by Pat Holt
Friday, July 28, 2000
AMAZON.COM: THE EMPEROR RETURNETH
The folks at Amazon.com may be a bit closed-mouth about the departure of Amazon.com prez Joe Galli after little more than a year at the helm, but that's not stopping observers from speculating how hard it must have been for Galli to succeed at what he was hired to do - transform the notoriously money-losing dot.com into a profitable venture.
I'm not talking about that cute story in PW the other day about Galli cutting off free distribution of branded aspirin for those overworked, stressed-out, sleep-deprived, option-crazed workers at Amazon.com, though bless ol' penny-pinching Galli for coming through with generic painkillers (but hey, ain't that typical short-term topical symptom relief?).
No, I'm talking about the concrete wall that stopped Galli from pulling Amazon.com into the black. I'm talking about the rabbit that was pulled out of the hat at the end of 1999 (and continuing suspiciously into 2000) when announcements were made that the books, music and DVD/video units of Amazon.com had become profitable.
With Amazon.com's second-quarter results anounced Wednesday, we see reference to this ghostlike profit (now it's called "a pro forma operating profit of $10 million"), and again have to ask, What has changed? Where in the company's records can somebody point to a different method of listing, describing, advertising and shipping books that accounts for this marvelous and miraculous turning of the corner?
There's not much chance of seeing those books, Katherine Hobson of TheStreet.com wrote yesterday at http://www.salon.com/tech/feature/2000/06/14/love/index.html Amazon.com, she says, "is not exactly known for opening up its Excel files to analysts and investors, and its reticence - some say arrogance - is now becoming a factor in the market."
So much so that finally, the "experts" are beginning to say what Amazon.com critics have alleged for some time: "It's a classic case of 'the emperor has no clothes,' " Jim Volk, co-director of institutional trading at D.A. Davidson, told Hobson.
"People have been wishing this company would do better because it has such a big market cap, and now [Amazon.com executives are] coming out of the closet and saying, 'All right, it can't make money, let's finally admit that we have a problem.' "
And what a problem it is: As analysts downgrade Amazon.com from "buy" to "neutral" and investors let stock values languish, a certain resignation is setting in that may soon bear the taint of fatalism. Of course, the company could rebound - it certainly has before - but not, it seems, with the resurgence and confidence (and arrogance) its leaders have shown in the past.
It's a great time, too, for independent booksellers to communicate to their customers what a wonderful, personal and DEPENDABLE selection of books independents offer. Many of these booksellers provide an equally reliable website that's open night and day, and for some, this is a searchable database with about as many titles as Amazon.com or chain bookstores can offer.
In fact, Amazon.com has for so long benefited from the closing of thousands of independent stores that perhaps the current situation presents an ideal opportunity to show what real bookselling by truly independently minded booksellers is all about.
Since Booksense.com is soon to come into its own, I'd love to see a major promotion campaign remind customers that Amazon.com is still a "shadow front" that depends not on customers or sales but Wall Street popularity.
The "real" bookstores - many of them with Book Sense (the marketing effort) and Booksense.com (the shared database) are independents who don't just say they're "customer-centric" - they've been out there serving customer needs all along.
AUTHORS AND MUSIC ARTISTS UNITE
A federal judge may have put the clamps on Napster's free access to copyrighted music, as happened yesterday. But in the terrible long run, says singer Courtney Love, traditional distribution channels are far more destructive to music artists.
And, she indicates, parallels to book publishing are equally terrifying.
A huge thank-you goes to Salon magazine for reprinting Love's recent speech to the Digital Hollywood conference in New York (it's 15 pages printed out, and worth it), at http://www.salon.com/tech/feature/2000/06/14/love/index.html
Salon titles the speech, "Courtney Love Does the Math," and boy, does she: If you ever wondered how, say, rock bands come away completely broke from a million-dollar advance and a 20% royalty rate (she sets the rate impossibly high to show how fast it can disappear), Love's impeccably researched and passionate explanation of "sharecropping" for CD publishers is quite an eye-opener.
