The Cost of the Price War: Too Damned High

The short version, if you haven’t been reading up on it:

Wal-Mart slashes prices on bestsellers that will be out for the holidays.  Books that have a cover price of $25-$30 will be sold for $10.  Amazon, not to be outdone, drops their prices on those titles to $9.  Wal-Mart thumbs their nose and goes to $8.99.  Target joins the $8.99 party.  Wal-Mart goes “Oh, no you don’t” and drops to $8.98.

That’s where they’re holding at the moment.

Looks awesome for people buying books for Christmas gifts, doesn’t it?

Let’s talk a little about bookstore and publishers and discounts (oh my.)

Say a book has a cover price of $27.99.  Depending on the publisher, bookstores will receive a discount between 44 and 46% on those books.  Let’s go in the middle, and say that Books That Don’t Suck ordered some copies of Huge Bestseller at a 45% discount.  They pay $15.39 per book to the publisher, which means that if they sell it for any less than $15.39, they’re selling it at a loss.

Bookstores simply can’t afford to “break even” on these books.  Sure, they usually pass on some sort of discount — in my bookstore days, the top ten New York Times bestsellers were 30% off (“35% if you’re a member of our Frequent Buyer Club!”).  But 45%?  More?  No way, not if we wanted to, y’know, stay in business and keep selling books.

The sad thing is, most customers don’t know that.  Joe Shopper sees that Amazon, Wal-Mart and Target are selling Huge Bestseller for $8.99, so he goes into his local bookstore and says “I can get it from the big guys for cheaper. Can you match it?”  When he’s told no, he says thanks but no thanks and orders online.  This was happening even when I worked at the bookstore, when Amazon was just starting out.

Here’s the other thing: that $8.99 price is $6.40 lower than what the publishers are charging the bookstores.  Publishers really can’t match that themselves, so some booksellers are cancelling their bestseller orders from publishers and ordering them direct from Amazon/Wal-Mart/Target.  (Though it seems from a couple of Mr. Kashkashian’s updates, Amazon’s putting a 3-book limit on orders.

It’s a kick in the teeth to independent bookstores, and could have a frightening affect on authors as well.  Amazon has already forcefully set e-book prices at $9.99, making other e-book retailers follow suit or lose sales.  By deeply discounting the bestsellers, they are harming other, lesser known books.  As David Gernert, John Grisham’s literary agent, said to the New York Times,

“If readers come to believe that the value of a new book is $10, publishing as we know it is over,” said David Gernert, Mr. Grisham’s literary agent. “If you can buy Stephen King’s new novel or John Grisham’s ‘Ford County’ for $10, why would you buy a brilliant first novel for $25? I think we underestimate the effect to which extremely discounted best sellers take the consumer’s attention away from emerging writers.”

Remember, once upon a time, John Grisham was one of those debut authors.

What’s heartening, at least a bit, is that some of the heavy-hitting publishers and authors get it.  David Young, CEO of Hachette Book Group, told the Wall Street Journal, “”I’m worried about the major book-selling chains, and I’m concerned about the implications for publishers and the public alike.”

The e-book version of Stephen King’s Under the Dome won’t be released until more than a month after the hardcover comes out on November 10th.  King wanted the delayed release so that bookstores could have a chance to sell it in hardcover first and make some money.  The price wars (yes, Under the Dome is on the list) surprised him.  From his interview in the Wall Street Journal (via the Christian Science Monitor) : “I never thought we’d see people preordering a copy for $8.98,” he said. “My thinking was to give bookstores a chance to make some money.”

James Patterson, whose I, Alex Cross is also on the $8.99 list, had this observation in the New York Times article:

“Imagine if somebody was selling DVDs of this week’s new movies for $5,” Mr. Patterson said. “You wouldn’t be able to make movies.” He added, “I can guarantee you that the movie studios would not take this kind of thing sitting down.”

It’s true, the movie studios wouldn’t.  Someone, somewhere, has to take a stand against this.  The ABA made a move yesterday, filing a suit with the Department of Justice.  They declare that Amazon, Wal-Mart and Target’s actions constitute illegal predatory pricing.    They point out the danger to independent bookstores from this practice, saying

For our members — locally owned, independent bookstores — the effect will be devastating. There is simply no way for ABA members to compete. The net result will be the closing of many independent bookstores, and a concentration of power in the book industry in very few hands.

They also go one further, pointing out the danger of having the decisions of what books are readily available in so few hands — books are ideas, remember, and the beauty of independent bookstores is that there’s always someone out there thinking differently.  They’re going to support smaller, local presses.  They’re going to carry books by local authors that mean nothing to Amazon’s bottom line.  They’re going to champion books because they love books, not because of the bottom line.  And when those independents are gone, when there’s no competition left?  What do the people controlling the market do with their prices then?  The ABA has an idea:

We would find these practices questionable were they taking place in the market for widgets. That they are taking place in the market for books is catastrophic. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked.

