Amazon's Faulty Math on the Literary Market

Amazon posted a statement explaining its motives in trying to strong-arm Hachette (and, inevitably, other publishers if it succeeds) into slashing the wholesale prices of e-books. A few choice bits:

"If publishers lowered prices, they would sell more books, which would create more readers, which in turn would sell more books, it argues...The argument of profit-through-volume rings hollow coming from Amazon, however, with its price-to-earnings ratio of 500. The company has yet to be able to achieve any sort of meaningful profit despite growing to nearly $20 billion in quarterly sales across a huge range of products."

By it's own profit-through-volume logic, Amazon should be the richest company on the planet. Instead, Amazon has rarely ever posted a profit in its entire 20-year corporate history and just reported a $126 million loss for the last quarter alone.

"Amazon, by its own admission, was previously losing $3 to $5 per e-book when it sold e-books at the $9.99 price point before the Department of Justice stepped in to force publishers to adhere to a wholesale model. However, profits of the publishers did not go up significantly during the same period, suggesting that in fact publishers cannot sustain a $10 e-book price when it would only see $3.50 of each sale as Amazon proposes. In part, this is due to the fact that lower e-book pricing was previously demonstrated to have a deleterious effect on hardback and other printed book sales, as well as harming physical bookstores. These outlets continue to be the main profit centers for publishers, and the main way readers find and buy new books, despite the growth of e-books."

Yep. Steve Jobs called it four years ago.

"Coalition of Authors Blames 'Thuggish' Amazon for Hachette Dispute"

Yep. Take a look at some of the names on the list. Chances are pretty good that at least one of your favorite authors is on it.

Amazon's response is simultaneously insulting to authors and disingenuous towards readers.

In a harshly-worded statement, attempting to discredit Preston as a spokesperson for the movement, Amazon says that customers have "clearly expressed a preference for e-books priced less than $10. Even four years ago, when readers expressed such a preference, Mr. Preston responded by saying publicly, 'The sense of entitlement of the American consumer is absolutely astonishing.' It's pretty clear it's Mr. Preston who feels entitled. And what's 'astonishing' is that he thinks readers won't recognize an opportunist who seeks readers' support while actively working against their interests."

I suspect that if Amazon started selling first-run e-book novels from major publishers for $.99, consumers would express a preference for that price point, too. But the question isn't what price consumers prefer for e-books. The question is whether publishers can turn enough profit on $10 e-books to stay in business when e-book sales make up 50%+ of the market.

The answer so far seems to be "no."

Apple vs DOJ e-Book Case: The Plot Thickens...

Called it. Judge Cote wants the deescalation clause pulled from Apple's settlement agreement with the DOJ.

"U.S. District Judge Denise Cote in Manhattan said she found 'most troubling' a clause requiring Apple to pay only $70 million if an appeals court reversed her finding that the company is liable for antitrust violations and sent it back to her for further proceedings.

Speaking on a teleconference, Cote questioned if that would be fair and what might happen if the appeals court reversed her ruling on a minor issue."

A lawyer for the plaintiffs said he doesn't think that's likely and, given the problems inherent in retrying such a case, $70 million "would be a good outcome for consumers."

When a judge insists on a settlement amount from a defendant higher than the law requires and the plaintiff requests, it's probably a good sign that the judge dislikes the defendant.

Read the whole Rueters article here.

The Craft of Writing: The Little Notebook

High on my list of "indispensable writing tools," probably just below "my MacBook" and "Scrivener," sits "The Notebook."

Anyone serious about writing should have a small notebook that goes with them everywhere. I've heard many graphic designers, artists, architects, and other creative types from many different fields say the same thing and for a similar reason -- you never know when a good idea will cross your path or enter your head, and you don't want to risk losing it. For writers, it's ideas about characters, plot, dialogue, interesting facts, places, etc etc etc.

It's a practice that many great thinkers throughout history have followed. (Don't let the article title or the linked website fool you...this is great advice for anyone, regardless of gender).

"The list is hardly comprehensive; the practice was so widespread among eminent men that it would likely be easier to compile a list of famous men who did not use them, than did."

