Cory Doctorow: Free Markets

Cory Doctorow
Photo by Paula Mariel Salischiker

If you learned your economics from Heinlein novels or the University of Chicago, you probably think that “free market” describes an economic system that is free from government interference – where all consensual transactions between two or more parties are permissible.

But if you went to the source, Adam Smith’s Wealth of Nations, you’ll have found a very dif­ferent definition of a free market: Smith’s concern wasn’t freedom from governments, it was freedom from rentiers.

A rentier is someone who derives their income from “economic rents”: revenues derived from merely owning something. With a factory, you have workers who contribute labor, you have investors who build and maintain the physical plant, and you have the landlord, who siphons off some of the revenues derived from this activity because of his title to the dirt underneath the factory.

Every dollar the landlord extracts is a dollar that can’t go to the workers as wages, nor can it be rolled into the upkeep and improvement in the factory, nor can it enrich the shareholder.

One of the most powerful ways to extract rents is to have a monopoly. A ferryman who charges high prices isn’t necessarily extracting rents (because someone else can build a bridge or run a rival ferry service). But if the ferryman uses his profits to suc­cessfully lobby for a ban on bridges and competing ferry services, then he’s extracting rents, because the price his passengers pay are high because there’s no alternative.

There’s more than one way to get a monopoly, though: the ferryman can use his “monopoly rents” (the excess profits he extracts because he has no competitors) to buy out any upstart competitors. If a competitor won’t sell, the monopolist can mobilize monopoly rents to drive them out of business in other ways – by poaching all the rival’s key employees, offering high salaries paid for with excessive profits.

Or the monopolist can lower the price of a ferry ticket, to below the cost of operating the ferry service, subsidizing the fare out of his monopoly rent war chest until the competitor goes bust and sells out at pennies on the dollar – and then the price goes up again.

That’s why the technical definition of a “monopoly” isn’t simply a seller who faces no competition: instead, a “monopolist” is someone who can set prices without regard to the market. In competition law and economic theory, monopolies are about “market power,” the power to set prices – not just the number of sellers. The reason we care about sellers is because we care about the power to set prices, and the fewer sellers there are, the fewer barriers there are to setting prices.

Monopolies are self-reinforcing. While the lion’s share of monopoly rents are paid to shareholders, canny monopolists hold back some of those rents for special projects: bribing politicians (or funding ballot propositions) to secure favorable treatment, buying out new market entrants, or securing those upstarts’ doom with predatory pricing and other dirty tricks.

A rentier (one who lives off of economic rents) with a monopoly is a powerful force for shaping markets. Say the ferryman decides that round-trip passage will cost $100. Now, only merchants who expect to earn $101 at the market that day can make the crossing. That means that the shoppers either pay extra to cover the merchants’ ferry tickets, or that some of the things shoppers want are simply not available because they don’t want them badly enough to pay the premium to cover the ferryman’s vigorish.

A market is “free” if what’s for sale and how much it costs are set by the capabilities of producers and the desires of buyers. Every rent collected in the market whittles away that freedom, as choices about what to sell and what to buy disappear into the pocket of a rentier who owns things instead of making things.

2020 was a hard year, but for me, it had a bright spot: In September, I launched and executed the most successful audiobook crowdfunding cam­paign in history. I made $267,613. In the space of a month, I went from worried about my family’s finances to completely secure about our ability to pay our mortgage and taxes and add a good chunk to our retirement ac­counts. It was an extraordinary month.

But I wish I hadn’t had to do it.

If you’ve read this column before or paid atten­tion to my work over the years, you know that I’m violently allergic to “digital rights management” (DRM), the software wrappers that Big Tech puts around digital books, movies, music, and games, purportedly to prevent unauthorized copying.

If stopping unauthorized copying is DRM’s job, then I think we can all agree that it’s a dismal failure. Every DRM-restricted work available to stream or download is also available as a free, unauthorized file somewhere on the internet, the DRM having been removed by some enterprising member of the public.

But DRM serves a much more commercially important role: it allows for rent-seeking. Section 1201 of the Digital Millennium Copyright Act (1998) felonizes removing or tampering with or bypassing DRM, even when no copyright infringe­ment takes place. Violating this law comes with heavy penalties: a five year prison sentence and/or a $500,000 fine (other countries, including the EU states, Canada, Australia, Japan, Mexico, etc. have their own versions of this law, thanks to the energetic arm-twisting of the US Trade Representative).