For those who create and perform the music, "the system's set up so almost nobody gets paid," she explains. For one thing, musical artists own none of their work.
"When you look at the legal line on a CD, it says copyright 1976 Atlantic Records or copyright 1996 RCA Records. When you look at a book, though, it'll say something like copyright 1999 Susan Faludi, or David Foster Wallace. Authors own their books and license them to publishers. When the contract runs out, writers get their books back. But record companies own our copyrights forever."
That may seem like a huge difference between authors and music artists, and it is. But as Love shows, it's the little things - ignorance in Congress about the Internet; a recent "technical amendment" to the 1978 Copyright Act that regards music not as artists' creations but "works for hire" - that have led to the corrosion of artists' rights, digital and otherwise, throughout the music industry.
So Courtney Love is calling upon music artists to "disintermediate" the gatekeepers in much the same way that authors like Stephen King are stating that the Internet, not traditional publishing, can be the writer's best friend.
The difference is that music artists feel like "slaves," says Love, and they're far more willing to junk the old system and break out on their own than to try boring from within, as do many authors when it comes to the publishing system.
"I want to work with people who believe in music and art and passion," Love says. "And I'm just the tip of the iceberg. I'm leaving the major label system, and there are hundreds of artists who are going to follow me. There's an unbelievable opportunity for new companies that dare to get it right."
On the Internet, she says, you don't find "artificial scarcities" that manipulate customers into buying CDs of the few artists chosen by the major labels to break through. "In a society of over 300 million people, only 30 new artists a year sell a million records," she says. "By any measure, that's a huge failure."
But "the digital world has no scarcities," she says. On the Internet, "there are countless ways to reach an audience."
Not that everybody in the cybermusic scene can be trusted. "I feel this obscene gold rush greedgreedgreed vibe that bothers me a lot when I talk to dot-com people about this," she says.
"You guys can't hustle artists that well . . . Maybe you could a year ago when anything dot-com sounded smarter than the rest of us, but the scam has been uncovered."
Well, the promise of the Internet may be a far cry from its delivery (even Stephen King is learning that), but who knows how writers and artists will use the Internet as traditional systems continue to consolidate power (see below)?
BERTELSMANN TAKES OVER THE (MUSIC) WORLD
Meanwhile, the retail music business continues to consolidate at such a pace that one wonders if corporations that control music distribution aren't asking for the kind of exodus Courtney Love predicts.
Last week, German media conglomerate Bertelsmann announced plans to buy online music retailer CDNow for $117 million in cash. It's a move that "will give Bertelsmann a recognized brand in online music sales as it tries to expand its electronic commerce business," says the New York Times.
The sale is also characterized as "a savior for CDNow" according to one financial analyst, since the retailer, "an instant hit" when it first appeared on the Internet in 1994, has been losing millions trying to compete against relative newcomers Amazon.com and other music chains.
Nevertheless, since CDNow "has managed to amass the single largest database of qualified online music buyers," this acquisition alone "instantly puts Bertelsmann," says the NYT, "at the top of the online music business."
So that's great, isn't it? With its acquisitions of Random House and Bantam Doubleday Dell (not to mention 40% of Barnesandnoble.com), Bertelsmann has become the largest publisher in the English-speaking world.
Now, Bertelsmann, with its own music-publishing conglomerate, BMG (which owns over 200 labels, including Arista and RCA, along with the world's largest music club); AND with its deal with America Online to distribute Bertelsmann's brands over AOL; AND with a separate distribution deal involving Terra Lycos (itself the product of a recent $12.5 billion merger of content providers Terra Networks and Lycos); AND with the purchase of CDNow added to its GetMusic.com, Bertelsmann is taking over the world of music in much the same way it's taking over the world of books.
It could be that with every book imprint and record label, with every distribution deal and corporate connection, layers of bureaucracy will become so larded within the corporate strata that artists and authors will just bolt for freedom.
Or it could be too late.
(NOTE TO READERS: My apologies - hard news has taken up all our space again. Part 3 of the interview with Marty Asher will appear next week.)
