The recent New York Times article about independent bookstores charging admission fees for their readings has generated a lot of really interesting and productive debate about the nature of bookselling in the 21st century, but I think there are some big picture economic aspects of the issue that a lot of commenters and debaters have missed.
Over the last few decades, Amazon, Barnes & Noble and Borders, and big box stores like Walmart and Costco, have changed customer expectations about the price of a book. Through a variety of techniques these companies are able to sell books at a price heavily discounted from the retail price suggested by the publisher, and have done so for so long that customers now assume the discounted price reflects the true cost of the book. (I’ve even heard of people talking about an indie store “mark-up” as if the price wasn’t printed on the cover.) But this really isn’t the case. Those companies are able to sell books so cheaply because they’re size allows them to sell at a such a volume that they can afford a very low profit margin on each individual book sold (all of them), they sell other stuff with a higher profit margin and so can afford to make very little or even lose money on book sales (Amazon and the big boxes) and/or they use their size to bully publishers into better discounts, lost millions of dollars over a decade in order to secure market share, and spend millions preserving a sales tax advantage (I’m sure you can guess who that is.). The result is that customers, in general, expect a new hardcover book to cost $10-15 regardless of what is printed on the cover.
But books are expensive. There are reasons why publishers print $25.95 on hardcovers and sell them to stores based on that price. A partial list of those reasons; authors, editors, secretaries, publicists, janitors, printers, IT guys to make sure the network stays up, graphic designers, technicians to convert files into the various ebook formats, accountants, delivery truck drivers, copy editors, did I mention authors...well you get the point. Simply put, if every hardcover copy of Freedom by Jonathon Franzen purchased at $28 had been purchased at the $12.99 ebook price instead, its publisher would probably have gone out of business. Quality books, written by authors who make a decent living from their work, that have been edited by editors committed to producing the best work possible, brought to the attention of readers by publicists who want a world filled with great reads, with covers that reflect the artistic sensibility of the work (or really any artistic sensibility) cannot be made for $10-15 retail a piece.
This is a major problem for publishing and small independent bookstores are its canaries in the mine shaft. For a long time, publishers were still able to get their money, even while their product was being radically devalued in the minds of consumers, and as long as they were still making ends meet, they did not act. (Of course, many of them did not make ends meet, but that’s a different post.) Because indie stores don’t have the same kind of price flexibility as other retailers, they simply could not match the artificially low price point now demanded by consumers. People stopped buying from them, and many went out of business. Furthermore, I believe many publishers are responding to the deep discount model by raising their suggested retail price. When Amazon gets a better discount, the publishers lose money, and the easiest way to recoup that loss is to raise the retail price the discount is applied to. If you haven't bought a hardcover book in a few years, check one out. But probably do it sitting down. In the last few years, the cover price of books have been rising at close to a dollar year. (I would not be surprised to see new hardcover fiction with $30 on the cover in the next 3 or 4 years.) In a way, this acts as a kind of subsidy. Those customers who shop indie, pay the much higher cover price, allowing publishers (who get more per book from indies) to stay viable while giving Amazon advantageous discounts. (Not all publishers do this, of course.) Amazon's model does result in cheap books, but it is partially supported by other customers willing to pay much more for their books. If nothing is done to change the system, one has to wonder what will happen to publishers if no one ends up willing to spend $28 for a new hardcover book. (And that's not even considering if Amazon one day decides to ask for discounts based on the $10-15 price point they've established, but that's just fearful speculation at this point.)
Because indie bookstores’ primary product has been so radically de-vauled, some are trying to monetize other services they provide, such as charging for admission for readings. Since books are not monetarily valued enough to run a sustainable business selling just books, some bookstores are considering “selling” readings as well to make ends meet. I'm not sure why this should be treated any differently than, say, Amazon selling server space or other e-commerce services. The nature of Amazon's business created secondary services and nobody blinks an eye when they monetize those secondary services. I don't really see why Amazon should have ethical permission to monetize its servers but indie bookstores don't have permission to monetize their readings. (Of course, publishers pay for aspects of readings, but, well, many of them give Amazon better discounts so...) Both business models sell books and have developed techniques and systems for selling those books and if those techniques and systems also have value to customers there shouldn't be any reason why only one of the business models is allowed to monetize them.
