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Meet Penguin Random House, The World’s Largest Book Publisher That Will Counter Amazon

12 April 2013

From TechCrunch:

After the U.S. cleared the deal, the European Commission has officially approved the proposed merger between two of the biggest book publishers in the world, Random House and Penguin.

. . . .

As it is seeking “new digital publishing models,” the merger has been widely commented on as a way to counter Amazon’s influence on the ebook market.

. . . .

The so-called agency model partially disappeared with the settlement of Apple and those book publishers. Book publishers now have a very thin margin to negotiate with Amazon to increase ebook pricing. According to publishers, the $9.99 standard created with the introduction of the first Kindle is not enough for newly released bestsellers.

That’s why the Penguin and Random House merger makes sense. The new entity will leverage its size to dictate its own terms.

. . . .

In other words, it could create a publisher-owned Kindle Store competitor, something that is highly needed to end Amazon’s dominance on the ebook market.

Link to the rest at TechCrunch

PG thinks readers ultimately determine what price is acceptable for ebooks. Amazon has done a good job of convincing readers that ebooks shouldn’t cost more than $9.99 and indie authors are convincing them that $2.99 – 4.99 is even a better price.

Artificially elevated prices only work if readers believe there is a limited number of interesting books they haven’t read. The Big Publishing/Barnes & Noble strategy has been to reduce the number of available books in physical bookstores and use the promo tables in the front of the store to focus readers’ attention on a small number of books.

Unfortunately for this strategy (or maybe because of this strategy), readers are not going to Barnes & Noble so much any more. In fact, the company’s announced plan is to close about one-third of its existing bookstores over the next decade. In the history of planned downsizing, businesses usually end up getting smaller much faster than they plan to do so, so PG expects disappearing Barnes & Noble stores to become a more and more common phenomenon.

A world with disappearing physical bookstores is almost an ideal environment for Amazon’s continued expansion. The readers who formerly shopped at their local Barnes & Noble will now go to Amazon where there is no shortage of interesting books readers haven’t read and no shortage of price competition.

If Penguin House is dedicated to the proposition of forcing ebook prices up, it must have one giant blockbuster after another. This means huge advances for the winners, but it also means that non-blockbuster authors will be treated even worse than they have been in recent years. Such treatment will tend to push smart authors toward indie world.

The must-have blockbuster strategy will also result in increased earnings volatility. If a couple of blockbusters fizzle, the year is shot.

If a big Penguin House ebook doesn’t sell at $24.99, the publisher is caught in a bind. Does it reduce the price to $9.99 and teach readers that this is a great price for an ebook or stick with the higher price and blow up the quarter’s earnings?

PG thinks a “strategy” of building a Penguin House ebookstore to compete with Amazon is foolish in the extreme, a path that only executives who know nothing about etailing and dealing with real customers would pursue. Since that profile describes the management of Penguin and Random House, the merged company may well try to take on Amazon with its own estore.

PG will offer a tag line for the Penguin House ebookstore at no charge – “Fewer books, but higher prices!”

Amazon, Big Publishing, Passive Guy, Pricing

92 Comments to “Meet Penguin Random House, The World’s Largest Book Publisher That Will Counter Amazon”

  1. My chuckle for the day:

    “Fewer books, but higher prices!”

  2. “PG thinks a “strategy” of building a Penguin House ebookstore to compete with Amazon is foolish in the extreme…”

    “Since that profile describes the management of Penguin and Random House…”

    PG, you craft the best set downs! :D

  3. *sighs* One of my favorite series is with Penguin—as in, I auto-buy the new releases, even though the e-book costs too much ($10 or $11, the same or a dollar less than the trade paperback), because I know I’ll reread it. More than once.

    I almost buy the print versions (since the price is so close), but it’s a series that’s easily findable at the library. I try to save my limited shelf space for books that I want to recommend to friends but that aren’t at the library.

    If the price goes up, I’ll be getting them from the library, too.

  4. Bennett Cerf sobs in sorrow.

  5. “Fewer books, but higher prices!”

    Nailed it!

