Last week Amazon.com, Walmart.com, and Target.com embarked in an online price war over the pre-sale of new hardcover, bestselling books. While the retail price for these books is typically $25–35, all three of these retailers are selling them for between $8.98 and $9.00.
Since publishers generally sell these books to retailers at a 40–50% discount, these three retailers are selling these books at a significant loss—$3.50 to 8.50 per sale. Obviously, they are doing this to drive traffic to their stores, hoping that consumers will buy enough other items to offset their loss on these titles.
In my opinion, this strategy will prove damaging to publishers, authors, booksellers, mass retailers, and ultimately consumers.
- Publishers. For right now, publishers are getting paid an amount equal to the customary discount for hardcover books. But no one in the industry I have spoken with expects this to last for long. Amazon, Walmart, and Target are systematically conditioning consumers to expect these lower prices. Eventually, these retailers will be in the position to force publishers to lower their retail prices.
- Authors. If retail prices collapse, it will mean that royalties and advances will also fall. You don’t have to be a mathematician to figure out that 10–15% of $9.00 is dramatically less than the same percentage of $25–35. Most authors have a difficult enough time making a living now. This will lower the income of all authors and force many to get out of the business altogether.
- Booksellers. How can booksellers—who don’t carry blenders, throw-rugs, and groceries—compete with big box or online retailers who are willing to sell books at below-cost prices? Booksellers count on these same bestsellers to bring customers to their stores. Most are willing to discount the books and accept lower margins, but few are in a position to actually lose money on every sale. It is not a sustainable model.
- Mass retailers. Ultimately, this focus on driving down the price of the best our industry has to offer will hurt everyone, even the mass retailers who started it. When publishers are forced to further reduce titles, or new authors just don’t have the same incentive to succeed, the pipeline of new book titles will dry up. Where will the next crop of new authors come from? Who will be the bestsellers of tomorrow? The mass retailers have had the luxury of being able to skim the cream off the publishing milk pail without investing in the process that creates the milk in the first place. In my opinion, they are about to kill the cow.
- Consumers. Yes, lower prices are good for consumers—in the short run. But they are not good in the long run if authors and publishers are no longer willing to assume the risk of creating and producing the kind of quality and selection consumers currently enjoy.
The American Booksellers Association has recently objected to these pricing practices as well. On Thursday, October 23, 2009, they sent a letter to the Department of Justice, calling for an investigation. While I agree with their articulation of the problem, I disagree with their solution. I do not believe that asking the government to solve the problem is helpful. I think this will only lead to more red-tape, additional cost, and a raft of unintended consequences.
Instead, I think that the publishers themselves need to find the courage to act in everyone’s long-term interests. As the content providers, they have all the power they need to stop these pricing practices.
Here are at least three strategic alternatives. At Thomas Nelson, we have not decided on any of them, but we are currently discussing all of them:
- Establish a minimum advertised price (MAP) for frontlist titles. According to anti-trust legislation, it is illegal for publishers to dictate the ultimate price at which a reseller sells a product. Moreover, publishers cannot act in concert with one another to establish fixed prices or discounts. But any publisher can act unilaterally to establish a minimum advertised price. Using the MAP model, Amazon, et. al., could sell their books for any price they want, but they could not advertise a price that is below the minimum.
- Stage the channel rollout of certain frontlist titles. The movie industry does this now. Major movies are first released to theaters, then cable, then DVD. Some people are willing to pay a premium to see it in a theater now rather than wait for the DVD later. In the publishing industry, we already do this with book formats. We typically release the bigger books in hardcover first, then trade paper, then mass paperback. We could do the same thing with specific sales channels.
- Delay the publication of eBooks. This is a tough one for me personally, because I believe in the future of eBooks. (I have a Kindle 2 and a large eBook library myself.) However, I do not agree with Amazon’s aggressive pricing model, which kicked off this price war to begin with. I think the worst thing that could possibly happen is for consumers to think that no book should sell for more than $9.99. Therefore, I think Amazon needs to either raise the price of eBooks to more closely mirror the hardcover or trade paper prices, or we as publishers should delay the release of eBooks and think of them more as a digital mass market product. Some publishers are already doing this.
I am sure there are other alternatives. However, I wanted to get these three on the table and see what others have to offer. In any event, I think these three strategies beat the two options we have now, which is (a) to do nothing and hope this resolves itself or (b) to bring the government in to solve the problem.
