In an interesting article about the Random Penguin publishing merger, John Naughton describes the dynamic of gigantism in publishing that paved the way for the clash of the Titans between publishers and Amazon. High street book retailers consolidated, causing publishers in turn to develop mass market blockbusters, which prompted agents to seek mega-advances for star writers, such that the publishers and retailers had to sweat those expensive assets….

As Naughton writes: “Thus publishing turned into an industry that was inordinately reliant on blockbuster products to deliver the results that Wall Street demanded. The result was a market characterised by what statisticians call a power law distribution – ie one in which a relatively small number of products sell in enormous volume while a “long tail” of other products sell in relatively modest quantities. The physical world of high street shops can’t handle a long tail for the simple reason that shelf-space costs money. Every book has to earn its rent. But internet outfits such as Amazon don’t have any problem handling the long tail; in fact, the company probably makes more from selling non-bestsellers than it does from blockbusters.”

He cites [amazon_link id=”0745661068″ target=”_blank” ]Merchants of Culture[/amazon_link] by John Thompson as a good sociological description of how publishing and bookselling have changed.

[amazon_image id=”0745661068″ link=”true” target=”_blank” size=”medium” ]Merchants of Culture[/amazon_image]

As I noted in a previous post about the publishing merger, though, Amazon is also interesting as a platform for smaller publishers, who would never be able to get shelf space in a high street store. I’m no fan of the Kindle, including because – as John Naughton and others have pointed out – you’re only renting the book. No doubt other already big publishers will also start to discuss mergers, so it will be intriguing to see whether Amazon does become a genuine platform for small publishers. Platforms are inherently few in number, so the acid test will be the terms on which it continues to deal with them will be the acid test, and one the competition authorities will no doubt be thinking about.

There’s obviously much excitement in the publishing world about the Random House-Penguin merger. It’s the kind of merger that makes me wish I was still on the Competition Commission, as the issues are fascinating. The justification given by the parties is that they will be able to invest on a larger scale in e-books. Clearly, all publishers are anxious about Amazon’s market power – 40% of all retail book sales in the UK according to one figure I saw. But this is complicated territory, competition-wise.

I was a member of the Competition Commission group that gave the 2006 go-ahead for Waterstones and Ottakar’s (remember them?) to merge on the grounds that online book sales offered vigorous competition to high street booksellers. Since then, Borders/Books Etc has also gone from British high streets, although Daunts and Blackwells seem to be more than holding their own. Ironically, the publishers – including Penguin – were vociferously opposed to the Waterstone’s merger, saying online sales would not pose an effective competitive threat to a single big high street chain.

What a lot of today’s commentary is not discussing in detail is the question of which markets along the whole value chain need to be assessed. There’s a transaction between author and publisher – mega-publishers look bad for most authors but on the other hand there seem to be quite a few reasonably successful small publishers springing up. Then the wholesale transaction between publishers and retailers – and here there is growing concentration on both sides, with the intriguing wrinkle that Amazon can act as a platform for smaller publishers to reach readers.

Finally, there is the retail market, both in its physical and e-book manifestations. Amazon is clearly dominant, and seems to be pricing Kindle devices at cost to hook customers in, but is not blatantly using its market power to raise prices to consumers, as opposed to squeezing the publishers’ margins – although given that the price of an e-book is a rental rather than a purchase price, that is a hypothesis to be tested. Anyway, one would need a two-sided market model to assess the competitive impact of changes in the two separate margins, as there is no reason these would be the same under perfect competition. Besides, any competition regulator would want to see a standardised e-book format emerge.

All in all, it would be a terrific case to be on! I’m not sure it will be referred – Penguin seems confident it can avert that with sufficient undertakings and disposals – but if there is an inquiry, the report will make a cracking good read.

Joe Queenan has written an essay in the Wall Street Journal (based on his new book, [amazon_link id=”0670025828″ target=”_blank” ]One For The Books[/amazon_link]) about how he became addicted to books.

