Options in the Price War Over Books

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.

Photo courtesy of ©iStockphoto.com/Kolbz, Image #3929364

Photo courtesy of ©iStockphoto.com/Kolbz

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:

  1. 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.
  2. 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.
  3. 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.

Question: What do you think should be done about these current price wars?
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  • http://www.teachtochangelives.com Glenn

    Michael, I think your analysis is spot-on, and especially agree with you that government intervention is unwise (and may not be realistic for trans-national publishers and retailers). Retailers focusing on physical books will have an increasingly hard time making profit; I expect you'll see an increased fraction of their profits come from everything they sell related to books, including coffee at the larger bookstores.

    Authors and publishers need to continue to see books as an entry point for their platform, and building tribes of interest that generate other revenue potential. Aggressive pricing strategies are a market force that continues to put a premium on capturing more attention, or more focused attention, from the right audiences.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I agree with that. It may be too late to stop this collapse of price. If that's the case, authors and publishers will have to re-think their business models.

  • http://twitter.com/adamrshields @adamrshields

    People currently expect digital goods to be cheaper than physical goods. And when most people think of cheaper, they think, not of the full price of hardbacks, but the discount prices that you actually pay or the paperback prices. Many people already think that $9.99 is already too much. Routinely I find Kindle books priced within a dollar of their discounted price on Amazon. I just can't believe that the shipping, printing and inventory of a physical book is really that close in price to an ebook. I know intellectually that most of the cost of a book is not in the printing. But it is actually publishers that can claim part responsibility of this. We have been conditioned to believe that there should be a 60% or more discount between the hardback and paperback (trade) and so people expect the same for ebooks. So if prices routinely go up on ebooks, I will start reading more public domain books. There are more than enough to keep me busy.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I don't disagree that the price should be less; I just don't think it should be this much less. This model bears to resemblance to actual cost savings. It is purely a loss-leader sales strategy from retailers who have essentially nothing at risk.

      • http://twitter.com/adamrshields @adamrshields

        The problem is that many, if not most, people assume printing, shipping and inventory costs are at least 50% of the cost of the book. So you need to educate them that they are different.

  • http://www.madebymark.com Mark McElroy

    Hi, Michael! Some notes:

    MH: 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.

    MM: It's worth noting that you can't walk in to a Target or a Wal-Mart and purchase the books in question for the heavily-discounted price. A little research reveals that these prices are associated with Target.com and Walmart.com orders and pre-orders. Have you seen these low, low prices *on the shelf* in any bricks-and-mortar store?

    MH: 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.

    MM: Actually, this could *increase* royalties and income for one class of writers: those who take advantage of the latest advances in technology and publish their work for themselves. 55-60% of $9.99 is greater than 10-15% of $25.00. With digital tech making self-publication and self-promotion an increasingly viable option (especially for niche authors), I think publishers need to be re-evaluating their position in the information-supply chain.

    MH: 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?

    MM: I mention this in a related post over at MadeByMark.com, but it bears mentioning again: they will have to make shopping for books at their bookstores more engaging and pleasurable than shopping for books online. If they can rise to the challenge, they'll survive. If they can't — in the same way that, say, Mom and Pop video rental stores couldn't rise to the challenge posed by Blockbuster — they won't. This is the way of the market.

    MH: It is not a sustainable model.

    MM: It's worth noting that this is an experimental practice on the part of Target, Walmart, and Amazon. The jury's still out. That said: yes, I think this is a sustainable model *for the big-box retailer.* This has been done for years with movies on tape and DVD.

    Rather than call for mysterious pricing, channel-specific pricing, or hobbling e-books … perhaps it's time for publishers to embrace the fact that digital technology changes the game.

    Instead of asking, "How can we protect the pricing associated with our current business model?" I think savvy publishers should be asking, "Given the advancements in digital technology and changes in distribution options, how can we use innovation to discover newer and more profitable ways of doing business?"

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      All good points. I should also hasten to point out that this potential shift does represent an opportunity to publishers who stay ahead of the curve and embrace the change these kinds of things require. My main point is that we need to be part of the conversation rather than simply reacting to market forces being set in motion by others. Thanks.

    • http://www.madebymark.com Mark McElroy

      In re-reading my own post, I did catch one additional point worth discussing:

      MH: 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.

      MM: Actually, aren't royalties paid based on the *wholesale* price of a book (about 50% of retail)?

