Monthly Archives: April 2008

Direct Sales: British Publishers and Amazon Throw Elbows

My prognostication of war between publishers and retailers is less than a week old and the first clash of arms has already taken place. A price war, pitting a powerful publishing group and Amazon, has broken out in England over the very issues aired in my blog, Direct Sales: Publishing’s Last Stand. Penguin, Bloomsbury and several other publishers are offering some titles directly to the consumer at discounts higher than those offered by retailer Amazon. Dalya Alberge, Arts Correspondent for The Times (of London, not New York) reports (Amazon Furious After Publishers Undercut Its Book Prices Online) that, “Penguin’s online store has reduced a boxed set of 20 Penguin Epics from £100 to £55. Amazon sells the collection at £98.64. Bloomsbury offers a 25 per cent discount on all its books, with free postage and packing on British deliveries over £20.”

Publishers fear that Amazon will retaliate, and publishers on the other side of the pond will be watching anxiously. Publishers on this side of the pond should be just as attentive. This is no small matter. Amazon, Barnes & Noble, and other retailers have a lot to lose if publishers gain a toehold in the competition for sales to consumers.

Watch this space for more news. Helmet and body armor recommended: you are entering a war zone.

– Richard Curtis

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Direct Sales: Publishing’s Last Stand

Amazon’s recent threat to coerce small presses into using its print on demand subsidiary BookSurge left the publishing community quaking. A coalition of Ingram, LightningSource, and publishers large and small – all escorted by mosquito squadrons of furious bloggers (like Angela Hoy) – has for the moment driven the beast back into its cage.


Lest you congratulate yourself, I have some bad news for you: BookSurge was merely a skirmish. There are war clouds on the horizon, and a decisive showdown between publishers and booksellers is shaping up. At stake: the revenue generated by retail sales of books to consumers. Publishers outsourced retail a long time ago, but now they want it back. In fact, they must have it back; it’s a matter of survival.

There are two ways to sell books today: one is through independent bookshops or bookstore chains, the other by mail order.

Bookstores

However quaint ye olde booke shoppes may once have been, modern bookstore retailing is dominated by behemoth Barnes & Noble. By aggressively building mall outlets and superstores to drive out competition, promoting frontlist blockbusters and superstar authors, and by maneuvering publishers into total financial dependency, B&N has aggrandized itself at the expense the publishing industry. It has also taken cruel advantage of the fact that books are returnable for full credit, placing the full burden of risk on the shoulders of publishers and contributing to a soaring return rate for trade books of 50% or even higher. To make things worse, B&N owns a publishing company, putting it in direct competition with its own purveyors and undercutting them with its own store-brand titles.

Mail Order

As for mail order sales, only a few decades ago these were a significant contributor to publisher revenues. The rise of book clubs largely took that function out of publishers’ hands, and Amazon.com finished the job – finished it with a vengeance. Capitalizing on the coming of age of the Internet, Amazon became not just the leading purveyor of mail order books; it became in effect the only one. Buying books from publishers at a discount of roughly 50% and reselling them at about a 20% markup gives Amazon its profit margin. Super-efficient service, brilliant marketing, first-rate catalogue information and ingenious bells and whistles like Behind-the-Book, peer reviews, bestseller rankings, free shipping on certain sales, and yes, even its used-book marketplace, have given Amazon a near monopoly over online sale of books.

Publishers have awoken to the horrible realization that by allowing themselves to be taken hostage by Barnes & Noble and Amazon, they made bargains with the Devil. As their profit margins wear down to transparent thinness, they understand they must recapture the advantage or risk being marginalized even more than they are now. The Amazon/BookSurge scare has made them realize that the slippery slope to total surrender is to let Amazon print their books for them. For, if Amazon becomes both printer and distributor, it will leave publishers with little to do besides acquire and edit, thus becoming glorified book packagers for the Amazon Publishing Company.

There is only one way for publishers to recover the initiative, and that is to sell books directly to the consumer. Which is precisely what they have started to do. Go to the websites of most publishers and you’ll see that you can indeed purchase their titles without having to go to a bookstore or logging on to Amazon.com. When you look at the prices, however, you realize there’s something wrong: most of their titles are sold at full list price or close to it. Wouldn’t they be more competitive if they gave their customers a discount?

Of course they would. But they can’t, for the simple reason that discounting their books puts them into direct competition with their retailers. As long as they depend on Amazon, Barnes & Noble, and other third-party retailers, they cannot cut prices.

