One More Dungeons & Dragons (and Taylor Swift) Business Lesson For Indie Authors
When I wrote my “Six Dungeons & Dragons Business Lessons For Indie Authors” post a while back, I also came across the current legal battle over Dungeons & Dragons.
This legal battle also demonstrates a valuable business lesson for both indie authors and any business in general.
Basically, when Wizards of the Coast bought Dungeons & Dragons, they came out with the Open Game License, which lets third-party publishers create adventures and settings that work with Dungeons & Dragons. Many observers agree that this is the reason for the overall success of D&D, the vibrancy of the third-party ecosystem around it. (It’s similar to the reason DOS and later Windows 95 beat out their rivals – Microsoft was very friendly to third-party developers writing software for its platform, and Windows is still much more open of an ecosystem than the iPhone.) Later, Hasbro bought Wizards of the Coast, and Hasbro had a suboptimal year in 2022 and needs more revenue. So Hasbro is putting out a far more restrictive version of the Open Game License to bring in more D&D money, and hopefully collect royalties from third-party publishers. To return to the Microsoft example, it would be as if Microsoft suddenly demanded a royalty from every developer who sold software for the Windows platform.
Naturally, much outrage has ensued. The ongoing PR disaster for D&D as a brand has been fascinating to watch. The EFF has even weighed in, saying that it might threaten the legal foundation for Open-Source/Free Software, which would annoy a lot of rich and powerful organizations, since most of the Internet runs on open-source/free software. The whole thing will probably end up in court.
But this demonstrates a potential danger for indie authors, and indeed businesspeople in general.
Beware rent-seeking behavior!
Or, to put it another way, if you are charging money for something, it is absolutely imperative that you provide value for that money! Otherwise your customers will swiftly turn on you.
First, what is rent-seeking behavior?
The Wikipedia definition is pretty good: “Rent-seeking is the act of growing one’s existing wealth by manipulating the social or political environment without creating new wealth.” (I would also add “manipulating the legal environment” to that list.) The Hasbro/D&D controversy is a fairly good example of rent-seeking. Rather than trying to make money by creating new product, Hasbro is attempting to find a new source of revenue by imposing royalty costs on third-party publishers.
Why is rent-seeking bad? Well, if you’re the one collecting the rents, it’s actually a pretty good deal. For everyone else, it’s less than optimal. If you’re making new products and you have to pay a high royalty or rent to do so, that drastically reduces the incentive to make these products. And in the end, it can destroy the individual or company collecting the rent. Freed from the need to work to generate revenue, the rent-collector tends to become fat and lazy, indeed ossified, making it vulnerable to more nimble and hungrier competitors. Quark XPress used to be the dominant program for desktop publishing in the 2000s, but then Adobe InDesign came along and ate Quark’s lunch. Microsoft stopped working on Internet Explorer after 2004 or so, and since you’re probably not reading this in Internet Explorer, look how that turned out.
Hasbro is hardly the only company to fall prey to this malady. When you get a critical mass of MBAs and corporate lawyers in the same building together, the shift in focus tends to go from “making products to satisfy our customers” to “forcibly extracting as much money from our customers as possible.” The metaphor of the goose that lays the golden eggs comes to mind. Imagine you have a goose that lays one golden egg every fiscal quarter, but if you kill the goose and open it up, you can get three eggs immediately. Killing the goose to get the eggs inside of it seems foolish. But from the perspective of a high-ranking MBA, killing the goose to get those three eggs means that the stock price goes higher this quarter. When the eggs run out? That’s someone else’s problem, and hopefully you’ll have leveraged that raised stock price into a higher-paying job somewhere else by then.
Just a few examples:
-Keurig, the company that makes the one-serve coffee brewers, was massively successful. In an odd parallel to the Hasbro situation above, the Keurig machine was successful enough that it spawned a wide third-party ecosystem of coffee pods and various accessories. The Keurig company decided it wanted that market all to itself, so the “Keurig 2.0” brewers introduced in 2014 were designed to only work with authorized coffee pods sold by Keurig, or by third-party licensors who had coughed up a hefty fee. It also blocked reusable K-cups that people used to use their own coffee with the devices. As you might expect, a massive backlash ensued, accompanied by many lawsuits, and Keurig had to back down.
-Cricut is a company that makes cutting plotters that print out designs on vinyl and leather and so forth. For most of the company’s history, you didn’t need to use the subscription plan to use the Cricut device. In 2021, the company decided to make the subscription plan mandatory, meaning the devices would not work without it. A massive uproar ensued, and Cricut had to back down.
-John Deere, which makes agricultural machinery, in 2016 decreed that only authorized John Deere technicians would be allowed to work on John Deere vehicles and machines. Since many farmers are located a long, long way from a John Deere dealership, this did not go down terribly well. Imagine, for example, a combine harvester breaking down during harvest time. Without timely repair, tens of thousands of tons of crops could be swiftly lost. Just in January of 2023, John Deere backed down somewhat, though more cynical observers note that the company might be trying to get ahead of the various Right-To-Repair bills brewing at the US federal level and in the legislatures of several US states.