Dear Holt Uncensored:
Thanks for your insightful e-mail on Joe Eszterhas. I'd realized he was slime but now understand that he gives slime a bad name. The man obviously hates women. His opinion of Hilary is a dead giveaway.
Have you got an e-mail or snailmail address for Barnes & Noble? I searched their web site for some place to lodge a complaint, but could find none. If local tabloids and the like are removed from my local store, I will complain to the manager. But, as you point out, the decision to remove local publications is probably out of their hands.
Holt responds: Well, they don't give out many of the top email addresses at the corporate website (which makes a person wonder!), but The Shadow (and the NY phone book) knows: For the street B&N headquarters address, use the following:
Barnes & Noble
Write directly to any of the following, or try the email addresses listed below:
Leonard Riggio, chairman, firstname.lastname@example.org
I recently received two POD (print on demand) books I'd bought on the Internet. One of them was previously published, made available through iUniverse and a special arrangement with Authors Guild. Both of the books I got were excellent, ones that I probably never would have found had it not been for e-publishing. If these are any indication, I'm willing to thumb my nose at all those warnings about quality disappearing without New York editors to guide us.
Hal Zina Bennett, author
Appropos your item in #169 on "Will Real Writers Leave the Mainstream," it inspired some thoughts I'd like to share.
Your points about the vulnerability of publishers to self-publishing on-line are well taken. But in using the King example, it sets up an atypical marketing and business model for most writers. More appropriate is what all this means to the new and journeyman(woman) author, as well as to esoteric or niche works by well established authors.
I think the "chop shop" aspect of the new "digital demand" internet publishing model to which you refer is the price for its upside contribution to writers and readers: creating an "open publishing" market which also will - and is - allowing works to come into print faster and in a more focused and less costly manner that cannot or need not clear the conventional publishing industry business and marketing hurdles.
The editorial intermediation and marketing support furnished by the traditional publisher which is still needed and useful for many books looking for a market in retail trade channels, is finding its parallel in contract services and informal networks of editorial and marketing professionals who are helping writers develop and position their works effectively in the new media. And also in internet resources for linking and searching.
iUniverse, xLibris, PublishingOnLine, GenieBooks, Mighty Words and other e-commerce publishers who are following the "publishing partnership" model offer authors ready access to 7x24 state of the art electronic and book-at-a-time distribution and e-commerce infra-structures, and at higher royalty rates and often easily cancellable contracts with reversions of rights.
These new works appearing through the new media need also to find - and are finding - reviewing mechanisms (and reviewing mechanisms are finding them) - and will be - and are - available for reselling through independent booksellers as the booksellers come up to speed through BookSense.com and BookSite.com and their own independent e-commerce initiatives. New reviewing mechanisms are emerging to provide the reader and reseller credible methods and sources for selection.
Booksellers (and libraries) are taking advantage of these new forms of production and fulfillment while continuing to maintain an expanding client base of people who look to them for selection and recommendation along with the enhanced availibility and order fulfillment these new forms provide.
Mid-list, niche and low-volume evergreen titles are coming into print that couldnt reach their markets in the past. And the new internet publishers on their web sites and in their web "communities" are also helping to teach authors how to access independent and affordable editorial and marketing resources on their own.
Of course the results, especially in these early stages, are spotty and war stories, exploitation and frustrations abound. But the new open publishing model is taking shape anyway, and it will provide an expanded base for writers and readers in the future. The relationships between readers, authors and resellers will in many respects become more dynamic. Certainly for those readers and booksellers for whom the store is a place to experience more than simply a bookshelf and a cash register, this new economy will, I think, help to preserve this local and personalized center (especially when universal sales tax equity or elimination is established!).
CORRECTION: It's of course KENNETH Starr, not Kevin Starr, who was special prosecutor in the Clinton/Lewinsky matter. My apologies to California State Librarian Kevin Starr (of all people to confuse with the privacy-invading Kenneth).
Holt Uncensored provides this forum for the free and uncensored exchange of thoughts and ideas from writers of all callings. The opinions expressed here are not necessarily those of Pat Holt or the Northern California Independent Booksellers Association.