Aug 1 2010

Writing a Villain’s Role for Amazon

A sinister plot to sell e-books for less

E-book skullduggery is afoot, warned New York Times reporters Motoko Rich and Brad Stone (3/18/10), reporting that “ has threatened to stop directly selling the books of some publishers online unless they agree to a detailed list of concessions regarding the sale of electronic books.”

NY Times Kindle

Tabbed on the website as “Amazon May Impede Access to Some Publishers’ Books,” the story described the online bookseller as “pressuring publishers” with its “hardball approach”; Amazon had been “widely accused of abusing its position” with similar tactics that “shocked the publishing world.” If Amazon kept it up, the reporters warned, “it could harm its reputation in the eyes of customers and the publishing industry.”

In a lengthy New Yorker piece (4/26/10) about Amazon’s rivalry with Apple computers over e-books, Ken Auletta similarly painted Amazon as a villain:

Many publishers believe that Amazon looks upon books as just another commodity to sell as cheaply as possible, and that it sees publishers as dispensable…. A major publisher said of Amazon: “They don’t know how authors think. It’s not in their DNA.”

Amazon’s offense, in the eyes of book publishers and the reporters who carry their banner, was to try to sell electronic versions of books for $9.99, rather than at $12.99 or $14.99, as the book industry (and Apple) would prefer. “Publishers were concerned that lower prices would decimate their profits,” wrote Auletta. If Amazon gets away with the $9.99 price, he quotes one publishing CEO, “to my mind it’s game over for this business.”

The New York Times’ Rich, in a March 1 article, wrote that publishers say consumers have

developed unrealistic expectations about how low the prices of e-books can go…. Certainly, publishers argue that it would be difficult to sustain a vibrant business on much lower prices. Margins would be squeezed, and it would become more difficult to nurture new authors.”

The strange thing is that Rich herself, in a chart attached to that same article, calculated the respective profit margins for e-books priced at $9.99 and $12.99, finding that the per-unit profit for publishers at the lower price—$3.51 to $4.26, depending on how authors’ royalties are figured—was roughly the same as for a $26 hardcover ($4.05), whereas the publisher profit on the higher e-book price was considerably greater: $4.56 to $5.54. Rich didn’t give a breakdown for the $14.99 pricetag, but clearly it would give publishers an even bigger windfall.

This insight—that Amazon’s prices are completely compatible with publishers maintaining their traditional hardcover profits, or even increasing them through the increased volume that might follow a 60 percent price cut—is one that Rich’s write-up went out of its way to conceal:

At a glance, it appears the e-book is more profitable. But publishers point out that e-books still represent a small sliver of total sales, from 3 to 5 percent. If e-book sales start to replace some hardcover sales, the publishers say, they will still have many of the fixed costs associated with print editions, like warehouse space, but they will be spread among fewer print copies.

Yes, that’s why publishers think consumers should pay dramatically more for e-books: to cover the industry’s massive warehouse investments.

The most eye-opening thing about the Times’ chart—again, not spelled out in the article—were the shifting contributions of the various players in the publishing business. With the traditional book, the publisher pays an author $3.90 per copy for a manuscript, adds $5.05 worth of editing, printing, marketing etc. to it, and takes a profit of $4.05—about the same amount that the person who actually wrote the book gets. With the e-book priced at $13, on the other hand, they’re paying the author between $2.27 and $3.25, adding $1.28 worth of value, and taking between $4.56 and $5.54 in profit—roughly twice as much as the writer gets.

It’s hard to say exactly why publishers in a digital age should get so much for doing so little—which is why sympathetic journalists like Auletta have to portray publishers as essentially a kind of charity:

Although critics argue that traditional book publishing takes too much money from authors, in reality the profits earned by the relatively small percentage of authors whose books make money essentially go to subsidizing less commercially successful writers. The system is inefficient, but it supports a class of professional writers, which might not otherwise exist.

It’s a moving story, but it belongs in the fiction section.