What this means is that while DRM-breaking is widely practiced by noncommercial, anonymous individuals and collectives, it is almost never undertaken by commercial firms. There is no DRM-breaking USB stick hanging in the checkout aisle at Walmart. You can’t buy a DRM-breaker at Amazon and have it delivered the next day. The phone-screen repair place on the corner won’t jailbreak your phone while they’re fixing your screen.

As a copyright proprietor – an author – this is a grim situation. If I al­low Big Tech monopolists to put their DRM on my books, then they – not I – get a permanent veto over how my books can be used: which devices can display them, and on what terms. If you have $500-worth of my books locked up in Apple or Google or Amazon’s proprietary wrapper and I have a dispute with them and leave the platform, the cost of you following me to a competitor is the $500 it will cost you to buy those books all over again.

This turns Big Tech into the ferryman, controlling access to the market­place, extracting rents. The more DRM-locked books they sell, the more leverage they have, the more rent they receive. I’m 49 years old, and if all goes according to plan, I’ve got at least another quarter century of novel-writing in me. At the rate things are going, I could easily live to see the perfect capture of publishing by a handful of tech companies, either on their own or after corporate mergers with entertainment companies (think of likely tie-ups like Apple-Disney, or Universal-Comcast-Simon-and-Schuster, or Google-Hachette).

Preventing that kind of market capture and rolling back the existing mo­nopolization is a structural project, not an individual one – something for lawmakers and regulators, not authors, to oversee. As I write these words (in the wake of a failed coup, days before the Biden inauguration, in the midst of an impeachment), there’s a few bright lights on our horizon, such as the smart money that says Biden will make Rohit Chopra the next chair of the Consumer Finance Protection Bureau. Chopra is a fearless fighter, who roiled his fellow commissioners during his years at the FTC by proposing breakups and criminal prosecutions for corporations who engage in repeated wrongdoing. His catchphrase is “FTC orders are not suggestions.”

But I’m not going to pin all my hopes on a single (potential!) Biden ap­pointment. With or without Chopra, regulators will only act to the extent that there is a live controversy over this issue – to the extent that authors are loudly resisting the rent-extraction that’s bleeding them out.

So I won’t allow DRM to be wrapped around my books, and I never have, and I make a lot of noise about this fact. Thankfully, Tor’s got my back on this and, even more thankfully, all the ebook platforms make DRM optional, even the dominant one: Amazon’s Kindle store.

When it comes to audiobooks, it’s a different story.

Amazon controls a massive swathe of the ebook market. About 40% of the ebooks sold by the Big Five (Four? Maybe, by the time you read this, depending on the Simon and Schuster/Random House merger) publishers are sold through Amazon’s store. Amazon is also a publisher, and it locks its own “self-published” authors into DRM – which, in turn, locks them into Amazon as their sole retailer.

When it comes to audiobooks, the competitive landscape is far worse. Amazon’s audiobook division, Audible, controls the vast majority of the audiobook market. In many genres, it accounts for more than 90% of sales.

Audible – like Kindle – is also a publisher. None of the “Amazon origi­nal” books and audiobooks are available to libraries (Amazon says that libraries should spend public money buy their patrons Kindle and Audible subscriptions, and subject them to the fine-grained surveillance that comes with using Amazon’s digital products).

As with the Kindle program, creators who publish their audiobooks with Amazon must submit to having those recordings wrapped in DRM and being locked for all time to Amazon’s platform.

Unlike the Kindle, this mandatory DRM policy also applies to audiobooks that Amazon doesn’t publish. No matter who foots the bill for the record­ing and engineering, no matter who holds the copyright to the text and the reading, Amazon demands that every audiobook it sells, in its monopolistic audiobook store, be wrapped in its proprietary lockware.

That’s why none of my audiobooks are available on Amazon’s Audible.

And the fact that my audiobooks aren’t available on Amazon’s Audible – with its 90% market-share – is why no publisher wants to pay for my audio rights.

Which is how I came to be running that $267,613 Kickstarter.

Tor was about to publish Attack Surface, the third volume in my multi-bestselling Little Brother series. They paid a good price for it, but when it came to the audio rights, Macmillan said if I wanted to let them have them for free, they’d make an audiobook and market it, but they weren’t in a posi­tion to pay me for an audiobook that they couldn’t sell in the most popular audiobook store. Which, you know, fair enough.

