Google, Amazon, Apple, and Facebook will own lots of content

by on August 5, 2013 at 4:50 pm in Books, Current Affairs, Economics | Permalink

These days the natural monopoly of Apple is looking less permanent, but here is what I wrote a short while ago:

I expect two or three major publishers, with stacked names (“Penguin Random House”), and they will be owned by Google, Apple, Amazon, and possibly Facebook, or their successors, which perhaps would make it “Apple Penguin Random House.”  Those companies have lots of cash, amazing marketing penetration, potential synergies with marketing content they own, and very strong desires to remain focal in the eyes of their customer base.  They could buy up a major publisher without running solvency risk.  For instance Amazon revenues are about twelve times those of a merged Penguin Random House and arguably that gap will grow.

There is no hurry, as the tech companies are waiting to buy the content companies, including the booksellers, on the cheap.  Furthermore, the acquirers don’t see it as their mission to make the previous business models of those content companies work.  They will wait.

Did I mention that the tech companies will own some on-line education too?  EduTexts embedded in iPads will be a bigger deal than it is today, and other forms of on-line or App-based content will be given away for free, or cheaply, to sell texts and learning materials through electronic delivery.

Much of the book market will be a loss leader to support the focality of massively profitable web portals and EduTexts and related offerings.

With the sale of The Washington Post to Jeff Bezos (btw not to the company), we have now taken one step down this road.

prior probability August 5, 2013 at 5:12 pm

… Creative Destruction?

Alan August 5, 2013 at 5:13 pm

What do you predict about future legislation regarding duration of copyright?

Cyrus August 6, 2013 at 11:24 am

There’s an interesting obiter dictum in Eldred to the effect that while Life+70 / 95 years was a limited term, the author would in the future entertain the argument that a term exceeding 100 years is a perpetuity.

John Thacker August 5, 2013 at 5:49 pm

Did I mention that the tech companies will own some on-line education too?

Although not yet in this case, since it appears that Kaplan will stay with the Graham family and the old Washington Post Company (which will change its name.)

Dan August 5, 2013 at 6:02 pm

Have we? It seems important that Bezos personally bought it, and not Amazon. Certainly Bezos could have had Amazon make the purchase, given the flexibility shareholders seem to give him.

Isn’t this just another case of “rich guy buys major paper as a vanity project”? I suppose we’ll see, but the fact that he personally bought it suggests to me that those imagined synergies are the point of the deal.

Dan August 5, 2013 at 6:04 pm

arne’t the point of the deal.

Meant to say that the imagined synergies aren’t the point of the deal.

Alex August 6, 2013 at 5:17 am

Agreed on the Amazon v. Bezos distinction — in my mind, this actually isn’t a “Tech is buying Publishing” trend. But you’re being a tad cynical — I’d frame it more as a “Newspapers, as we know them, are dying, and some rich idealists are going to try to keep them alive until we figure something else out.”

The fact that the founders/leaders of these companies (e.g., Bezos, Chris Hughes) are the “rich guys” buying these companies suggests that the Amazons and Facebooks of the world have no intention of buying up the publishing world at any point soon.

Jack August 5, 2013 at 6:13 pm

Amazon’s revenues are 12x Penguin Random but they also sell more than just books.

Ted Craig August 5, 2013 at 6:33 pm

This says more about newspapers replacing sports teams as the vanity buy for rich guys than validating your prediction.

GeorgeDoehner August 5, 2013 at 9:38 pm

Bingo. Bezos bought himself a toy. Bezos just bought himself clout in DC. John Henry bought the Globe to impress the locals.

Andrew' August 6, 2013 at 5:44 am

As my grandpappy used to say, “never give trees an even break.”

Tom West August 5, 2013 at 8:08 pm

Amazon buying book publishers makes as much sense as Walmart buying their suppliers. They’re already making the most money out of the transaction flow, why would they want to saddle themselves with the unprofitable parts.

I’m waiting for Amazon to start making a *huge* amount of money in the self-publishing racket. Do you think the person who spent $160K for a Master’s of Creative Writing isn’t going to leap at the Amazon promotion package for their first masterwork for a mere $25K?

Once the traditional publishers collapse in a few years, there’s *real* money to be made. Just not from the people who *buy* books, but from the people who *write* them.

Ethan August 5, 2013 at 9:56 pm

Gosh, that’s an expensive MFA you’ve got there. I also think you’re overestimating the numbers of people in shitty MFA programs. I grant that there are a lot more than there need to be, and the worst programs are essentially predatory, but ‘huge’ money would be a *colossal* exaggeration.

However, your point about people whose novel should be sitting in a drawer, but who have the money to spare and have convinced themselves they’re the next Robert Galbraith is spot on—they’re everywhere. Publishers have been making money from these people for decades:

http://www.forbes.com/sites/suwcharmananderson/2013/05/07/penguin-author-solutions-sued-for-deceptive-practices/

Tom West August 5, 2013 at 10:13 pm

Well, I looked, but couldn’t find the article I read a while back, but the article (from a mainstream magazine) made the claim that there was *already* more money being made from writers than readers, with the majority made from college programs, etc. The $160K was of course the headliner, so of course, that’s going to be an outlier, but I’m *amazed* at how much a year or two program from a liberal arts college can cost.

