Publishers and chickens

There has been lots of discussion this week about Amazon’s growing power. This NYT piece heralded Barnes and Noble, once the thing that was supposedly destroying book selling, as its saviour. And today, there was this post on the Authors Guild blog that compared the plight of publishers/authors to that of chicken growers. Here is the analogy drawn:

To a chicken grower, for example, the relevant market isn’t restaurants or household consumers of chicken, it’s the market of chicken processors. Through a variety of machinations, including long-term contracts and the physical placement of processing plants (think baseball, before free agency), chicken growers now routinely have a market of only one processor to sell to.

Substitute ‘chicken grower’ for author and ‘chicken processor’ for Amazon and you have the basic story.

Now, it may surprise some readers to know that I happen to know quite a bit about market power and the chicken processing industry. Back in 2005, I was an expert witness employed by the Victorian Chicken Meat Processors. Now you may think that was putting me on the side of market power but not quite. It was actually to defend against a process that would allow chicken growers to collectively boycott processors if they were unhappy with negotiations. Now as it turned out the growers could actually negotiate collectively over prices (something not usually afforded sellers in industries) but they wanted more teeth. They wanted to be able to go on strike. Now everyone agreed that that would be a very damaging thing but the threat would bring some more negotiating clout; precisely the negotiating clout that a monopoly chicken grower would have. As it turned out, the Australian Competition Tribunal decided that that would be going too far as the chicken processors competed with one another and so even if there was only one in a region, it is not like there was deterred chicken grower investment harming Victorian consumers. To be sure, there was not a lot to like about being a chicken grower but despite having to make big investments to be one they were still choosing to do it. After all, if a processor pushed out the growers in their area, they wouldn’t have any chickens to process. It’s literally a chicken and egg problem.

Of course, the claim with regard to Amazon is that they will be the only processor in town facing no competition for their customers. Amazon have clearly decided retailers were getting too much and have competed them away. They have decided publishers are getting too much and are now integrating to compete with them. But the article makes out that authors are next. According to them, one company — Amazon — will supposedly dictate who gets to publish and that will be it for authors.

But here is the thing: authors haven’t had it so great under the retailer/publisher oligopoly. It isn’t at all clear that there is any more squeeze to be had in them. And the simple economics of the situation is: Amazon needs the eggs. To get people to buy books requires there to be books to be read. Amazon has created their entire business on a great book variety. Why would they focus in on some books and get authors to pit themselves against each other just to have their book on Amazon and otherwise denied access to the public. Even if Amazon could actually direct that choice, it doesn’t seem in their interests to do so. People have so much time to read. They will pay more to fill that time if they get what they want. Amazon should continue to provide variety so they do. [And when Amazon sacrificed variety in brinkmanship with Macmillan it lost because that loss hurt them more than Macmillan].

What the Authors Guild article is right about is that the traditional publishing eco-system is in trouble. It was based on a scarcity brought about by physical books and also the ‘all important front table’ in a bookstore. The front table may be replaced by Amazon’s algorithms but it is not ‘one size fits all.’ That surely means opportunity for more specialised, niche authors than before.

As for publishers, their businesses are going to change but there is still a function that they are needed for: authors have to compete for attention and consumers want to know that what they buy will be a quality read. Publishers are organizations that could provide credible quality signals. But with greater variety of published material surely there is more opportunity to be a credible broker than before. If they create value, they can still create value. It just so happens that, like before, there are others who can provide those signals and create that value too. And the real tragedy would come if, unlike chicken growers, authors/publishers were able to get antitrust regulators to step in and hand them market power.

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