There are a ton of great articles and blog posts out there.  I’m going to link to several of them, most who say all of this far, far better than I have.  But before you click away, I’m begging you again as I have before many, many times:  support your local independent bookseller. Telling me “I don’t have any nearby” is no excuse. You don’t physically walk into Amazon when you buy from them, do you?  You can order online from an independent bookstore just as easily as you can order from Amazon.  So hie thee to IndieBound and find yourself a bookstore.  If you need some suggestions, there are a few in my profile.  And one in Marty’s.

The ABA is taking a stand.  Independent booksellers are taking a stand.  Publishers and authors are voicing their concerns over what this price war means for the future of books and bookselling.  You can help all of them take a stand, too.  It’s as simple as buying your books from independent bookstores.

Milwaukee, Wisconsin Journal Sentinel Online, “Some fear giant book retailers’ deep discounts will hurt stores”

New York Times, “Book Association Challenges Retailers’ Price Plan”

TG Daily, “Booksellers Accuse Amazon of Illegal Price War”

Skylight Books, “This Microwave Would Go Great With That Copy of Infinite Jest You Just Bought!”

Bear Pond Books, “Race to the Bottom”

The Dallas Morning News, “Will $10 bestsellers doom independent bookstores?”

Shelf Awareness, “Wal-Mart vs. Amazon: ‘Let’s Start an Industry Conversation'”

These are just a start.  If you find other great posts, feel free to link them in the comments!

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2 Responses to The Cost of the Price War: Too Damned High

  1. Eric says:

    These three are selling 10 books (and only 10 books) below cost; they are taking a loss on every sale. The reason they do this is to bring in business in the hopes that people who shop for one of these books will buy other things (which are sold above cost) and the end result will be a profit.

    I get the worry that people are going to put a $10 price tag on all new books, but I’m not sure I buy into that. Even Amazon and company will have to sell the vast majority of their books above cost or they will start taking a loss. The $10 price tags on new releases is not going to become the norm.

    Nor do I buy that this price cut hurts independent book sellers. From the article you linked to at http://booksblog.dallasnews.com/archives/2009/10/will-10-best-sellers-doom-inde.html :

    “..our business has NEVER been primarily driven by the standard bestseller lists.”

    And I think that’s probably true for the majority of independent book sellers. And it’s only those standard bestsellers that are going to get the price cut.

    Furthermore, independent book sellers can actually sell their inventory THROUGH Amazon if they’d like. Amazon no longer becomes an evil beast, but a mechanism to get more people to buy their books through independent book sellers. I see most independents as being local shops you do most of their advertising through signs in their windows and maybe the occasional local newspaper ad. Selling through Amazon (or eBay or some other online service) only helps to expose their store to a greater audience outside of their traditional community.

    And of COURSE an e-book is cheaper than a printed copy. There’s the cost of printing, packaging, and shipping with a physical copy. You don’t have any of those costs associated with an e-book, which is why I don’t get the problem some have with lower prices on e-books.

  2. falconesse says:

    I get the worry that people are going to put a $10 price tag on all new books, but I’m not sure I buy into that. Even Amazon and company will have to sell the vast majority of their books above cost or they will start taking a loss. The $10 price tags on new releases is not going to become the norm.

    I’ll come back to this later, but they’ve already demonstrated quite handily that they can set the norm, but setting the price of eBooks at $9.99. If publishers are forced to bring down the price of hardcovers because of deep discounting (which yes, I believe is unlikely to happen across-the-board, but bear with me here a sec), as keen as that is for people buying books, man does it suck for authors. Royalties are based off of the book’s retail price. If that drops, so do authors’ paychecks. Drastically.

    I have no idea what Stephen King’s actual royalty rate is, but let’s say it’s the industry standard 10-15% on a hardcover. Because he’s Stephen King, let’s go with 15%. Under the Dome retails for $35.00. He makes $5.25 per book, whether Amazon discounts it down to $10 or sells it at the full $35.

    Now let’s follow the slippery slope down and say there’s a price revolution, and all new hardcovers start going for $10 — not the Amazon discounted $10, but the “suggested retail price” printed on the inside of the jacket flap. Now he’s only making $1.50 per book.

    Sure, that’s all well and good and fine, he’s Stephen fucking King and has been a bestselling author since the year I was born. But what about debut authors, people who aren’t pulling in scads of money on their booksales? How is that fair to them? (Not that I think it’d be fair to Stephen King, either, by the way. Fame doesn’t matter here. Fair compensation for your work does.)

