Corporate concentration has strained the labor market for virtually all workers, but the resulting lack of competition has caused unique harm to the creative economy. Increasingly exploitative monopolies have rendered artists, authors, musicians, and other creative workers all but powerless. Novelist Cory Doctorow and intellectual property expert Rebecca Giblin discuss their new book, Chokepoint Capitalism, which documents the increasing tensions between extractive corporations and creative laborers, and offers solutions to help fight back against the devaluation of creativity.

Cory Doctorow is a science fiction writer and activist, as well as a special advisor to the Electronic Frontier Foundation, a visiting professor of computer science at the Open University and of library science at the University of North Carolina, and an MIT Media Lab research affiliate.

Rebecca Giblin is an ARC Future Fellow and Professor at Melbourne Law School. She is Director of the Intellectual Property Research Institute of Australia and heads up the Author’s Interest and eLending projects.

Twitter: @doctorow, @rgibli

Nick Hanauer:

We call power the dark matter of economics. It’s the most important thing.

Cory Doctorow:

The failing of not factoring in power is that it doesn’t address the way that monopolies are much harder to stop than they are to prevent.

Rebecca Giblin:

It shouldn’t be that everybody’s supposed to choose big tech or big content, because no matter which giant you choose, you’re going to be settling for the crumbs from the table.

Nick Hanauer:

Is there a lesson to be learned here? Yeah. Power corrupts and absolute power corrupts. Absolutely.

Announcer:

From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.

Nick Hanauer:

I’m Nick Hanauer, founder of Civic Ventures.

David Goldstein:

I’m David Goldstein, senior fellow at Civic Ventures. A lot of our listeners are familiar with your origin story, Nick, but I want to take a few minutes to talk about mine, if that’s okay with you.

Nick Hanauer:

It is hunky dory, Goldie.

David Goldstein:

Okay. So folks here in Washington state may know me a bit as a ballot initiative crackpot who became a foul-mouthed political blogger, which got him a talk radio show, which eventually got me a job at The Stranger where I was eventually fired for writing too honestly about Uber and the $15 minimum wage, which brought me to you. But actually, Nick, we have something in common in that earlier on in my life I was an entrepreneur.

Nick Hanauer:

That’s right.

David Goldstein:

I was the creator, the developer, the editor of the programmer of the world’s first rhyming dictionary software, which I originally created for my own use, but I decided to have it published. It was such a useful tool. And after about a year and a half of failing to find a publisher who was interested in something that may only sell a few tens of thousands of units a month at most, which wasn’t good enough for them, my then wife and I, we started our own little software publishing company to publish this product, which we called A Zillion Kajillion Rhymes.

It was a great experience I have to say in many, many ways, but one of the things I learned very early on was that the closer you are to creating content, the less money you make off of it. The further you are away, the more money you make. It wasn’t a losing… We didn’t lose money very much in this business. Most years we eke out a small profit, but we had to go through this publishing industry, where either we sold through the mail order catalogs. And 70% of software in the ’90s was sold through four mail order catalogs. And to get in those mail order catalogs, you had to buy hundreds, eventually thousands of dollars a month of co-op advertising just to be able to be in the catalog. That’s how they made their money. It wasn’t selling software, that’s why it was so cheap.

They made their money selling advertising to the publishers, or the other 30% was through retail, which kept consolidating. And to get into retail, you had to sell through a distributor. And to get into the distributor, you had to buy what they called market development funds, which was merely just a bribe to get into the distributor so you could get on the shelf at these large retailers who then also charged you co-op advertising to stay on the shelf if you wanted to be there.

And so a product which we sold direct for 50 bucks, which we sold into wholesale for $25 a unit that only cost us a buck 50 a unit to make in terms of the physical shrink wrapped box, we’d be lucky to make 50 cents off of that in the end.

A couple years after that, Nick, the Palm Os, the first pre iPhone took off and there were a couple of app stores selling Palm software. And I also on a whim I poured at that search engine for the rhyming dictionary over to Palm and put it on these stores where it was a model people are familiar with today, because it’s the Apple app store model. They took 30% and I got 70% and it cost me nothing to be there. It was like a free ATM for a couple years. There was always money coming into my bank account because I didn’t have to do anything. It just sold, it was in the app store. It wasn’t a ton of money, but it was more money than I made selling a hundred thousand units of that rhyming dictionary for Mac or Windows I could make selling a few hundred a month on this app store.

And I thought, “It would be amazing. This is the future. Content creators are finally free and we’re going to make all the money and the old infrastructure’s going to fall.” And my God was I wrong. It turned out, Nick, the internet wasn’t nearly as democratizing as I thought it would be. It turned out that it was your buddy Jeff who got it right from the very start.

Nick Hanauer:

Yeah, for sure. You definitely wanted to be on that side of the trade because that’s the side that you can consolidate. Ultimately, profits are a product of market power and there’s no market power intrinsic in making a niche product.

David Goldstein:

Right.

