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Self-Publishing with Amazon: Instant Gratification, Long-Term Peril

-- By MiaLee - 20 Oct 2011

Entrepreneurship, on Amazon's terms

Upon first blush, Amazon's pending elimination of middlemen publishers appears to shift power into the hands of creators. Instead of trying, often in vain, to secure an advance investment from publishing houses, authors can check the box on a license agreement and start marketing their works within minutes. Creators can cash in on the whole of their natural property rights, and consumers can browse their way to the latest masterpiece they might have overlooked (were it not for the enthusiastic, single-click testimonials of your thousand closest Facebook friends).

While statistical models have shown that increasing access to creative works results in the greatest amount of authorship, increasing reader access through Amazon will only strengthen Amazon's burgeoning monopoly on distribution channels. Amazon, in line with the increased profit-mongering surveillance of credit card companies and Facebook's Open Graph, continues to amass purchasing history knowledge and hone its ability to engage in perfect price discrimination against consumers.

Meanwhile, Amazon pulls no punches in brandishing its arbitrary control over the royalties it offers to self-publishing authors. Self-publishers can either choose a 35% royalty rate or a 70% royalty rate. If an author chooses the 35% rate, there may be times when the author earns zero royalty because Amazon has decided it is "matching a free promotion on another sales channel." If an author chooses the 70% rate, Amazon warns, "you must comply with any other restrictions or requirements we may provide from time to time for the 70% Royalty Option in the Program Policies."

So Much for Legal Redress

Coincidentally, the vague terms that Amazon forces authors to accept mimic the antitrust statute that is supposed to intervene when a company has succeeded in capturing too much market share, as Amazon probably will. If a dwindling competitor such as Barnes and Noble were to survive long enough and try to recoup its lost profits from Amazon through litigation, Amazon would presumptively breeze through the 3-prong ALCOA test and escape divestiture liability in obfuscating Microsoft fashion.

The judicial analysis would proceed as follows:

Prong 1: What's the market? The court would arbitrarily create classes of substitutable products and geographic restrictions. The court would bluntly reapply their calculus used in parsing the market for raw materials manufacturing in the 1940s, where the marginal cost of supply a good was greater than zero, to the market for data, where the marginal cost is zero.

Prong 2: Does Amazon have a monopoly on that market? Maybe. Something in the range of 60-90% will do, a percentage based on Judge Hand's footnote in ALCOA.

Prong 3: Did Amazon engage in any pernicious conduct to achieve that market? Procompetitive justifications are lobbied: if Amanda Hocking can make a living off of volumes of impulse clicks, then so can any other author that's enterprising and lucky enough to viral. The court takes a cue and decides not to punish Amazon for its success in increasing marketplace efficiency.

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