      In this discussion, that's an important distinction … since the books Target and Walmart sell at a discounted *retail* price were purchased from the publisher at the standard *wholesale* price. As a result, while Target and Walmart may be taking a loss — authors aren't.

      It could be argued that, eventually, these prices will train consumers to expect books to cost less … and that this will drive down the retail price of books in general … and that this, in turn, *will* impact wholesale prices and the royalties that are calculated on them. But this hasn't happened yet … and before it does, it might be good for publishers to ask, "Given where the market is going, how can we radically reinvent ourselves before it's too late?"

      • http://intensedebate.com/people/michaelhyatt Michael Hyatt

        It has been common in the Christian publishing industry to pay off net receipts (the amount the publisher actually receives, which is usually wholesale). However, the model among New York publishers is to pay off the retail price, and the Christian publishing is rapidly shifting. Thanks.

  • William Vanderbloemen

    Excellent post Michael. As an author with a book ready to publish, but waiting on the right time, I read this an am following the story with great interest. Thanks for taking the time to share.

  • http://fireandhammer.blogspot.com Dennis

    Thank you for pulling back the curtain, allowing a look at the current state of the industry.

    As I read your post I thought of how WalMart has changed so many industries. Those other industries could not stop WalMartization and were forced to adapt or die. I think no matter how this current price experiment turns out we have received a call from the retail side for an examination of the business model. I know that as a writer it is time for me to pray and to examine how I can change in preparation for the future.

  • Paige

    Thanks for this! Great post!

  • http://twitter.com/colleencoble @colleencoble

    Really smart suggestions! I especially like the MAP idea. I didn't realize publishers could do that.
    Colleen

  • http://twitter.com/kaydewshostak @kaydewshostak

    As a fiction writer with a business degree, I found your post thought provoking. I believe publishers will need to work more at determining the best market for each book. Look at TV and how it has had to adapt to on-demand from cable companies, syndication, and cheaper (reality shows) programming. The only thing for certain, is things will keep changing!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Yes, indeed. Things will keep changing. This is the one constant. ;-)

  • Scotty Strickland

    Is it plausible for publishers to simply not sell to books to booksellers that do this? If you shut them out, they have nothing to sell. Wouldn't this force them to adhere to more fair practices?

    • http://blomerus.org Marysol

      I was wondering this same thing. Who would be hurting the worst if publishers just said no to WalMart, Target, etc? Could it force their hand or the other way around? Excellent post!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Yes, but most publishers are too dependent on these retailers to reach their overall volume objectives. In fact, most are unwilling to speak out against this for fear of reprisal.

  • http://rosacola.blogspot.com Rocco

    Is there that much overhead in an eBook that the price needs to be the same as the paperback? The profit margin on eBooks has to be fairly large. Either that, or publishers are clueless in how to copy an electronic file.

    If the price is that high, then the DRM needs to be so consumers can treat it like any other book. Loaning it to friends (indefinitely), giving it away as a gift, and ultimately, most importantly, Reselling it. Other then B&N's new Nook's capability to loan a book for 14 days, none of this is currently possible with eBooks.

    I do praise T.N. and your NelsonFree products! The fact that I can buy a physical book and with it get an audio and eBook version is a revolutionary idea! In fact you can DRM to your hearts content on the audio and eBook if I am getting it free with the physical book.

    • http://twitter.com/adamrshields @adamrshields

      I think the DRM is an issue. The consumer is taking on the risk that they will loose access to the book (maybe through a lost service or through their own decision to change readers). Essentially ebooks are a rental, not a purchase and I think that is how consumers are pricing books in their head. I have already lost a dozen books because the company that I bought the books from went out of business and the DRM server is off line. So I can no longer move those books to my current devices.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      The biggest costs are royalties, editorial development, packaging, marketing, and sales. Producing a digital file is not difficult. But it will just sit there on a server waiting to be downloaded unless the other things are in-place.

      • http://rosacola.blogspot.com Rocco

        Ah, i get it. You're selling the 'content' not the 'file'. That has to be marketed and 'presented' to the consumer. (How'd I miss that?)

  • http://twitter.com/meredithrmorgan @meredithrmorgan

    There are some very thought provoking ideas here, and the discussion should continue, with all parties at the table.

  • Steve Henderson

    This is related to a suspicion that I've entertained, but have not had the data (or the time/inclination) to pursue it.