Nick Hanauer:

There’s tremendous market power in consolidating millions and millions of customers. And in general, I would say, I can’t say this with authority, but it’s my instinct that the best businesses in the world traditionally have been customer creation businesses where basically you’re selling customers to other people, which is what Google does and kind of ultimately what Amazon does, right? They are a gateway through which customers go to reach products from other people.

Look, we live in a world where Amazon today is the example of this egregious behavior. But for as long as there have been retailers or… This problem has existed for a really long time, although it was much less severe when the country had actual… And I trust enforcement. But when that went away, effectively when the neoliberals took over and all that went away, it just got worse and worse and worse. Your experience is of typical of what happened to folks. Hopefully, we can begin to reverse that. Today we talked to some people who desperately want to reverse these trends, Cory Doctorow and Rebecca Giblin, who have just written a book called Chokepoint Capitalism, when exploitive businesses create insurmountable barriers to competition.

Cory Doctorow:

I’m Cory Doctorow and I write science fiction novels. I’ve been with the Electronic Frontier Foundation for 20 years and I’m also a journalist. The new book is Chokepoint Capitalism, which I co-wrote with my colleague, Rebecca Giblin.

Rebecca Giblin:

I’m Rebecca Giblin, I’m a law professor at Melbourne Law School at the University of Melbourne. I work at the intersection of law and culture, and I work on trying to solve the fundamental problems around how we do a better job of getting artists paid and ensuring widespread access to knowledge and culture.

Nick Hanauer:

Why in the world did a science fiction writer and I guess a law professor come together to write a book on capitalism and the effect it has on creatives?

Cory Doctorow:

Well, we’re both veterans of the copyright wars. We both spent a lot of time talking about the importance of flexible copyright regimes. We found ourselves trapped in a kind of endless and increasingly pointless debate where you have to pick one side of a binary where you’re either on the side of big tech as a proxy for user interests or on the side of big entertainment as a proxy for creator’s interests. And neither of them are very good proxies for either and both of them to the extent that they have ever been good for one and bad for the other. It’s always been extremely contingent. Like the entertainment industry was pretty bad for creators until tech came along and kind of challenged its hegemony. That reeked some havoc on the entertainment industry, but it also disciplined those firms and made them behave better for creators briefly.

But even then it was not smooth sailing because the tech industry quickly consolidated into something that was sort of functionally indistinguishable from the entertainment in terms of how it dealt with creators. We got very frustrated with this idea that as a creator or as someone who cared about the creative industries, that you would either brief for the ogre from the entertainment industry or the ogre from the tech industry. And as these two giants wrestled, you would pray that if you chose the right one, that the victor would dribble a few crumbs to reward you for your loyalty. We wanted to write a book that was about creators and other important stakeholders in the creative industry, including information users and audiences seizing their own destiny and not relying on the largess of a giant dominant firm and its executives.

Rebecca Giblin:

We got so tired of this false dichotomy between creators and users. What we saw is that it shouldn’t be that everybody’s forced to choose big tech or big content because no matter which giant you choose, you’re going to be settling for the crumbs from their table. So we were seeing the problem as being about big. As Cory puts it, if your kids are going to school and they’re being shaken down at the school gate every day by the bullies for their lunch money, you don’t solve that problem by giving them more lunch money.

Cory Doctorow:

Right.

Rebecca Giblin:

And that doesn’t change. Even if the bullies create a nationwide campaign, won’t somebody think of the poor hungry school children? You still don’t and you don’t go out and give everybody more lunch money. What we wanted to do is come up with a book that didn’t just bemoan these problems. Everybody knows that the state of creative labor markets are really dire, that most people really struggle to get paid and that it’s getting worse. We didn’t want to write yet another book that talks for 10 chapters about how dreary everything is and then have some hand wavy solutions at the end. We wanted to set out to say, “Okay, the problem is that there’s a power imbalance.” But in the whole second half of the book we wanted to show how everyone can keep hold of their lunch money.

Nick Hanauer:

This particular instantiation of the problems that neoliberal economic theory wrought is not something I’m as familiar with, but it is the story of what’s happened in all sorts of industries and to all sorts of constituencies over the last 40 or 50 years. And it reminds me, I mean did you know that in neoclassical economics there is no such thing as power? Right? It does not exist, which is just about the most ridiculous thing in the world in fact.

David Goldstein:

They know it exist, Nick. It’s just very difficult to model so they leave it out.

Nick Hanauer:

Yes. And power is like… Well, we call power the dark matter of economics. It’s the most important thing even though it is very hard to see and quantify. In no place probably is that more obvious than in the circumstances you guys find yourselves in the creative industries.

Rebecca Giblin:

Yeah. Another one of the wild tenets of Chicago school of economics is this idea that we really need to worry about how much wealth is created. We don’t need to worry at all about how it’s divided up.

Nick Hanauer:

Correct.