[amazon_image id=”0670025828″ link=”true” target=”_blank” size=”medium” ]One for the Books[/amazon_image]

Books, books, books. I love them too. I always read books about books: Susan Hill’s [amazon_link id=”1846682665″ target=”_blank” ]Howard’s End is On The Landing[/amazon_link]; Francis Spufford’s [amazon_link id=”0571214673″ target=”_blank” ]The Child That Books Built[/amazon_link]; Ann Fadiman’s[amazon_link id=”0140283706″ target=”_blank” ] Ex Libris[/amazon_link], and so on.

The best bit of Queenan’s very funny essay is his defence of the need for books, the physical objects. He writes:

“Books as physical objects matter to me, because they evoke the past. A Métro ticket falls out of a book I bought 40 years ago, and I am transported back to the Rue Saint-Jacques on Sept. 12, 1972, where I am waiting for someone named Annie LeCombe. A telephone message from a friend who died too young falls out of a book, and I find myself back in the Chateau Marmont on a balmy September day in 1995. ….

None of this will work with a Kindle. People who need to possess the physical copy of a book, not merely an electronic version, believe that the objects themselves are sacred. Some people may find this attitude baffling, arguing that books are merely objects that take up space. This is true, but so are Prague and your kids and the Sistine Chapel. Think it through, bozos. …. There is no e-reader or Kindle in my future.”

I read this inwardly shouting, ‘Yes! Yes!” I too use travel tickets as bookmarks and leave them in the book, the better to remember reading them the cafe in Verona or on the flight to Belfast.

Flying back from Belfast

The part Queenan misses out it the joy of second hand books and bookshops. On my flight back from Belfast I finished reading a beaten-up old Leo Malet story about his detective Nestor Burma, [amazon_link id=”B003BPT2L4″ target=”_blank” ]L’homme au sang bleu[/amazon_link].

L’homme au sang bleu

I bought it on our summer holiday in Brittany in this marvellous warren-like bookstore, open only in the afternoons, seducing tourists as they drive past towards Cap Frehel.

Bouquinerie

I have many objections to e-readers, but perhaps the biggest is that they prevent the sharing of books. I can’t read the same books as my husband, who has a dreadful e-book habit, so I can’t talk to him about them. I couldn’t put e-thrillers I’ve read on the book-swap shelf at the local station. I wouldn’t be able to take them to the charity shop or sell them to a second hand bookstore. But what kind of civilisation would we be without second hand bookstores?

Google and the Association of American Publishers have settled their long-standing lawsuit over Google’s digitization of out-of-print but in-copyright books, but the case between Google and the Authors’ Guild remains open.Here is the New York Times report, here is the FT’s, and here is Timothy Lee on Ars Technica, highlighting the separation of interest between publishers and their food course, authors.

The settlement in effect means publishers are contracting out to Google the preparation of e-book versions of their back catalogues – they will pay a fee and get an electronic text they can readily publish. Publishing is a concentrated industry – although there is a competitive fringe, newly enabled by technology-driven reductions in cost, most books are sold by a small number of very large firms. These titans are engaged in a commercial wrestling match with some other very large businesses who are gatekeepers between them and their customers – Google, Amazon, Apple. The economies of scale in the marketing of books, in gaining readers’ attention, are large indeed. So are the network economies in providing a sales platform and suitable reading devices.

Small publishers and authors are minnows in this competition for access to readers. Yet of course some manage to use the technologies to break through, like the famous (notorious?) 50 Shades phenomenon. Let’s hope the fact the authors are hanging on in the US courts means the anti-trust issues get a thorough exploration. As Tim Wu’s excellent book [amazon_link id=”1848879865″ target=”_blank” ]The Master Switch[/amazon_link] demonstrates, there are inherent cycles of concentration in media and communication businesses, punctuated by periodic technological upheavals.

[amazon_image id=”1848879865″ link=”true” target=”_blank” size=”medium” ]The Master Switch: The Rise and Fall of Information Empires[/amazon_image]