Monthly Archives: April 2012

From the New York Times:

Last Tuesday, Buzz Bissinger hopped the Amtrak train to Philadelphia from New York, where he had done a bit of publicity for “After Friday Night Lights,” a 12,000-word e-book that had been performing nicely since its release. But when he opened his laptop to check his ranking on Amazon, he found the book was no longer for sale there.

“I was stunned,” he said in a phone interview on Friday. “I thought it was some kind of technical difficulty.” (I had noticed a lot of people on Twitter shared his confusion.)

. . . .

Mr. Bissinger wrote the e-book for Byliner.com, one of a number of fledgling companies trying to make a go of it by publishing long-form works — not as long as a traditional book, but longer than most magazine articles — for digital readers. Mr. Bissinger thought the e-book, priced at $2.99, would be a great way to pay tribute to the relationship while also helping Mr. Miles, by giving him a third of the proceeds.

But the plan hit a pothole after Apple, which had been looking to get into shorter works in a digital format, decided to include e-books in a promotion that it does withStarbucks. It selected Mr. Bissinger’s digital sequel as a Pick of the Week, giving customers a code they could redeem online for the book. (Mr. Bissinger said he still received a royalty of $1.50 for each copy sold.)

Amazon interpreted the promotion as a price drop and lowered its price for “After Friday Night Lights” to exactly zero. Byliner withdrew the book from Amazon’s shelves, saying it did so to “protect our authors’ interest.”

. . . .

“It’s a shame that the e-book was not on sale at Amazon,” he said. “Amazon is a crucial outlet for any author, and when you lose them, it’s terrifying. It’s a killer for ‘After Friday Night Lights’ because it was just gaining momentum and books have a very small window of opportunity.”

. . . .

[Byliner founder] Mr. Bryant, who formerly edited a sports magazine for The New York Times, said that Amazon’s “price bot” had picked up the fact that the book was being given away as part of a weeklong promotion and responded by dropping its price to zero. (In an e-mail later, Mr. Bryant said that when the company told Amazon about the promotion, before it began, Byliner was warned the price might drop to zero. But, he said, “we hoped that wouldn’t happen.” It did.)

. . . .

With the business performance of Amazon, it’s hard to suggest that the company does not know what it is doing, even when it “sells” a book at a price of zero.

Link to the rest at the New York Times and thanks to Pat for the tip.

As you would expect, the Times works hard to make Amazon the bad guy here.

However, Amazon warned the publisher what would happen when Apple ran its free promo of the book and the publisher (evidently without consulting the author) went ahead with the promo, “hoping” that Amazon wouldn’t exercise its price-matching clause – Paragraph 1.E. of the Pricing Page.

Of course, as regular visitors here know, a lot of indie authors run free promotions on Amazon and elsewhere – it’s one of the main attractions of the KDP Select program – as a means of raising the visibility of their books on Amazon. One response of the publisher could have been to leave the book on Amazon and reap higher sales everywhere after the expiration of the free pricing period.

However, the publisher believes (wrongly, in PG’s universally humble opinion) “books have a very small window of opportunity.”

Another response of the publisher could have been to unpublish the book on iBooks or otherwise decline the free Apple promotion so the Amazon price wouldn’t drop.

Just as Apple knew what it was doing when it dropped the price of the book to zero, Amazon knew what it was doing when it dropped the price to zero.

Apparently the only party that didn’t know what it was doing was the publisher.

And, of course, the the publisher left the author entirely in the dark.

The young have aspirations that never come to pass, the old have reminiscences of what never happened. It’s only the middle-aged who are really conscious of their limitations–that is why one should be so patient with them.

Saki

From Forbes:

Back in 1997, Microsoft invested $150 million in Apple when its back was against the wall. Today, Microsoft announced it would invest twice that amount in Barnes & Noble to make a Windows 8 version of its Nook e-book reader.

