be a 3D film, which costs quite a bit more than watching it in 2D. They screen both versions side-by-side at the same time. They let customers choose. They should also let them choose DVD, Blu-Ray, streaming, etc.

Now that publishers have lost the ebook windowing war (due to customer outrage, incidentally. A flood of 1-star reviews on windowed hardbacks forced publishers’ hands), it makes no sense to hold back the paperback. If no one wants the $30 inflated hardback, stop producing it. If the publishing model is really reliant on ripping people off, there is PLENTY of room to save money elsewhere. I linked above to the outrageous real estate publishers occupy in London. The same is true in NYC. And it’s not necessary. This is a business that runs via email.

I would like to start by saying that I think the days of massive blockbusters are numbered. At the very least, they will be less common, and I suspect they will not pull such a spectacular portion of revenue. The power law is a function of resonance in social networks where quorums are undermined by many individuals ceding their votes to social specialists(there are ants that get around this undesirable phenomenon by requiring influencers to literally carry their followers to a new home). As computers start to make suggestions based upon the context of what people like and there is a mountain of content to consume, they will be drawn apart toward the niches they like instead of to the preference of a few social specialists. The very large selection of a digital marketplace will in a sense make the lowest common denominator common to blockbusters an ineffective design strategy.

So, I am in no way suggesting that windowing will be a viable market strategy indefinitely. It will make sense for the next few years at the very least. In certain businesses it will make sense for longer than others. It might take a very long time in the movie industry where many skills, a lot of time and expensive hardware will be necessary for quite a time.

Second, I’m not so sure it’s valid to call pricing that is the same for all customers ripping them off. Higher demand concert or sports tickets cost more. Try attending the Final Four or the Olympics. It isn’t cheap. There is no reason why higher demand books shouldn’t be available only in the premium version at release when demand is high. Almost everyone that has a high demand product is an amoral rip-off artist if this standard is applied to book publishers.

The theatrical release of a movie is windowing when the DVD is delayed. You already mentioned this though. I’m repeating it, because an extra buck or two for a movie ticket isn’t much of a windowing strategy.

The problem with 3D is that it isn’t considered premium by everyone. Forcing people to pay for it anyway will go worse than delaying eBooks. One of the strengths of hardbacks as an instrument for windowing is that there is perceived value well above the paperback.

I agree that eBooks are a problem for hardback windowing, because charging too much pushes people to pirate, and a high quality, easily pirated product is quite literally being provided since DRM doesn’t work.

We both know very well that there is demand for a $30 hardback. They sell, though not nearly as well as the $16 discounted loss leader(It’s nice to be Coke, Pepsi or any other blockbuster that is highly visible to the customer). Having a differentiated product for those that have a higher demand for a product and are price insensitive makes good business sense. Are there other ways to tap this demand that publishers haven’t bothered to figure out? Probably. There seems to be a vanishingly small number of other products surrounding blockbuster books. It’s my opinion that book stores should be pushing harder in this direction.

Absent other ways of capturing customer demand for blockbuster books, making only the expensive version of a book available at release allows publishers to capture a larger portion of the readers’ value for the product. The Dan Browns, JK Rowlings, Lee Childs and all the other blockbuster authors of the world are most likely more profitable because they sell a mountain of high profit hardbacks.

As an example of the effect of windowing on revenue, I’ll use Avatar:
US box office: $761M
US DVD+BluRay: $357M

The data comes from the-numbers.com and could be faulty. But, it matches expectation. What do you think happens to US box office if DVDs are sold and rented on release day? It might be that increased DVD revenue would match the drop, but there is a vanishingly small chance that it will be bigger than the box office loss. The box office number is too high. Further, profit margin on box office is much better than shipped DVDs and BDs.

Blockbuster authors have a very similar revenue differential in terms of raw revenue and profit margin. It makes no sense for them to offer paperbacks on day 1. They do have a tough situation to navigate with eBooks, though. Publishers probably should start investigating their situation a little more.

However, using Wool as an example tells us nothing other than the sky won’t completely cave in. You may have left a lot of money on the table. No one knows (and I’m sure you don’t care, which is fine. I don’t expect that I’d be too worried either.). You didn’t have a track record going into Wool. Further, you had already sold many eBooks and paperbacks at that point. I suspect their expectations for Wool were not calculated the same as for a Patterson book. Speaking of Patterson,it would be much better to use a thriller series that is rather predictable sales wise.