Rebecca Giblin:

That’s not a problem for economics. He assures us that’s something other areas of law can worry about. But of course they don’t worry about it. Once you get the kind of concentrated power that you see, once you’ve had that wealth accumulation that comes from not worrying how the wealth is divided up, then you get the regulatory capture that we talk about in the book and all of those other issues that stop those other areas from in fact dealing with it. So it becomes nobody’s problem, but in fact all of our problem.

David Goldstein:

Surely you’re not implying that the market isn’t pareto optimal as the Chicago school teaches.

Cory Doctorow:

Well, the failing of not factoring in power is that it doesn’t address the way that monopolies are much harder to stop than they are to prevent. If you have a theory that includes power, then even if you accept the precept of boric that most monopolies are good and that getting rid of the good monopolies will stop the little Jeffy Bezoses of the world from benefiting us all with their unique once in a generation genius to get us all next day parcel delivery and jars full of urine in the vans, that once they do accumulate that power, if it turns out that they turn sour or if they have a stroke and their idiot nephew takes over the business, then you are really at a loss to regulate them.

One of the things that I find myself talking to colleagues of mine who are anti-authoritarians about is this idea that the larger the firms are that the state wants to regulate, the larger the state has to be to sort of impedance match them. The IBM outspent the DOJ for 12 consecutive years from 1970 to 1982, bought more antitrust lawyers in the whole US government combined just for this one case that they were on, which meant that the state had to have an army of lawyers.

And if you are a small state anti-authoritarian, then you also need to be a small corporation person because otherwise you need a state that’s… The only way you deal with Baidu or Tencent is to be the CCP. A smaller, less muscular state isn’t going to be able to check that power.

Nick Hanauer:

That’s right. The philosopher Elizabeth Anderson calls of all this private government. It’s like swapping a bad dog for a monkey. I mean you may not like government, but instead you are stuck with these monolithic authoritarian enterprises that tell you what to do. And for any of us who has ever had personal contact with the types of people who end up running these enterprises, that is not good. It’s not a good circumstance to be in.

But I want to ask another clarifying question because I think it would be useful to our listeners if you could more directly explain by way of an example what the problem is. Can you talk us through what happens and why?

Cory Doctorow:

Well, I mean there’s some pretty straightforward examples. A lot of this book is digging into these accounting practices that in the finance industry they call MEGO, My Eyes Glaze Over, which are these things that are sort of performatively complicated. They’re complicated so that they’ll be hard to be understand, but they pretend that they’re hard to understand because they’re complicated. But some of them are really straightforward.

When I started in the publishing industry, there were about 20 good size publishers in New York. When we started writing this book, there were six. Now there’s about to be four. It just means that when your agent goes out to shop your book around, instead of auctioning the book to six publishers or 20 publishers or even just two out of those 20 who might be interested in it and who can be played off against each other, there’s just one. I mean, Stephen King just made this point in the Simon & Schuster merger review where he said, “Well Penguin Random House wants to buy Simon & Schuster and they claim that they’ll still bid against each other for books.” And that is just facially absurd. It’s like saying my husband and wife will bid against each other for the same house. It doesn’t make any sense.

But one of the points that we make in the book and that other antitrust observers, monopoly observers have made before us is that monopoly begets monopoly. The publisher’s consolidation was driven by a long run phenomenon in which you had consolidation first in retail. So the big box stores all came together and that caused a crash in the number of distributors from about 400 to about three, which is now down to one because the big box retailers were able to lean on the distributors to get preferential treatment. And that meant that the only way they could push back was to consolidate.

The distributors in their consolidated position began to lean on publishers. And the publishers started to consolidate. And now you have retailer distributors like Amazon. The big six publishers that once were got together with Apple to conspire to force Amazon to end its predatory pricing on Kindle books because Amazon was willing to lose money on every book they sold, use their access to the capital markets to become the only place that any rational person would go for books because they were cheaper there. And then they were going to use that to lock people into the Kindle and seize control over the destiny of the publishing industry. So they all got together and they illegally conspired with Apple to rig ebook prices and they all got beaten up by it and then they just started merging with each other. Because if the CEO of Penguin and the CEO Random House and the CEO of Simon & Schuster got together to arrange a common pricing plan for Amazon, that’s illegal.

But when the presidents of Penguin Random House, Simon & Schuster, who used to be the CEOs of those three companies get together in a boardroom under one corporate roof and they have the same conversation, that’s perfectly legal. And as with every one of these monopolistic arrangements, we focus a lot on what this does to the customers. And rightly so, it’s not a good program for customers when the decisions about what books can get published and how they’re marketed is gathered into just four hands.

But it’s even worse for the people on the other end of the supply chain, for the creators who are now facing lower wages and a more harsh environment and having to give up more concessions. There’s some really practical concessions, right? The consolidated publishers are now asking for things that writers used to sell separately, like worldwide English rights, audiobook rights, ebook rights, graphic novel rights, film adaptation rights in some cases. These are rights that you used to go out and sell separately and get another check for. Now you don’t get checks for it. It’s not just that you get a lower advance or less marketing or you’re more likely to be struck off if you have a book that doesn’t perform as well as they’d hoped. But it’s also that even with your successful books, you don’t share in the bounty the way you used to.