    To what extent has the "Amazonification" of book pricing driven UP the retail price in an artificial way? That is, given the reality that I can get a book from Amazon for 30+% off retail (without state sales tax too!), have we seen in the past ten years a pricing creep in books that has outstripped the normal inflation rate for other goods?

    Actual bookstores still maintain their wholesale/retail profit margin, even though the customers can get the items significantly discounted online.

    A similar phenomenon can be observed in other market sectors: education, automobiles, and copiers.

    In education, there have been studies that show longitudinally the disproportionate increase in tuition and fees: Federal monies freely given have driven up the stated costs to attend a university, but the cost to the student/parents can remain stable. The market assumes that the student receives government assistance/loans. For those who simply walk up to the Registrar's office and pay cash at the window, they pay "retail" costs, which are significantly higher.

    In the copier industry (where I worked for a season about 15 years ago), we knew what our costs were, and as sales reps, could sell a machine out of the box for whatever we wanted above cost. An unsuspecting customer calling in or walking in off the street, looking for a low end copier, either could receive a) an offer near MSRP, in the hope that he might simply write the check and close the deal, OR, b) an offer just above cost, since the fifteen minutes spent in showing the copier features was a bonus sale–a short amount of time for a quick hundred dollars.

    On the other hand, a customer who wanted to shop and compare–get an on-site demo, have a loaner machine to try for a week, have repeated meetings for sales and service contract negotiations–this customer would pay a higher price (unless we didn't anticipate the significant time/energy investment).

    And we are all thankful for those precious souls who pay sticker price for a new car, making possible the haggling and dickering over price, netting a better deal for the rest of us!

    So what do you think? Or better, what do you know? Has Amazon (and other discounters) driven the price of a book upwards??

    Living in Germany the last ten years, I can tell you that Amazon.de (by law) doesn't do discounting. You order it, you get it. Same price as in the stores. Occasional bargains, and always that 19% sales tax included!

    • http://twitter.com/adamrshields @adamrshields

      Is there a law similar to France that does not allow online to sell cheaper than Brick and mortar stores?

      I actually think book prices (paper) are pretty reasonable and haven't increased much higher than inflation, but Michael may have more info.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This is hugely insightful. I think much of this has no doubt occurred. Thanks.

  • http://intensedebate.com/people/flowingfaith flowingfaith

    Once again, Michael, you are right on the target. Thank you for opening the conversation and keeping it going. This is so crucial.

  • Mary

    Michael: I think your ideas for solution to the price wars is a brilliant strategy. I hope that everyone who gets this post joins in and follows your recomendation. In His Love and Care, Mary

  • http://www.ricksmith.me RickSmithAuthor

    I am an author, and BRAVO for this post. My first book came out in 2003, and it was a completely different ball game. You could control at least some media through PR. There were few blogs. The speaking market was vibrant. Sure, it was hard to make money from the book itself, but the model worked.

    My most recent book (the leap) was just released. Most of the mainstream media is gone, so nearly all publicity is on the net (and less effective). For this book, i built a book micro-site, an online tool, and a robust blog site. This was all very time intensive, and expensive. Authors today have to engage in all this if they want to survive. But the speakers market is down 80%. And advances are already falling.

    Writing business books has really always been a labor of love. But it at least broke even. The way things are headed, the question is how many authors will stay in the game and lose money. I have talked to many who are really rethinking if this is an area where they will continue to spend their time.

    Rick Smith

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      You've hit the nail on the head. It's the proverbial "kill the goose that lays the golden egg" problem.

  • http://themusicgardener.com/ Keith Stancil

    Sounds very much like what happened to music. I'm afraid there isn't much you can do if any one of the major publisher's give's in to their pricing strategy in attempt to gain a quick moment of prime advertising.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Unfortunately, many decisions are being made without a due consideration of long-term impact. It's a deeply cultural problem.

  • http://www.ordinarilyextraordinary.com/ Amy N.

    I am only a consumer, but I don't agree with what Amazon and Walmart are doing either. I worked for a local Christian bookstore for several years in high school and college and I've seen what these types of things do to the "little guy". I also respect the authors I buy enough to want them to succeed and this type of thing isn't good for anyone in the industry. Thanks for sharing your thoughts.

  • http://www.kellycombs.com Kelly Combs

    This is really not different than retailers (Best Buy, formerly Circuit City, etc.) who sell CDs at $9.99. It's called a loss leader, and the goal is to get people in the store and hope they will buy something else to offset the loss. I believe it is a common industry practice.