Before analyzing Microsoft’s latest investment, it’s worth remembering why it took a piece of Apple 15 years ago. Back then, Apple was struggling with low market share and years of weak leadership. Microsoft was looking to ensure that Apple would “develop and ship future versions of its Microsoft Office, Internet Explorer, and development tools for the Macintosh,” according to CNET.

. . . .

Moreover, on news of that announcement, Apple stock — which had been trading at about $19.75 a share, popped about 40%.

. . . .

As for Microsoft’s deal with Barnes & Noble, the reasons for the investment — selling more Microsoft products and settling patent litigation — remind me of Mark Twain’s saying that history doesn’t repeat itself, but sometimes it rhymes.

. . . .

Of course there is more to this deal than meets the eye since the patent litigation — relating to allegations of infringing on NOOK intellectual property — between Microsoft and Barnes & Noble has been settled. And I would not be surprised if this investment was related to the settlement.

. . . .

Expect Barnes & Noble shares to pop on this news — they were up 91% in pre-market trading. But there is no way that Barnes & Noble is going to turn around as Apple did after Microsoft invested when it was down in the dumps in 1997.

The missing ingredient at Barnes & Noble is the business genius of Steve Jobs.

Link to the rest at Forbes

One point this article misses is that, in 1997, Microsoft had a significant strategic interest in the continued existence of Apple as a competitor in the personal computer business. Microsoft was under extensive investigation for antitrust violations when it made the investment and would be sued for those violations by the Department of Justice the following year.

From FutureBook:

Microsoft’s investment in Barnes & Noble’s Nook and college business should not be the huge surprise it clearly is. The giant software business has tried twice to get into the e-book market, and failed on both occasions.

. . . .

[Twelve years ago] Microsoft was touting its Microsoft(R) Reader with ClearType(TM) display technology that allowed digital books to be read on home computers (this was pre-smart phones and pre-tablets). Microsoft, along with a few technology providers and some publishers, were also promoting an Open eBook (OEB) specification for e-book titles. “E-books are pointing the way to the future of reading and publishing,” said Dick Brass, Microsoft’s vice president for Technology Development, only nine years too early. “It’s going to be a future of more titles and lower costs. Instant delivery and on-screen reading that rivals paper. You’ll see 30,000 titles in a single laptop, or 1,000 in the palm of your hand. And because of great advances in computer technology and the Internet, it may be coming sooner than many have expected.”

Not soon enough for Microsoft, the awards are now long forgotten. Open eBook (OEB) became ePub.

But by 2005 Microsoft was back, this time with MSN Book Search, a legal version of Google’s mass book digitization project. At the time Microsoft said it would commit $5m for the digitization of 150,000 books, and launch a beta search site for MSN Book Search in 2006.

. . . .

For starters the e-book market really is big business now, big enough anyway for Microsoft not to see it as an expensive and risky side-show, and put some of its senior executives on the project. The electronics giant has largely been left behind by the mobile revolution: B&N, with its tablet devices, is in there but needs money and leverage to compete long term. B&N’s nous with Microsoft tech know-how and cash could be a winning combination.

. . . .

Second, the integration with Windows 8, and Microsoft’s partnership with Nokia, means B&N’s Nook will have a major play when the new platform rolls out globally later this year. Some of the digerati are already predicting the end of the basic e-ink device, pointing to the falling price of Nook devices in stores.

Third, this is all about global. B&N may be a big player in the US e-book market, but it’s nowhere on the international scene, and doesn’t look like getting there anytime soon: at least not with Waterstones. “The formation of Newco [the new company that Microsoft will have a stake in] and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the NOOK business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments,” said William Lynch, chief executive of Barnes & Noble. This deal “will allow us to significantly expand the business”.

. . . .

Fourth, as Apple’s education announcement made plain a few months ago, the big tech companies are now targeting students, big time. No surprises here students need tablets (sorry, learning devices), they will want digital text books, and they will be consumers of digital for decades to come. By rolling the campus business into this new company, Microsoft will have access to physical places visited by students within which to launch and showcase devices.

