The Business Rusch: Pay No Attention To That Man Behind The Curtain
Kristine Kathryn Rusch
The curtains are rustling. In some gilded office, a little dog with a lot of attitude has taken a green curtain in his teeth and has pulled it aside, revealing a rather plain and disappointing figure pulling a bunch of lever and shouting into a microphone.
Welcome to the shifting sands of traditional publishers. If they’re not careful, they’ll have to take their hot air balloons back to a black-and-white Dustbowl version of Kansas while an upstart girl and her motley crew of smart but insecure friends try to run Oz.
If you read farther in the Oz books, you realize that the motley crew becomes a smarter and more benevolent version of the Wizard himself—but if a motley crew of writers are going to take over publishing, that possibility is still far in our future.
At the moment, traditional publishing is trying to scare everyone with its bluster, pyrotechnics, and gigantic floating green head. (Sorry, couldn’t resist.)
But that “mangy little dog” has pulled the curtain back, and anyone who looks in the correct direction can see just how scared that unremarkable man is. He’s terrified, so he wants to terrify everyone else too.
Oz the Great And Terrible, indeed.
For decades, no one looked behind the curtain. Oh, the occasional writer managed to peer past that lovely satin green and see the little man, but he bribed her or at least paid her court costs, and she remained silent.
Sometimes she brought an entire organization with her to challenge the Wizard. The organization notified its members of the Wizard’s bad practices, but everyone assumed that the Wizard’s buddies—the other wizards—weren’t quite as bad, so it was all okay.
But it wasn’t okay. When you’re the only game in town, you get to do what you want. Everyone has to look the other way, because there is no other good choice.
Times have changed. Traditional publishing is no longer the only game in town.
Everything about this industry is in flux and a lot of people have noticed.
Take, for example, the United States Justice Department. Word has leaked over the past several weeks that the Justice Department is investigating five major trade publishers along with Apple for anti-trust violations.
Writers and publishing blogs have dealt with this mess a lot, mostly discussing whether or not the five big trade publishers colluded when they formed the agency pricing model with Apple and, eventually, with other major e-book distributors. A lot of words have been wasted on this even though no case has been filed, and no one really knows what kind of case the Justice Department is pursuing.
Even the president of the Author’s Guild, Scott Turow, weighed in. Turow, a high-powered lawyer as well as a high-powered writer, went so far as to say that the Justice Department should reconsider because (horror of horrors!) such a suit would benefit Amazon, which Turow sees as a Wicked Witch of the West, determined to destroy publishing, bookstores, and writers all by its little own self.
His position is jaw-dropping, not just for his complete misunderstanding of the way that Amazon’s entry into the e-book marketplace has benefitted writers, but because he’s a lawyer. He should know better than to judge the merits of any case before the case is filed.
Besides, Turow, like so many others in this brouhaha, seems to forget that the matter under investigation involves five publishers and Apple. Is the Justice Department going after publishers per se? Or do they see bigger fish?
Tim Caromody has a marvelous piece on this very issue on Wired’s website. Called “Bigger Than Agency, Bigger Than E-Books: The Case Against Apple and Publishers,” the article deconstructs what Justice is actually looking into. And it seems that Justice sees this potential case as part of a string of cases that it’s bringing against technology companies in general and Apple in particular. If you want to see an excellent analysis of the issues being examined, read this piece.
Unlike Turow, I’m not going to get into the trap of talking about a potential case that may or may not ever get filed. What I want to point out is a quote from Sharis Pozen, a Justice Department antitrust official. Pozen was interviewed about this case in The Wall Street Journal (and the link hides behind a paywall, so I’m not going to reference it. If you subscribe to the Journal you can get to the link through the Wired article). The Journal has been the source of a lot of information about the government’s case, which is a tactic. The Justice Department is sending out feelers, to get information from others, yes, but also to see the reaction to its possible case.
Anyway, Pozen said, “We don’t pick business models—that’s not our job. But when you see collusive behavior at the highest level of companies, you know something’s wrong. And you’ve got to do something about it.”
Most analysts have focused on the first and last sentences of that quote, but the middle sentence is the one that interests me. When you see collusive behavior at the highest level of companies, you know something’s wrong.
I have known for decades that collusive behavior exists in publishing, although I have not personally been involved in any “at the highest level.” I’ve seen it at lower levels, from editors warning each other away from writers because the writers are litigious or business minded or just terrible people to work with, from publishers discussing troublemakers with each other, and other things. Whether or not this rises to the level of collusion under the legal definition, I have no idea (although I have my doubts), but it exists and has for a long time. I suspect such behavior at the higher levels for everything from the development of the returns system in the 1930s to the high discounts for chain bookstores in the 1990s, but such things are old, stale, unimportant, and probably unprovable.
