Ebooks, Publishers, and Feeding Authors
Some things just can't substitute for another. Rolling Rock for Guinness. Brad Pitt for Humphrey Bogart. Spongebob for Bugs Bunny. E-books for paper books.
Well. Maybe they can.
It's tempting to think that all creative endeavors need the same kind of business model. Historically, it's been true. Due to production costs (and duplication) costs books, music, and movies all had vaguely similar production and business models.
And then came modern computers.
First, music took a hit (and still is). Physical CD sales are bottoming out. MP3s (or FLAC, or Ogg Vorbis) are a near-perfect substitute for what you would buy in a record store. Perhaps the best indication of this is what so many of us do when we do get (or buy) a physical CD - we rip it to a MP3 player. The audiophiles who love the "warmth" of vinyl are romantic and part of the market in the same way that classic car restorers are part of Toyota's business plan.
And, of course, it made it easier to share music.
Both of these are a huge problem for record companies - but surprisingly not so for artists. For all but the biggest (and especially for mid-range and small artists), more financial support has come in through performances than through record sales. So for these artists, it's made sense to make more of their work available to more people through services like Jamendo, or free downloads from last.fm. In some ways, making some work available via a CC-license is roughly akin to radio.
The movie industry has taken a hit as well, though not as badly. While the technology is still becoming available to produce an independent movie, there are often huge quality issues.  Still, digital transformations have come to such a point that I know people who only use the streaming portion of their Netflix account. Both independent rental places and huge chains like Blockbuster have taken a massive blow due to the changing distribution model. Hence the huge drive for 3D and IMAX movies. Those are experiences that cannot be perfectly substituted by the DVD or streaming video at home.
But this is just recap. My real interest as a fledgling writer is in the publishing industry. Publishing is a weird beast. Movie studios and record studios  go for profitability with nearly every release - either monetary profitability or awards. There's a reason so many documentaries were underwritten by universities - until they became popular again in the last few years. There's a reason why indie artists tend to sound so different than the monoculture of the big music industry.
To the best of my knowledge, publishing - even the big houses - isn't run that way. They lose money on most books, but at least get them out there. It's akin to the way media industries used to view news programs - not as profit-makers, but something that added to the cultural landscape.
But no matter how noble that is - and it is noble and good - at this point the publishing industry has all the problems of both the music and movie industry. That's what we'll hit on tomorrow.
 This is my personal experience; YMMV.
 The big ones, and I reserve the right to be wrong here.
... which brings us to book publishing.
In some ways, publishing's similar to the movie industry. As John Scalzi pointed out (rather amusingly), there's more to a good book than just the author's imagination. In other ways though, it's content distribution model suddenly become a lot more like the music industry. And that's a problem for authors.
The e-reader boom has only just started - but they're definitely here and getting more market share. While I don't think print is dead yet - Tobias Buckell (I think - I can't find the actual link right now) pointed out how our economic privilege skews our viewpoint - we are suddenly in a place where the ebook is, for more and more people, the exact same thing as buying the book. So we've got the problems of the movie industry (a finished novel is not a solo effort, let alone promoting it) with the now near-perfect distribution substitution of the music industry.
But the last time I checked, (most) authors don't do concerts. It's really hard to do an IMAX book. And unlike music, most people rarely re-read books the same way that they listen to music again and again. So trying to adapt either the movie or music models of digital distribution is problematic at best.
This implies some really big things about the future of the publishing industry. It's quite possible that the model as it currently stands is unworkable.  But that doesn't mean that one model or the other is inherently "dead" or better.
What's at question is this: Is the value added by typesetters, proofreaders, editors, agents, marketers, slush readers and retailers really worth what they're paid for it? I don't know the answer to that question either - it seems like that's something that would work really well in a free market kind of situation. Maybe that's the role that publishing houses need to emphasize - that they provide a context and market for these kinds of associations to happen. 
Of course, many economic entities (both publishing houses and retailers like Amazon) are trying to lock in profits by forcing the new technologies to conform to the old business model. That's where all the DRM and format incompatibility come into play (Wanna read ePub on your Kindle? Tough. Wanna read a Kindle document on your nook? Tough.). There's no technological reason things should stay that way, and the popularity of jailbreaking iPhones and hacking Wiis strongly indicates that consumers won't put up with it any longer than absolutely necessary. In this limited respect, information does want to be free, or at least platform-independent.
But one thing is for sure: As much as I hate to say it, giving away all of your work online isn't a sure way for authors to succeed in a meaningful way any more.
 I don't know - we'll touch on this in part 3
 My understanding is that while publishers do this now, it's not a market-driven thing, which is why authors have little to no control over marketing, covers, and the like. I reserve the right to be wrong.
In 2004, Cory Doctorow used the example of reading a book on the beach to partially justify his release of his novels as e-books (and to point out that they were complements, not substitutes). It would cost more (and at least be more of a hassle) to print the thing out and haul it to the beach instead of buying the paper copy. They were complimentary products, not substitutes. And he was right - then. Now, the e-book and paperback are functionally equivalent - and giving away the full product can directly cut into your book's sales. 
For Cory - and others, I'm sure - writing is only one part of their life. In fact, Cory's very much adopted the model that musicians are having to migrate towards: the writing (or music) is a way to get people interested in the other, more profitable things you do. That solution isn't a bad one - but it's not a workable one for someone like myself. The three big arenas of my work life (my "day job", my writing, and academia) do not reinforce each other.
