29 December 2008

A Publishing Squeeze

This is just a short, interim essay on the entertainment/publishing industry's problems. It is not comprehensive, by any means; it is, instead, an attempt to provide some alternate perspectives and explanations, and perhaps begin a dialogue. I have no hope whatsoever that it will actually push any reforms... because even the most minor reforms along lines suggested in this essay would require rich, egotistical idiots to admit that they're wrong and "risk"1 something.

The contemporary entertainment/publishing industry's problems began not quite 80 years ago. Naturally enough, the current problems are an unanticipated consequence of changes in reaction to the October 1929 crash. Further cultural changes since have only reinforced the misguided mechanisms chosen to deal with that crash. One of these reactions is an obvious one; the other two are not.

  1. The obvious reaction is the returns system, which converted bookstore stock from actual assets to consignment sales (no matter what the formal name applied by the industry is). Fortunately, most of the nonprint entertainment industry has abandoned this model, which arose and was formalized as a reaction to the inability of bookstores to get credit from traditional sources. Naturally enough, the economic entity that is really providing credit is not the publishers, but the providers of content.
  2. A somewhat less obvious reaction is the judgment cycle. The US government took a couple of years to investigate the alleged causes of October 1929, and came up with a one-size-fits-all solution that — ready for the surprise? — cannot really apply to the entertainment/publishing industry: the combination of the 1933 and 1934 acts relating to securities that established the modern accounting system. The modern accounting system is based upon short, discrete reporting intervals and year-over-year comparisons. It is also a great deal better, and more transparent, than the idiocy of the Roaring Twenties, and has no doubt prevented (or at least hidden) a great deal of outright fraud. The intellectual problem with this system, though, is that it presumes that past financial behavior is not just the best, but a sufficient, predictor of future financial behavior. Whether this is ever truly valid is beside the point; it is certainly not valid for the entertainment/publishing industry, whose financial data depend upon aggregating the nonaggregable (literary taste being only the most obvious element).
  3. The hidden reaction, though, is perhaps best illustrated in a bit of self-dialogue found in The Big Chill.

    NICK (using video camera, interviewing himself): So, what are you doing now?

    NICK (as interviewee): Oh, I'm in sales

    NICK (as interviewer): But... what are you selling?

    Or, perhaps, it is even better illustrated by a truly idiotic comment I heard on the radio a couple of days ago, from the editor of a major business publication. This probable MBA proclaimed that during an economic downturn, the worst thing that small businesses can do is "reduce their marketing expenses." Of course, that's not much of a suprise coming from someone whose revenue model depends upon selling advertising space... but the reality is that at most the imprecation must be to limit reduction in marketing effort, and to hell with maintaining expenses.

    In short, what we have here is an industry that doesn't know what it is selling, and it pouring money into selling the packaging and not into the product. Ignore for the moment those multimillion-dollar advances you hear about, and all the whingeing about "failure to earn back the advance."2

   So, then, what was the historical reaction? More consolidation at every level of the industry! We've got book packagers and house names making a comeback (James Patterson, meet Franklin W. Dixon); we've got a steadily decreasing number of editorial chains — that is, risk loci — as illustrated by the recent changes at RH and S&S, among recorded-music labels, and in Hollyweed; we've got increased concentration of distribution chains (hello, Ticketmaster!) and decreasing strength in actual retail outlets (witness Borders, the death of independent cinema outlets, and the consolidation of the club/live music scene); as Mark Knopfler put it, "these are classic symptoms of a monetary squeeze."3

I have no problem with treating the entertainment/publishing industry as a business. I do have a problem with trying to force it to look like every other business, and then whingeing when it won't act that way (especially during a monetary squeeze). I have an even bigger problem with trying to force it to look like every other business every single reporting period. Unfortunately, both of those memes are exactly what is taught in American culture, and especially in American business schools at all level... along with willful ignorance of what one is selling. Until that changes — or, at least, until those actually in control rethink their rubrics — the entertainment/publishing industry is going to remain in a permanent downward spiral.

  1. I'll repeat again, sounding more and more like a broken record: "Variability of return" is not a measure of or proxy for risk, contrary to the teachings of finance types who worship α and β as measures of risk. If you can't accept this, you won't agree with the rest of this article; neither do you have any background in thermodynamics, quantum physics, ecology, or chemistry (or at least not that you're willing to recall).
  2. I can't even begin to count the problems with this meme. For one thing, it assumes that a publisher's profit point is at the level of the advance, whereas it is ordinarily at substantially less than that (usually royalty earnings in the 75%-80% of advance range, and almost always substantially lower than that for large advances)... presuming honest accounting. And this isn't just a print publishing problem; the same accounting tricks that distort product profitability measures are endemic in all other sectors of the entertainment/publishing industry, including but not limited to recorded music and cinema/TV. For another, it assumes honest accounting in the first place. For a third — and perhaps most importantly — it assumes that the availability (or nonavailability) of a particular work has zero relationship to sales of other comparable, and even noncomparable, works... and that's demonstrably false. I won't go on, or this will resemble the Spanish Inquisition. This castle isn't even built on sand; it's build of sand sitting on an aqueous upwelling.

    Then, too, there's the whole "outlier problem" and the effect it has had on the rest of the marketplace available to content creators. That, however, gets into real math that doesn't translate well into HTML, including the demonstration that the median advance on a first novel is now 60% lower in terms of purchasing power than it was in 1978.

  3. Yes, I'm perfectly aware that that line is from a satire and is spoken by an unreliable party. That's part of the point.