Rebecca Giblin:

When we talk about Chokepoint Capitalism, this is coming back to this idea that a lot of the quiet parts being said out loud now. Say what you will about capitalism, but competition is supposed to be fundamental to it. But it is inherently extractive and it inherently leads to more and more concentration. And so you see Warren Buffet celebrating over companies that have what he calls wide sustainable moats, which he means are barriers to other people coming in and competing away those monopoly profits. We have Peter Thiel coming out and saying competition is for losers. This is now what’s being taught in business schools. You don’t make something, you find a way of locking everybody in so that you can extract more than your fair share of value.

And that’s what we see throughout this. And that’s what we’re talking about with the idea of Chokepoint’s. That there’s all of these companies who are setting out to create these hourglass shaped markets that have got buyers at one end and sellers at the other and themselves in the middle where they’re squatting predatorily at the neck .and in the creative markets of course we’ve got its audiences on one side and creators at the other. We’re seeing exactly the same thing.

Why it’s really interesting to look at it in the context of creative markets is because the tools that are used are in such a wide variety and also they’ve been so incredibly successful. But also we’ve talked a lot about monopoly so far, but perhaps we could mention monopsony as well. Now we talk a lot about monopsony in the book less than in the first draft because everybody who read it made us take the word out. We are determined that we can make this sexy, but not everybody’s convinced. But this was a term that [inaudible 00:21:25]-

Nick Hanauer:

Yeah. We love the word so monopsony so go, yeah.

Rebecca Giblin:

Oh good. Well, maybe you are the folks who are going to make it sexy.

Nick Hanauer:

Go big. Yeah.

Rebecca Giblin:

Or maybe we can make it sexy together. But for those who are listening who don’t know about this, this is a term that was coined in 1933 by Joan Robinson, an economist who we dedicated the book to. She warned us of the dangers of monopsony. Let me just unpack a little bit what it’s about. And hopefully people will still keep listening despite the fact that a lot of people turn off when they hear the word. And in fact, technically what we’re talking about is oligopsony, which is perhaps even less appealing.

We kind of all have a pretty good idea of about what monopoly is because we’ve got a board game for that. It’s where a seller has got lots of power over buyers. So Amazon over consumers can have monopoly power, but monopsony is where a buyer has a lot of power over sellers. And so, this Amazon in its dealings with publishers, for example, and all kinds of other sellers that need to access its marketplace in order to access consumers.

Monopsony is really dangerous for reasons that aren’t particularly well recognized. For one thing, it accrues at way lower market concentrations than monopoly does. So just 8 or 10% of a market can give a buyer lots of power of a seller’s. That’s why when Amazon, for example, started the Gazelle project, which is exactly what it sounds like, they set up to target the weakest publishers in the market in order to take more and more of their margin to subsidize the rest of their business so that they could use that to help eliminate competition.

Melville House tried to stand up against them and Amazon retaliated by immediately removing the buy button. A novel house had to give in. And at that time, I think Amazon only had 8% market share. But that was 8% where Melville House wouldn’t be able to replace those sales with anyone else. And so they had to give in. And now if you think about how concentrated these markets are on the buyer side now, so whether it’s Amazon for books, the Hollywood talent agencies, the big three record labels who are in the big three music publishers, Spotify and a couple other companies over music streaming and so on and so on, we see that there are huge, huge dangers here.

Nick Hanauer:

Yeah. You mentioned that the purpose of writing the book is to build a path of what to do. So let’s talk about that. What should we do?

Cory Doctorow:

Yeah, so one of the things that is distinctive, I think, about our book relative to other books about problems in the economy and problems in our modern world was really crystallized well by an editor who rejected it. He said, “I really like this book, but I got to the second half, which is just one solution after another. It’s just like a half the book is just things that we should and could do. None of them were things that individuals could do. They were all systemic solutions and that’s going to really bu individuals out because they’re going to want to take individual solutions.” And we were like, “Dude, you are so close to getting it because you can’t shop your way out of a monopoly for the same reason that you can’t recycle your way at a climate change.” These are systemic problems, right? This is not giving your bullied kid more lunch money. This is getting the bullies away from the gate.

We have proposals that range from pretty straightforward, kind of the one weird trick realm to some pretty big ambitious systemic ones. Most of them are not the traditional antitrust, anti-monopoly remedies for a couple of reasons. One is that they’re not as effective with monopsony. The other is that they’re slow. People will tell you that it took seven years to break up AT&T, but from the first time the DOJ tried it until 1982 when it happened, it took 69 years. I don’t want to wait 69 years for Penguin Random House or Facebook, Instagram to get broken up. I want this to happen. I want there to be actions straight away.

