“You’ll never work in this town again!”
My agent’s exact words were a bit different, but the message was clear: if I weighed in on Amazon’s side in its battle with Hachette, no publisher would ever publish another book of mine. That is a risk worth taking, because publishing is an industry that seems bent on eating its young.
The fight between Amazon and Hachette is ostensibly about e-book pricing. In reality, it is about much more: innovation, the business model, and the future of publishing.
Amazon argues that e-books are highly price-elastic and everyone benefits from lower price-points because more copies are sold and more revenue generated. Amazon cites price-testing experiments that show when they drop the price of an e-book from $14.99 to $9.99, sales increase 74%. Even at the lower price, everyone makes more money; 16% more.
Hachette, understandably, wants to control the pricing of its products. But more importantly, it wants to maintain its share of e-book revenue at 70%, and to pay authors royalties based on whatever they can negotiate; but typically no more than 10%. Amazon originally pushed to increase its share of the selling price from 30% to 50% — consistent with the print model – but recently proposed a more radical formula: 35% for the publisher, 35% for the author, and 30% for the seller (Amazon.) Hachette said no.
Recognizing that publishers are enormously resistant to changing their model – the last real innovation book publishers introduced came in the 1930’s with the introduction of the mass-market paperback – Amazon squeezed Hachette authors hoping they would pressure their publisher. Amazon refused to process pre-orders, stopped discounting prices, and slowed shipments on Hachette books.
Amazon’s tactic seems to have backfired. Some 900 authors, most of them not published by Hachette, signed a full-page ad in The New York Times criticizing Amazon for using authors as human shields in what is essentially a contract dispute between two giant corporations.
I’m supporting Amazon. I think Amazon is far more likely to come up with innovations that may actually save book publishing. And publishing is in desperate need of being saved. The long-term trends are not encouraging: people are spending less time reading books (even including e-books;) unit sales are down; and per-capita spending on books continues to shrink.
Yet book publishers seem unwilling or unable to recognize the implications of these trends. What other consumer business responds to flat or decreasing unit sales by increasing prices? But that is precisely what book publishers do year after year. Between 2003 and 2013, the price of the average hardcover fiction title rose 49 percent to $26.63; non-fiction books are priced even higher.
In theory, it is the publisher’s role to identify promising authors, cultivate them, and promote their books. In reality, publishers put out an increasing number of titles each year with little or no marketing support. If an author can promote her book on her own, terrific. If lightening strikes, and a title miraculously becomes a hit, even better. But with more than one million new titles coming out each year – including self-published books – that is a high-risk proposition for most authors. It is not surprising then that the typical book published by a “real” publisher sells less than 1000 copies. And self-published titles sell even fewer.
Traditional book publishing is, at best, a quaint business. The people who work in the industry are generally quite bright and typically nice. But as a category, book publishing needs to be saved from itself. Its business model and processes are relics of a long-ago era: the returns system – where retailers can return unsold copies at any time for a full refund – is a remnant of the Great Depression. Such marketing basics as price-testing and package (cover) testing are non-existent. Until Nielsen introduced Bookscan a few years ago, publishers really didn’t know how many books they sold; they only knew how many copies they shipped. Returns could come back at any time.
When Jeff Bezos launched Amazon twenty years ago this summer, the unique promise was that this online bookstore would carry millions of titles. At the time, the new superstores from Barnes & Noble and Borders typically stocked 150,000 titles, compared to the traditional independent bookstore’s 35,000. That was Amazon’s first publishing innovation, and it made possible the “long tail” of internet selling. It was soon followed by “look inside” browsing, algorithm-driven book recommendations, deep discounting, great customer service, and the Kindle e-book reader. All of these helped drive Amazon’s share of the book-selling market to almost 30%; and a much larger share of the e-book market.
It is important to remember that Amazon’s success wasn’t pre-ordained. It required risk-taking and innovation to win that customer loyalty. Publishers haven’t shown similar innovation since the introduction of the mass-market paperback. That new format made books available at $.25 at a time when the average hardcover book price was $2.50. And it was opposed by most publishers and bookstores who thought twenty-five-cent books would destroy culture and hurt profitability. Instead, paperbacks opened new price-sensitive markets and new sales outlets —drugstores and newsstands.
Which brings us back to the Amazon-Hachette dispute. Amazon has given all authors – not just the big-name writers – a better chance of being discovered, and making more money. Hachette is trying to maintain a paper publishing business model on an increasingly e-book world. Authors – and not just Hachette authors — aren’t pawns in this battle between two giants who have very different visions of the future. They are the potential beneficiaries of an industry that needs to be reinvented. I’m willing to risk siding with the innovator.
Steve Cohen spent 30 years working in publishing before going to law school. He is an attorney at KDLM in New York.
A shorter version of this piece originally appeared in The Wall Street Journal