No endorsement intended, but mine is an old FranklinCovey binder that I keep filled with lined pages and which I've carried around for a decade now; some people use iPads and iPhones and an app like Vesper or Write for the same purpose , but a cheap $2 notebook can work just as well (so would an iPad or iPhone). No one who says they're serious about writing gets to plead poverty on this one. Find something that works for you and start carrying it everywhere. You'll find pretty quickly that you feel naked without it.

45 Years Since Apollo 11

Neil Armstrong and Buzz Aldrin walked on the moon forty-five years ago, just a little over eight years after President Kennedy called for the US "to go to the moon in this decade."

"We choose to go to the moon. We choose to go to the moon... (interrupted by applause) we choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too."

Eight years. The US did it in eight years with computers orders of magnitude more primitive than we have in the iPhones we carry around in our pockets. Would somebody please explain to me why we haven't put an astronaut on Mars yet?

Apple vs DOJ e-Book Case: Settlement Agreement a Poison Pill?

Yes, I'm still harping on the Apple e-book anti-trust saga. Every writer and book lover ought to be paying attention to it. The outcome will decide the future of book publishing in the US. And, as an analyst, I find it fun mental exercise to parse through possible outcomes of stuff like this. If any readers are lawyers, feel free to correct my misunderstandings about the legalities over on my Facebook page.

The latest bit of news is that Apple agreed to pay $450 million to settle the inevitable class-action lawsuit that resulted Judge Denise Cote verdict that Apple colluded in price-fixing with publishers.

"The settlement was first announced last month, but the terms of the deal were not announced at that time. With the news of a $450 million agreement, Apple would save nearly $400 million from the $840 million the lawsuit originally sought, if it were to have gone to trial.

While Apple has agreed to the terms, they must still be ratified by U.S. District Judge Denise Cote. If the court's ruling that Apple violated antitrust laws is affirmed, consumers will receive $400 million from Apple."

This wasn't unexpected. Large corporations typically negotiate settlement agreements in class-action lawsuits rather than risk having to write a check for the maximum possible penalty. It's a simple cost-benefit calculation and guilt or innocence isn't part of the equation. Where the maximum penalty is $850 million, $450 million, a bit more than 50%, is a perfectly reasonable settlement. Apple is meeting DOJ halfway. That's righteous...assuming the judge doesn't hate you.

See, here's the interesting bit -- Judge Denise Cote has shown unremitting hostility towards Apple since before the anti-trust trial began and that accusation is a big part of the basis for the appeal of her guilty verdict. Which is why I find it notable that there's a clause that kicks in if the Appeals Court overturns her verdict and orders a t:

"...if the ruling is not affirmed and liability must be retried, the settlement provides a smaller recovery of $50 million."

Now, I'm not a lawyer (IANAL) so I don't know how common such provisions are in settlement agreements; but to my untrained eye, that bit of legal language looks like it's designed to twist Judge Cote's arm "Take the deal and we'll agree to $450 million. Reject the deal and it drops to $50 million." Why do I think that?

If Judge Cote is unfairly biased against Apple, that clause presents her with a choice she must find abhorrent:

1. Accept the settlement and Apple pays half the maximum penalty she probably wants to inflict if the Appeals Court sustains her verdict; or

2. Reject the perfectly rational settlement offer, thereby giving Apple more evidence of personal bias and strengthening their appeal while also positioning Apple to settle the whole morass for $50 million if the appeal succeeds. Apple has something north of $150 billion cash on its balance sheet at last report, so $50 million is .0003% of Apple's checking account. It's a rounding error (though $450 million is only a slightly larger rounding error and the full $850 million penalty Judge Cote would probably like impose would only be ~0.6% of Apple's cash on hand).

If #2 happens and the Appeals Court overturns her original verdict, the only way to slap Apple with any non-chump-change penalty would be for DOJ retry the case -- not a pleasant prospect. It would take years, Apple would come armed with an Appeals Court ruling that neutralizes at least some of their previous arguments, and Judge Cote can't force them to do it. So she either accepts the smaller settlement or Apple pays virtually no penalty at all no matter what happens unless the DOJ wants to start the whole mess all over again.