    As a consumer, I am ultimately looking for low prices.

    As an aspiring author, I don't like the practice, as it makes the stakes tougher to ever get published.

    Tough topic. I don't see any clear answers.

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  • Christine

    How does the model in the book Free relate to this discussion?

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I am not opposed to free (obviously, we have been very aggressive with this) provided you can monetize the content at some point.

  • http://marlataviano.com Marla Taviano

    Bummer.

  • http://intensedebate.com/people/JimMartin JimMartin

    You have written a very informative and articulate post helping us all understand this problem from the perspective of a publisher. Thanks very much for this. While I sensed this was a problem, I did not realize all of the implications that you listed.

  • Byron

    Mike, I think you’re pretty much on top of it, and the commenter’s that I’ve perused appear to be as well. The main thing that I see in all of this is a lack of effective long-term, big picture thinking. And it appears more and more that this lack of long-term, big-picture thinking is rooted in so many of the problems that everyone of us is dealing with (financial difficulties, related job loss, and their interdependent relationship). Don’t get me wrong, the capacity for this sort of forethought is not easy to come by, and sometimes we just get it wrong. But, I’m so disappointed that they don’t seem to be addressed often enough. To me, this is an example of someone attempting to be innovative with the process of delivery a good, but clearly lacking the necessary knowledge needed to do so effectively long term. Ultimately, the intention was not to innovate the process, but to serve a different aim. Guess where that sort of manipulation leads? I guess we’ll find out.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I think many companies in this environment want to be long-term in their thinking. However, surviving the short-term is necessary to get to a place where you can even consider the long-term.

  • http://ericvonmizener.blogspot.com/ Eric von Mizener

    Mike,

    You put out a lot of good thoughts and a lot of good ideas. As a former salesman, I like the MAP idea. Many manufacturers use this. That's why ads will read "Too low to advertise" or the website will say "See price in shopping cart" or at checkout.

    Also, the brick and mortar stores have a major advantage: the ability to walk in, hold the book in your hand, peruse, buy it and read it. Now. No shipping fees and no days spent waiting for the book to arrive.

    Then, if they were to add in store print on demand, no title would ever need be out of stock. The customer could even order it online and pick it up in the store, whether it was in the store when they ordered or not. It's not quite the "30 minutes or it's free" model of the pizza places, but it comes pretty close. And that's something a dot com can't touch.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Good points, Eric. I think this is what the brick-and-mortar must find is their competitive advantage vis a vis the online retailers.

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  • http://www.authortechtips.com Thomas

    I think the price war is good because it will squeeze mediocrity out of the market. Each year more books are written by more authors. But that does not mean that there are more good authors now than there were 30 years ago. Just more books.

    The price war will decrees the number of books on the market as the cream rises to the surface.

  • Giorgio Gori

    Sorry Michael, I disagree strongly but then I am a consumer and not a producer hence my different perspective. Remember in a price-war only the low-cost producer can win so what does the rest of the industry do? It cries foul, it forms cartels, establish MAP's etc. Why don't they fight back on a non-pricing platform by adding value, by innovating, by developing smaller, more profitable niches. Let's not forget that if we believe in the capitalist system, it should be the consumers who drive the business and not producers who try and control/manage it.
    Giorgio

  • http://www.rachelheldevans.com Rachel H. Evans

    This is such a strange time to be a first-time author with a traditional publisher. I feel like I'm getting a lot of conflicting information about how to really thrive in this business. (Check out this talk from marketing guru Seth Godin: http://blip.tv/file/970223. He thinks $9 books are a great idea.)

    I'm wondering if, in light of the changes in the industry, the smartest thing for authors to do is combine their traditional publishing ventures with Ebook/self-publishing ventures. A traditional publisher gives you credibility and exposure, but self-publishing leaves you with a higher percentage of profit and also gets your latest, most relevant ideas out there faster.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      That is definitely a possibility, especially if you have your own "tribe" of followers that you can market to. However, most authors don't have this. Printing the book is the first step, but it is only the first step. You then have to get the word out.

  • http://www.billwhitt.com/blog/ Bill Whitt

    Good thoughts. I'd like to comment on this statement, though: "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?"