. . . .

[R]emarkably, given how little I cared about it until about an hour ago, a huge amount of the book business is now staked on Windows 8 putting Microsoft in the mobile game.

From the book world’s perspective it also means that another giant has joined the battle for the digital content market, which is now made up of Apple, Amazon, Google, Kobo/Rakuten and Microsoft/B&N. (Oh, and Sony).

Link to the rest at FutureBook

Passive Guy expects a lot of “Microsoft will save the book business from Amazon” stories over the next few days.

PG is trying to think of an instance in which Microsoft saved anybody from anything and is unable to do so. Feel free to remind him if this has ever happened in the comments.

From Forbes:

Barnes & Noble has had a troubled few years. Part of the problem is that it continues to be a tablet business with a chain of bookshops connected to it rather than the other way around – with the tablet and ebook reader business growing at a savage pace, while the bookshop dawdles.

. . . .

Here’s an interesting idea: that Barnes and Noble should consider splitting the company. Separate the physical bookstores from the virtual business of the Nook and allow that digital business the room and capital to compete with Apple‘s iPad and Amazon’s Kindle?

. . . .

From the stock market’s view, from the investors’ view, this is pretty much a no brainer. We would always prefer to see businesses broken out rather than hidden in some conglomerate. Unless there is a substantial reason why the two businesses work better together than apart that is.

It’s not entirely obvious which way this goes though. Does having the Nook advertised throughout the retail estate raise awareness of its existence enough to make the argument that the two should continue to exist in the same company? Could even that be unbundled: say, a 5 year agreement as part of the separation of the two businesses?

. . . .

By adding Jana Partners’ involvement this week there is the potential for an even more convoluted deal. Jana owns a significant piece of McGraw Hill and has been pushing for its breakup as well, separating the text book publishing business from financial services

If the Nook, through the Jana connection, could be sold with a captive textbook market place, courtesy of McGraw Hill, as well as an arms-length bookshop relationship with Barnes & Noble, the deal has the potential to create a mini-Amazon, and through internationalisation, a genuine force in eBooks as well as in tablets generally.

Link to the rest at Forbes

It’s interesting to PG that Big Publishing is so focused on protecting Barnes & Noble’s bookstores while all the financial wizards are anxious to dump the bookstores so the real value of the Nook can be realized.

PG suspects the Nookies secretly regard the bookstores as a boat anchor around their necks, despite the short-term benefit of having sales space in them.

Here are a few early thoughts on Microsoft’s $300 million investment in the Nook, or more properly, in a new Barnes & Noble subsidiary that will own the Nook business and Barnes & Noble’s college bookstore business.

Microsoft is easily capable of writing a check for the entire subsidiary, which, based on its ownership interest of 17.6%, has a value of about $1.7 billion. The fact that it didn’t (although it may have an option to acquire the whole thing that hasn’t been announced) tells PG this is mostly a play to get priority access to Nook content for Microsoft’s various software platforms and present and future devices.

The college bookstore play is also interesting, but may well be a strategy ensure a prominent place for an upcoming Windows 8 tablet that might not catch much college exposure without the investment.

Some press reports have speculated Microsoft’s international reach is a way to move the Nook into other countries more rapidly. However, if Nook is planning to continue using bookstore kiosks/Nook Stores as a key component of its international expansion, Microsoft doesn’t do it any good there. Microsoft isn’t a retail powerhouse anywhere outside the company store in Redmond where you can buy a Microsoft t-shirt.

One of the biggest impacts on Nook will be that a lot of Nook executives will be trying to figure out what this means for their careers and several Nook somebodies will have to start liasing with their counterparts at Microsoft. Having dealt with MS in the past, PG can assure the folks at Barnes & Noble that Microsoft is not necessarily an easy organization to work with. It can be hard to get decisions made or even find out who actually can make a decision.