As for the other 99%, I agree trad publishing should be trying something different, because they’re absolutely failing to make those assets pay off like they could. Releasing both hardback and paperback at the same time or near each other probably makes sense, as do much lower eBook prices, especially for debut authors. Yes, trad publishers are scared and dumb in most every way, but their handling of blockbusters in the present day isn’t what they’re doing wrong. They should be carefully considering eBook prices due to the pirating conundrum, but it’s really hard to see how paperbacks on day 1 for a blockbuster make any sense whatsoever. Selling the ridiculously high margin eBook to price sensitive customers is fine, and those who don’t want the eBook won’t be pirating.

Avatar’s actually a bad example. I’m speaking just from my own example, but if the DVD had been released at the same time the film hit the theatres, I would have watched the DVD, seen how gorgeous it was, and headed straight for the theatre to watch all that beauty on the big screen. Then I’d have gone a couple more times. Probably dished out more for IMAX.

I did go several times, as was. I’d have bought the DVD immediately – no, actually, the Blueray. I ended up waiting to buy a Blueray copy secondhand instead, because I’d come out of my daze by then, so Cameron et al didn’t benefit as much from my money as they could have. But when I really like something, this is how I respond to it.

Show me a counter example where a blockbuster movie or book doesn’t derive the majority of its revenue from the windowed edition. Otherwise, your argument is an anecdote that doesn’t jive with what the behavior of studios and publishers tells us. Box office and hardbacks are where the blockbusters make the bulk of their revenue and profits.

Just to comment on a few things here and in the comments…

Having been traditionally published in the past, I’m still coming up to speed on ebooks (thanks to Hugh and many others here for all the great info!)–but being a screenwriter, I can speak to Hollywood. U.S. (“domestic”) box office comprises a shrinking portion of overall revenue. This is particularly true of action films, which (unlike culture-based comedies, for example) translate extremely well. Avatar made $2 billion, 788 million during its theatrical run–of which 73% came from outside the U.S. Studios get maybe half of that after the theater split. Taken alone, domestic BO figures are meaningless. (When you see headlines bemoaning declining box office and suggesting studios are headed for the poorhouse, they invariably ignore foreign BO, which is on the rise both as a percentage and in terms of gross revenue.) AVATAR would likely have passed the $3B mark, but the highest-charging venues–Imax and 3D theaters–were contractually obligated to end its run in order to show ALICE IN WONDERLAND.

DVDs used to be relied upon to bring in 3-4 times what the box office did; now high DVD/BR sales only happen for the hits. If worldwide disc sales follow the BO percentages, chalk up a billion-plus for AVATAR DVDs and BRs. (TITANIC made a billion on video, and AVATAR is bigger.) Factor in that this is the most popular film in history, and the numbers go higher. (Studios aren’t big on sharing financial info, so accurate figures are scarce. Keep in mind, a leaked accounting statement claimed HARRY POTTER AND THE ORDER OF THE PHOENIX lost $167 million; the most creative people in Hollywood work in studio accounting.)

The studio share on DVD/BR sales is better than it is on theater showings, and Forbes (2013) estimates it makes up 2/3 of the studios’ home entertainment revenue. Then you’ve got VOD, PPV, soundtracks (TITANIC had a soundtrack and a soundtrack sequel), theme park rides, etc. And merchandising. On the biggest, merchandising-friendly hits, that take alone is again often above the box office.

So you might (as the studios do) actually view theatrical release as an advertising campaign designed to spread awareness and sell follow-on products. Again, we’re talking “popcorn crunchers” here–the biggest, most expensive, action/adventure (sometimes YA or children’s) films. Which is why studios are so fond of these.

Studios have pushed hard for “day-and-date” release, meaning simultaneous worldwide availability on multiple platforms from day one. It kills most of the piracy incentive, and there’s some evidence it boosts revenue. Theater owners despise the very concept, of course, and that’s holding things up. Another holdup is the way many big films are currently financed, with “pre-sales” of exclusive distribution rights to multiple territories (before the film is shot)–each of which expects an exclusive run on their home turf, with their own star-studded premiere and so on. So, there’s that. Taken together, these two things have thus far been a brick wall. The latest thing is an “HD window,” a few weeks before any other post-theatrical availability.

