Why Amazon vs. Hachette should have news publishers quaking

Amazon UK Warehouse

Proposition: Amazon is to Hachette as Facebook is to all news publishers.

You know about Amazon’s dispute with book publishing giant Hachette, right? Amazon and the collective book publishing industry have been locked in a long-term war over the price of ebooks, and that’s now left the World’s Biggest Bookstore with some unusual gaps on its shelves. There is no underdog in this fight; it’s two colossal, unsympathetic combatants rolling in the mud — the Eastern Front of the online trade wars. (Here’s a good primer on the fight.)

Amazon is powerful today because over the past 20 years it has become the central chokepoint for distribution of both physical books and ebooks. It’s not a full-on monopoly yet; it’s got one ailing large-company competitor still in Barnes & Noble, and a sea of plucky independents will still sell us books. But it’s the key player. So when it says to a publisher like Hachette, “If you don’t play along you’ll pay a price,” it can extract a price.

Amazon vs. Hachette is a fascinating story in its own right, but today I want to use it as a lens to look at a different conflict — one that hasn’t flared yet.

Over the past 2-3 years, Facebook has begun to assume an Amazon-like role in the ecosystem of online news. We have quickly moved from a Web in which you got your readers either from search or from “organic” traffic sources (home-page visitors, regulars, and e-mail subscribers) to one where you get an enormous chunk of your readers directly from Facebook shares.

Partly this has happened naturally; so many of us love to graze on Facebook links! More recently, Facebook itself has goosed the process by deliberately opening a spigot of traffic to news publishers by tweaking its News Feed algorithm to favor their links.

When this happened last year, once it became clear that the changes favored actual quality journalism over viral linkbait, there was much celebration in newsrooms. Facebook was a savior. All you had to do was beef up your social-media team, A/B test your headlines and you could count on steady, impressive traffic growth from now till doomsday.

But there is an actual doomsday on this timeline. We know this because not that long ago Facebook pulled this same act with the entire world of consumer-facing business (or “brands,” as they’ve been dubbed in this arena). Facebook sold the “brands” on using its platform to connect with Real People, and brands leapt at the opportunity, pouring money and effort into building brand pages and huge followings, and everything was great until Facebook turned around and said, “Now we are demoting your posts — if you want to reach people you’ll have to pay us.

If you are an editor or publisher or news executive today, you must know that Facebook is going to pull exactly the same bait-and-switch move on you. Feast on free traffic! Tailor your business around it! Now, pay up! Facebook has big post-IPO revenue goals it needs to deliver on; there is no question that this is going to happen — the only uncertainty is when.

I understand that publishers today have no choice but to engage with Facebook on some level: you go where your readers are, and right now, the readers are there. But smart ones will keep an eye on the world beyond Facebook. Sooner or later they are going to find themselves, just like Hachette, locked in a commercial struggle with the entity that increasingly controls their distribution. And they’re going to have even less leverage than Hachette does.

In upcoming posts, I’ll look at what concrete steps publishers can take to avoid the Facebook trap and build a more sustainable future.

MICROECONOMICS ADDENDUM: There’s an unusual wrinkle to my analogy that is of quantitative interest. Amazon wants Hachette to sell its ebooks cheaper than Hachette wants; it’s the classic Walmart squeeze-your-suppliers tactic. With Facebook and news publishers, the news publishers (almost but not quite universally) are already giving away their product for free. So the “lower your prices” squeeze manifests itself as a negative price — i.e., Facebook ends up asking the publishers for a fee to distribute their goods.

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Comments

  1. I would argue that neither of these cases is a bait and switch, and that, in fact, they’re not tangibly different than how news publishers earned their livings over the years. They controlled the portal to the eyeballs of the public and charged very high rents to anyone who wanted to use that portal, i.e. advertisers. Now, Facebook owns the portal and the publishers need to use it to access that audience to sell to their own advertising. They’ve just shifted positions from selling into the portal to buying into it. If they hadn’t been asleep at the wheel in the ’90s to early 00’s, they might still own the portal. They were, after all, in the best position of anyone to exert some influence over the emerging digital information infrastructure at the time. But instead, they chose to follow the stats quo to where they are now, needing to cut an increasingly expensive series of checks to the Amazons, Googles and Facebooks of the world just to have a hope of keeping the doors open. It’s quite an impressive feat of business acumen, actually, to swipe the principal means for a hugely profitably industry completely out from under without them even realizing. More than anything else, I think it shows they took their position for granted and now the bill’s coming due.

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