So I guess I've got another entirely
too long blog post about the book industry in me, or perhaps more
accurately, stuff has happened in the book world and if I try to keep
all of this inside, you'll find me dead in a bathtub from an aneurism
several days from now.
I'll get to ebooks prices in general
and the role of self-published ebooks in publishing, but first the
big news is that the Department of Justice, who I guess had finished
up with all the bankers responsible for the crash of 2008, the
possible gouging of the US government by the no-bid contractors in
the wars in Iraq and Afghanistan (hey, you guys remember when
Haliburton did such a bad job installing the showers, a soldier
actually died taking one), and well, everything else going on in the
world, has filed an anti-trust lawsuit alleging collusion to fix
ebook prices by Apple and five major publishers. There has been a lot of
reporting on this, but most of that reporting has left out some
basic, well, arithmetic that explains the publishers actions, while
also continuing to ignore the fact that ebooks are NOT substantially
less to produce than print books. (At least, not at first, but more
on that later.) So, here we go.
The Lawsuit and the Simple Arithmetic
The thrust of this lawsuit is that
those five publisher decided together on what's called the “agency
model” of ebooks pricing and decided together on what to price
their ebooks in that model. In an “agency model” for ebooks
sales the retailer, Amazon, Apple, Google (and through them Porter Square Books), Barnes & Noble, etc,
acts as an “agent” for the publisher and receives a commission,
usually 30% of the price of the ebook as set by the publisher. This
is different from the traditional model, in which the publisher
receives about 50% of the cover price and the retailer is able to
sell the ebook for whatever price they choose.
When MacMillan and Apple first explored
the agency option, Amazon was selling ebooks at dramatically low
prices, often at $9.99-$4.99 for books that were retailing around
$24.95. The result is that in the first few years of ebooks, Amazon
represented about 90% of the ebooks market. (Hmmm, naw, it can't be
a monopoly.) There were acceptable reasons for their early market
dominance; they were the first to really push digital retail, while
having the first successful dedicated digital reading device,
but that doesn't account for 90%. Amazon was using the price
flexibility of the traditional model to use predatory pricing to gain
complete control of the ebooks market, and they were damn close to
doing it.
It's usually about here, articles drop
the ball. Some will point out that the publishers actually LOST
money on the agency model (as with the traditional model they were
still getting their 50% of $24.95 no matter what Amazon was selling
them for) in order to foster a more competitive retail environment,
but they never show the numbers behind the agency
model's pricing that explains the existential risk to
the publishing industry posed by an Amazon monopoly able to dictate
ebooks discount terms. So, let's get ready to Math!
MATH!
Let's take your average new hardcover.
Priced at $25.99, publisher on average get 50% of the cover price of
a print book, or $12.99 for every print book sold. (And from that
pay the janitors, the utility bills, the secretaries, the editors,
the publicists, the cover designers, and, if there's any left, the
writers, who dedicated whatever free time they could scrounge from
however they paid their bills, to pour the very substance of their
humanity onto notebook pages and hard-drives, for years and sometimes
for decades, until finally they were able to participate in one of the
most important cultural actions humanity has ever had; the reading of
a book, but you, know, they're not as important as investment bankers
who...Sorry. Back to the math.) Right now, agency ebooks of
hardcover editions are generally priced at $12.99.
With agency titles publishers receive 70% of every copy sold, $9.09.
So, every time an agency ebook sale replaces a hardcover sale,
meaning every time someone who would have bought the hardcover buys
the ebook, the publisher loses $3.90. That is a little bit more than
the saved overhead ebooks provide, but given that ebooks at about
this price also create sales, meaning people who were not planning on
buying the hardcover at all end up buying the ebook, this is a
sustainable and perhaps even profitable price point. Really a
win-win. Customers who want a cheaper option have it and the
industry in general is sustained for those customers who want the
more expensive print version. Just like with the prices of print
books, which are all pretty much the same across publishers, the
arithmetic of publishing generated this number. Nobody needed to
collude to come up with it.
And right now, agency paperbacks are
also sustainable. For a $14.99 paperback, the publisher gets $7.70
for every print copy sold. Most agency titles in paperback are sold
at $9.99 as ebooks, netting the publisher $6.99 for every ebook sold.
Again an initial loss, but one that is likely canceled out by new
sales and saved overhead.