Obviously, the situation is somewhat different with ebooks–but some things may be applicable or adaptable…

Well said, it always annoyed me that new books came in hardback only for 30 bucks and I had to wait 6 months for a paperback, even though paperbacks generally make a lot more profit than the hardbacks did. I think the hardbacks have a place, for those rare books you want on a shelf. If these companies are about making money fast, the paperback should come straight out, and the ebook too.

“It’s simple: Ask yourself what the customer wants, and give it to them. Stop running your business by the whims and needs of the middlemen.”

Isn’t Amazon a middleman for publishers? This seems like an argument for Hachette not to capitulate to Amazon’s demands. :)

Actually, it’s more of an argument for Hachette to sell directly to customers at reasonable prices, which is actually a good strategy. Which means they’ll never do it.

Amazon is an example of vertical integration. They are a retailer, a distributor, a third-party vender, a manufacturer (devices, AWS), and a publisher (imprints, KDP, CreateSpace, Audible, ACX). If they are a middleman, it is one of consolidation. That is, they are assuming the duties of other middlemen (or working as a near-direct conduit to facilitate producers and consumers coming together, as in third-party sales, KDP, CreateSpace, and ACX).

The next level of evolution would be to get around Amazon and bypass them completely, but I wouldn’t bet on it. I think they offer enough advantages and services for their 30% cut to make up for the hassle of going direct. What does Hachette + an agent offer for the 82.5% that they take? Six months on dwindling store shelves?

Not all middlemen are equal. Some, like Amazon, even try to make themselves invisible. That’s a good sign.

What Amazon must do next is produce hard covers, lol. We all have the vision of self publishing being cheaply printed, it is up to Amazon to break that idea. I think a leather bound version of Wool would be a good start, lol.

Agree–amazon is fabulous, for the moment. On the other hand, the logical end result of vertical integration is…the Hollywood studio system. Eventually they will–most likely and as you suggest–have to be bypassed.

Really clever and essential post. The same could be said about Airbnb, for instance. There are so many examples, but only self-publishing gets the hammer, because it menaces legacy printing models.

Airbnb is another great example. Hotels are turning to government officials (like in NYC) to shut them down or get them heavily regulated. The open-source and sharing economies are arguably the greatest revolutions since the industrial revolution and the computer age, but the established players are not going down without a fight.

Hugh,

To your electric car example, the situation gets worse the more you look into it. One of the biggest competitors to the Tesla is the Chevy Volt. The Volt sucks in every way, not just by comparison, and is HEAVILY subsidized by the federal government. I’m sure they have a hand in trying to force sales through dealerships… Chevrolet has a few of those already, I’ve heard.

As you said, a common factor in all of these cases is that the establishment tries to turn to the government to lock down the markets in very artificial ways rather than compete. And sometimes they win, because they have the kind of money that passes legislation. I think that is harder for books, CAN’T happen for books, though, because books are information. The internet pretty much shivved information control in the kidneys. Even communist China with their web filtering efforts are failing at it big time.

Tesla is probably a red herring. Their cars are full of immature technology, which makes them extremely unreliable. As a result, they require an unusually large quantity of maintenance. It seems more likely that Tesla wants to cut out dealers because they don’t want to get gouged on the large volume of repairs, they think the dealers can’t provide good customer service and won’t have people with the expertise to handle the vehicles, and they want to learn from the process of servicing every Tesla on the road.

In a mature market, Tesla probably doesn’t want to be in the business of selling and servicing cars, but with emerging technologies, they don’t have a choice. This merger of manufacturer, retail and maintenance may become the paradigm of the future because vehicle technology will be in constant churn, but it isn’t because there are too many middlemen in the car industry. Cars are absolutely nothing like books. They’re much more complicated and expensive.

The Model S is getting rave reviews from auto buffs and trade magazines. It’s a marvel. I’m seeing more and more of them on the road. It’s what I would buy right now if I were in the market.

I like Tesla Motors. I think they’re going the right way with their highly automated manufacturing. Further, electric motors are far more efficient than gas, because all of the energy drawn goes to torque. Gasoline engines waste fuel just because it isn’t rich enough to burn. The catalytic converter is there to burn unused fuel so it doesn’t get into the atmosphere. Electric cars will probably replace gasoline because they will better utilize sustainable energy sources too. When we have an electrified highway infrastructure, there will be no stopping for fuel. Electric cars look like the future, though this isn’t a certainty.