    I used to love going to the bookstore and browsing leisurely. But that was when I did not have as much responsibility as I do today. Now, it’s run, run, run. Go to the bookstore? That’s in the middle of the mall and the traffic’s a nightmare. I really don’t need that headache.

    Amazon has always gone directly to the consumer, now they’re doing the same with authors. It’s a darn good business model and traditional publishers, while making a show of trying to adapt, still can’t break free of their traditional mindset.

    Corporations have never moved quickly on new business models. It’s always been the entrepreneur and small business. What is remarkable is that despite becoming a corporate giant, Amazon is as nimble as a small business for the most part.

  6. So we see that the people who write these articles have no problem with massive corporate monopolies, as long as it’s not Amazon.

    Arrrrgh.

  7. PG you missed off what I think is an important paragraph to this story:
    “The first attempt to create an agency model in the ebook industry failed because Amazon didn’t play ball and Apple benefited from better terms from the publishers. If Penguin Random House threatens to remove its entire catalog from the Kindle Store, Amazon will have no choice but to agree to higher prices again.”

    This could be serious for Amazon. The sheer number of imprints and big name authors in the RH/Penguin stable is huge. Removing their ebooks from Amazon will result in more than a third of trad published books being unavailable to Amazon’s customers. Amazon couldn’t handle that. If people start going elsewhere for the big names, Amazon will lose on cross selling too. The way Random House see it, there may be plenty of indie books available an Amazon but the low quality/self published meme (which I disagree with by the way) hasn’t gone away in quite a large section of teh reading public, and while “Fewer books, but higher prices!” could apply to RH/Penguin ebookstore, Amazon run the risk of being known for “cheap in price, cheap in quality” (I reiterate before I get shouted at, its a meme I don’t agree with). That is what I think think is behind this merger, and it is strategy that may just work and force Amazon to agree to higher prices, possibly across the board, raising an author’s 70% royalty share to a much higher price point. Just a thought.

    • Excellent point, Robert. The accountant in me cringes, I would sure hate to be put on that project. Random House also has to look hard and long about shutting down their revenue stream from Amazon. There are no guarantees the consumer will move with the titles. Because of the big names, there’s a serious chance they will, but Random House will have their accountants jumping with all the numbers and forecasting.

      • Very true, and is one of the reasons I don’t hold with PG’s assumption that there is a culture of foolishness at RH/Penguin. I imagine a lot of very clever and highly experienced people have been working on this deal, most of whom would have been hired from outside the publishing house especially for this deal. It’s a gamble, but its one that has a good chance or paying off.

    • I wouldn’t underestimate Amazon’s ability to counter a move like this. The people behind its success have been doing this a while.

      And if Random House/Penguin thinks that in today’s economy, they can raise the prices of books and get more people to buy them–well, they haven’t been reading the papers. Unnecessary purchases are the first thing to go when you’re struggling to put gas in your car or food on the table.

      Amazon just cut the price of my paperback after I had an uptick of clickthroughs and four times as many Kindle sales as paperback sales. It’s an algorithm that thinks and improves hourly.

      If RH/Penguin chooses to remove its books from Amazon, raise the prices, and sell them itself, well, they’re going to get a lot of people clicking on the links to the books and then not buying them.

      • And imagine the bad PR for Random Penguin when you go to Amazon to buy a new release and see that “The publisher has opted not to directly sell this title through Amazon.” Anger from fans, and instead of going to a competing online bookstore, they buy it from an Amazon Marketplace vendor (if they still even want it).

        • Good point. VERY good point.

        • Were I a small bookstore, I’d see this as manna from heaven – the chance to sell my new books as Amazon’s top vendor until Random Penguin resolves their dispute. Ah, the profit I could make on the sheer volume of new books shipped in that brief window of opportunity!

          …speaking as a reader, I must say that unless the author is one of a small handful that I buy blindly, if I find the book isn’t available, I’m going to skim the also-boughts and then wander off. Unlike, say, medicine or groceries, I don’t have to have the latest Patricia Briggs as soon as it comes out. The ebook is $12.99 and there’s no paperback; I’ll check again next time I think of it, in a few months, to see if it’s come down to what I’m willing to pay.

