Gaming the system: Amazon at home and abroad

Gaming the system: Amazon at home and abroad

The special symmetry of 'the disrupter that demands to be undisrupted' 

As Friday's edition of The Bookseller points out, last week brought Amazon's place in European markets into tighter focus. A scene-setting article from my colleague Lisa Campbell announced the European Commission's formal antitrust investigation into the retailer's relationships with publishers and ebook distribution.

Campbell also pointed to the UK's Booksellers Association's lead role in the development of the investigation, the organisation reporting that it had mounted what c.e.o. Tim Godfray terms "the biggest lobbying job the BA has ever been engaged in" since early 2014, including submitting a dossier to the attention of the (UK) Competition and Markets Authority last November.

The shakedown that has followed has left Most Favoured Nation contractual elements exposed as the key nerve bundle to watch here.

Campbell outlines the issue:

Lawyers have warned that if the EC investigation instigated this month finds that Amazon’s Most Favoured Nation (MFN) clauses in contracts with publishers make it difficult for other e-book distributors to compete and are detrimental to customers, then publishers may have to renegotiate with the e-commerce giant. Moreover, those publishers currently engaged in new contract negotiations with Amazon—thought to include Hachette—may seek to use the investigation as leverage to secure a better deal or delay one.

What does the MFN clause in a retailer-publisher contract do? Campbell has it this way, based on more than a year of Bookseller coverage on the point:

[Most Favoured Nation clauses] typically demand that a publisher offer the online retailer the cheapest price for an ebook and inform Amazon if another retailer is offering the book more cheaply. Certain clauses also include “promotions parity”, The Bookseller understands, meaning that publishers must give Amazon the same promotional offers they provide to any other digital book distribution channel, on terms as favourable and with “business model parity”. If publishers join a subscription platform, for example, they must offer Amazon the same opportunity to sell titles under that model.

Referring to this as A clause with claws in his leader piece, Bookseller editor Philip Jones gives us the phrase, "the disrupter that demands to be undisrupted." He contextualizes the moment as one that involves an alleged gaming of the European business system by Amazon:

Can Amazon be allowed to contractually enforce arrangements that secure its hegemony in markets that are—at best—fragile and yet to be fully understood? The disrupter that demands to be undisrupted. As I noted when blinkbox books folded, the e-book market is dysfunctional. With Amazon’s share of it at around 90%, it is almost impossible for any rival to gain even a toe-hold (remember Sony?). We would not accept this were it to occur on the high street—never mind in football. So why the difference online?

Good question: why the difference online?

Well, on the home front, the answer to that question lies in claims of a different system being gamed. In this case. It's Amazon's own system that many see as gamed, and the company has moved to change that in a way that throws the "difference online" into high definition.

You would not expect to walk into a bookstore, pick up All That Is — which Benedicte Page today reminds us is the last novel from the late James Salter — and be told at the cash register that you'd be charged by the page for reading it, would you? Well, of course you wouldn't. 

But in the online subscription space, the commensurate action is now at hand — or will be on 1 July. That's when Amazon will start paying its Kindle Direct Publishing (KDP) Select authors per pages read in its two lending programmes, the all-you-can-read Kindle Unlimited (KU) and the Kindle Owners Lending Library (KOLL). 

Important note: As correctly written here (but confused in some other spots online), the changes being talked about here affect Amazon Kindle Direct Publishing Select authors. These are the writers who accept requirements of exclusivity in their relationships with Amazon. They have access to the two loaning programmes, KU and KOLL. This loud conversation does not affect standard KDP authors. Only "Select" authors, the ones who are contractually committed to exclusivity and thus given access to these lending programs. Furthermore, traditionally publishing authors' remuneration remains what it was: standard rates as paid them by their KU- or KOLL-participating publishers.

  • As before, the KDP Select authors will be paid from what is called the KDP Global Select Fund, a fluctuating monthly pool of money.
  • Instead of being paid a set amount per book whenever a reader reads 10 percent or more of that title, the authors will be paid by the number of pages read. These are ebooks. Reading patterns can be tracked and parsed this way. 
  • In answer to some confusion, there isn't a way to gain pages in a book by adding long dedications or afterwords. Amazon will begin counting at the "Start Reading Location" (SRL) it sets for a book, usually the beginning of the body text. Front matter, back matter, won't count.

The most cogent reaction to this, perhaps, has come from Kristine Kathryn Rusch, a US-based author whose observations on the author business today are avidly followed by many writers. Rusch notes that the move Amazon is making responds to a way that many writers have been gaming Seattle's lending systems. By "gaming the system," Rusch writes, "I mean artificially elevating book sales by doing something non-writing related." 