Obviously, retailers hold the high ground and their position would seem to be all but unassailable, except for one critical factor: as big as they are, retailers are intermediaries in a world that is rapidly disintermediating. And, as we have seen in every major business from movies to music to banking to newspapers, no retailer is invulnerable to market forces bent on eliminating middlemen in favor of a one-on-one relationship between supplier and consumer.

Enter direct marketing. Today publishers are sticking a cautious toe in the water. But it will not stop there. Desperate times call for desperate measures, and if the only source of profit (to say nothing of independence and dignity) left to publishers is consumer retailing, they will step up their activities in this area until in time they are in a position to challenge the Barnes & Nobles and Amazons. Though the only weapon they have is their content, that may be more than enough to vanquish these Goliaths.

Aux barricades!

– Richard Curtis

Pictured above: “Kong Versus Carnosaur,” copyright 2004 by Joe Devito Artwork, LLC. All rights reserved. My heartfelt thanks to Joe for personally granting permission for this beautiful painting from his excellent book, Kong: King of Skull Island.

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The Nine Gazillion Pound Gorilla Bares its Fangs

I write this blog in two capacities: as an authors’ advocate and as president of E-Reads, an Internet publisher that, in addition to publishing e-books, prints its titles on demand for readers who prefer traditional volumes. Indeed, fifty percent of our company’s revenues are generated by print on demand. Our PODs are produced by Lightning Source Inc. and sold on Amazon. The excellent relationships we enjoy with both firms have enabled us to realize our vision of what a twenty-first century publishing venture can be. We are happy to claim them as partners and would hate to be placed in the position of choosing between them. But Amazon’s proposed policy requiring small presses such as E-Reads to shift its POD business to its BookSurge press would do just that. Though Amazon’s ploy comes as a shock to publishers and authors, it did not come as a surprise to me. In the summer of 2005 Amazon.com announced the acquisition of MobiPocket, an e-book company, and BookSurge, a print on demand operation. A lot of ink was spilled on the MobiPocket deal but no one except me speculated on what it meant for a book retailer to have the capability of printing books on demand. In a guest editorial in Publishers Weekly, I wrote,

“It’s hard to say for sure what is behind amazon.com’s acquisition of BookSurge, the on-demand book-printer. But any move the Nine Gazillion Pound Gorilla makes is worthy of serious consideration. Indeed, the implications of the deal, especially combined with amazon’s purchase of e-book company MobiPocket, are profound.”

The implications were so disturbing that PW’s editors urged me to tone down my speculations, which seemed to fall at the red end of the spectrum of possibility. Actually, I suspect that the editors were so freaked out that they went into denial. And who can blame them? In my editorial I spun the logic of Amazon/BookSurge to the max.

Here is the conclusion I reached: If Amazon is capable of printing books on demand, they will no longer have to carry any physical books in their warehouses at all! They simply have to load the files of Random House, HarperCollins, Hachette, Penguin, and every other publisher onto their server and print all of their books – frontlist as well as backlist – on demand. It would not only be a huge savings for Amazon in terms of warehouse space – it would be a huge savings for the publishers, too: they all would eliminate printing, warehouse, and freight costs at a stroke. Yes, they would still have to print and distribute books to other retailers besides amazon, but such sales would be modest compared to those of Amazon with its incomparable marketing and technical capabilities.

Allowing Amazon to become the POD press for the publishing industry is a very seductive lure to publishers operating on razor-thin profit margins. But it would also enable Amazon to undercut bookstore prices, put Barnes & Noble and other bookstore chains and independent booksellers out of business and complete its march to monopoly. While you’re trembling, consider the possibility of a mega-retailer ultimately deciding what you read as well as how and where it’s printed.

If you are as incredulous as my Publishers Weekly editors were, ponder this statement in the letter just issued by the amazon.com books team: “It isn’t logical or efficient to print a POD book in a third place, and then physically ship the book to our fulfillment centers. It makes more sense to produce the books on site, saving transportation costs and transportation fuel, and significantly speeding the shipment to our customers.” You need only to remove the term “POD” from that statement to arrive at the terrifying conclusion that I reached in 2005.

Though I have railed for decades against the stupidity and wastefulness of an industry based on tangible books sold in brick and mortar stores, I have to wonder whether Amazon’s Orwellian vision of absolute zero-returns efficiency is even more destructive than a traditional business model that pulps one copy for every two it distributes. It is vital for publishers of every size to confront this potential restraint of trade.

Richard Curtis

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