    • Good points made here. I wish we knew how much of Amazon’s revenue is still represented by books. If so, we might be able to estimate how much leverage Penguin Random House will be able to exert on Amazon. Unfortunately, since Amazon isn’t publicly traded, we won’t have an opportunity to see that.

      As a thought experiment, if books now represent only about 10% of Amazon’s diverse business, a threat to remove a third of that holds little leverage. Move that percentage of book revenue up to 25% of Amazon’s profits and that third becomes a much more threatening number.

      On the opposite hand, we know that Amazon usually represents about 25% of the sales of traditionally published books. Without there being an adequate substitute for Amazon (and with Amazon being the general winner of the Internet retailing crown, we know that won’t be easy to find), that would be a huge hit against the profitability of the books removed from Amazon distribution.

      This could rapidly develop into a brinksmanship contest that plays to Amazon’s strengths. Amazon has alternate revenue streams to support it during the struggle and Amazon also would have the advantage of appearing to stand up for the general reader just as it did during the past pricing contests against the large publishers. Penguin Random House would be left with the claim that they are trying to support the authors of “quality” books, which is a weak argument at best.

      • You may be right, but Amazon are known for books and have far more competition for everything else they sell. they don’t have the dominance on other markets that they do with books. If RH do start their own store, there is nothing to stop them inviting the other major publishers to sell books through them, offering them better terms than Amazon. Acting as a retailer, RH wouldn’t be in breach of monopoly laws. It may be contrary to their previous competition history, but Amazon pose a bigger threat to the big publishers. If this happens, even with its lower prices, without known authors and bestsellers, Amazon would end up as just another version of Smashwords.

        And it doesn’t seem to matter how much James Patterson, Lee Child and Stephen King sell their books for, people will still seem to want to buy them. And as John says, price creep is a common marketing strategy.

        • If RH do start their own store, there is nothing to stop them inviting the other major publishers to sell books through them, offering them better terms than Amazon.

          There is indeed something to stop them. Amazon’s net profit margin is in the neighbourhood of 2 percent in a good year — zero in an off year. If PRH tried to beat Amazon‘s terms, they would be running their store at a significant loss. And that’s on top of the losses they would incur by starting up a new business in a mature market, advertising it against tough competition, and not having Amazon’s formidable economies of scale.

      • JR – Good comment, but one correction – Amazon is publicly traded, but it doesn’t break out book sales in its financial reports.

    • Amazon certainly wouldn’t like that, Robert, but it’s the largest sales outlet for Random Penguin’s books, at least in the US, plus Amazon sells many, many items other than books. Amazon doesn’t say, but I would expect very few of Amazon’s customers just buy books there.

      As far as ebooks are concerned, a boycott of Amazon would mean that the zillions of Kindle owners wouldn’t be buying any ebooks.

      Overall, I think Random Penguin would be more seriously affected by a boycott of Amazon than Amazon would. I worked for a large European media conglomerate like Bertelsmann and Pearson (the owners of Penguin and RH) and, unless the types who manage those organizations have changed, they really don’t like bad financial quarters and, even more, don’t like bad financial years.

      Now, that doesn’t mean they won’t try an Amazon boycott.

      • “Amazon certainly wouldn’t like that, Robert, but it’s the largest sales outlet for Random Penguin’s books plus Amazon sells many, many items other than books. Amazon doesn’t say, but I would expect very few of Amazon’s customers just buy books there.”

        That’s very true, PG, but I bet the first purchase most people made on Amazon was a book. That has been the key to their rise in other sectors; once you have an Amazon account you can buy all sorts through them, but it is the initial book selling that brought you in. If you’ve not made an online purchase before and you want a CD, Amazon may not be the first port of call, but if you want a book, it more than likely will be. They lose books, it’ll impact other sectors too, and that may be what makes this deal particularly threatening to Amazon. They may be able to survive without books, but I bet they don’t want to test it. I think this is going to get very interesting in the months/years to come.

        • > I bet the first purchase most people made on Amazon was a book.

          Sure, because in 1998, they only sold books. I wonder if current new Amazon customers first buy books there. I’m inclined to think that maybe their first purchases are digital media (TV show episodes, movies) and then they stay for the basically things. Or they make a baby registry, since the selection is so good–then keep buying baby/kid stuff through them since the website is easy to navigate and the customer service is good.