And the key way of gaming the authorial system in Amazon's lending programmes has been to create many small works, in order to lure subscribers with as many quickly paying, short-read borrows as possible. One blogging author, praised by many, has lamented that a 25-page erotic story won't warrant a full book's payout once 10 percent of that offering (2.5 pages) is read. What per-page payouts mean is that whether in short or long works, an author will get payment only for the total count of his or her pages read, on a standardized page formula called the Kindle Edition Normalized Page Count, or KENPC.

In her long essay, Rusch gets to the cold heart of the complaints being heard from authors whose interest is not in creating content that merits readers' attention but in making money for as little work as possible:

People who game the system do not respect the system. And by the system, I don’t mean Amazon itself or even the publishing system.

I mean this system:

  • Writers write books.
  • Readers read books.
  • Writers want their books in the hands of readers…who will read those books, and have some enjoyment for an afternoon or a week or two.

In other words, gaming a system, like Kindle Unlimited or the New York Times bestseller list is extremely disrespectful. It doesn’t require the writer to get better, to become a better storyteller or to build a fan base. It only means that the goal—whatever that goal is—means more to the writer than having readers does.

And therein lies the distinction that, in such a peculiar way, links the two concepts of Amazon's system being gamed by unethical writers and Amazon allegedly gaming the system, itself, in the EU markets with Most Favoured Nation clauses in contracts with publishers.

'Extremely disrespectful'

How are Most Favoured Nation clauses seen in EU commerce? Here is how Campbell writes it:

The EC is concerned that such clauses restrict competition from other ebook distributors and prevent rivals from developing new and innovative services, and may in fact reduce choice for consumers. If confirmed, such behaviour could violate European Union anti-trust rules that prohibit abuses of a dominant market position and restrictive business practices, a spokesperson for the EC said.  

Is chopping a novel into chapter-by-chapter pieces to get more per-borrow sales from Amazon's borrowing programmes technically forbidden? Perhaps no more, it would seem, than an MFN is technically forbidden.

More importantly, in both cases — whether the practice in question is ostensibly aimed at Amazon by authors or allegedly aimed by Amazon at its business partners — these ideas are about the gaming of systems, they're about someone trying to get more than rightful and respectful practice should allow. 

And there are parallel ironies of scale and success here, too.

  • On the authors and KU/KOLL side, it was said by many doomsayers a year ago as Amazon rolled out Kindle Unlimited, that the attendant requirement of exclusivity would chase authors away. Amazon requires writers market their books only on Amazonian platforms if they are to gain access, as KDP Select authors, to these programmes. So did the exclusivity requirement send authors scurrying away at the idea of giving up their chances to sell on other platforms? Hardly, according to Seattle. The latest word now tells us: "Authors have continued to renew their titles in KDP Select at rates in excess of 95 percent each month since Kindle Unlimited launched." That's 95 percent willing to forgo the chance to sell their books at Kobo or Smashwords or Barnes & Noble or in other arenas in order to work Amazon's KDP Select.
  • And on the EU business and Most Favoured Nation question, Jones nails it, as usual: "In 2012 the EC pressed publishers and Apple to settle, and as part of that it ruled that those companies could not enter an agreement with a “retail price MFN clause” for five years. Amazon says its terms are legal. This will run and run, but the least we can expect is that the EC is consistent. The irony is that Amazon could remove such clauses, and it would remain by far the dominant e-book vendor (and for many the best). But perhaps the EC ought to ponder why it is having to investigate this sector for a second time in five years."

A towering imbroglio

For all the assertions and counter-assertions around "the Amazon question," the story, like the company, is simply bigger and more complex than any one entry point to its presence can reflect. I watched a panel of very smart people at my behest debate the question of whether Amazon is good for readers in the keynote track of the International Digital Publishing Forum's (IDPF) Digital Book Conference at BEA in May. We were lucky to have the input there of business people, writers, journalists. And the answers were almost as many as there were folks onstage and viewers in the audience. 

Where is common ground? Is there any? Here is Rusch once more, writing to the KU side of this gaming-of-systems problem:

The gamers of the writing systems always want the “trick.” They’re the ones who want to make a fast buck. Most of them left last summer [when Kindle Unlimited was introduced]. I hope the rest of them leave with the KU changes this summer. Because, my friends, they don’t just disrespect other writers. They disrespect readers. These writers want people to buy their books (or borrow them for a fee, as in KU), but these writers don’t care if the readers read the book. They want a reader’s money and they want to give the reader very little in return for it.

When Rusch decries the "contempt for writing" with which authors game that system ... and when Jones questions how Amazon can "contractually enforce arrangements that secure its hegemony in markets that are fragile" ...  and when Brussels shakes itself into action and even when Seattle itself speaks to the moment ... nothing looks more esssential than that the rule of respect be honoured by all. Without it, all this is moot. 

(1) Can we do any less than look to Amazon — this triumph of service to its customers — and insist on respect for its business partners and our international commercial arenas?

(2) And must we not require the same thing of the industry? — when approaching Amazon's vast cyber-markets to sell their wares, shouldn't authors and other books people perform with respect?