A thought exercise

Which may or may not make sense.

Imagine that we have a resource mineral that, while not vital to the survival of the human race or essential to continuing technological progress, plays a pretty important role of making said things easier, more convenient, and bearable.

Now imagine that this mineral needs to be refined before it becomes a useful product. The big six refineries have locked down all of the rights to all of the major sources of the mineral, which they stockpile. Their stockpile and mineral purchases vastly outstrip their capacity for refining them, but they continue to hoard them nonetheless.

Several things become obvious in this scenario. First of all, every single new entrant that attempts to play at the same level as the existing six gets crushed very quickly. They can’t rely on stockpiles of existing materials. They have to rely on new mineral deposit discoveries and to do so they try to entice existing prospecting agents over to their side.

The problem is that said agents became rich by working with the big six and so their cooperation is fairly limited.

Then there’s the issue of modernisation. When you run a big operation with massive revenue, any technological upgrade of your processes costs a fortune—for the big six refiners to finance the retooling of their plants, the new technology needs to deliver a sizeable impact to the bottom line. Which hardly ever happens because most technological improvements are incremental.

Another, obvious, thing is that lower quality competitors enter the market as demand exceeds what the big six can supply. These use a new mineral similar to what the big six supply – it serves the same purpose – but it isn’t the same and operates differently with different, possibly more, side effects. These entrants make up for the lower quality of their material through a variety of means. They build their refineries closer to the customer, ensuring prompt delivery. They try not to be tied down to the same strict processes as the big six and so can respond quicker. But, mostly, they compete by building much closer ties to the miners of their competing mineral than anything the big six have done, using networks and modern communications to leverage a large number of smaller mining operations instead of a smaller number of large mines. Year after year, their access of unprocessed mineral improves and improves.

Now, this presents a dilemma for the big six. The competing product is clearly a bit rubbish, but it’s improving quickly and, worse for the big six, a lot of the customers don’t seem to care. They value other things than the over-engineered, expensive product the big six refiners produce.

There are a couple of obvious thing for the big six to do:

Either they compete directly with the new product by building out new operations that leverage the material properties they have now discovered that their customers actually do value. The problem with this approach is that this gives their competitors a big leg up, their entire business model just got validated and they have a massive head start on the big six.

Another obvious thing to do is to try and offer their services to the new industry, become a high-margin provider of solutions and services. The problem there is that they actually have fewer core competencies in this new field than the new entrants and so end up selling these services mostly to each other and to dumb money trying to capitalise on the disruption.

The blindingly obvious thing to do, which they never do, because it means giving up what they see as a competitive advantage, would be to sell off their stockpile of minerals. They have more resources than they have the capacity to turn into a product. By opening up the licensing market of the mineral they create a completely new industry of refineries who can be agile because they aren’t tied down to mineral acquisition, but are free to innovate in their production techniques.

This enables new kinds of companies and new kinds of products. It opens up the field to a new set of disruptors who can disrupt both the big six’s existing refinery operations and the newer, lower quality refiners. Moreover, since the single most important core competency of the big six is the acquisition of mineral rights, they have ensured their continued existence and profitability.

Back to the real world.

The big sixfive, as a rule, demand long term rights exclusivity while only really leveraging the full value of these books for the first few years. After that they just stockpile them, hoping for a film deal or sequel that might spin up demand for the older titles again.

This is a massive resource that they are simply not equipped to turn into product. Their product development units (publishers, that is) are busy publishing new stuff. Non-exclusive, API-based, and widespread licensing of their backlist to competitors in chunks would make them a lot of money, ongoing, and it would open up the field to a completely new kind of publisher.


Postscript, a year later

I’ve been hearing conflicting reports about how easy it is for writers to break up with their publisher. The vast majority of reports say that it is at the very least a hassle and at worst a nightmare.

But there is a subset of the reports that say that it’s easy peasy. It isn’t fun and the publisher might get a bit grumpy, but it isn’t too difficult.

My theory is that the minority who find it easy to get the rights to their work back are getting their stories from people with influence, i.e. authors who either have enough money to have lawyers on retainer, or enough reputation oomph to convince the publisher to be nice.

Whatever the cause since the majority seem to be having difficulties and since there’s another big whack of titles who don’t have an advocate (like titles controlled by uninterested heirs), the above scenario isn’t too far fetched. Publishers seem to be employing non-compete clauses and hard-to-sever contracts to hoard titles and authors they aren’t otherwise using.

It crosses my mind that publishers are hoping bulk licensing of their back catalogue to, for example, subscription services might earn them a lot of money, and that’s part of the reason why they are hoarding titles and authors.

One thought on “A thought exercise

  1. Since comments are disabled for your “Losing faith” thoughts, I’ll add this here.

    I haven’t read your fiction (no offense–the general area is of no interest), but I have to say your writing is some of the best, if not the best, and the most realistic thinking-out-loud going on concerning ebooks (and publishing in general) on the web today.

    In particular, I think your most “outrageous” thoughts are spot on.

    So have some faith in yourself!

Comments are closed.