        • Judging by the Amazon Deals of the Day, books aren’t what draws people to Amazon any longer. It’s now, well, everything. I buy OTC medicine for my cat from Amazon because it’s half the price that Petco or Petsmar charge. People buy TVs from Amazon because there’s no sales tax and if you have Prime, you don’t pay for shipping. Clothing, exercise machines, printers, computers… I don’t think Amazon is going to have that tough a time if RH/Penguin pulls its books. The authors, as has been pointed out, are the ones who will be hurting.

    • I have to imagine some Random Penguin House authors might get upset if their Amazon links were pulled in some turf war between RPH and Amazon.

    • If tradpub manages to make their ebooks more expensive again, I still, down in the 2.99-4.99 price range, feel like it’s only a benefit to me. I’m a bargain (but not bargain-basement). Buy one of my ebooks, and one of someone else’s ebooks as well, for the price of a single tradpub ebook.

      I do feel sorry for the authors caught in any potential skirmish, of course.

  8. They don’t have to sell immediately at higher prices -

    Set up their ebook operation [a major challenge to get it right - see B&N] Or purchase KOBO
    Remove their books from Amazon
    Price their books CHEAPLY at their new ebook op
    [Remember they are receiving the full sale amount, not a percentage]
    Attract Customers
    Gradually increase prices…

    • Set up their ebook operation [a major challenge to get it right - see B&N] Or purchase KOBO

      That assumes Kobo is for sale. PRH would have to pay a pretty hefty premium to Kobo’s current owners to pry it loose – and PRH are already stuck with the costs involved in their own merger.

      Price their books CHEAPLY at their new ebook op

      Which would guarantee that they undercut their own paper book sales, a thing they are determined not to do, and would make it almost certain that they would lose money at the new ebook business. They wouldn’t have Amazon’s economies of scale, experience at running an online business, brand recognition, or international reach. Add lower prices to all that and you have a recipe for a financial disaster.

      [Remember they are receiving the full sale amount, not a percentage]

      Remember they are paying the entire cost of running the operation. It costs Amazon a lot more to sell each copy of an ebook than it costs PRH to supply it.

      Attract Customers

      There is no evidence in the history of either Penguin or Random House that they know how to do this at the retail level.

      Gradually increase prices…

      What makes you think they would have the market leverage to do that?

  9. The lousy thing about all this is that we desperately need a counterweight to Amazon that isn’t idiotic. I’m a fan of Amazon, but I don’t want it to end up the only big dog in this market. But it’s increasingly looking like traditional publishers are completely unwilling and incapable of being that counterweight.

    People say that Amazon couldn’t take the hit if RH/Penguin simply pulled their titles–but I’m not so sure about that. Amazon isn’t just selling books, after all. In the mind of most book consumers, there’s no significant alternative infrastructure for selling eBooks than Amazon, and people aren’t going to go searching elsewhere only to pay more.

    Amazon could play real hardball with RH/Penguin and would almost certainly win. I doubt it’s in their best interests to do that, and I doubt that they *will* do that. But I suspect that they could if they wanted.

    • “The lousy thing about all this is that we desperately need a counterweight to Amazon that isn’t idiotic. I’m a fan of Amazon, but I don’t want it to end up the only big dog in this market. But it’s increasingly looking like traditional publishers are completely unwilling and incapable of being that counterweight.”

      I think this is the reason the EU and US have agreed this deal. Everybody wants a counterweight to Amazon, not just publishers. A few years ago, this deal would never have been allowed, now it’s being backed solely to take on Amazon.

      • The problem is that Penguin-Random House is an idiotic counterweight to Amazon, & the merger will only make it more difficult for a good competitor to emerge.

        The one purchase Amazon has made that I have a problem with was their acquisition of AbeBooks: as an umbrella group for independent booksellers, it had the potential to be an effective counterweight to Amazon. But Amazon bought that up in 2008, when no one was paying attention.

        • Amazon has been very smart about anticipating challenges to its dominance. So far it’s the only corporation in publishing that *is* acting smart. I’m simultaneously impressed and annoyed by this.