    This reminds me of a similar situation in the recording industry. Derek Webb said this in a recent interview with Relevant Magazine:

    "Good artists should be applying their creativity to both the making and the distributing of their music these days… The problem is that the streams of revenue for music have been what they are for so long that people have had a really hard time unplugging from the matrix of that idea of, 'But I sell round pieces of plastic for $10 a piece, that’s how I make all my money. If I’m not selling round pieces of plastic, what am I doing?' Your record is your best marketing tool."

    I wonder if the same will be true of authors. Any author with the mindset that selling books in the only source of income is missing other creative ideas like Don Miller's tour. Who knows what the next big idea will be? But the book industry better be thinking. Or it will end up where the record industry is today…

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I couldn't agree more. That's why we must have this conversation now. I don't pretend to have all the answers. I don't. But I'd like to believe that we can learn from the music industry and do something that benefits all the stake-holders, including consumers.

  • http://www.moonboatcafe.com Cassandra Frear

    I would like to suggest collaboration between concerned businesses — traditional bookstores, publishers, agents, and authors. Plan strategies so that new books are marketed in such a way that access to the first printing becomes a privilege. Offering an experience, a community, and a unique set of related products that are not available at discount stores for several months, even a year, could encourage customers. I believe people will pay for quality. I believe they will pay for an experience that enriches their lives and will readily connect that to a book, if the connection is presented to them in an attractive way.

    By combining resources and collaborating, publishers, agents, authors, and bookstores can resist being drawn in to give away their treasures for a pittance. Remember that these discount stores aren't creating the books. They need you to do that. You, and only you, control who you sell the books to and how they are made available.

    Secondly, perhaps less is more. Giving writers time and accountability and excellent editors so that they can produce books worth buying for $20 will encourage customers to buy at higher prices. I don't mean this in a snarky, snide way. I am just being pragmatic. It's hard work to produce great books. It takes time. Sometimes publishers and authors are anxious to catch the market and want to do it ASAP but this can lead to a lower quality product, which consumers will perceive as being worth less.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This is a great vision. I think there is an opportunity to create something even better than we have now.

  • http://www.chapter2studios.com Dan

    Since the costs of creating and distributing eBooks are significantly less to the publisher, another option is to increase the royalty percentages to the authors. Perhaps a drastic royalty sliding scale, such as 10% – 80% or even 90%. This way you can keep the traditional 10-15% rate at first publication, but if the work becomes popular the author would have an exponential increase their royalties.

    Due to the nature of digital delivery, there must be a steep increase in margins for publishers after they recoup their initial costs and continue to distribute more of the same eBook – so maybe this should be more accurately represented in how the authors are compensated. Just my two cents.

  • http://intensedebate.com/people/Sotalentedgeez Sotalentedgeez

    Content providers have the control. Pure lack of vision and leadership if they don't use this power. What . . .did most of the current CEOs inherit their job from their father?? In 3 years maybe a big group of publishers can collaberate on a new book:

    How We Turned a Billion Dollars of Business . . . Into $10 Million Dollars Cash!

  • http://frogblog.biz Fred H Schlegel

    Been through this with other industries. Pickles, storage plastic, and plush to name just two. Pricing structure of the category is destroyed, marginal (or sometimes leading) mfgs are driven out of business and the retailers prosper. Following the traffic driving event they move on to the next category allowing prices to slowly recover over time, but with their image as price buster permanently enhanced.

    Not fun. Large box stores care very little for individual categories and category killers must match the attack. Very little anyone can do about it other than give mfgs. pricing power again – however, that would backfire in ways that might be worse.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Yes, it's tough. It's going to be very interesting to see where this leads and what the landscape looks like five years from now. Thanks.

  • http://intensedebate.com/people/Cindy_Graves Cindy_Graves

    You are a very smart man. Thanks for sharing your insight and the options available. As a consumer I always want the best price and most times that simply means being patient. Things like this always seem to boil down to greed and selfishness, don't they?

  • Scotty Strickland

    I realize this is easy to say when its not my business or bottom-line. You say that refusing to sell to said businesses can backfire and cause even worse problems. But how does one justify bowing to such blackmail? Being afraid of possible repercussions is what has made big, box businesses the bane to the business world now. If people don't join hands and dig their heels in and demand something better, it only continues.

  • http://intensedebate.com/people/blogan Brent Logan

    It seems to me that the royalty rate for electronic distribution should be higher. The publisher's cost for printing/distribution is much lower than for a hard cover or paperback.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      It is lower, but the fixed costs remain the same. And with the retail price lower, we have a much higher hurdle to jump to recover. Thanks.