And so in the one weird trick realm, we talk about transparency. And transparency not in a generic kumbaya, sunshine is the best in disinfectant, but like actionable transparency. So if you have a royalty arrangement with a publisher or label or a studio, that contract probably gives you the right to audit your books. And if you do audit your books, you will often find an error in your favor. We cite some research from a firm that has done tens of thousands of record contract audits over decades. This is going to shock and amaze you, but out of those tens of thousands, they frequently found accounting errors. And for reasons that no one can adequately explain all but one of those errors were down to the benefit of the record label and not the performer.

Nick Hanauer:

That’s an extraordinary-

Cory Doctorow:

Coincidence.

Nick Hanauer:

Coincidence.Yeah.

Rebecca Giblin:

Isolated probability [inaudible 00:26:12] Cory likes to call it.

Nick Hanauer:

Yeah. That’s amazing.

David Goldstein:

If by coincidence you mean indictment, then yes.

Cory Doctorow:

So when you do find this money owed to you, we set a source who had a six figure accounting error in their favor, you will quite rightly ask for that money to be paid to you in they are apt to say, “Well no, I’m sorry you’ve done your math wrong. We don’t actually owe you anything. But because we’re such good natured slobs, I’ll tell you what, we’ll give you a discount on that. We’ll give you some of that money. But to get that settlement out of us as opposed to suing us, which you probably can’t afford to do, we are going to require you to sign a non-disclosure. Also, we are only going to let you use auditors who haven’t audited us before.” This is like the murderer saying to the forensics team, “Dig anywhere you’d like in my garden except for that corner, which I’m very sentimental about.”

And so when you sign this nondisclosure agreement to get your money out of them, you don’t get to tell similarly situated people where their stolen money is. Now because of monopolies, nearly every one of these contracts is consummated in one of four states. You’ve got California and New York, Washington because of Amazon, and you’ve got Tennessee because of Nashville. And if those states, which after all have the jurisdiction over contracts, were to introduce short bills that said, “It is a matter of public policy that we will not enforce non-disclosure when it applies to material emissions or errors that were down to the detriment of people entitled to royalties,” at the stroke of a pen or four pens, you would in minutes put more money into the pockets of more artists all over the world than 40 years of copyright term extensions combined. Substantially more, right? And that’s the kind of transparency beyond kumbaya. That is transparency that you can use

David Goldstein:

Until Amazon then just moves, its that part of its business out of state the way Microsoft moved its royalties out of state?

Cory Doctorow:

You can royalty shift by having the money be realized somewhere else, but you can’t jurisdiction shift. You can say that Amazon can say that it has an arm’s length arrangement with a third party that hovers in a state of non-taxable grace over the Irish sea and that it can remit a trademark fee or a copyright licensing fee equal to its whole profit so that it profit ships out of it. But if I’m in Washington state and you’re in Washington state and we sign a contract together, it’s very hard to argue that the jurisdiction of that contract is Mars.

Nick Hanauer:

Interesting. That’s so interesting. And so I just have to ask. I mean, this podcast is a sideline for the business of Civic Ventures, which is social change. And I’m just interested, have you run that bill up the flag pole in Washington State or California? I mean, there would be a lot of sympathetic folks in California, right?

Rebecca Giblin:

There has been a history of this. So for example, in the early 2000s when the record labels that I’m talking about, the big three record labels, were engaging in the most egregious abuses, and we’ve got a whole chapter on this called Why Prince Changed His Name where we unpack exactly what happens when you give labels unfettered power of the people they’re supposed to be representing. And it’s really just an extraordinary litany of abuses.

There were a bunch of bills that were put up in California at that time especially around auditing that came very close to passing. Then what we saw however was with the advent of the internet and digital technologies and particularly file sharing, we saw an almost complete collapse of the business model of recorded music. We don’t want to romanticize this period by any means because so many people just almost in an instant lost their livelihood, but what we also saw was a democratization and a [inaudible 00:30:00] fornication, if you will, around how people could get their music to customers, to audiences. And that meant that the record labels had to reform the most egregious practices at least for new contracts that they were entering into because people finally had a choice.

And that’s a really important lesson when we talk about the solutions in this book, and Cory mentioned the fact that monopsony power is something that our traditional antitrust solutions or competition law solutions really struggle to respond to. But we do know what does work to respond to monopsony. It’s anything that encourages new entrants into a market that directly regulates excessive buyer power and that builds countervailing power in workers and suppliers. And so that’s what we saw and that can result in those same sort of reforms. But absolutely we should be seeing more of it actually happening in practice like we were seeing in those bills.

But unfortunately, the big challenge is that there is a lot of money to push for more copyright when it means more copyright for the powerful rights holders like the Motion Picture Association and the Recording Music Industry Association. But there’s very little money for actions that support creators over those powerful rights holders because creators don’t have any money and it’s really difficult without resources to mobilize for those causes.

So that’s why you see things like we talk about the importance of having time limits on copyright contracts, but that reality is why every time you’ve had a termination law or a version law passed, those powerful lobbyists have managed to water it down to the point where it is almost unusable and not worth anything for creative workers. And so we do have to find better ways of mobilizing and creating solidarity in order to do that. A lot of our book is about that too.