But the ebooks market could get
unsustainable real fast. For example, if that $12.99 price point is
shifted by market pressure to $9.99, (and by market pressure I mean,
Amazon pressure) publishers will lose $6.00 for every hardcover
replacement, meaning the ebooks would have to create about two new
sales for every replacement. It's possible, but an awfully risky
business model.
Now imagine if Amazon gets control of
enough of the ebooks market that they can dictate discount terms to
publishers. They were once at 90% of the market and if they are able
to sell at dramatic losses again, they might regain that level. I
don't think they will raise their ebook prices to consumers, because
low prices (sustained by terrible working conditions at their
warehouses, not paying state sales tax, and a few ethical and
innovative business practices just to spice things up) are kind of
their thing. However, they will pressure publishers into giving them
profitable discounts based on those price points. Instead of selling
those ebooks for a loss or for a 30% commission, they will demand a
traditional discount, around 50% of the price they have decided on.
Here's what the math says about that.
In that scenario publishers would get
$6.50 for every ebook sold at $12.99, meaning they would lose $6.49
for every ebook that replaces a hardcover sale. If Amazon decides
that price is $9.99, the publisher would get $5.00 and lose $7.99.
For producing the exact same quality product, making the exact same
investments and putting in the exact same amount of labor, because a
big box store wanted control of everything, the publisher loses $7.99
per unit.
Yes, ebooks buyers buy lots of print
and ebooks and yes the cheaper ebooks prices do create sales, but
given that most publishers are barely getting by anyway, those loses
would put many if not most out of business. (Just to get this out of
my head, where are all these filthy rich greedy publishing
professionals buying yachts on the backs of downtrodden ebooks
buyers? I mean, the best editor in the world makes tons less than a
shitty investment bank executive, but it's ebook prices that are the
problem. Aneurism prevention) Of course, there's no guarantee Amazon
will pursue this particular doomsday model, but at every step on the
range of possibility towards that, publishers (mostly the small
publishers that make sure books stay interesting) will be left
behind, either by going out of business, or by not being sold on
Amazon. And nothing Amazon can do, no matter how big it gets, will
be able to replace the diversity of voices, ideas, and books, coming
out of traditional publishing large and small.
The agency model, was not about profit.
It was about survival. It was about monopoly prevention, something
the Department of Justice is supposed to deal with. By creating
price parity, those publishers diversified the ebooks retail market
so that now Amazon only controls about 60% of it. Still pretty
monopolostic if you ask me, but it is not so powerful that it can
dictate the terms as above. This means that ebooks can find a
sustainable market price, one that funds all of the work that goes
into producing a book and is a rational reflection of buyers' desire
to save money. It also allowed independent bookstores to get in the
game, which meant that customers who wanted ebooks and to shop local,
now can.
But, Wait, There's More, and It's
Math-Free
However, for all of you price-centric
buyers, I think there is a possibility of seeing the $4.99 ebook if
publishing is stabilized and if you are patient. Here's how.
Think of publishers as taking out a
loan on every book they publish; a loan that consists of the advance
to the writers, the salaries for everyone else who works on the book
like the various editors, graphic designers, publicists, etc, and the
general upkeep of the business. Essentially, every book, print or e,
puts the publisher in debt a certain amount. When the hardcover
edition is released at $25.99, 100% of that debt remains. That's one
of the reasons why hardcovers are about $10 more than paperbacks.
Yes, their materials cost more, but not $10 more. They are $10 more
because they represent the publishers' first chance to pay off that
debt. The hardcover edition is responsible for 100% of that book's
debt. Readers who want the book NOW, for whatever reason are willing
to pay for the value of NOW, but many others will decide to wait.
When the publisher decides the
hardcover is no longer selling, they will release the cheaper
paperback. At this point, some (very, very rarely all) of that
book's debt will be paid off. The paperback is cheaper to make, but
not $10 cheaper. It's cost is lowered to encourage sales to readers
and because it bears less of that initial debt. Same thing if the
book goes to Mass Market.
Theoretically once that debt is fully
repaid, which, by the way, ALMOST NEVER HAPPENS, the price of print
books could drop even lower, but there are some real logistical
hassles to changing the price of a print book and they
do have constant overhead in the cost of printing and shipping.