  • Megan

    Definitely NO government regs. We're in quicksand already.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Agreed! The last thing we need is more government!

  • Gail

    WalMart has done to many of it's other suppliers so why the surprise that it's trying to force down the price of books?

    The question is not over whether or not this is right – there is no question about that, but what are we all going to do about it, individually and as part of the groups that we influence?

  • http://twitter.com/jmiles_tms @jmiles_tms

    One option kind of inline with your staging the rollout would be to do direct sales of your book through your website before you roll it out to the other locations. I don't know what the infrastructure costs would be for changing your shipping to accommodate direct sales to consumers, but it may be worth it. Then, you can guarantee your price.

  • http://intensedebate.com/people/fogbound fogbound

    Thanks for the post. I was wondering how places like Walmart could sell books so cheap. This is going to have the same kind of impact on book retailers as their low price strategy has done to small local businesses who can't compete with giants like Walmart. The publishing industry, if it can be united for its survival, needs to speak with one voice to these retail companies and have this practice changed. As a published author I know how little I get even at retail prices. This is discouraging! Hopefully it can be changed.

  • http://www.ezdra.com/wordpress/ Andrey Kravchenko

    It’s very important thing you described in your article. You should be wise solving these problems. I have an example for the case you’ll go the way offered by Amazon, Walmart and Ko. Many years ago after the USSR fall there was no problem to get Bibles in Ukraine… for free or then almost for free. Many foreign missions sponsored the print runs of millions ones and churches gave them away. What now? There is no any Bible in Ukraine and there is no any publisher who may afford printing them. There are no people willing pay the full price although they need the Bibles. That policy killed the Bibles’ market in Ukraine. I clearly see the outcome if the publishers in the US go that way pushing down the prices. You may become a prophet publishing this article. Although you still have time…

    • giorgio

      Andrey, what can I do to help get Bibles into Ukraine – I know people at the Ukrainian Bible Society and at other Bible Societies around the world who want to get Bibles into the hands of people who want them.

  • Steve

    Eric said:

    "As a former salesman, I like the MAP idea. Many manufacturers use this. That's why ads will read "Too low to advertise" or the website will say "See price in shopping cart" or at checkout."

    The point I intended to make is that this is precisely why MAP is a joke. It is trivial to circumvent as Eric's examples demonstrate. People will see "too low to advertise" and they will check the attractive price "in their cart" and then they will buy.

    A further observation –

    As a consumer I will note that the price of paperbacks has increased (approximately) 10-fold during the last (approximately) 40 years. This is a honkin' big jump! What's the industry's excuse, eh?

    As a counterpoint, let me recall the story which I recently encountered of Charles Sheldon, author of the Christian classic "In His Steps". tt is reputedly the number 2 all-time Christian best seller after the Bible. Sales estimates range from 8 million to 30 million. It is credited with popularizing, if not inventing the phrase "What Would Jesus Do". Sheldon cared so little for commercialism that he failed to register copyright and the book was picked up by several publishers who published it on their own and gave him nothing.

    I think there's a lesson there somewhere.

    -Steve

  • http://www.ezdra.com/wordpress/ Andrey Kravchenko

    That is the main problem. And that’s why I wrote that comment. People MUST buy the Bibles and buy them for the REAL price in order the Ukrainian publishers might arise into the self sustaining ones. Americans should not simply give money for buying the Bibles and then give these Bibles away! Would you please write me to andrey@ezdra.com and we may finish our dialogue and find the better solution for the whole situation if you wish to be in help?

  • troy

    (Part 1 comment) Amazon and other e-tailers (and big box retailers) are not the only problem. I recently saw a promotion at a Christian bookstore chain–"buy three bargain books (many of which had original sugg retails of $24.99) and get the fourth free. I know Christian bookstores are also trying tofigure out how to survive in a competitive market However, there are other ways to re-invent your business besides becoming a bargain retailer.

    While I know publishers need to come along side of retailers to help be a solution to the issue, publishers need to be innovative and create their own solution by relying more on growing and establishing a solid direct to consumer sales channel or expand their current customer base.

  • troy

    (Part 2 comment) What do you think a publisher's best author brand(s) is doing? Exactly, by connecting relating, and creating a viral strategy to grow their audience(s) and to move product. With today's technology (capabilities) deliverying content and connecting (and growing) an author's (and/or publisher's) readership base, marketing and selling directly to the end consumer should be the primary sales channel.

