Audiobooks and supplier lock-in

In my ECONS101 class, we cover customer lock-in - where firms lock their customers into buying from them, because the costs of switching to an alternative supplier are high. We don't usually discuss the opposite effect - supplier lock-in. So, I was interested to read this recent article in The Conversation by Rebecca Giblin (University of Melbourne) and Cory Doctorow (Open University):

Amazon openly admits to doing everything it can to lock in its customers. That’s why Audible encourages book returns: its generous offer only applies to ongoing subscribers. Audible wants the money from monthly subscribers and wants the fact that they are subscribed to prevent them from shopping elsewhere...

Another way Audible locks customers in is by ensuring the books it sells are protected by digital rights management (DRM) which means they are encrypted, and can only be read by software with the decryption key...

Once customers are locked in, suppliers (authors and publishers) are locked in too. It’s incredibly difficult to reach audiobook buyers unless you’re on Audible. When the suppliers are locked in, they can be shaken down for an ever-greater share of what the buyers hand over.

Notice that there is lock-in on both sides of this market. That can be a characteristic of platform markets, of which Audible provides a key example. Amazon (through Audible) provides a platform where creators and readers connect. Creators want their books to be read (and, importantly, purchased), and they know that readers will look on Audible for audiobooks. Readers want to read audiobooks, and they know that creators put their audiobooks on Audible. Everyone wins. Creators don't want to go elsewhere, because they know that the readers are looking on Audible. Readers don't want to go elsewhere, because they know that the audiobooks are on Audible. Amazon's power as a middleman, due to controlling the Audible platform, gives them an immense amount of market power. 

Giblin and Doctorow refer to Amazon as a 'chokepoint':

The problem isn’t with middlemen as such: book shops, record labels, book and music publishers, agents and myriad others provide valuable services that help keep creative wheels turning.

The problem arises when these middlemen grow powerful enough to bend markets into hourglass shapes, with audiences at one end, masses of creators at the other, and themselves operating as a chokepoint in the middle.

Since everyone has to go through them, they’re able to control the terms on which creative goods and services are exchanged - and extract more than their fair share of value.

A platform provider (Amazon) could conceivably charge both sides of the market for access to the platform. In this case, Amazon charges readers for every audiobook they buy (and don't return - for details on this, read Giblin and Doctorow's article). They don't directly charge creators for making their audiobooks available, but nevertheless Amazon can exploit its market power to reduce the share of the profits that goes to creators. And it appears that that is exactly what they have been doing (and in particularly shady ways, such as encouraging readers to return audiobooks for a refund after they have been read).

Giblin and Doctorow have a new book out, Chokepoint Capitalism, which is the point of their article. I'm looking forward to reading it, as they highlight in the article that:

The whole second half is devoted to detailed proposals for widening these chokepoints out – such as transparency rights, among others...

And we need reforms to contract law to level the playing field in negotiations, interoperability rights to prevent lock-in to platforms, copyrights being better secured to creators rather than publishers, and minimum wages for creative work.

It will be interesting to see how they justify those policy proposals, and how workable they may be. You can expect a book review some time in the future (but given the backlog of my reading, it may be a while!).