Anyway, I’ll admit to exaggeration for effect, but once the last bookstore chain goes and publishers with it, advertising at Amazon is going to be worth a hell of a lot, and very likely a lot more than they make from books, especially as books gradually disappear from the cultural landscape with the demise of bookstores (and the end of the economies of scale that allow paper books to be cheap).

Sbard August 6, 2013 at 12:31 am

Why bother? You can just self-publish on Kindle Direct for nothing down and get a 70% royalty.

Nathan W August 6, 2013 at 9:39 am

Because one day the people who own the content may band together and negotiate, much like the people who are buying the content have already done, for all intents and purposes, just by being really big.

I think we need a special watchdog. Content profits should flow to content creators, and the tool of allowing content rights to be bought and sold should serve to promote create of more and better content.

The moment the words “monopoly profits” come into the game, the justification for IP rights flies out the window and I feel justified in paying 0c + $0 for any content and putting my money towards local arts initiatives.

I predict they will shoot themselves in the foot in the move to bolster profit through increasing moves to monopolistic practice. They can try, they will try, they will go to far, and we will stop them. Is this not all so easy to see already?

bob August 6, 2013 at 1:40 pm

Buying the publishers starts making sense when it’s a competitive advantage: Exclusivity deals that bring revenue. It’s the same kind of situation we get to see in media streaming, or videogames: A few exclusives make sure you win in other parts of the market where there’s actual competition.

So just like Microsoft buys game studios to make sure their hardware sells, and their fees to third parties along with it, so we’ll see device makers/online stores buying key content providers as a way to make sure people do not leave their ecosystem.

And yes, once the barriers of changing devices are high enough, and we get a dominant enough player, we’ll see the costs of publishing in said devices go up. It’s just the way it works.

Tom West August 8, 2013 at 7:47 pm

Buying publishers only makes sense when you aren’t the monopoly book seller. If B&N dies, the economics of printed books means that we essentially go e-book only over the next 10 years, which essentially means Amazon only. All Amazon has to do to get exclusivity is to not allow authors who list at Amazon to list anywhere else, or if they want to appear kind and gentle, just hide the books that are listed elsewhere – show up only if you ask for by name.

The only thing that a book publisher offers that cannot be purchased much more cheaply elsewhere is access to bookstores, which is worth 1,000x more than Amazon will ever offer (and why you get 8% of cover rather than 70%). Once paper books die (and bookstores with them), the publishers offer almost nothing, and Amazon can offer the only equivalent to shelf-space left – advertising on the Amazon site.

Walmart doesn’t need to buy suppliers, it already owns them in every way that matters. Amazon is looking at holding that same power over authors in another decade or so.

Shane M August 6, 2013 at 9:10 pm

Amazon is actually starting their own publishing house however, reaching out to successful self-publishing authors in particular.
http://www.amazon.com/gp/feature.html?ie=UTF8&docId=1000664761

Ale August 5, 2013 at 8:23 pm

Did you mean, Amazon Natural Monopoly? buying a mayor news paper could be a way to have more control over the message, and protecting Amazon from regulation, Amazon its well protected under Obama (they have managed to make the DOJ bless their price dumping, protect their 80% market share and punish the new entrant), but things can change.

Dismalist August 5, 2013 at 8:45 pm

Can’t wait ’til textbooks become loss leaders! Actually I’d settle for MC plus 10 %. :-)

FC August 5, 2013 at 10:50 pm

He’s going to keep the name, but would renaming it “The Bezos Post” raise or lower the goodwill value?

Please phrase your answer as an ordinary differential equation.

Andrew' August 6, 2013 at 4:01 am

He should name it “The Bezoar”

mofo. August 6, 2013 at 8:28 am

Shades of Sony..

mulp August 6, 2013 at 4:18 pm

Well, now the question will be:

How long will Bezos keep justify Amazon losing money every year to fund his propping up his money losing newspapers.

I’m guessing Bezos will in a decade be overseeing a Washington Post all the analyst think is losing millions each year even after adding three times the employees and offering a lot more products, but missing the fact that the Bezos backroom cloud operations are behind the transformed newspapers and the raft of new papers created in the new media era. And when you go to Bezosnews.com, the front page will include headlines to all the competitors who have adopted the oneclick pay for content scheme Bezo developed to painfully take your money, and critics will be claiming Bezos is an idiot to promote his competitors.

John August 6, 2013 at 5:09 pm

Given the trend to e-books I’m not sure there would be strong interest from those entities to buy publishers. They can hire the needed talent away and the physical publishing would really only be worth the depreciation of the assets.

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