Dubious Math in the Case for Amazon’s ‘Evil’

In AlterNet‘s article “Is Amazon Evil?” (12/8/10)–reprinted from the Boston Review (11-12/10)–the description of the economics of e-books is seriously dubious. Reporter Onnesha Roychoudhuri writes:

If Amazon had asked publishers what they thought about locking in e-book prices at $9.99, it would have been subjected to a chorus of outrage. That’s because the math behind publishing is seldom in a publishers’ favor. The sale of a $20 hardcover nets a large publisher about $10. Royalties run the publisher about $3, and the costs of printing, binding, and paper are a further $2 (more for low-volume titles). Take $1.20 for distribution, $2 for marketing, and that leaves a publisher with roughly $1.80 to cover rent, editing, and any other costs. A smaller publisher might keep closer to a dollar per book.

The New York Times (3/1/10) did a similar exercise, basing its analysis on a $26 hardcover rather than $20–out of which the publisher keeps $13 instead of $10. (The Times‘ reporter, Motoko Rich, sources these figures to “interviews with executives at several major houses”; she’s by no means anti-publisher–see FAIR Blog, 3/2/10, 3/18/10.) The costs cited by the Times are similar–$3.90 for the author’s royalty, $3.25 for printing, storage and shipping (vs. the Review‘s $3.20 for printing plus distribution), $1 (rather than $2) for marketing. The Times breaks out editing, design and typesetting as its own item, listing it as 80 cents. This leaves $4.05 for the publisher as profit before overhead–math that is considerably more in the publisher’s favor.

When it comes to contrasting the hardcover economics with ebooks, the Review piece becomes very vague:

E-books reduce the cost of printing, binding and paper, but royalties tend to run higher, and all other costs are largely unchanged. Publishers account for these costs when they slap a price tag on a book, so Amazon’s decision to set the price irrespective of them set off a wave of anxiety.

Actually, according to the Times, royalties run lower in electronic publishing–$1.75-2.50 on a $9.99 ebook. Books published electronically, of course, eliminate rather than “reduce” the costs of printing. Other costs go down, because your sales volume goes up when you reduce the price to the consumer by more than 60 percent. And the retailer–the evil Amazon–gets less of a take from each sale, so the publisher winds up–according to the Times, which, again, is quite sympathetic to the publishing industry–with about as much profit on each copy sold: $3.51 to $4.26, depending on how the author’s royalty is calculated.

What actually set the big publishers off was not worry that they could not make as much money selling electronic books at Amazon’s price, but worry that they would lose out on the opportunity for windfall profits that comes with a new technology (FAIR Blog, 7/23/10). Is that evil? No, that’s capitalism. Or, if you prefer, “Yes, that’s capitalism.” There’s certainly not a lot to prefer about the publishers’ business model, either from the reader’s or the writer’s point of view.

The Review‘s website blurbs the piece, “What happens when an industry concerned with the production of culture is beholden to a company with the sole goal of underselling competitors?” That’s what’s most misleading about the article: the suggestion that corporate publishers are not profit-maximizing enterprises in the same way that Amazon is. This would surely come as news to News Corporation (i.e., HarperCollins), CBS (Simon & Schuster), Bertelsmann (Random House), Reed Elsevier (Houghton Mifflin) et al.

P.S. Daniel Ellsberg makes a stronger case for the evil of Amazon here.

About Jim Naureckas

Extra! Magazine Editor Since 1990, Jim Naureckas has been the editor of Extra!, FAIR's monthly journal of media criticism. He is the co-author of The Way Things Aren't: Rush Limbaugh's Reign of Error, and co-editor of The FAIR Reader: An Extra! Review of Press and Politics in the '90s. He is also the co-manager of FAIR's website. He has worked as an investigative reporter for the newspaper In These Times, where he covered the Iran-Contra scandal, and was managing editor of the Washington Report on the Hemisphere, a newsletter on Latin America. Jim was born in Libertyville, Illinois, in 1964, and graduated from Stanford University in 1985 with a bachelor's degree in political science. Since 1997 he has been married to Janine Jackson, FAIR's program director. You can follow Jim on Twitter at @JNaureckas.