I'm not coming out against releasing CC-licensed work. Hell, everything I've posted here on this blog is - including the flash fiction bits. But those are samplers. My thought (hope, really) is that you'll see those, or some of the other fiction that I've written elsewhere, and then go do things like buy a copy of Timeshares, or Hungry for Your Love, or every magazine that I have a story published in. Not because I'm some greedy asshat - but because I've got a busy life too.
See, I'll be writing stuff whether it sells or not. My static website has reams of it - literally stretching back over fifteen years. And I don't anticipate ever being a full-time writer; I enjoy research and sociology entirely too much to completely give that up. But I could write a lot more - and really justify it - if I made enough between academia and writing to quit my "day job".
Yes, releasing CC-licensed work can provide externalities - and ones that can be measured in cash. Recently I donated a bit of money to Peter Watts when he needed it ; that relationship (entirely online, I've never met him) was started by reading the backlist of his works that's up with a CC-license. The amount I donated far exceeded the amount he would have recieved had I simply bought his back catalog. That's great - but that isn't the way to run a business.
So where do we go from here?
 Some of the other things Cory says about "ownership", though, I believe are still extremely relevant. The threat – even unexercised – that Amazon could yank content from me is one of the reasons I'm not buying a Kindle.
 I'm neither looking for praise or to argue the merits of that case; that's beside the point.
I'm not sure what the complete answer is. Maybe there has been wage inflation and stagnation in the publishing industry.  Maybe that model has to completely collapse - but then what about the positive externalities (those well written but unprofitable books that publishing houses effectively subsidize that I mentioned back in part one)?
Perhaps there should be more "samples". Sampling - whether through serial fiction like the type Mike Stackpole is doing or releasing back catalog items like Baen has done - makes intuitive sense. But what about, say, Escape Artists? They've been around for years now, giving away CC-licensed content, and are (AFAIK) running in the black, primarily through donations. What makes their model different and workable?
Maybe it's not workable - but until more creators (and publishers, whether they be big NYC companies, quasi-DIY outfits like Escape Artists, or totally DIY folks like Brave Men Run's author Matt Selznick) put all the cards on the table, we won't know. We're all guessing in the dark - and a lot of people are going to be undeservingly hurt if they guess incorrectly.
So the only thing I can think of is for all of them - from the DIY podcast novelists to the big NYC companies - is to open their financial books.
Because I really do believe in a free market. And the market of fiction is already a differentiated one. One book is not a substitute for another, one magazine is not a substitute for another, one author is not a substitute for another. In a free 21st century entertainment market, the price should not be set by artificial constraints like DRM or device lockdown, nor should it be set by opaque deals and obscured supply chains. There's no need for any of that. Not anymore.
It's in their own best interests, as well. Maybe Escape Artists really is onto something. How could McMillan emulate that model? Maybe Tor or Baen could show (explicitly) how social media and free product is actually reinforcing sales.
I remember reading in Suck.com (that dates me, huh?) that less than 1% of banner ads were clicked - let alone turned into a sale. Yet while people bemoaned that horrible rate, they never stopped to think what the conversion rate might be from a billboard or newspaper ad. At least with the banner ads, they knew, and could focus on the things that brought in the most money. Because remember, the more we can make our writing profitable, the more we can afford to write.
And if we - as authors, publishers, and retailers - can focus our efforts on those things that bring us all money, then maybe we could spend more time writing and getting those written words to readers.
 I think there's wage stagnation and wage inflation in most of the "developed world", and think that we're fighting a holding action against a massive market correction downward as the rest of the world comes into more direct competition.
This is an unplanned follow-up, based on a comment thread started here by Matt Selznick.
He pointed out that (aside from my cut-and-paste error with his URL), he's still not making a living wage with his creative work. The 1000 True Fans model is a great idea, but hard as hell to do. (If you're familiar with Mr. Selznick at all, you'll know that he's not whining, and that he is connecting with fans however possible.) One solution he suggests - rather than the economy-wide deflation I predict - would be for creators to charge more for their work.
This might seem counter-intuitive, especially given results like lifehacker's poll about e-book prices, but I think he's onto something.
There are two things I've heard Mike Stackpole say that have changed the way I think about books - and what I'm willing to pay for them.
The first is that all readers are patrons of the arts. This isn't hyperbole; it's recognizing that "arts" aren't limited to expensive black-tie operas and bazillion-dollar paintings by dead artists. Hell, it's even what copyfighters recognize when they talk about culture, and how excessive copyright impoverishes our common culture.
The second is that we need to look at entertainment value when we buy books. This tickles my economic heart, because in a free market, price does not reflect production costs.
You heard me right.
Price is a stand-in for value. Economists (and the public) often forget that price and value are two very different things. For example, I'll pay a little bit more to shop at a local comics store because I value local businesses. So when we talk about how much our entertainment should cost, the production cost is irrelevant.
It's all about how much entertainment value you get from it.
We don't pay more or less for movies based on production cost (take a look at just this one, very limited example of 15 low-budget movies that made a lot of money). Why shouldn't we extend that same metric to all other forms of entertainment?
For example, millions of people plunked down $10 (or more) for less than 4 hours of entertainment for Avatar - but you could get over twice as many hours of entertainment from Matt's podcast of Brave Men Run (which I highly recommend).  Isn't it fair to pay per hour of entertainment, whether it's an ebook, a dead tree book, a movie, a television show, podcast, or indie video game?
It's not the way we're used to thinking about books or video games. But I think that just maybe it's the way we should be.
 Yes, I realize they aren't perfect substitutes - substitute your favorite movie and novel here.