Logistical hassles and overhead ebooks do not have. Once that debt
is paid, which, might I remind you ALMOST NEVER HAPPENS, ebooks do
represent almost total profit. It is at that point that I could see
the price of in-print ebooks dropping to $4.99-$7.99, with the
publishers and authors splitting the profit.
In short, nearly all ebooks should stay
in that $9.99-$14.99 range, but could be allowed to naturally drop in
price to that $4.99-$7.99 some people believe the fruit of another
human being's years of lost sleep, constant rejection, strained
personal relationships, poor performance at work, declining health,
flirtations with substance abuse, and other near constant side
effects and risks of writing a fucking book, is worth.
Self-Published Ebooks
Another “proof of obsolescence”
writers and commenters will often point to in their condemnation of
traditional publishing are the $.99 self-published ebooks on offer,
mostly at Amazon, however, this is really comparing kiwis and
bananas.
The way I see it, self-published ebooks
are like the pulp fiction of the 30s, 40s, and 50s; cheaply produced,
cheaply available, offering cheap entertainment. And you know what;
that's fine. The pulp industry didn't put the rest of publishing out
of business because it served different needs. You wanted to read
trash, you bought trash at trash prices. You wanted to read
something with quality, you paid quality prices. In a perfect world,
where Amazon charges sustainable prices for its wares with
sustainable discounts for the producers, I don't have a problem with
them being the exclusive source for thousands or even millions of
self-published “pulp” fiction. It's an entirely different market
from traditional publishing and bookselling.
And just like the old pulp fiction, I'm
sure there is great writing in the self-published ebooks market, but
I certainly don't want to wade through the crap to find it, and that
is the primary value-added of traditional publishing and bookselling.
Publishers wade through the crap so you don't have to. (Just say the word "slush" around an acquisitions editor and see what happens.) Many of you
will probably point out that traditional publishers still publish
crap and you'd be right, but if you came into my store, or just about
any independent bookstore in the country, and talked to a bookseller,
you'd never end up reading any of it.
The point is digital publishing,
self-publishing, traditional publishing, and print publishing can
co-exist. We can have an Amazon and a Barnes & Noble, and
boutique ebooks stores, and thousands of indie bookstores across the
country. There are enough readers. Books are that important. But
books aren't important to Amazon. The future power and profitability
of market share is the only thing that is.
One Final Word About Cheap Books
After all that I'd hate to give out an
insider secret to the writers, bloggers and commenters who believe
the only factor that matters is price, but, well, in the interest of
journalistic integrity, I feel it is my duty to do so. Here we go.
If price is so goddamn important to
you, you never have to pay money for a book. Ever. Just borrow it
from your local library. It's the big new book and the waiting list
at the library is hundreds of people long? Wait. No waiting list is
infinite. Just put your name on it and borrow another book FOR FREE.
Your library doesn't currently have it? Ask your local librarian to
get it for you. The only known copy of the book is locked in an
adamantium box at the North Pole, surrounded by landmines and guarded
by Pullman Polar Bears? Ask your local librarian to get it for you,
and wait an extra few days for transportation. Librarians are
librarians because they want to give books to people. Your librarian
will get the book for you. You want it as an ebook? Sure, libraries
haven't quite figured out ebook lending yet, but just about every
book ever published before 1922 or so is available for FREE as
e-book. Just go to Project Gutenberg. You will never run out of
great books to read and you will never have to spend a single penny
on books.
But you want the newest, hottest book,
that everybody is talking about so you don't feel lame at the office
holiday party? Well, fucking pay for it. In a currency-based
economy, that's what you do when you want something; you pay for it.
Think about it this way. Doing
push-ups and sit-ups in your living room is free. So is jogging.
Once you know how to do it, so is yoga. Really, you can stay fit and
healthy for free if you want to. But if you want access to a range
of machines and an occasional professional opinion on how best to use
them, you're going to have to pay for a gym membership. Want to take
a class because you're interested in something specific? You'll have
to pay a little bit more. Want a personal trainer to design a
fitness regimen that works best for you, while providing motivation
and guidance as you execute it? Well, you'll have to pay even more
for that. You can be fit for free, or you can choose to pay for the
added-value of a gym. Everybody accepts that.
If we accept that for gyms, why can't
we accept that for books.
Right on, Josh. Preaching to the choir in me, of course. But PREACH ON!!!
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