On the tech side, the Nookies will have to assign people to start building a Windows 8 app so it’s available for the Win 8 launch, a project that was probably not #1 on the priority list before today. Some of the more neurotic tech people will be wondering how long the Android-based Nook will last and whether a Win 8 Nook is in their future.

In short, this relationship will be a continuing distraction for a lot of key people at Nook, moving their attention away from creating and executing strategies to build share in the face of Amazon’s onslaught. If any smart Nook people have an opportunity to jump ship, additional uncertainty about the company’s future will encourage them to do so.

These are early days in analyzing this agreement, but PG doesn’t see genius at work on either side.

Amazon is not alone in working to avoid taxes.

From the New York Times:

RENO, Nev. — Apple, the world’s most profitable technology company, doesn’t design iPhones here. It doesn’t run AppleCare customer service from this city. And it doesn’t manufacture MacBooks or iPads anywhere nearby.

Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.

Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.

California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

Link to the rest at the New York Times

TechCrunch has some additional details:

Barnes & Noble has found a new, major partner in its fight to get an edge over Amazon and Apple in the market for e-books and the devices being used to consume them: it is teaming up with Microsoft in what the two are calling a strategic partnership, name yet to be determined.

It will come in the form of a new subsidiary of B&N that will include all of its Nook business as well as its educational College business. Microsoft is making a $300 million investment in the subsidiary, valuing the company at $1.7 billion in exchange for around 17.6 percent equity in the subsidiary.

The news leaves the door open for B&N to eventually spin these off into a separate business altogether — or even sell them to Microsoft. And it leaves a load of questions about what B&N will do next with the Nook, which is currently built on a forked version of Google’s Android platform.

The new company, referred to for the moment as Newco, will contain B&N’s digital business, as well as its College division. While Microsoft will take 17.6 percent, B&N will own 82.4 percent of the venture.

This is a key way of getting more content on to the Microsoft platform — specifically e-books content to ensure that its Windows 8 tablets will be able to compete not only against the best-selling iPad but also the Kindle Fire from Amazon, along with the rest of the company’s e-readers. The Kindle Fire has stolen a march among Android tablet makers and part of the compelling offer is not only the low price ($199) but also the fact that it contains so much content, including seamless access to all of Amazon’s e-book offerings.

Link to the rest at TechCrunch

From the Wall Street Journal:

Microsoft Corp.  is making a $300 million investment in Barnes & Noble Inc.’s Nook digital-book business and college-texts unit in a move that helps value the prized Nook business, the companies said.

Microsoft will have a 17.6% stake in a new subsidiary for the businesses in a transaction that values them at $1.7 billion, the companies said. That compares with Barnes & Noble’s current market capitalization of about $791 million and could fuel the argument of some analysts and investors that the digital business should be separated from the retail division.

As part of the move, there will be a Nook application included in the new Windows 8, which is scheduled to have a release preview in early June.

Link to the rest at The Wall Street Journal (Link may expire)

This is a bulletin that just popped up and Passive Guy will have additional posts as news reports develop.

Here’s a link to Microsoft’s Press Release

A reprise of an earlier post:

An agency clause may be inserted into a publishing contract between an author and a publisher. In essence, a typical agency clause provides that the agent may receive royalty payments on behalf of the author and has authority to act in the name of the author with respect to the contract.

Here’s an example:

All sums of money due to the Author under this Agreement shall be paid to the Author’s agent, Annie Agent, of 321 Applesauce Avenue, New York, NY 10023, U.S.A. (hereinafter called “the Agent”) and receipt by the Agent shall be a good and valid discharge of all such indebtedness and the Agent is hereby empowered by the Author to act on the Author’s behalf in all matters arising in any way out of this Agreement.   For services rendered and to be rendered the Author does hereby irrevocably assign and transfer to the Agent the sum of 15% (fifteen percent) as an agency coupled with an interest out of all monies due and coming due to and for the account of the Author under this Agreement.

To understand this beast, you need a teensy bit of legal background info. (I promise this won’t hurt too much.)