Over the last few decades, Amazon, Barnes & Noble and Borders, and big box stores like Walmart and Costco, have changed customer expectations about the price of a book. Through a variety of techniques these companies are able to sell books at a price heavily discounted from the retail price suggested by the publisher, and have done so for so long that customers now assume the discounted price reflects the true cost of the book. (I’ve even heard of people talking about an indie store “mark-up” as if the price wasn’t printed on the cover.) But this really isn’t the case. Those companies are able to sell books so cheaply because they’re size allows them to sell at a such a volume that they can afford a very low profit margin on each individual book sold (all of them), they sell other stuff with a higher profit margin and so can afford to make very little or even lose money on book sales (Amazon and the big boxes) and/or they use their size to bully publishers into better discounts, lost millions of dollars over a decade in order to secure market share, and spend millions preserving a sales tax advantage (I’m sure you can guess who that is.). The result is that customers, in general, expect a new hardcover book to cost $10-15 regardless of what is printed on the cover.
But books are expensive. There are reasons why publishers print $25.95 on hardcovers and sell them to stores based on that price. A partial list of those reasons; authors, editors, secretaries, publicists, janitors, printers, IT guys to make sure the network stays up, graphic designers, technicians to convert files into the various ebook formats, accountants, delivery truck drivers, copy editors, did I mention authors...well you get the point. Simply put, if every hardcover copy of Freedom by Jonathon Franzen purchased at $28 had been purchased at the $12.99 ebook price instead, its publisher would probably have gone out of business. Quality books, written by authors who make a decent living from their work, that have been edited by editors committed to producing the best work possible, brought to the attention of readers by publicists who want a world filled with great reads, with covers that reflect the artistic sensibility of the work (or really any artistic sensibility) cannot be made for $10-15 retail a piece.
This is a major problem for publishing and small independent bookstores are its canaries in the mine shaft. For a long time, publishers were still able to get their money, even while their product was being radically devalued in the minds of consumers, and as long as they were still making ends meet, they did not act. (Of course, many of them did not make ends meet, but that’s a different post.) Because indie stores don’t have the same kind of price flexibility as other retailers, they simply could not match the artificially low price point now demanded by consumers. People stopped buying from them, and many went out of business. Furthermore, I believe many publishers are responding to the deep discount model by raising their suggested retail price. When Amazon gets a better discount, the publishers lose money, and the easiest way to recoup that loss is to raise the retail price the discount is applied to. If you haven't bought a hardcover book in a few years, check one out. But probably do it sitting down. In the last few years, the cover price of books have been rising at close to a dollar year. (I would not be surprised to see new hardcover fiction with $30 on the cover in the next 3 or 4 years.) In a way, this acts as a kind of subsidy. Those customers who shop indie, pay the much higher cover price, allowing publishers (who get more per book from indies) to stay viable while giving Amazon advantageous discounts. (Not all publishers do this, of course.) Amazon's model does result in cheap books, but it is partially supported by other customers willing to pay much more for their books. If nothing is done to change the system, one has to wonder what will happen to publishers if no one ends up willing to spend $28 for a new hardcover book. (And that's not even considering if Amazon one day decides to ask for discounts based on the $10-15 price point they've established, but that's just fearful speculation at this point.)
Because indie bookstores’ primary product has been so radically de-vauled, some are trying to monetize other services they provide, such as charging for admission for readings. Since books are not monetarily valued enough to run a sustainable business selling just books, some bookstores are considering “selling” readings as well to make ends meet. I'm not sure why this should be treated any differently than, say, Amazon selling server space or other e-commerce services. The nature of Amazon's business created secondary services and nobody blinks an eye when they monetize those secondary services. I don't really see why Amazon should have ethical permission to monetize its servers but indie bookstores don't have permission to monetize their readings. (Of course, publishers pay for aspects of readings, but, well, many of them give Amazon better discounts so...) Both business models sell books and have developed techniques and systems for selling those books and if those techniques and systems also have value to customers there shouldn't be any reason why only one of the business models is allowed to monetize them.