All of this doesn’t mean that there aren’t problems to overcome still. The Model S has rave reviews because it has a lot of technology and Tesla is personally making sure that when things go wrong that there is a replacement car and the repairs are under warranty.

http://www.consumerreports.org/cro/news/2014/08/consumer-reports-tesla-model-s-has-more-than-its-share-of-problems/index.htm

Current day cars are so reliable because they have 30-40 years of platform evolution behind them that has removed most of the bugs. Tesla has an 11 year life and even less time actually manufacturing cars. Musk says in public that his cars are reliable, but to say otherwise would tank his company’s image.

The reality is that the Model S breaks down unusually frequently and dealers make most of their profit on service, which would be coming out of Tesla’s bottom line since they have to guarantee their cars to keep customers happy.

From Musk’s mouth:

“Our philosophy with respect to service is not to make a profit on service. I think it’s terrible to make a profit on service,” says Musk. “And, unfortunately the way the auto dealer association is set up is that they make most of their money on service. So, obviously, this would no[t] be a good outcome.”

What Musk says takes on a whole new meaning when one understands the whole picture. Musk can’t afford dealerships working on his cars, because they will take a chunk out of his bottom line. My previous comments regarding better customer service and information to accelerate the improvement of Tesla vehicles fit very well within this view of Tesla.

I think you’re taking the example a bit too far… we were discussing large legacy corporations and their tendency to squash competition rather than innovate and compete. Tesla doesn’t need to build a perfect car to serve the example.

Funny you should mention Tesla. They are an amazing company setting a high bar for everyone else. They opened their patents so anyone can use them. They chose improving life for all, and saving the environment by trying to get rid of gas cars, over their own bottom line. And because they did that there are more companies starting to develop electric cars from their technology, and those companies might help spread the use of super charge stations, thus making the economy for electric cars more affordable for everyone in the end. EVERYONE WINS!

When companies work together for the betterment of everyone then everyone wins. Tesla makes money. So do the people using their patents. Prices drop so eventually anyone can afford an electric car. The environment gets cleaner. People start investing in research for higher capacity batteries. Etc etc.

Elon Musk gets that. The Big Five do not.

Yup. I really admire Elon. And another benefit of releasing patents and speeding adoption is more recharging stations and a better climate for purchasing Teslas. It’s a win-win.

I don’t think it’s a coincidence that the companies whose missions I admire most are run by CEOs who are also investing in space exploration. It’s visionaries with long term thinking and grand, humanitarian goals.

But what about the disruption taking place at the heart of the industry? What should we hope to see from publishers?

We should hope to see them do whatever they choose for whatever reasons they choose.

Then we should hope to see innovators do the same and take market share by providing better products and service. That is exactly what KDP is doing. Nobody is stopping them. That is what independent authors are doing. Nobody is stopping them. The process doesn’t need any managing or direction.

Let’s extend that thinking:

Those of you who are apathetic or fatalistic say nothing. Those of us who hope to accelerate improvement will air our thoughts. And we’ll just see what happens. :D

Apathy and fatalism? Nonsense. Those who are confident in the operation of the free market don’t have to say much. Old models don’t change. That’s why they are the old models. They will be replaced. We can see it happening.

That ignores the plight of those who will suffer and sell away their rights with the false promise of success through bookstore distribution and $14.99 ebooks. If I notice smoke coming out of a building, I’ll advise people not to go in there.

And my previous comment was tongue-in-cheek, hence the smiley.

They aren’t ignored. They have a great 70/30 Amazon KDP option right in front of them. The market has responded to them. They can assist in the transition by talking that opportunity.

There is now so much information available that the author can make an informed decision. We don’t have to remove an option we don’t like to keep him from making a decision we don’t like. If an author today chooses the traditional path, that’s his choice, and I respect his decision. He knows the other available option.

As you mentioned, change is coming through Uber and Tesla, not GM and Yellow Cab. The old models won’t change. The new ones will push them out.

And smileys? Don’t come through on my old netbook.

I feel obligated to respond to Terrence’s comment below, but there’s no reply button there.

“There is now so much information available that the author can make an informed decision. We don’t have to remove an option we don’t like to keep him from making a decision we don’t like. If an author today chooses the traditional path, that’s his choice, and I respect his decision. He knows the other available option.”

I think your first sentence there is Hugh’s main point, which is I, and plenty of others, personally appreciate him and frequent this blog. He is a huge part of the information you’re referring to.