DOJ must be confident that Apple's appeal will fail; otherwise I can't imagine how/why DOJ's lawyers agreed to that clause. I don't know what Judge Cote thinks Apple's chances are on appeal, but if she's at all worried it will succeed, I can't imagine she's very happy with the DOJ right now.

The Craft of Writing: Why I Use Scrivener

I occasionally get asked what app I use to write my novels. The answer is Scrivener. Reactions to that vary, with ignorance of Scrivener being the norm. However, regardless of the reaction, I almost always get asked, "why don't you use Microsoft Word?"

The answer to that question is, "have you ever tried to write anything longer than a one-page memo in Word?"

The fact is that when I sat down to write Red Cell, my first novel, I started it using Word. It wasn't pleasant. I won't list off all the reasons why; there have been many Internet diatribes by other authors that cover that terrain pretty well — google "Microsoft Word author agony." Suffice it to say that Microsoft Word isn't well designed for drafting long documents.

So I explored alternatives, starting with other word processors — Apple's Pages, OpenOffice, LibreOffice, Bean, Mariner Write, Nisus Writer Pro — and found out that none of them were any better for the job. Admittedly, some of them might have improved significantly over the last decade since I dabbled with them, but at the time they were, as Steve Jobs once phrased it, "a big bag of hurt." It was like the scene from Harry Potter and the Order of the Phoenix where Dolores Umbridge makes Harry write "I will not tell lies" using a blood quill. No wonder Ernest Hemingway drank so much. Yes, he just used a typewriter, but I think he saw what was coming.

In growing desperation, I tried text editors like TextEdit, TextMate, Bare Bones Software's TextWrangler (for you non-techies, that's an HTML code editor), Smultron (no link, that one's dead and buried), WriteRoom, and several others whose names I have willingly forgotten. None of them were any better (though WriteRoom at least takes a minimalist approach and mostly gets out of the way).

Sweet Mother of Mary, I even looked around to see if there was a good LaTeX editor that would fit the bill (every computer science student reading this is now shaking her head in utter disbelief).

Then I learned that there are specialized writing apps. With renewed hope, I checked those out. There were a bunch, I burned through the demo versions...and none of them felt right. At best, they weren't actively painful to use but they weren't exactly intuitive. I've written plenty of software in my day; these apps felt like software written by a engineers chasing a market...coders creating the kind of tool for a job they've never actually performed themselves. They probably interviewed writers and asked what kinds of features they would like, but didn't have any actual writers testing the software during its development. Even when they got the feature set right, the implementations were clunky.

Then came Scrivener.

Scrivener is the flagship app of a company called Literature & Latte. At the time, the company consisted of precisely one employee — Keith Blount, a Brit living in Cornwall, England. Blount was an aspiring writer who ran into the same problem I had. Fortunately (for me), he ran into it a few years before I did and decided to do something about it. Blount taught himself how to program and created the kind of tool that he wanted to use. Writing software coded by a writer? That was promising. I downloaded the demo, spent ten minutes with it, and the search was done.

Brief note: I'm not getting compensated in any way to say good stuff about Scrivener or its parent company. I'm praising it because I use it and think it's the best-of-breed writing tool out there. I've never met Keith Blount, but if I ever do, I'm going to take him down to his favorite pub in Cornwall and buy him a plate of bangers-and-mash.

I could tap out an extended diatribe extolling the many features of Scrivener, but you should really just go to the video tutorials page on Blount's site and watch the Introduction to Scrivener. If you're a writer (aspiring or otherwise) you'll understand what I'm talking about. If you're not a writer but have to occasionally draft long-ish documents — term papers, sermons, theses, dissertations — you might find it's better than a word processor for what you do. In any case, remember this: Scrivener gets the feature set right and it's implementation of those features is nothing short of joyous.

And for you non-Mac users, there's are versions for Windows and Linux (beta), and an iOS version is in the works. (Writing a novel on an iPad seems like another bag of hurt, but I won't judge).

So, long story short, why do I use Scrivener?

Because I don't enjoy pain. Scrivener is Percocet for a writer's soul. It makes the pain just go away.