What matters for today’s blog is this phrase: when you see…
Behavior like that which Pozen referenced was invisible in the past. Traditional publishers had no great competition, so no one had a vested interest in bringing bad behavior to light.
Now all the little dogs are pulling back curtains, and we’re seeing evidence of everything from misleading royalty statements to possible collusive pricing behavior.
Traditional publishing has been Big Business for decades, bringing in billions (yes, with a “b”) of dollars in this country alone. But traditional publishing has presented the persona of a mid-19th century shopkeeper, there for the good of the field. All those articles you see about defending quality and about the importance of publishers toward “literature” come from this projection that traditional publishers’ spokespeople put out into the world.
But traditional publishers haven’t cared about literature in more than 130 years, if they ever did. Sure, they wanted to keep the difference between high-brow and low-brow writings alive in the late 19th century because they wanted to have different price points for their products. A high-brow product (literature) came out in expensive hardcover, sold only to those with money. The low-brow product (that nameless stuff the unwashed read) came out in broadsheets and daily newspapers and in dime-novels, cheap reads for cheap folk.
As is so often the case, the myth never meets the reality. Since I’m quoting favorite movies tonight, let me quote yet one more—The Man Who Shot Liberty Valance: “When the legend becomes fact, print the legend.” Yep. And then people believe the legend as truth.
As they have with traditional publishing for years.
But I’ve been writing about the disconnect between the way traditional publishing presents itself and the way it actually behaves for at least two years now. You’re all familiar with the curtain being pulled back on this part of the industry. Most of you aren’t surprised at traditional publishing acting badly toward its writers or its readers.
Traditional publishing isn’t afraid of its readers or its writers. It still behaves like the Great and Powerful Oz, expecting us to fall to our knees. The thing is, most writers and many readers will continue to accept the myths.
Traditional publishers even expect the occasional pushback from the government or some kind of legal hassle from some large corporation. That’s one of the many reasons traditional publishers have teams of lawyers on retainer. In the past, issues like the one that Justice is bringing up got settled before a case is even brought. Someone negotiates a huge fine and then the matter gets dropped. For all we know, that might happen here.
All those men (and women) behind the curtain of traditional publishing are feeling exposed not just from places like writerly blogs, publishing websites, or the Justice Department, but from within their own companies.
This week, Publisher’s Weekly had a fascinating article on Random House. Random House’s earnings report for 2011 came out, and buried in the press release were some interesting items (besides the amount of digital profits).
Random House, which is a corporation in and of itself, is owned by a multinational media corporation called Bertelsmann. Bertelsmann operates in 50 countries and had 15.3 billion dollars in revenue in 2011. Nearly 80% of that revenue comes from Europe. It made only 14.3% of that revenue in the United States.
In other words, Bertelsmann is huge. Or as it says in modest tiny type on its website “Bertelsmann AG is the world’s most international media company.”
We writers never think that the CEO of a traditional publishing company like Random House has to answer to someone in an even larger organization. But they do. And in this case, the new chairman and CEO of Bertelsmann AG, Thomas Rabe, put Random on notice that changes would happen within the company or else.
In a statement released with the earnings report, Rabe said, “Our primary goal is to grow the company faster, and to make it more digital and international. We plan to achieve this with four strategic approaches: first, by further consolidating and strengthening our portfolio. Second, by accelerating the transformation to digital of our core businesses. Third, by establishing new growth platforms. And fourth, by expanding into new geographic growth regions. On this basis,?we will reshape Bertelsmann over the next five to ten years.”
In a letter to a professional writers’ list that I’m on, Richard Alan Dickson deconstructed the statement. Rick is a writer who spent twenty plus years in international reinsurance, including ten as a corporate consultant specializing in liquidation, arbitration, and cashflow issues. He worked pretty much every desk within corporate finance, from accounting assistant through Vice President of Finance and Acting CFO of a Fortune 500 affiliate. He pointed out that such statements are crafted for weeks. Rick gave me permission to quote him here. My husband Dean Wesley Smith will put the full post on his site on his blog as a guest post in the next few days, so watch for it.
Rick wrote, “[Bertelesmann doesn’t] want to alarm their employees or their investors (status quo, rosy outlook, a brighter tomorrow, etc), but they needed to put management on notice. That’s the way it’s always done.”
Rick’s “opinions of the spin” (as he puts it) are these:
1. Consolidating and strengthening the portfolio: The overhead is still too expensive, so he thinks there will be a lot of mergers and downsizing of those long-term contracts that I’ve discussed previously.