One of the major themes in the internet conversation about this issue is one of business models. Many commenters argued that Amazon has simply developed a better business model and as a result are winning in the open competition of the free market. Simply put, they argue that Amazon has found a way to offer books at a cheaper price than independent bookstores and so independent bookstores have nothing to complain about. However, in the same way that the artificially cheap food of the contemporary American agriculture system hasn't solved all of our food and hunger problems, while creating some new problems on its own, the artificially cheap books of the Amazon book market hasn't solved all of our reading problems, while creating some new one's on it's own. There are actually a lot of similarities between how we buy food and books.
The government uses taxpayer funds to subsidize certain crops, particularly corn, allowing farmers to sell those crops far below the cost of what they would actually need to charge to sustain their businesses. The good news is that Americans spend a far smaller percentage of their income on food than just about anyone else in the world. (Of course, it's still American money paying for the food, just indirectly through taxes but...) The bad news is that the market responded to the subsidized prices by using high fructose corn syrup as its primary sweetener in processed food which has contributed to a number of nationwide health problems, while forcing smaller farmers out of business, and greatly reducing the diversity of food produced in this country. I think you can see where I'm going with this analogy. In the same way that cheap food does not necessarily make for a well-fed society, cheap books do not necessarily make for a well-read society.
But there's another level to the “just a better business model” argument. A few years ago Publishers Group West went bankrupt. PGW was a distributor for hundreds of small independent presses on the West Coast, meaning it handled getting the books to the market for publishers that were too small to do it efficiently on there own. When it went bankrupt, it nearly took all of those publishers down with it. But PGW actually didn't go bankrupt. PGW was doing fine. In fact, McSweeney's, one of PGW's “bigger” publishers had just released a major hardcover bestseller in Dave Egger's What is the What. It was actually the PGW parent company Advanced Marketing Services that had gone bankrupt. As with so much in our contemporary economy PGW had been consolidated into a larger company and when that larger company failed, even though PGW was doing fine, PGW failed too. The consolidation of the market created a greater vulnerability to failure; it wasn't enough for PGW to be successful; a massive structure, completely unrelated to books had to be successful as well.
It is not unreasonable to imagine Amazon eventually having 60-80% of the American book market, especially with so many consumers choosing price over all other considerations. What happens if it goes out of business? Maybe the personal electronics market changes, or there's a new technology that renders Amazon's server and e-commerce services obsolete, or maybe Congress changes its anti-trust laws in a way that forces Amazon to break its divisions up preventing it from profit sharing across markets, or maybe they get hacked with some super-virus and their database is destroyed. Or perhaps they invest a ton of money in a new device (like the tablet they're developing for example) and it is an utter failure. There are a lot of ways for a company like Amazon to fail, and only one of them has to do with books at all. In short, if Amazon ends up the only game in town (and in a lot of places it already is) what happens if it goes out of business? How much will books cost then?
I'm not saying there shouldn't be an Amazon. There are a lot of communities that just aren't big enough to support a bookstore. There is room for both nationwide online retailers and independent local retailers. But as we discuss the nature of the relationship and competition between the two, its important to keep the big picture in mind. Why should Amazon be allowed to diversify its money streams but not indie bookstores? Are authors better served by indie bookstores that promote the cultural value of the book and need to charge admission to readings to do so, or by Amazon and big box stores who treat books as just a category of units to be moved? What kind of book culture do we want and what kind of book culture are we willing to pay for? How much do cheap books really cost?
There is a twisted-bright side to these economics though. As I mentioned early, Amazon and the big box stores, are able to sell books close to or at a loss because they are able to sell other stuff. In fact, many of them use books as a loss-leader; meaning they sell books at a loss to get people into their stores to buy other stuff. For a decade, that was Amazon's primary technique. The supermarket next to my bookstore did just that with the last Harry Potter, selling it at a substantial loss to get people inside to buy bananas or whatever. Which means that books are a draw. Though bananas might not get somebody through the door, books will. And that means books are valuable. They are important to people. People will seek books out first, and then do some other shopping once they're in the store. The challenge is to convince people that they actually lose when paying those artificially lowered prices for books, and that, in the long run, everyone is better off if we actually pay for what books are worth.
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