No reply button? Next thing he’ll be taking away my preorder button.

Spreading information and providing analysis is extremely important and guys like Howey, Konrath, Eisler, and Gaughran have done a great job.

A market may offer great opportunities and pitfalls. The kind of market analysis they have provided has probably helped thousands avoid the traps. I do the same where I can, but am sure my effect is minimal next to theirs.

But I seriously doubt the old models will change. Hugh is right that new models step in and replace them. So I have no expectations or wishlist for the incumbents.

There was a time when authors had no choice but the publishers. That time has passed. So I look to supporting the new models in their quest for market share, and I’m content to let the incumbents do as they wish. And given the job these guys have done in spreading the word, authors can make an informed decision. it doesn’t matter if I like their decision.

You have to stop making sense, Hugh. Don’t make ripples in the cognitive dissonant bubble.

That the Times is guilty of elitism, yes. I don’t even think that’s always a terrible thing. That they are part of a vast multinational corporate conspiracy … no. I don’t buy it. None of the examples you list overlaps with them. Is it possible they have a too-cozy advertising relationship with the major publishers? Yes, but I doubt that’s the full reason. I actually find it immensely puzzling. It’s as if the Times has carved out one “news” section of the paper in which objectivity is not valued at all, or perhaps they simply don’t care enough about the arts beat to notice that they’ve allowed David Streitfeld to become another Judith Miller. It will be interesting to see what their newsroom layoffs will do to future coverage (of everything, actually).

Not just elitism, but the taking of bribes in $104,000 chunks.

I mention the other connections to help explain why we aren’t seeing fair coverage elsewhere. The closest we’ve seen to fair coverage in big media is the Financial Times and Bloomberg, where people understand how businesses work.

Some speculate that many of the reporters covering publishing hope for book deals from big pub and thus give favorable coverage to it.

Many of them already have book deals with big pubs, and I agree that this likely affects their coverage.

Also: I’m sure it’s more alluring for these reporters to buddy up with multi-millionaires who are household names than sully oneself by covering what’s happening in the publishing trenches.

Well, there’s also the fact that they’re all print-media types, all facing the same challenges and future. Nothing to make you side with someone like seeing them as a brother in arms.

That is the one thing keeping the old model alive, the ‘image’. You write a book, others promote it and take their 85%, if you do well they throw a party where a bunch of snobs stand around and tell you how good you are, writes in newspapers controlled by the publishing industry write reviews, etc. Me, I prefer Amazon where i get the 70% and don’t have to go to parties with a bunch of literary snobs making a living off my work.

If you look for what all the examples cited in the article and in the comments have in common, it’s disintermediation: bringing the product directly to the customer thanks to the possibilities of a globally connected world through the internet.

Amazon has “suppressed” the need for bookstores, which were the number 1 added value of publishers, and publishers, though adapting to eBooks in terms of software and technology, have still not changed a business model that’s no longer sustainable.
Same as cabs and cab agencies are not changing, and will thusly be eaten by Uber. Same as cinemas won’t change, and will be endangered by Netflix, etc…

For publishing, there’s actually another step that’s being disintermediated (on top of distribution): the production of the book itself. The best editors and designers are leaving the top publishers to work as freelancers and earn more. Thanks to Linkedin, their websites, and soon marketplaces like Reedsy these people are getting very easy to find.
Publishers will have lost their #1 value and are about to loose their #2… They’ll be left with the “gatekeeping” thing, of course (and the elitist image associated to it).

Agreed on all of this. And they’ll lose the “gatekeeping” aspect as more discoverability tools are created to help the only gatekeepers who matter (the readers) find the books they’ll enjoy.

Bookstore distribution will eventually open up to self-published authors who generate enough demand (this is already happening, both for large chains and indie stores). I’d just love to see one of the Big 5 pivot in a big way and prove what’s possible. Watching them all go down together will be sad, as someone who has enjoyed their output and wants to see a healthy book culture survive this transition.

I think you were spot on with your post on the tankers and jet skis. It’s just much more difficult for them to turn around in a big way, so they’re doing it ever so slightly. The question is whether they’ll be able to accelerate their changing before startups/new models come and take their place.
Have you had a look at FG Press? For me that’s what the future could be made of.

You know, Simon and Garfunkel could have been singing about Amazon in that song about keeping one’s customers satisfied.