2. Accelerating the transformation to digital: “A big percentage of the readers may continue to read print books, but the infrastructure will no longer be driven by it. Things that NY feels are important, Bertelsmann does not….”
3. New Growth Platforms: “When all those writers conceded all those e-book rights to NY, Bertelsmann noticed the profit margin. Boy, did they notice! … NY may have told them why they can’t have more rights…. It doesn’t matter. Bertelsmann isn’t listening.
“Bertelsmann is shocked by the money pouring in from the e-book ‘platform.’ They see all the years that the money was NOT pouring in. They have no confidence that NY isn’t missing many other opportunities on many other ‘platforms.’ There’s gold in them thar hills, and plenty of writers who’ve proven willing to sign it over. Expect contracts to get even more convoluted with rights grabs into more new areas.”
4. New Geographic Growth Regions. By that, Rick believes that Bertelsmann means more rights, like world rights buys and complete foreign translation buys.
The rest of Rabe’s statement confirms some of Rick’s assumptions here. Rabe said, “We will channel a large share of our investments into new businesses that meet clear guidelines: they should have attractive long-term growth potential, be global, and benefit from developments in digital media. Examples of this are our successful music rights business and new activities in the field of education. At the same time we will widen our footprints in countries like India, China and Brazil.”
There’s the map that Rick followed, the one that the various leaders of Random House are now parroting. Publisher’s Weekly quoted Markus Dohle’s letter to his employees, and the British magazine, The Bookseller quoted Random House UK CEO Gail Rebuck, essentially saying the same thing as Rabe—or trying to—while they work very hard to hang onto their jobs.
In this case, the man behind the curtain (or the woman, as the case may be), isn’t trying to fool little Dorothy, but has actually been exposed as an old fuddy-duddy who doesn’t see how this new path will lead to profit in the future.
The man behind the curtain hasn’t fared real well in the above examples, and I’m pretty sure there will be more such examples over the next several months.
But now let’s look at a person in a traditional publishing company that has been a leader in digital publishing for more than a decade now. Simon & Schuster started experimenting with e-books in the last century and has had a head start on every other major traditional publishing company in the business.
Last week, Jeremy Greenfield of Digital Book World, interviewed Ellie Hirschhorn on “Inventing the Future of Publishing.” Ellie Hirschhorn is Simon & Schuster’s Chief Digital Officer, and she doesn’t come from the book world.
Her background is in digital media, most recently with the company now known as CBS College Sports. She has an MBA from Harvard, and she worked for a while in investment banking.
In other words, she’s not about to hold up the legend that used to be publishing. She knows that this world is about profits, and to make profits, a book company like S&S must go digital.
The interview is fascinating, riveting, and a breath of fresh air. This woman isn’t standing behind a curtain pulling levers. She’s out front, commanding an army of digital professionals that “help[ed] drive Simon & Schuster’s digital revenues up to 17% of overall revenues in 2011.”
Hirschhorn and people like her at other companies like Sourcebooks will shepherd traditional publishing into a new future. Right now, most places in traditional publishing are like Random House: they need to clear out the old to make way for the new. And the way to do that is not to collude with a single company like Apple to control pricing and force consumers to behave in a certain way. The way to do that is to understand the digital marketplace, transform the company to take advantage of it, and to move forward with a new vision in a new way.
The writers who have said that traditional publishing will go away simply do not understand business on this vast scale. What we’re seeing now, in all of these examples, is traditional publishing struggling to not just stay alive but to thrive in the new marketplace.
Traditional publishing no longer has a monopoly, so its business practices must change to reflect that. Those companies that do make the change will become stronger and healthier businesses.
Some of that strength will come on the backs of writers. Note Rick’s mention of convoluted contracts and the desire to own more rights. We’re already seeing that.
But when you’re looking at business on this vast a scale, writers are merely cogs in a gigantic machine, just like employees are, just like certain companies owned by the parent company are. We are figures on a balance sheet, folks, and we need to understand that if we want to stay in business with traditional publishers.
I think writers should listen to the people who are moving away from that green satin curtain. We should look at what they’re trying to do and trying to build, then examine that information in light of what we want for our own writing businesses. Sometimes our needs will align with the traditional publisher; sometimes they won’t.
But writers should no longer naively go to an editor who works for a traditional publisher without looking at that publisher’s business practices, and the statements made by the parent company.
We’re playing in the big leagues, folks. It’s time we admit it.
We have to look for the facts behind the legend, and we have to bring our personal equivalent of Toto to every contact we have with traditional publishers. We need to peer behind that curtain before we work for anyone—if we ever work for anyone again.
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“The Business Rusch: “Pay No Attention To That The Man Behind The Curtain” copyright © 2012 by Kristine Kathryn Rusch.