So I retained the rights. I produced my own audiobook, read by the amaz­ing Amber Benson, produced by the incredible Skyboat Media, directed by the incomparable Cassandra De Cuir, and mastered by the brilliant John Taylor Williams. I paid to produce it, so I own it, so I can do whatever I want with it, including pre-selling it on Kickstarter.

My readers liked the idea!

Not only did they pre-order 6,700+ copies of the audiobook at $15/each, they also bought the previous audiobooks in the series (the Little Brother audio came out from Random House Audio in 2008; I produced my own edition of Homeland in 2013), as well as all three ebooks.

I acted as ebook retailer for my publishers, collecting the full retail price and remitting 70% of that money to my US and UK publishers based on where the readers were located, just like Amazon would. Come the next royalty period, my publishers will remit 25%-50% (depending on the deal) of that money back to me, as my royalty.

Between ebooks, audiobooks, and some special perks, I grossed $267k; about $130k of that went straight out again to my publishers, and about 30% of that will come right back to me as a royalty. I’m calling that a success.

What happened next was something I hadn’t anticipated at all. I never trusted apps or the cloud, so whenever I buy something on the internet, I download it to my computer and then sync it to my phone. It’s clunky, but it’s better than having all that stuff happen without any control or oversight, such that a tech company could delete my media at will or lock me out of my collections. My books are mine.

I started using this stuff early on, tethering devices like the Creative Labs Nomad to my laptop with a fat-tipped USB cable and dragging files onto it while its batteries rapidly discharged.

My first iPod was a revelation. I was on a business trip in New York City and I walked into a Broadway electronics shop and bought one. I pulled out my Mac laptop and plugged it in and it began to charge and sync. By the time I reached a diner a few blocks away, it had hundreds of tracks on it and enough charge to play them through my new earbuds. I listened all the rest of that day, recharging in my hotel room that night.

Over the years, things got more complicated, and eventually standalone audio players disappeared into smartphones, and one step at a time, I acquainted myself with the extra steps to download some MP3s from the internet and play them on my phone:

* get them on my laptop,

* unzip them,

* plug in my phone,

* tell my phone to mount itself as a drive (but at the root of the filesys­tem, not in the photos directory; if I tap the wrong button, disconnect and start over),

* navigate to the Music directory,

* drag over the files,

* disconnect,

* find the third-party audiobook player (because the built-in MP3 player that came with the OS doesn’t know how to treat an MP3 as an audiobook file) and tell it to reindex its files, then

* listen.

If that process sounds cumbersome to you, it is. If it sounds unfamiliar to you, you probably get your media through Audible.

Here’s what the procedure is for Audible audiobooks:

* pay for the book,

* wait for it to download,

* start listening.

That raises two questions:

  1. Why is the process so cumbersome if you don’t use an app to deliver your digital products? and,
  2. Why doesn’t everyone just use an app to deliver their digital products?

These both have the same answer, as it turns out: rent.

Apple and Google have a duopoly over mobile operating systems. Each operates an exclusive app store for its platform. Both platforms insist that you use their proprietary payment-processing service as a condition of be­ing in the app store.

And both app stores charge a 30% commission on their payment pro­cessing.

30% is a lot.

For perspective: I am a retailer for the $20 Random House audio edition of Little Brother, and sold many thousands of copies of it in my Kickstarter. My retail cut on that audiobook is 20% – so when I sell a copy of this au­diobook for $20, I pocket $4 and send $16 to Random House (which then pays me a royalty out of the remaining $16 a few months later).

If I were to sell my books through my own app on either platform, I would have to pay either Google or Apple (two of the largest, most profitable, least-taxed companies in the history of the human race) $6 for processing the payment (remember, I have to use their payment processor). Which means that every time you bought a Little Brother audiobook from me, I’d lose $2 in the process.

Now, there’s an alternative: I can sell through the Apple Books platform (which takes a rake of 30%), or through the Play Books store (it varies but at least 30%), or through Audible (same same, plus I have to let them use DRM to lock my customer to their store until the heat death of the universe).

You may have noticed that Audible is not owned by Apple or Google: do they pay the 30% cut? Not as far as anyone can tell (the deal itself isn’t public). Apple, Google, and Amazon routinely cut sweetheart discounts on payment processing for each others’ digital services.

What if I sold the book to you on the web, then sent you some kind of app to download it? That almost works, but both companies have a habit of shutting down apps that do this, claiming some kind of terms-of-service violation. Everyone from Epic (publishers of Fortnite) to WordPress to Spotify to Basecamp have been caught up in these shenanigans.