“I get slandered, libeled; I hear words I never heard in the Bible…”

As a side note, I think NetFlix and the Internet have a partner in the slow demise of the movie theater: television technology. Flat screen televisions have leaped forward in the past five years in size and affordability. People can now create a “theater experience” at home for a fraction of the cost of the old projection televisions. It’s the synergy of these technologies that are changing how we consume visual media.

And who would want to watch the movie version of Wool on their old console television? ;-)

And, hey, if you still want projection for that truly huge screen/cinematic experience, the price of projectors is now in the low hundreds. To my mind, the only advantage theaters have is when I want to see the movie NOW instead of later.

Spot on, Hugh! Thank you for fighting the good fight for readers and writers everywhere. As in every industry, the consumer decides who loses and who wins. Readers have more price and content choices than ever before. Big old establishment keeps dismissing that simple fact and in so doing will hasten its own demise. If it’s only a question of pricing, of which Amazon’s digital pricing model is proven to be the sweet spot for readers, why not get aboard? But hey! I’m not Lee Child and there’s hardly a better view in London than the serene Thames on a rare sunny day.

I will say that Hugh is correct about windowing of movies in our case: we only rarely go to movies anymore, but if I could go on Netflix…or more likely Amazon Prime Video for that matter… and see a newly released movie at the time of release, I would probably do so often. When a new movie is released and all of the hype and reviews are lighting up the internet, I am often curious. But when I don’t make it to the theatrical release, then I most often forget about the movie and never end up watching it at all. So I am most often lost income to the studio.

Recently, a movie was released to Amazon on the same day as the theatrical release and it did well: the Veronica Mars movie was crowd sourced and did well enough to inspire a web-series spin off: http://www.vulture.com/2014/09/ryan-hansen-veronica-mars-play-it-again-dick-casablancas.html

Same. I see the trailer, can’t wait, then forget about it by the time it hits disc.

30 days, that is all I ask, the movie isn’t on the top of the charts after 30 days, so release the DVD, it also functions as another reminder the movie is still in theaters. It will be years before the movie is released to us on the same day, but i think 30 days is more than fair.

I do the same thing. See a trailer on one of the infrequent trips to the theater, think “That looks good!” then forget all about it and never see it. Once in a while, when it goes on sale at Target or something and I stumble across it I buy it. But otherwise, I’m “lost income” to the studios as well.

That corporations historically have ‘rallied against attempts to change the traditional model ‘ was satirized in a 1952 film with Alec Guinness, ‘The Man in the White Suit’. His role had invented cloth which couldn’t be soiled. English textile conglomerates bought the patent and filed it, never to see the light of day, in a filing cabinet.

The response to Tesla’s innovations reminds me of a 1952 movie with Alec Guinness, ‘The Man in the White Suit.” His role invents new cloth which can’t be soiled. British textile industry buys the patent and files it, never to see the light of day, in a cabinet.

I remember reading a book called THE WORD by Irving Wallace (I think) and his MC listed lots of things like that – innovations that were bought up and suppressed. I remember thinking that if only a couple of them were actually true…

Wow, the NYT is now using its own lopsided articles to “educate” students about the Amazon/Hachette dispute. I love the leading questions for students at the end of the article:

– Is Amazon getting too big and powerful? Is Amazon behaving like a monopoly with too much control over an industry?

— Is it a problem that Amazon sells half the books in America? Is there anything lost when brick-and-mortar bookstores close? Can one company have too much influence in what books are being published, how they are being sold and at what prices?

Here is the link to the article:
http://learning.blogs.nytimes.com/2014/10/02/is-amazon-becoming-too-powerful/

The publishing cartel is so much more detrimental to reading culture than Amazon will ever be.

>> And they’ll lose the “gatekeeping” aspect as more discoverability tools are created to help the only gatekeepers who matter (the readers) find the books they’ll enjoy.

Hugh, do you have any insight or guesses about what these discoverability tools might look like?

I think the need is real. I still run into readers who have not heard of you and believe it or not, some who still don’t know about me!