    I'm not saying abandon the retailer but in the end, publishers can only do so much to control the marketplace practices. Build a strategy with your authors, work together, and leverage your strengths all to build new direct to customer paths that grow your customer base, increase "book message bandwidth" and drive new-found revenues

  • An editor type

    The real answer for publishers, I think, will be in learning how to run a house on $9.99 books. It's our business model that will need to change, not the market. Since I am a consumer also, I have to admit that $25 for a hardcover really is too much — there are very, very few titles (none?) that I want to pay that much for, especially when I can read synopses, book reviews, blog posts by the same author, etc. all for free online.

  • http://projectspossible.com Bill

    I am one that would believe limited/controlled distribution by the publishers is the solution to the problem.

    The tightrope of who, when and for how much is where things become very interesting for the publishers. One wrong move and not only the book but the publisher could be destined to oblivion.

  • http://www.cross-way.com Ben Gilliard

    As a retailer I believe you are correct in your evaluation. I shared many years ago with Thomas Nelson and others of the big 3 at the time, that this would ultimately end in them having control over you and us. Glenn is right, and so are you that we retailers cannot live on less margin than we have now. We simply do not have the resources to survive. Even without this war many of us in the CBA market cannot survive now.

  • ray h

    Mike, I think the MAP idea is a good start but is weak compared to "minimum pricing" (MP) agreements. MP agreements are widely in used in other retail products – as examples Apple products, Wii game consoles, Xbox much of the Homeschool industry and many others. With MP agreements, all retailers are on a level playing field and thus use other methods besides price to distinguish their location to sell the product. I have seen products that have minimum pricing have some of the best advertising, product descriptions and knowledgeable sales people because these are the tools available to sell the product – not just price.

    On your second point of channel rollout – I have a hard time believing that publishers could control themselves to not allow some of the top retailers in the country to have the top sellers on day 1. In addition, customers would be frustrated in not being able to buy the product where they wanted when they wanted.

    On delaying ebook releases – MP would be a much better solution than a delayed ebook release. If the ebook is sold at a fair price and price was not controlled by a monopoly (Amazon).

    continued – in next post

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Ray, this is good input. I like the MP option. We will add it to our list of strategic options. I think if publishers would do this, it eliminates the need for my original #2 and #3, and provides the most options to consumers. Thanks.

  • ray h

    Mike – your response to one post "Yes, but most publishers are too dependent on these retailers to reach their overall volume objectives. In fact, most are unwilling to speak out against this for fear of reprisal." is perhaps the most telling. Which one of the top 10 publishers will break the ice and put in place something like minimum pricing that would really work for bestsellers and ebooks. If one of these top 10 won't act or is afraid to act in a way to regain control of their products then I hate to say it but then the DOJ action is the only way as the big retailers have already won in intimidating the publishers to non-action.

    I close with this question – if Steve Jobs was faced with the macbook, imac, iphone or ipod being sold at a steep loss by Amazon, Walmart or Target do you think he would let them continue to sell his product?

    Publishers need to take a stand.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Your points are well-taken. Publishers do need to take a stand! Thanks.

  • Jeff Myers

    I usually agree with you, Michael. But this time (at least at face value) I don't. What I'd like for you to explain as a publisher is why books have to be SOOO expensive. I'm an avid reader and I'm quite sure I spend too much money on books each year. In my uninformed mind, there is almost never any reason for a book to be priced higher than $20 (and soft-cover books should be priced around $10). To me that would be a more accurate value for what I'm getting. Please explain why publishers are pricing books at $25, $30, or more nowadays. Bottomline, if there's not a REALLY good reason for it that makes sense to the average consumer, then I welcome the price wars.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This varies from book to book, but let's assume a $25.00 retail price. Distributors and booksellers pay, on average, $12.50. The author takes any where from $2.50 to $3.75, depending on their sales history, platform, and overall "bankability." Manufacturing is another $1.25-$1.75, depending on page count, trim size, bells and whistles, etc. Advertising, publicity, and promotion is likely another $1.25. The publishers overhead (editorial, sales, marketing, and warehousing) is another $3.75 or so.

      By the time you add the cost of capital to finance accounts receivable, author advances, and inventory, you're left with pretty slim margins. Added to this is the fact that more than half of new books lose money. The books that work have to earn enough to cover the losses.

      Like most things, there is more to it than make be apparent on the surface.

      Thanks.