Since the agent doesn’t usually sign the publishing contract, the agent is a Third Party Beneficiary of the contract.

The classic Third Party Beneficiary example is a life insurance policy. Grandpa George buys a life insurance policy for $100,000 from Cornpone Mutual when he’s only Pa George. He names his three chillun, Bo, Lucille and Little George, as the beneficiaries. (Hint)

Grandpa George pays all the premiums on time, but gets careless around the hay baler one day and goes to meet his Maker. In pieces. The chillun tell Cornpone Mutual it’s time to pay up, but Cornpone says its policies do not cover hay baler accidents.

The parties to the life insurance policy are Grandpa George and Cornpone Mutual. The chillun never signed anything. Indeed, if they were under 18 at the time the policy was purchased, they were legally unable to enter into contracts.

The usual rule is that only parties to a contract can sue for enforcement or damages. This raises a problem. Grandpa George was a good man, so there are very few lawyers in the place where he has gone. There is also no email and Fedex guys who take packages there never return.

The children were named in the insurance policy, however. Although they didn’t sign, they are Third Party Beneficiaries so they can sue Cornpone Mutual in their own names.

Outside of a few clearly-defined fields, Third Party Beneficiaries are quite rare in the business world. When Passive Guy was practicing law, he would negotiate dozens of contracts with nary a Third Party Beneficiary in sight. The standard practice was to have everybody sign the contract if they had any rights under the contract.

However, in the wild and wacky world of publishing, agents are Third-Party Beneficiaries to a lot of publishing contracts. As will become clear during our discussion, Passive Guy thinks Agency Clauses only benefit the agent and can cause problems for both the author (obviously) and the publisher (don’t know if they’ve thought much about this).

So, in general terms, what does the presence of an agent as third-party beneficiary to a publishing contract mean? This is a weird area of the law, filled with lovely Latin phrases, serving primarily to fill out the semester in a Contracts Law class (which is one reason to have everybody sign the contract). PG will boil it down into fundamentals as they relate to an Agency Clause.

1. If one or both of the parties to a contract violate the terms of the contract to the detriment of the Agent, the Agent can sue to enforce the contract.
2. The Agent’s rights are subject to the terms of the contract.
3. The Author and Publisher have obligations to the Agent to perform under the terms of the contract.

Isn’t this fun? Don’t you wish you could be a Third Party Beneficiary too?

Before we go further, let me make clear that Passive Guy is not anybody’s lawyer anymore. As much as he may love and admire you, PG is not your lawyer. Most publishing contracts will have a clause saying New York law applies to the interpretation of the contract. PG is not a New York lawyer either. Any legal discussions will be general in nature and New York or other state or federal laws may conflict with PG’s generalities. Hire your own lawyer if you want legal advice.

So, let’s start dissecting the Agency Clause so see where we have some wiggle room. Some agents just use an Agency Clause without a separate Agency Agreement between the Author and Agent. Our analysis will assume this is the case. If there’s a separate Agency Agreement, things can become much more complicated.

Passive Guy wants you to see this clause through PG’s magic contract vision glasses.

What does Passive Guy’s super-power vision see here?

1. Purple highlights – Unsurprisingly, the Agency Clause is about money only. Potential benefits or compensation other than money are not covered by this clause. Something that could be easily converted to money or is a money equivalent – a Visa gift card, for example – might be covered. PG is assuming “money” is not a defined term in the Publishing Contract. (For you persnickety types, super-power vision is not perfect. The purple “an” is a mistake.)

2. Blue highlights – Only money payable to the Author is covered. Money payable to other people or entities is not covered. The assignment clause, if any, in the Publishing Contract would make for interesting reading.

3. Yellow highlights – The Agent is authorized to act on Author’s behalf. In the oh-so-ever-humble opinion of PG, this gives rise to the classic obligations that an agent owes to a principal. These include always acting in the principal’s best interests, disclosing conflicts of interest, etc., etc.