If customers want subscription programs like Kindle Unlimited, then they should have them. I think it’s an interesting option. I’ve created a newsletter that lists ebook and audio titles in the KU program. It’s free to subscribe and free for writers to list their titles: http://kureads.com

Great post, insightful and well-said. (Long can be good!) Despite appearances, though, the Big 5 may not implode. The dominant Hollywood studios railed against television, videotapes, DVDs, rentals and internet streaming as Doomsday Threats certain to destroy the entire industry. Sequels were considered something-not-to-be-done (Jame’s Bond’s success notwithstanding; that was a freak), to the point where George Lucas actually wound up with both the sequel and merchandising rights to STAR WARS. They were thought so devoid of value that Lucas was able to swing a deal with the studio: he’d cut $350k off his directing fee on STAR WARS if he could keep those rights himself. That made him a billionaire.

Despite such colossal shortsightedness, today’s studios dominate the industry and are (contrary to uninformed headlines, which ignore foreign box office) raking in more than ever. And in fact making more from the venues they once fought and ignored than from movies shown in theaters. Willingly or not, they adapted and coopted. (Unlimited sequel rights are now demanded as part of most any deal, and creators are limited to 5% of merchandising–and that only on things first uniquely identified in the IP. The studio sells a zillion dollars’ worth of JURASSIC PARK stuff with that tyrannosaur on it? Sorry, Michael–you didn’t invent tyrannosaurs, no 5% for you.)

The difference between Hollywood and NY has always been that not-rich creators couldn’t just go off and make their own professional-quality movies. Now that (to a certain extent) they can, the studios have steadily moved toward financing ultra-expensive films, where no one else can afford to compete. (A bit like the Big 5’s blockbuster complex.) At the same time, because they maintain a stranglehold on theatrical distribution, they’re able to buy smaller films that have already been completed, thus reducing risk and development costs, which are shifted onto the creators. (Sort of like the Big 5 chasing after successful indie authors, and Amazon’s exclusivity deals—the newest of which will demand all ebook and audio rights for a minimum of 5 years, in exchange for a $1500 advance and 50%-of-net).

So we know that the top players in a major industry can get almost everything wrong, and still somehow come out on top. Sure, there are some obvious differences here, and what Hollywood pays for screenplays makes today’s average book advance look like rat kibble (making the trade-off look much better from the creator’s point of view)–but I think the point remains:

Just because the Big 5 appear to be blundering, shortsighted, even suicidal—doesn’t mean they’ll be going the way of the dodo any time soon.

I agree totally with this post. I would love if movies released on cable or Netflix same day. We could avoid trying to get a sitter or hussling kids out the door and to the theatre to make show time. I can think I’ve why this would also work for tons of people who love movies. First in mind are those with physical limitations, social limitations or just tired parents who find it easier to enjoy the movie in the comfort of their home.

To me, this argument boils down to one important question: Does a company have the right to run its business in the manner it prefers?

I was in sales for quite some time and I consistently beat the prices of the larger retailers. At the same time, I provided personalized service and superior products. The wholesalers who sold to me had the right to refuse my business, just as consumers had the right to buy their products elsewhere.

The ultimate goal in running a business is to make money. If that means you give away goods sometimes, then you do it because you think you’ll earn more later.

If the answer to my question is yes, a company can run itself as desired, then Amazon can sell its books at the price it likes and Hachette can do the same. If they make fewer sales, then isn’t that what naturally occurs? Isn’t that what free enterprise is all about?

Thanks for raising these issues. There are far more examples of the war waged by established interests against newcomers, especially when the latter are game-changers. The Economist ran an editorial last April on that subject, titled “Remove the Roadblocks”:

http://www.economist.com/news/leaders/21601257-too-many-obstacles-are-being-placed-path-people-renting-things-each-other-remove

The article urges states to abandon legislation against online services such as Airbnb (which allows people to find a cheap place to stay) or Uber and Lyft (ride-sharing and taxi-services startups), among others. Its conclusion:

“The sharing economy is one of the great unforeseen benefits of the digital age. Cities should not ban it but welcome it.”

At least, the courts have so far sided with Amazon, whereas

“a court in Brussels has told Uber, another San Francisco ride-sharing and taxi-services startup, to stop operating in the city. In March Seattle’s council capped the number of ride-share drivers on the road at 150 per company at a time—though this is now on hold, thanks to a petition backed by the companies. Other cities have banned their services outright, or tried other ways of putting spokes in their wheels.

Meanwhile, the Hotel Association of New York has been lobbying for stricter enforcement of a rule that bans absent owners from letting their apartments for less than 30 days, which makes most of Airbnb’s listings there illegal.”

Expect the war against innovators to continue.