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  • digital developer

    It seems to be a "commonplace" among book readers that ebooks are so cheap to produce that publishers should be able to slash prices to the attractive $9.99 (or less) listed by Amazon.com and now others. It's true that publishers save the printing cost and the warehouse storage cost and the shipping cost. But, publishing an ebook requires a bit more than copying a file from one server to another, and our other costs remain about the same as for a print book.

    I'm working on creating ebook versions of my publishing company's old and new print titles. It's like building a new company alongside the old one. We have to check all the contracts–for the content the author sold us; for the charts, photos, long quotes or other content that the author used; and for the cover art and interior design elements our designer used–to make sure we can reproduce them all in digital form. In many cases we have to revise the content or cover or pay additional digital rights fees. Then we have to edit the content to add appropriate links, revise formatting that won't work on an ereader, change the copyright page, and so on. Once we have a final file to work with, we have to convert it into the various formats we want to offer and test for any problems on different ereaders. We might do that with internal staff or we might send the file out for conversion. We have to create marketing information and send it to our vendors. Some of these costs are different (and may end up being less) than for a print book, but they are still significant. And we don't expect to sell as many ebooks as we do print books, so the amount of internal cost that an ebook can bear is less–at least right now.

    In addition we still pay a similar royalty to the author for an ebook–in general it's about 4% less than for a print book. And we still spend money on marketing and sales efforts. We have also built and now maintain a webstore where we can sell ebooks and other downloadable products direct to customers. With that comes the need for an extra employee to handle customer service questions and requests. Any savings we have on overhead because our warehouse staff aren't involved with ebook fulfillment is offset by the extra work our business and IT staff have to do to reconcile ebook sales into "orders" after the fact (Amazon.com and others tell us how many books they've sold and we create an order based on their sales report) and to support our webstore and customer records–so we can keep track of what individuals order and give them lifetime access to their purchases, among other things. We have also spent time and money retrofitting our internal operations to accommodate ebooks in a variety of ways. Many of these things simply were never needed when we were just publishing print books.

    Some of these costs are "start up" costs and will diminish or disappear over time, and, sure, ebooks are in an experimental phase, so we publishers have to be willing to take some risk and invest now–planning to have that investment pay us back over the next few years. But we would be foolish to adopt a pricing structure that doesn't take these real and significant costs into account.

    To me it makes sense to drop the ebook price by about 20% from the least expensive print edition. That's about the savings publishers get when they can remove printing and shipping costs and everything else stays equal–or shifts from one internal cost area to another. During the next few years, if we find that we can shave our internal costs after our infrastructure development is done, then we should pass more saving on to our readers or pass more revenue on to our authors–or both.

    This is just 2 cents from one in the trenches.

  • Bruce

    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.

  • http://twitter.com/paulmikos @paulmikos

    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!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      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.

  • http://www.paulmikos.com Paul Mikos

    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.

  • http://intensedebate.com/people/patriciazell patriciazell

    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.

  • http://www.povbootcamp.com Andrea

    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.

  • http://true-small-caps.blogspot.com Derek

    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.

  • http://twitter.com/doycet @doycet

    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.

  • Babu

    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 ?

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  • http://www.facebook.com/badesemowo Bade Adesemowo

    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.

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  • Guest

    As a consumer, it seems to me that prices have been outpacing inflation significantly for years and a correction is only natural. There was no shortage of successful books, authors, publishers, or sellers when I was a kid. But back then, books cost about half what they do now after adjusting for inflation (1/4 what they do now if you ignore inflation). Magazines seem to be even worse. I don’t know why that is, but I don’t see a problem with trying to return prices to what was once considered a reasonable level to see if they can get more sales. If not, perhaps they’ll go the way of other now-esoteric things and pump the prices way up to make every book a collector’s item so that they can make some profit even though so few will be sold.

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  • guest

    You of course would know more about this then me but I think rather than take away from consumers the ease and low price of things such as ebooks (which is what makes the format so appealing) the industry needs to adjust.

    Consumers may be hurt because of less options but you yourself state how many books are published, we will never be at a loss of content and anything that is not produced that otherwise would have been, we will not know about.

    The world is changing and the consumer is king. With the option to simply pirate or ignore content (there is plenty to choose from) that is not convenient most of these methods are not good ideas. People with ebook readers read more, publishers will need to adjust to a lower profit higher volume world.  

    Don’t make the same mistake as the movie industry. Make things more readily available not less.