So the US Department of Justice will sue five major US book publishers and Apple over colluding to fix the prices of e-books. What’s the big deal and why should you care? We’ll try to spell it out. But here’s where the story will end: they were trying to save the traditional publishing industry. Alarmist? You decide.
The point of setting a fixed price at which everyone would sell a given e-book was to allow the publishers to earn money for what they were producing. Before the ‘agency model’ was put into effect, Amazon was selling e-books at firesale prices. Their interest was in locking up as many customers as possible for their Kindle system and to corner as much of the e-book market as they could. They have been willing to sell all of their goods at a loss in order to garner market share.
Because their prices were so low, Amazon was dragging down the prices for all e-books as publishers were forced to lower their own prices to compete. In effect, Amazon was willing to lose money because they could survive it (keep in mind that Amazon is making money selling all sorts of things, not just books, and they're making a ton of it) while book publishers don’t have that kind of financial cushion, especially as nearly all are now owned by huge international corporations that want all of their divisions to make a good return – and publishers can’t do that if they compete with Amazon at the slashed prices.
Apple wanted to get into the market place with the iPad and made the agreement with the publishers to set a higher price at which everyone would sell the e-books, thereby achieving some sort of fair level where everyone would have the same chance. Theoretically.
Bear in mind, too, that it is estimated Amazon now ‘owns’ 70-80% of the e-book market. We’ve also read 90%. Whatever the percentage is, it is overwhelming. So why should you care? Really cheap books are a good thing, right? Welllllllll, no. Here’s why:
Big Time Publishing is Big Business, right? Lots of floors in high-rises, lots of offices, lots of workers in editing and marketing and the art department and sales reps and the legal department and the executives. Lots of payroll and rent and the basic bills of any business from pencils to copier toner to paying the light bill. And then they also have to pay the authors. To support all of that, you need to bring in a great deal of money. The way it has all been traditionally paid for is through the sale of hardcovers. Think about it: a publisher makes a great deal more money on the sale of the hardcover than they do on the paperback. You really cannot support all of that on the sales of paperbacks (one of the reasons that the good, ol’ mass market is threatened and why books are going to trade paperback). They simply do not earn you enough money (this applies to booksellers, too).
Here are some numbers for you to chew on. Publisher’s Weekly reports “Despite slowing growth rates in the final quarter of 2011, e-book sales rose 117% for the year, generating revenue of $969.9 million at the companies that report sales to the Association of American Publishers. Sales in all trade print segments fell in the year, however, with the mass market paperback segment showing the largest decline with sales from reporting houses down almost 36%, to $431.5 million. Adult hardcover and trade paperback sales were off 17.5% and 15.6%, respectively. In children’s, the YA/hardcover segment sales fell 4.7% and paperback sales fell 12.7%”.
Here’s a clear example of how e-books are killing the sale of hardcovers: the new Stephen King is $35. Amazon is selling the hardcover for $17.49 (which is less than publisher sold it to us, so, unless Amazon got a special discount - which is illegal - they're selling it at a loss). The Kindle version is $16.99. Barnes & Noble's Nook version is $14.99… Crimminy! There is no way for the hardcover to compete or for any bookseller who cannot afford to deeply discount to compete with those prices! With that in mind - that sales of printed books are crashing and sales of e-books are skyrocketing - how does traditional publishing survive? If the volume of e-book sales stays steady or continues to rise, that may help. But if the Justice Department’s lawsuit is successful and prices of e-books can plummet, can simple volume of sales make that gap up?
We don’t see how. If anyone is free to sell an e-book for as little as they want, how can a $27 hardcover - let alone a $35 behemoth - compete with a $9.99 or a $5.99 e-book? It can’t. That’s why sales of printed books are falling off a cliff. In fact, as e-book sales rise, publishers are taking a hit on two fronts: buying an e-book means that sales of the new hardcover decline and future sales of the softcover won’t take place (look back at those sales figures – mass market sales fell the most). Over a year ago, Fran wrote a post about the economics of selling e-books and how many you have to sell to just pay for the system to allow you to sell e-books. Read that and then think about how many e-books you’d have to sell to support a small independent bookshop. THEN think about how many you’d have to sell to support a major publishing house. You couldn’t do it.
If you can’t sell hardcovers because e-books cost a quarter of the price, how do publishers support the rent, the editors, the publicists, the art department, the staff lawyers and all of that? We don’t see how they could. Publishers go away, no more books, what do booksellers sell, what do libraries shelve? And if the major, corporate publishers can’t make it, there’s no hope for the small presses. They have no financial cushion to try to weather the storm. Yes, there are now the ‘espresso’ printing machines that allow the printing of books but they’re not cheap and you have to put them somewhere. Can they pay for themselves, a small staff and the rent to house them? Aren’t they undercut by the lower e-book prices as well?
What’s that mean to you?
- Little to no filtering of books: traditional publishing gives you the sense that any given book has been vetted, that others have read it, made editorial suggestions about characters or plot, caught the typos and thought it was worth publishing. With self-publishing, you have no guarantee any of that has taken place.
- You’ll have to decide if that matters with fiction, but what about non-ficiton – histories and biographies? Who is going to preview them to make sure they’re valid and accurate? Who is going to stand between you, the reader, and the writer to assure you that what you’re buying is credible? Granted, there are instances of plagiarism in traditional publishing but we seem to hear, more and more, about entire e-books being copied and sold on-line by someone else.
- No filtering of books from booksellers you trust, or librarians, in the worst case.
- Without the filter of the major publishers, how will reviewers decide what to read and review? You can’t imagine the flood of advance reader copies we get. What if we had to do it electronically, with authors we don’t know flooding us with unsolicited files of their new book? How could you possibly weed through them all? We know you’re not supposed to judge a book by its cover but what do you do when there is NO COVER? Or if the pixellated cover is generic, as many are?
- More and more authors will self-publish e-books, if they can afford it – no more contracts with publishers to allow them to write full-time means that they won’t earn anything on their writing until the e-book versions begin to sell and all of the expenses of getting it ready (copy editing, etc) will have to be paid for ahead of time, out of their own pockets. It will work in their favor that, theoretically, their books will never go out of print and could therefore keep earning them money. Still, their old books and new books will have to struggle to get the attention within the massive flood of a gazillion self-published authors. Remember – these days the idea is that everyone can be a published author, whether they deserve to be or not. Those that do deserve to be read will have to somehow rise above the rapids to be found. They say cream rises to the top, but in the floodwaters of unedited, poorly written and possibly pirated e-books, even the cream will curdle and sink.
- No more signings. Authors could still have appearances but, without printed books, there’d be nothing to sign. No more tours. Perhaps remote, on-line talks or chats or conferences, but they’d have to fund that themselves. No corporate publisher paying for the marketing or publicity.
- Will printing companies stay in business? If everything is going digital, maybe not. Or, to make ends meet, they’ll need to charge more to do what printing they do. As they raise their prices, doesn’t that mean they perhaps price themselves out of business? So add printers and everyone who works at printing plants to all of the people who work for publishers – from the janitors to the receptionists and on to the executives – who will be out of work. Oh, and the booksellers. Count us in, too.
Why should you care about the Department of Justice’s case against Apple and the five major publishers?
Because the survival of publishing as we know it may depend on it.
Perhaps the future of the printed book, as well.
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