I think it is important that we have this conversation now in our industry before it is too late and we have even fewer options.
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Great analysis and comments. As a Christian retailer, I am very concerned about the future of our industry. It has been rocked by the decrease in traffic due to the collapse of music CD sales. First it was big box competition, then digital downloads. Now the music stores are mostly gone and the big box stores are reducing the number of CD's that they carry, the only place to get music will be on-line. Good or bad for the music industry, long term?
If the book business follows the music industry, the CBA channel will disappear, along with Bible and backlist sales. However, while music is inherently digital, books are not necessarily digital. Physical books will endure! The loss of the CBA channel would be tragic to authors, publishers, consumers and the mission.
I do believe that the price of some hardcover books is based on the expectation of heavy discounting. A reasonable price of $20 for a major hardcover with a MP seems to make more sense than $29 discounted 30%, but then again, the consumer always loves deals!
I would support MP, MAP, channel specific distribution (of course, I would want a CBA exclusive….).
Thanks for the dialog. Lots to chew on.
Is establishing a MAP really a long-term solution or a transitory solution? As content providers perhaps one of the most strategic things publishers should consider is their value proposition to the market–their reason to exist in the ebook/print-on-demand digital economy. The market doesn't care about publisher overhead, royalties, returns, or any other part of the current bad business model. Consumers want value and the market is telling us the value of a good read is somewhere under ten dollars. For more on this: http://bit.ly/2m5k4s
Instead of attempting to preserve the multi-million dollar advance/$35 hardcover business model, publishers need to create a new model based on $10 paperbacks printed on demand and $10 content-enriched ebooks. The publisher who figures out how to profitably provide content consumers want, in the format they want, at the price they want to pay, wins.
On your mark, get set, go!
Paul, I understand your argument, but I don't think the market is telling us this. Demand has remained relatively constant, albeit taken somewhat of a dip in the recession. In my view, these are artificial market forces based on a price strategy that is not sustainable—even for the ones using it.
I guess time will tell, Mike, whether the market forces are real or artficial. I thought the same thing last year, before the mass market players and B&N (with ebooks) got on Amazon’s $9.99 bandwagon. One thing is for sure, the “loss leader” game is not a sustainable price strategy for the current publishing business model. My instincts tell me $.99 and $9.99 are the two most important price points of the future, and I’m looking forward to seeing what innovations emerge from the growing adoption of technology and pressure of the current market conditions–real or artificial, temporary or permanent.
Perhaps publishers should work with Wal-Mart, Amazon, etc. to do more promotion. Let me explain my reasoning: if you sell 100 books @ $2 profit each, you make $200, but if you sell 1000 @ $1 profit, you make $1000. I think the answer is not in the percentage of profit, but in the number of books you sell.
I live in a small town and do most of my shopping at Wal-Mart. I buy books there, too. Rarely, do I go to the big cities with their bookstores (we have one true book/gift store–its prices are way too high). With time and economic issues, I don't see more frequent bookstore visits in my future. I appreciate the book section in Wal-Mart because it fits into my life.
Why don't you publishers use the changing circumstances to promote and sell more copies of your books? Work out deals with the "big box" entities in order to increase your numbers. Remember, you have the products these guys need to have access to in order to stay in business.
I’d suggest an appropriate price for an ebook is the paperback price minus the cost of producing a paperback book. There’s no reason to charge the consumer for paper not printed.
What do you think should be done about these current price wars?
Retailers selling products at less than cost is clearly an anomaly that needs to be corrected.
I don't know about you, but I'm overwhelmed by the amount of content out there. Not just half a million new books every year, but blogs and websites, too.
Classical economics tells us that when supply exceeds demand, prices will eventually fall to create a new equilibrium.
I think we're just seeing the beginning of that.
The best sellers of future will self-publish to e-formats (and pod for folks who need a dead tree copy for whatever reason), and we won't have to deal with pricing purposely inflated to support a publishing industry we no longer need, just to share our stories with our readers.
Dont you think Amazon's pricing of Ebook vs physical books is very similar to the physical CD vs MP3 music war.. May be authors / publishers would be willing to sell individual chapters / books via online stores or be willing to rent books to people just like renting a movie via iTunes ?
I'm only a consumer myself…. even though the advent of low prices is very tempting … i think the end result as you've pointed out would be disastrous… isnt there some sort of mid point.