Here is the latest:
In its most significant foray into publishing, Amazon has acquired world English rights to a self-published novel by a midwestern teenager called Legacy. The acquisition is the first for the e-tailer's newly launched publishing banner, AmazonEncore. Amazon is re-releasing the fantasy title, in hardcover, in August. The book, by Cayla Kluver, is part of a planned a trilogy–it was published under the banner Forsooth Books, founded by Kluver and her mother–and, according to Amazon, is the first in a currently unknown number of titles from AmazonEncore.
Economic theory predicts that if Amazon were to start publishing, it would publish nobodies rather than established star writers. Can you explain why?
I just looked in the index of Mas-Collel’s “Microeconomic Theory” and it doesn’t mention Amazon, or even publishing in general. Thus, since microeconomic theory does not predict this effect, I assume you must be referring to macro.
It doesn’t show up in the chapter of your macroeconomics text that you linked on here either, so it is unlikely to be related to economic growth.
I was about to turn to Greg Mankiw’s macro text, when the answer suddenly became clear to me. Star writers don’t need Amazon to promote them online because they can do it on their blogs and collect the affiliate fees too!
Unknown writers, on the other hand, can benefit from Amazon’s recommendations algorithm and then use the success of the book to start a blog. And the macro connection…er…must be that low interest rates reduce the discount rate and make it affordable to invest in publishing a book that won’t sell many copies in its launch week. No, wait…
Marginal Cost to add a nobody to their author pool is way lower than MC to add a superstar. Marginal cost of bundling offer for Amazon is virtually nothing. You know how every page has a “If you like X try Y”? So they can push this book with almost every sale and if they only sell a (relatively) few then revenue exceeds costs?
There are also all the usual web 2.0 long-tail arguments about individualized advertising, but I’ll bet they go shotgun with this.
It isn’t a “prediction” when it is given after the event.
No econ text handy
, but I’m surprised that the previous commenters haven’t also mentioned the situation from the POV of the writers: a star writer chooses a publisher on the basis of who is going to make them the most money; Amazon being a newcomer to the publishing world, they are going to want a bigger advance from Amazon than from an established publisher with a more predictable distribution system. This is not to mention that Amazon may have trouble getting their competitors — other bookstore — to sell their books, and established writers will be less willing to give up those outlets.
Lower barriers to entry. Huge presence means lower search costs for new authors that don’t need to be coaxed away from established publishers. Also, up and comings will take a smaller slice of sales; combined with bulk sales and low prices, Amazon could easily become the Walmart of book publishing. I’m sure that they wouldn’t turn down star writers, but there isn’t much reason to seek them out.
Crazy parents. What’s wrong with, say, Emily?
I don’t think I agree that this falls out of economic theory, although Tyler is an economist and I am not. I think the issue is too complicated and depends on too many real-world variables to fall out analytically.
The first question is: what are the probability distributions in profits for signing a nobody vs. signing Stephen King?
The next question is: given these probability distributions, what is the optimal strategy?
I could imagine many plausible ways to answer these questions, but in the end there is some chance of loss and some chance of profit both with “nobody” and with “Stephen King”. In my view it is difficult to analytically make the case that somehow one strategy dominates the other.
I don’t know how to put it in pure economic speak but there are lots of reasons for Amazon to go this route. The sunk costs are low. An aspiring teenage author places an extraordinarly high value on getting noticed as opposed to getting paid. Being published by anyone is likely to the majority of their payoff (anything on top is just gravey).
Amazon can offer massive exposure at little cost and assuming they use the kindle for distribution their marginal costs are zero should the experiment pay off. Pure profit. Writer gets exposure which they value highest and Amazon gets $$$.
Established writers expect to get paid (this dominates their payoff bundle). They don’t need exposure and would probably command advances higher than Amazon would be willing to pay. The author gains nothing from an exclusive relationship with Amazon (and Amazon would have to take on higher fixed and marginal costs by getting into the hardcover/paperback production/contracting game. They don’t really have a competitive advantage over other publishers in that area.
It is not only amazon’s marketing power- for each ad slot/promotion spent on their own publisher, amazon is losing ad revenue from other publishers also competing to grab the limited willingness of readers to risk time/money on unknowns. If amazon isn’t already effectively auctioning promotional slots to other publishers, then I see how you make the case that they might take on nobodies to fully exploit the ad potential, but I see even more an argument they should focus on selling marketing services to publishers rather than limiting promotion to their own books.
I think amazon may also have a competitive advantage in identifying potential hits due to their data warehouse of customer browsing and buying history (as well as their tech teams able to mine this data to make predictions). Better estimates of potential popularity and market size for unknowns should lead to better management decisions about which books to publish to satisfy consumer demands.
(of course Kindle-only nobodies also make a lot of sense if amazon can publish them cheaper and/or better gauge the markets for them)
I like D. Watson’s answer… wouldn’t it be just as easy to write a “just so” story about how if Amazon were to go into the publishing business, it would do so by nabbing a super high-profile name?
Ancillary question: applying the answer you gave earlier, will Apple launch a music label and sign unknown artists? Why (not)?
Because an unknown author gives up nothing by not being available/promoted in other retail channels, so the costs are lower to sign at Amazon.
Any publisher who is looking to Amazon to bring its out of print (oop) books back into the market should not be a publisher.
No publisher need give Amazon 55% to keep its backlist or oop titles in print. See Lightning Source for much better service, much better distribution, and much better terms.
(Neither I nor my company have any interest in Lightning Source.)
I think Jesse Blocher’s argument is half of the right story. Author “star power”
and the power of traditional publishers to promote a few books heavily are complements; each makes the other more valuable, on the margin. Thus, you expect to see them occurring together. Conversely, Amazon’s omission of this large promotional campaign hurts an unknown author less than it would hurt a known author.
Second, Amazon’s bargaining power vis-a-vis the unknown author is high; it can keep a larger share of any value created by this alliance. Amazon can hedge itself by signing a large portfolio of relatively unknown (and presumably un- or negatively-correlated), guaranteeing that it can get a large share of the surplus created by the “lucky” unknown author without paying out big advance fees for the others. Each is riskier but this risk is easily diversifiable across authors since the costs of signing and publishing each is so low.
Just to defend the more interesting opposite theory:
By signing a few star authors, Amazon can force other outlets to sell Amazon-published books, and establish itself as serious publisher. Once some Amazon-published books are sold outside of Amazon, they can push smaller authors to other shops too.
As long as Amazon-published books are limited to Amazon, moderately succesful authors will try to leave Amazon once they are succesful. With another publisher, they can still sell through Amazon, and through other channels.
To contrast Igor’s point, though, a home brand of say, dryer sheets, is a much better substitute for Bounce than a “generic” book is for a good one. Of course this is a generalization, but I don’t want to waste my life away on bad books.
Yes, I prefer ‘Emily’ to ‘Legacy any day.
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