When we talk about transparency, things like in auditing rights, there’s an importance of transparency that goes well beyond that. And that is around the fact that it’s so difficult to fight an enemy if you don’t know what they look like. My favorite story in the book that shows us this is around the Audiblegate scandal. That for those of you who haven’t heard about it, Audible of course is a huge monopolist and monotonous when it comes to audiobooks. Subscribers of Audiblegate, those who were signed up for a new credit every month, were given an almost unbelievably generous offer to be able to return their audio books. No question asked, for a full credit, even if they’d had them for maybe a year, even if they’d listened to the whole thing, even if they’d enjoyed it, no problem at all.

What people didn’t realize is when they took advantage of that and sort of used the service like a library, is that audible was clawing back the full royalty from the author. What they wanted to do was get the subscribers locked in. So the more value they could give them as long as they didn’t have to pay for it. But the other thing that they did is they hid this. They knew that this was absolutely not okay. Amazon and Audible and notoriously secretive. So what they did is because nobody’s forced them to report transparently, they hid this in a little accounting fiction that they called net sales. An author might log onto their sales dashboard and see, “Oh, I sold five audio books today.” What they didn’t see is they sold 15 audio books today, but 10 of the previous sales had been returned. And so they were just seeing the net result.

Nick Hanauer:

So they did this without the permission of the authors?

Rebecca Giblin:

Well, I think it was understood in the contracts that this is what would happen, right?

Nick Hanauer:

If somebody hated it and would return it, yeah.

Rebecca Giblin:

Mm-hmm.

Nick Hanauer:

But no one would’ve ever imagined that they were using it as a promotional vehicle.

Rebecca Giblin:

Yeah, it’s brilliant and dastardly. But the authors were starting to suspect something was up because they were seeing these weird sales patterns. Their sales were falling in a way that they really couldn’t figure out and they thought it might be returns. There was this woman called Susan May who was on the case. And then what happened is there was a sales glitch, a reporting glitch one day and three weeks of returns data showed up in a single day. And so the veil was lifted and people saw. Sometimes it was hundreds of returns over that three week period. They realized the scale of this and how much it was impacting their bottom line. Having that insight meant that they were able to mobilize, that they had something to fight, that they were able to go after Amazon and Audible, again led by Susan May.

She was supported by a woman called Colleen Cross in this. This is maybe one of my favorite stories in the book as well. Former forensic accountant turned writer of forensic crime thrillers who found herself in the plot of one of her own novels, basically. She started thinking, “Well, hang on a minute. If they’re doing this to us over returns, what else are they doing to us?” So she took her forensic eye to the contracts and to the royalty statements, and she figured out, “If they were actually paying us the way that they were supposed to be paying us, the way the contracts say that they do, this doesn’t add up at all.”

And she told us, she thinks that Amazon actually didn’t just pull this accounting scam, they possibly counted the returns twice. So not just completely scammed authors on these returns thing, but then did it again. But then also still took, I think close to 90% of the income in some cases for books that have been fully financed by the authors themselves and then hidden all of this in these accounting fictions.

So it’s really extraordinary. Through solidarity working together and public organizing, they have managed to get Audible to reform some of the most egregious of these practices. But there’s so much more work to be done and they obviously need to be assisted with rights to transparency, with rights to accurate information, with rights to be able to bring a class action in the event that you are being screwed over.

And that’s another thing that’s being constantly taken away with these contracts that insist on commercial arbitration, for example. What that is it’s not legal, it’s administrative. It doesn’t have presidential value. The arbitrators are paid for by the big companies that they’re being used against. We know from the research that arbitrators put a pretty heavy thumb on the scale on the side of the people who are actually paying the bills. And so there’s lots of things that we can do to build that countervailing power in workers and suppliers, but we need the political will to do so. And that means all of us stepping forward and saying enough is enough.

David Goldstein:

Yeah. I have a question for you, Cory. You have been at this for a very long time both as a writer and an activist. And I’ve been a content creator for a long time. I can tell you personally watching the invention of the internet, the explosion of online commerce, all of the opportunities it created, there were times where I was incredibly optimistic about what this would mean for content creators. Considering where we are now, are you surprised by how it turned out? Or did you see this coming in the ’90s?

Cory Doctorow:

I think that you are right to ask whether the so-called internet utopians had a blind spot. I think there’s a story about where the internet utopians were that isn’t right, but the question, “Did internet utopians have a blind spot?”, the answer is a resounding yes, but it’s not the blind spot most people accuse them of.

So there’s this idea that 25 years ago, modem adult Gen Xers thought that if we could just give everyone the internet, then everything would be fine. I don’t think that was the dominant motif among people who were thinking about this stuff. We were all reading Cyberpunk. Cyberpunk is not a story about how things all turn out fine once everyone has a modem.

Nick Hanauer:

It’s true.