    The reason they do this is to bring in business in the hopes that people who shop for one of these books will buy other things (which are sold above cost) and the end result will be a profit.

    and

    “..our business has NEVER been primarily driven by the standard bestseller lists.”

    And I think that’s probably true for the majority of independent book sellers. And it’s only those standard bestsellers that are going to get the price cut.

    Those two things present a problem, though, don’t they?

    Yes, there are some booksellers who aren’t worried about losing bestseller sales, but that’s a small part of the picture. If people buy their bestsellers from Amazon and, as you say, buy other things while they have their Amazon shopping cart open, what happens when those “other things” are books?

    Independent bookstores lose sales that might otherwise have come to them, that’s what.

    A customer is unlikely to buy his $8.99 Grisham and then log off of Amazon and head out to his local bookstore for the up-and-coming debut guy’s book. He’s going to search Amazon and stick the up-and-comer’s book in the cart right next to the Grisham. So Amazon gets both sales, the discounted one and the full-price one. The indie gets $0.

    Sure, indies can sell their books through Amazon. But they have to give a percentage of every sale to them, — 15%, plus a $1.35 “closing fee,” PLUS a $40 monthly fee — and they still can’t offer competing discounts. There’s no guarantee they’ll make that back on profits. I’d bet it’s actually pretty unlikely since they can’t offer the same discount that Amazon does.

    So you have a bookstore paying the publisher $15.39 for a book that retails for $27.99. Say the bookstore discounts it 30%, listing it at $19.59. If someone buys it, the bookstore pays $2.93 for Amazon’s 15%, plus the $1.35 closing fee, so $4.28 goes to Amazon, and $15.93 to the publisher.

    $19.59 – $15.93 – $4.28 = $-0.62.

    Sure, the bookseller could offer a lower (or no) discount, but go ahead and look at Amazon’s front page. Everything’s discounted.

    You can take advantage of Amazon’s $8.99 price on a bestseller, or you can click over to the Books That Don’t Suck Amazon store and buy it for $20. Which are you going to pick?

    Or you have to read To Kill a Mockingbird for a class. Amazon’s offering deals on the first two editions that pop up (38% on the $12.95 HarperCollins trade paperback, 32% on the $15.99 Harper Perennial edition) and when you look at the Grand Central mass market listing (third one down), if you want a new copy, they’re still the best deal, because even though they’re charging the full $7.99 price, everyone cheaper than that has to tack on $4 for shipping. Yup, a few of the sellers have a $2 or $3 price on there, but if they got the copies they’re selling direct from the publisher, that means they’re taking a loss.

    Amazon no longer becomes an evil beast, but a mechanism to get more people to buy their books through independent book sellers. I see most independents as being local shops you do most of their advertising through signs in their windows and maybe the occasional local newspaper ad. Selling through Amazon (or eBay or some other online service) only helps to expose their store to a greater audience outside of their traditional community.

    Bolding mine. That’s what IndieBound is. That’s why I keep pointing at it. It’s a way for booksellers to reach readers outside of their local communities. Amazon is not a mechanism to get people to go to their indies — as you can see in the example above, it’s not helpful to indies at all.

    There’s the cost of printing, packaging, and shipping with a physical copy. You don’t have any of those costs associated with an e-book, which is why I don’t get the problem some have with lower prices on e-books.

    Printing, packaging and shipping are only a small part of the cost of making a book. Most of what goes into the actual making of a book is never seen or considered by the person who picks the finished product up off the shelf.

    Books get edited, they get copyedited, they have someone doing the layout, they have someone doing the cover art. The books go into catalogs, which cost money to print. There’s the cost of advertising — you’ve seen book ads on TV, in magazines, on the subway. There’s the price of marketing and publicity. If the author goes on a tour and the publisher pays for it, there’s the cost of flights, hotels, food.

    Hell, the cost of running the publisher itself probably ought to (and probably does) get factored in too — paychecks for people in customer service, the sales reps (/waves), the guys in the mailroom, the people who talk to the binderies and make sure the pages get printed in the right order, accounts payable, accounts receivable, the people in royalties who make sure the authors get paid, and probably a dozen or more departments I’m not even remembering.

    All of those things contribute to the cover price of a book, and while I can understand e-books being priced slightly lower than the physical copies, Amazon set the $9.99 price without ever having a conversation about it with anyone in the industry. If you look at some of their Kindle prices, you’ll see that they post the “digital list price” (the price set by the publisher, usually the same as the hardcover price) and have that struck through, with the “Kindle Price” of $9.99 beneath.

    So, sure, cutting the cost of the physical printing and shipping of dead tree books off of the ebook price might be doable, but it’s not as much of the price as you think.

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