Arising in any way out of the Agreement is broad.

For services rendered and to be rendered is interesting in light of the Ralph Vicinanza agency matter discussed previously. This implies an ongoing stream of services and is specifically worded as consideration for the ongoing 15% agency fee. If no more services will be rendered, there’s an argument no more agency fee should be paid.

4. Green highlights – PG never likes irrevocable agreements where one party is providing services to the other. The services may start out just fine, but if they go bad, you want to be able to stop paying for them.

If this is the only written description of the Agent’s agreement with the Author, then no term – time period – for the agency exists. It’s not one year or five years or a hundred years. Generally speaking, an agency agreement that doesn’t have a term is revocable at will by the principal.

Agency coupled with an interest is an agency in which the agent has an interest in the property regarding which he or she is acting on the principal’s behalf. PG has another post on this ominous-sounding term coming out tomorrow, but, for our discussion today, essentially, it means the same thing as irrevocable. It’s a belt-and-suspenders approach to try to keep the Author from revoking the agency agreement. Absent a separate document actually describing the interest of the agent, it probably doesn’t add much.

5. Red highlights – Payments to the Author under other agreements, even other agreements with this particular Publisher, are not covered by the Agency clause.

So, putting all this together, what do we have?

Following are a few (but not nearly all) possibilities:

1. The Agent is empowered to act on the Author’s behalf respecting this Agreement, but nothing prohibits the Author or someone else – an attorney or agent – from also acting on behalf of the Author. The Agent doesn’t have an exclusive right.

2. All the Agent’s rights are tied to this specific Publishing Contract. New or separate agreements are not included. If the original agreement includes options for additional books in a series, PG thinks there is a good argument that if the Author insists on a separate agreement for subsequent books, the Agency Clause in the first agreement would not necessarily give the Agent a commission on subsequent books. (Again, we’re not dealing with situations in which there is a separate Agency Agreement.)

3. Since everybody is bound by the Publishing Contract, if that Contract has an out-of-print clause, the Publisher can declare the book out of print and enter into a separate agreement with the Author for something like an enhanced and revised version of the original book. There will likely be many other clauses in the Publishing Contract that allow the Publisher to effectively terminate the commercial life of a particular book.

4. If the Author receives an ebook amendment or rider to the original contract, and the Author no longer desires to use the Agent’s services, the Author might want to insist on a separate Publishing Contract for the ebook. Under the terms of the Agency Clause, the ebook contract might not be commissionable.

5. PG is sure the attorney who first came up with the for services rendered and to be rendered language thought he/she had done a cool thing in providing for future consideration from the agent for future commissions. However, if future services by the Agent are not satisfactory to the Author and the Author terminates the relationship for that reason, this contract language strengthens Author’s argument that the Agent’s commissions should end.

6. If the Author gives the Agent specific instructions, preferably in writing, about what the Author wants the Agent to do or not to do respecting the Publishing Contract, PG believes the Agent cannot act contrary to the Author’s instructions unless the Author asks the Agent to do something illegal or totally ridiculous.

7. If there is a fight between the Agent and the Author based on the Agency Clause, PG thinks it quite likely the Publisher would be dragged into ensuing litigation, particularly if the fight was about a separate contract between the Author and the Publisher for which no commissions were payable. PG wonders why a Publisher would open itself up to this possibility when the Agency Clause provides no discernable (at least to PG) benefit to the Publisher.

Passive Guy will close this very lengthy post by admitting puzzlement and worry.

When PG heard these Agency Clauses described before he saw one, he expected to find a serious lock-down legal provision. Instead, there appear to be lots of holes in the one used to illustrate this post. Others PG has received for his Contract Collection (Thank You!) are almost identical.

The reason PG worries is whenever it appears too easy to get out of what’s supposed to be a tight contract, PG fears he has missed something big or obvious.

Since we have a large number of informed publishing veterans visiting The Passive Voice, let me know if I’m really off-base in my analysis.