Cory Doctorow:

You don’t found an organization like the Electronic Frontier Foundation because you think everything is going to be fine, right?

Nick Hanauer:

Right. Yeah.

Cory Doctorow:

The attitude I think is best expressed in the title of a white paper on 3D printing by Michael Weinberg, which is, “This will all be so great if we don’t screw it up.” I kind of want that on my tombstone.

The thing that I think we missed was not that the internet could be a tool of control and repression and regression. What we failed to recognize was that those were the last days of antitrust. That antitrust was drawn down and drawn down. We saw increased tolerance for all of the anti-competitive conduct that had historically been prohibited. Notably mergers. Apple buys more companies than you or I buy groceries. They bought 90 companies in 2019 according to Tim Cook speaking to Kara Swisher. And also companies that would grow by buying other companies.

So Google is a company with just a few successful products. They made a great search engine, pretty good Hotmail clone, a browser that is good but has its problems. Everything else that they tried to build was a failure. And all their successes are companies they bought from someone else on terms that would’ve been prohibited under a more muscular historic concept of antitrust. And so you have this company that has consolidated under its roof ad tech and video and server management, all this stuff that they had to buy from someone else that if they hadn’t been permitted to buy, they would’ve had to compete with other users of those same services, which would’ve made it much harder for them to consolidate their gains and lock in their users.

And that’s what we missed. We missed that the gains from an anti-competitive environment could make firms too big to fail and too big to jail and give them access to the levers of policy so that they could make it illegal to do unto them what they had done unto others. If you were to reverse engineer the file formats that Apple uses for iTunes and Apple Books and videos and make interoperable players, they’d reduce you to radioactive rubble. They say you violated the DMCA and the Computer Fraud and Abuse Act, that you were engaged in tortious interference of contract, that you had violated their trademarks, that you’d violated their patents. They would just destroy you, right? What was good for the goose will never be good for the gander unless we also have muscular antitrust. And that’s what we missed.

David Goldstein:

Mm-hmm. So you’re short answer is it’s nothing inherent in the internet, it’s all Robert Burke’s fault?

Cory Doctorow:

Well, if anything, the internet was and is better suited to creating a competitive environment because of that interoperability.

David Goldstein:

Right.

Cory Doctorow:

The only computer we know how to build is the turing-complete Von Neumann machine that can run all the software we know how to write, which means that you can always make a new system that interconnects with the old system and just lets it work.

Nick Hanauer:

Yikes. I’m not sure if you guys did your research on me, but yeah, I was the first investor in Amazon and also created one of the first internet advertising businesses. But both of those things I was absolutely convinced for making the world a better place and I was super wrong on both counts.

Cory Doctorow:

Well, I recommend to Maria Farrell’s articles and forthcoming book on what she calls The Prodigal Tech Bro about what it means to recant. They’re very good.

Nick Hanauer:

Yeah, okay. I’ll check it out.

David Goldstein:

I’ll hold Nick accountable in the outro to this interview.

Nick Hanauer:

There you go. There you go.

David Goldstein:

The final question, Nick. You want to ask it?

Nick Hanauer:

Yeah. Well yeah. Why do you both do this work?

Rebecca Giblin:

I really believe in connection and community, that art and culture make life worth living, that they make us understand the nature of the human experience and that they bring us together. I was born in the house without books and I was always starving for stuff to read, and was one of those little kids that you know would see walk into a tree because they’re reading a book, which I got from school libraries and from charity shops that I would haggle really hard with the softest touch volunteer to… I mean, I was adorable.

I think that that kind of creation story explains it. I really want appropriate recognition and rewards for authors and artists and I really want to facilitate access to knowledge and culture because I think that’s kind of the point. And that’s why I do this work. I don’t know that I can stop even though it’s extremely painful. But this is why with Cory, why we’re doing stuff like this to try and change the nature of the conversation away from this adversarial zero sum false dichotomy of creators versus users to how can we get more of what everybody wants? How can we get more of the good stuff and less of the terrible stuff? How can we stop making things worse? And that’s really where I focus.

Nick Hanauer:

How about you, Cory?

Cory Doctorow:

I started off talking about copyright because for me, there were so many manifest benefits from the file sharing world, and they weren’t about pricing because I had money then, and unlike a few years before I’d been like a starving student. By that point, I was in my professional life and I could afford creative works. But 80% of the recorded music wasn’t for sale at any price. The experience of consuming music had become increasingly isolated for me. But when I could be on the road for work in a hotel room at 1:00 in the morning and go splunking on Napster and find some band that I loved in high school and start downloading it and notice that whose music was no longer commercially available in any format and then find the proprietor of that Napster node was online and get into a chat about the shows that we’d both been in when we were teenagers growing up in Toronto, that was this incredibly powerful experience for me.