Apple and Google are serious about keeping their 30% ferryman’s rake on everyone they row to the market. They use lawsuits to kick out noncompliant apps and DRM on their devices to keep apps out after they’ve been tossed (Google’s Android devices are better on this second front). Both companies make billions in economic rents on app purchases.

Can it really be a coincidence that both companies have also made it nearly impossible to download a file from the internet and get it to play on your phone without an app?

Unfree markets are the order of the day: not because governments intervene in them, but because they don’t. Predatory mergers have clustered publishing, payment processing, app delivery, distribution, and most other parts of the book world into industries dominated by five or fewer firms; some sectors (on­line bookselling, national book retail) are dominated by one firm. In many cases, the same firm appears in multiple places in the value chain, letting it flank the sectors it doesn’t control and squeeze them as a supplier on one side and as a customer on the other.

I sold over 20,000 ebooks and audiobooks to 6,283 Kickstarter customers. I estimate that about 10% of them had serious difficulties figuring out how to get their books onto their mobile devices. Handling tech support for more than 600 people was a lot of work, but it also paid well: recall that the Kickstarter brought in $267,613.

I’m going to do more of this kind of thing in the future – of course, who wouldn’t after an initial suc­cess like that? – but in the weeks after the Kickstarter concluded, I went from feeling like I’d discovered a secret tunnel that would get me to the market without paying off a rent-seeking ferryman, to thinking that I’d merely discovered a small hole under a fence, one that was sure to be repaired in the near future.

As I write this, Bertelsmann – Random House’s parent company, which bought Penguin in 2013 – is seeking regulatory approval to buy Simon & Schuster. Meanwhile, the Big Five publishers and Amazon are being sued for price fixing over the deal the publishers struck with Amazon over the last price-fixing lawsuit (Amazon was the aggressor then, and Apple the co-defendant).

When monopolists control the way to the market, all the other market participants have to form cartels to fight them. The reason the Big Six publishers col­luded with Apple to fix prices was that Amazon was destroying them. The reason the Big Six have turned into the Big Four is that the only way to survive the mobile duopoly and the ebook monopoly is to merge and merge and merge.

After all, when different companies collude on prices, that’s an antitrust violation. When different divisions of the same company collude, that’s just do­ing business. If you want to collude with a competitor without getting sued, you just need to buy them first.

Amazon is already one of the world’s largest publishers, and you can only buy Amazon original books on Amazon’s platforms. As cartels merge to monopoly, it’s only a matter of time until Amazon – flush with excess billions in COVID cash – starts snapping up publishers. And if they don’t (or even if they do), Apple and Google can’t be far behind in similar plans.

The Trump administration and nearly every state Attorney General in America launched serious anti-trust action against the Big Tech giants in the last days of 2020. The Biden administration says it’ll keep the heat on, and the EU is also making extremely serious noises about pro-competition rules for the tech giants.

It’s long overdue. Only time will tell if it’s too late.


Cory Doctorow is the author of Walkaway, Little Brother, and Information Doesn’t Want to Be Free (among many others); he is the co-owner of Boing Boing, a special consultant to the Electronic Frontier Foundation, a visiting professor of Computer Science at the Open University and an MIT Media Lab Research Affiliate.


All opinions expressed by commentators are solely their own and do not reflect the opinions of Locus.

This article and more like it in the March 2021 issue of Locus.

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4 thoughts on “Cory Doctorow: Free Markets

  • March 15, 2021 at 2:40 pm
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    I do not know the process for uploading audio books, but with eBooks I always purchase them from a vendor who allows me to download a DRM-free EBUB file to my computer.

    I then upload the epub file by dragging and dropping it using a browser to my Google Play Books library and it appears on my phone and tablet in the (Google) Play Books app.

    If for some reason I no longer wish to use Google’s solution, I can pick a different provider and upload my ebooks from my computer to that new platform.

    Obviously I have never purchased an eBook from Amazon as it is permanently tied to the Kindle platform and its existence is totally at the mercy of Amazon.

    Reply
  • May 6, 2021 at 3:09 am
    Permalink

    I keep an old MP3 player for just this sort of purpose. I’m thinking of building my own, too (Adafruit and the like ought to make it doable), so I can finally have one that behaves right, and has physical controls I don’t have to look at to adjust while I work. Remember how well you could do that with the big buttons on your Walkman? Glad to see someone as dismayed and shocked as I am about the state of the audiobook world under the thumb of amazon. More and more things I want to listen to are in that locked garden now.

    Reply

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