-Microsoft itself fell prey to this malady with the original version of the Xbox One, which had more restrictive DRM to prevent sharing of game discs and to drive digital sales. By now we should be familiar with the pattern – a massive uproar ensued, Microsoft had to back down, and Sony’s Playstation console was able to thoroughly beat the Xbox for that round of the video game console wars. Amusingly, something like 80 to 90 percent of all game sales, depending on the source, are digital downloads as of 2023. If Microsoft had exercised a little patience, it would have gotten exactly what it wanted without the bad PR.
Those were just some examples from the top of my head. No doubt you can think of several more.
There are a couple of examples that are borderline. Like, are software subscriptions rent-seeking? It depends on the software and your need for it. Again, it boils down to if the company is providing value for the price or not. If the software receives regular updates and also provides useful features (cloud integration, backups, etc), that’s one thing. Microsoft has gotten clever with subscription models – something like Office 365 or Xbox Game Pass is, generally, a good value for money because you get the nifty side features and the software is updated pretty regularly. By contrast, if the software hasn’t been updated in years and stops working if the subscription stops, that’s something else entirely.
Apple occasionally gets accused of rent-seeking with the App Store and the 30% cut it takes from digital sales, but as often happens, Apple went about it cleverly. From almost the beginning of the App Store, Apple took a 30% cut of the sale, and it’s stuck pretty consistently to that. There’s a big difference between setting expectations from the very beginning versus suddenly yanking the carpet out from beneath people in the examples above. Apple has gotten sued a lot over that policy, but it’s never received the public outrage over it the way that Keurig, John Deere, and Cricut did, since I suspect the average person doesn’t care all that much if Spotify and Epic Games lose 30% of their digital sales to iPhone/iPad users. Now, if Apple decided to go from 30% to 50% suddenly, or if it had started at 5% and then shot up to 30%, that would be something else entirely. But we’ll see if various lawsuits and potential antitrust actions force Apple to change its App Store rules or not.
A personal opinion: If I were King for a day, and like the laws of the Medes and the Persians in the Book of Esther, my edicts could not be repealed, I would decree that anyone serving in the leadership of a large enough company would have to first spend seven years working in a non-management position at that company. Preferably a job where you had to deliver concrete results. Granted, that wouldn’t completely weed out the foolish, but it would definitely reduce the sort of outside-hire CEO who’s golfing buddies with the board and has no knowledge of the company that he or she is leading, the kind of CEO who is just there to loot the company and get a golden parachute. A lot of the mistakes we saw above came from that sort of CEO.
But we’ve been talking about million and billion dollar companies. What does this have to do with indie authors?
Rent-seeking can occur there as well.
Perhaps the biggest example has been the trademark controversies. A few indie authors have tried to trademark common words they used in their titles, and this almost always ends badly. The most prominent example was from a few years ago when an indie romance author trademarked the word “cocky” and then went after other romance authors who had used the word “cocky” in their title. The author in question claimed she had done it so her readers would not be confused, which makes one wonder about her opinion of her readers’ intelligence. But by now we should be familiar with the pattern – massive outrage forced the author to back down. So called “Cockygate” was the biggest example of this, but there have been a few others in other genres.
So what can indie authors and businesspeople in general learn from this?
It’s better to seek to add value rather than to extract rents. Granted, adding value is more work than seeking rents – you have to develop new products (or write more books) and sell them to your customers. I’ve personally tried to to do this in a variety of ways – giving free ebooks to people who subscribe to my newsletter, giving free short stories away when I publish a book, keeping free ebooks on all the major retailers, and regularly doing $0.99 USD sales on box sets. I do admit I’ve had to raise prices due to inflation over the last years, but unfortunately that’s true of nearly everything, but I’ve been able to offset that by offering regular coupons through my new Payhip store.
When I was discussing this episode, someone suggested Taylor Swift as an example as someone who understands the importance of adding value rather than extracting rents. Granted, I think the only time I even actually listen to Taylor Swift music is when someone happens to be playing it at the gym – I am not in the target demographic. But I looked into it a little, and it seems that Swift (or someone on her team) really does have a good sense for business. In 2019, an investor with the perhaps somewhat regrettable name of “Scooter” bought the master recordings of Swift’s first six albums as part of an acquisition. Swift responded by recording new masters for all her old albums, and then merchandising both them and her new albums. It’s a very clever structure – you can listen to her music very cheaply on Spotify or the other streaming sites, but the devoted listeners can also buy premium CDs or vinyl recordings, along with other merchandise, all of it conveniently available on Swift’s own store. That’s a good example of adding value, and it also demonstrates the extremely high value of owning one’s own intellectual property, as I mentioned in the “6 lessons” episode.
To sum up, whenever possible, I think it’s better to try and add value than to extract rents. Taylor Swift provides a better example of adding value to her customers instead of the rent-seeking behavior shown by Hasbro, Keurig, Cricut, John Deere, “Scooter”, and various other companies mentioned above.
Which is, I admit, not a sentence I thought I would ever type, but the evidence supports that conclusion.
-JM