The annihilation of that and its replacement with effectively nothing for many years, and then iTunes which was a very impoverished version, was so gross that I got more and more involved with it. But very quickly I came to realize that the important values that I had that were much greater than access to material and even access to people who shared my taste were really being jeopardized, that we were making our speech forums more brittle by creating take down regimes. We were making it harder for new kinds of organizations to create speech forums and expressive forums by creating compliance hurdles about having to run automated filters and so on. And that ultimately we were abetting a wider project of allowing big tech to get bigger and making it harder for the kinds of things that mattered to me about tech, which was its liberatory potential to flourish because we were setting up a world in which big tech was being asked to solve the problems it created, which meant that we couldn’t afford to make it smaller, right?

If you have to be as big as YouTube to run a hundred million content ID filter, then we can’t make YouTube smaller. If we did, then they couldn’t afford the filter that we demand that they run. Whereas if we come up with solutions that are systemic and address creators issues rather than the issues that the intermediaries report to represent them have, then we could create a system in which you could have more creator-focused, even creator owned and run online services, and that we could do so without co-opting creators into a wider project of just making it easier to remove things from the internet because you don’t like it.

Nick Hanauer:

Thank you so much for joining us. Absolutely fascinating conversation. And boy, we wish you well on your project.

Cory Doctorow:

Well, thank you guys.

David Goldstein:

Yeah, thanks for the book.

Cory Doctorow:

Thank you.

Rebecca Giblin:

Thank you for the chat. It was lovely too to be here with you.

David Goldstein:

So Nick, as you can imagine, I saw a lot of myself and my own experiences in what Cory and Rebecca were describing.

Nick Hanauer:

Yeah, for sure.

David Goldstein:

Did you see a lot of yourself in there too as one of the winners of-

Nick Hanauer:

Yeah, for sure. Yeah, yeah, yeah, absolutely. No, no. I mean, I definitely knew what the right side of that trade, right? It was always super obvious to me where you wanted to be. It’s just why I’m a good business person. But the other thing that just is so obvious, and this is just another great instantiation of the generalized problem, is that it’s all about power. And it just reminds you how destructive it was to excise issues of power from economic analysis. Goldie, one of the things that just makes me want to throw up is all this new talk about monopsony as if this problem has not always existed and as if you need the word monopsony to see it and address it and think about it. It’s just so obvious.

David Goldstein:

And you’ve made this point. To be clear, it’s not just Amazon. There’s those studies that show when Walmart moves into the county-

Nick Hanauer:

Yeah, before it was Walmart. And before Walmart, it was Kmart.

David Goldstein:

Yeah. When Walmart moves in

Nick Hanauer:

Before Kmart, it was Sears.

David Goldstein:

… wages fall.

Nick Hanauer:

Yeah. Right. But-

David Goldstein:

In retail, particularly in grocery, and that Walmart effect is a real thing, and it’s not just limited to Walmart and Amazon.

Nick Hanauer:

No.

David Goldstein:

You’ve seen that all over. I asked that question of Cory whether he saw this coming or not, because we’re about the same age and we saw it all happening real time. I was very hopeful about how democratizing would be for content creation. And at points it was. I couldn’t have become a blogger without it. But I want to ask the same… Though that was short lived. I mean, there were a few years there where the Netroots were riding high and then of course everything consolidated and we lost our audience too. I asked that question of Cory if he saw it coming. When you were huddling with Jeff reimagining the future of Commerce, did you see it coming?

Nick Hanauer:

Well, yeah, absolutely. Cards on the table. We didn’t just see it coming which is was what we were aiming for. You have to remember that part of my origin story is that I was at the time working for a family business that had to do business, family manufacturing company, a company that made pillows and down comforters and sold to all of the other major retailers in America, and mostly dealing with those people was frigging awful.

David Goldstein:

Right. Similar to my experience of dealing with my [inaudible 00:49:50].

Nick Hanauer:

Yeah. I mean, oh my God, I mean, we had more power than you did, but it was still…

David Goldstein:

Right.

Nick Hanauer:

If you want to know what hell is like, try selling polyester pillows to Kmart in the day. So I had little sympathy for what I suspected would be the demise of all these people. But like I said before, now you’ve swapped one problem out for another. And just look, is there a lesson to be learned here? Yeah, power corrupts and absolute power corrupts. Absolutely. And if there is one universal law that you can abstract from thousands of years of human experience it is, that concentrated power is always bad. It just is always bad. You should work assiduously as a society to make sure that no entities get too powerful. We have not done that in the United States. On the contrary, we told ourselves a story that let us believe that the bigger the big got, the better off everyone would be. And that was not true. And now we’re paying the price.

David Goldstein:

But so as not to close on such a bleak note, I do encourage people to pick up the book Chokepoint Capitalism. Of course, there’s a link to it in the show notes. And there are solutions. They do propose a bunch of solutions in the book. Some of them harder than others, some of them more likely than others. But there are things we can all do both individually and collectively to create the countervailing power that we need in the economy, not just for content creators, but for workers everywhere.

Announcer:

Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook, @civicaction and @NickHanauer. Follow our writing on Medium at Civic Skunk Works and peak behind the podcast scenes on Instagram, @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.