  10. I’m amazed that just because a couple old guard types decide to combine their ‘talents’ that Amazon is already dead.

    Amazon is the one to beat because they keep redefining how to do it better. Hard to hit a brilliantly moving target.

    Dan

    • Agreed, D.C.

      People who don’t really know ecommerce don’t understand how good Amazon really is. Amazon has risen to the top of a very competitive heap and, nearly every time I spend much time on Amazon, I see incremental improvements.

      Everything that big publishing has tried to do online has been mediocre. In addition to not understanding ecommerce, big publishing is accustomed to selling to bookstores and distributors, so it has no institutional understanding of retail sales.

      I don’t know if it’s possible to hire top retail sales talent if you’re a publisher, but I do know quite a bit about the tech world and no publisher is going to be able to hire and hold really good ecommerce talent. A top programmer is going to regard a job offer from Random Penguin like he/she would an offer from grandpa.

  11. There are a variety of ways P-RH might play this. Remember they are a monopoly company in the government-created monopoly business of copyright. Thus every book they license is ‘scarce’ in the sense that only P-RH versions are legally allowed to exist.

    One way they could do this is to pull all new books from Amazon Kindle, and sell them exclusively through iBooks or Nook. After a year long window, the books would then be released to Amazon and the deals with iBooks and Nook would enter Phase 2 in which the bookstores could lower prices to match Amazon’s should the sellers wish to do so.

    • Last I heard, one of the consequences of the Price Fixing settlements (and they do apply to the merged Random Penguin) is 5 years of DOJ oversight and contract/negotiation monitoring.
      So anybody dreaming of blatantly anti-competitive terms for Amazon is in for a rude awakening. Abuse of market power comes in many shapes and forms and the line where the feds get antsy often hinges on public outcry. I’m think 40 million Amazon customers screaming at one might trigger an inquiry. But that might be just me. ;)

      As to who hurts the most, well, considering Amazon holds something like 60% of the ereader installed base one can reasonably assume that 60% of most big publisher ebook revenue runs through them and since ebooks make ~25% of Random Penguin revenue, that means that cutting off Amazon cuts off about 15% of their total revenue. As PG suggested above, a multinational unit manager that engineers a 15% revenue reduction isn’t going to be a unit manager for long.
      On the flip side, Amazon *total* ebook volume was about $1B out of $61B total sales in 2012. That means ebooks amount to 1.67% of their gross. Random Penguin can claim at most a quarter of that (and their share is only going down) so their “power” over Amazon amounts to less than half of one percent of their gross. (And that seriosly overstates their market share; no way does the Random Penguin command that big a share of Amazon ebooks.)

      I dunno…
      I think it’s going to take a very brave manager to take that bet.

  12. Another point to remember is customer loyalty. Well, it’s more like customer entrenchment with Amazon. Once a customer becomes comfortable over the years, getting them to get up and move can be quite a trick. Many times, lower prices, better tech, you name it – won’t get them to move. Especially because Random House has to develop their own platform. Many consumers are nervous because of CC fraud even if the company is known and respected. New systems can have holes – at least that is their fear.

    PS – Erik just saw your post…and there ya go. ;)

  13. I hope they go with the name Random Penguin for the new company. :-)

  14. “I used to love going to the bookstore and browsing leisurely. But that was when I did not have as much responsibility as I do today. Now, it’s run, run, run. Go to the bookstore?”

    Jeez, when Borders and B&N hade their heydays and I was a single college kid, would spend hours upon hours there. Those days are gone and they’re never coming back. Sad in a way, yes, but so is the fact that I’ll never be a carefree 12 yr old again.

    “The bookstore is in the mall?” At least you know that. I moved to where I live now last spring and I don’t even know where my nearest bookstore is.

    “If Penguin Random House threatens to remove its entire catalog from the Kindle Store, Amazon will have no choice but to agree to higher prices again.”

    A staring contest with Bezos? Brilliant! What could possibly go wrong.

    I can’t help but think this will be apocalyptic for Random Penguin.

  15. “Fewer books, but higher prices!”
    It’s like Spinal Tap: they’re not losing fans, their audience is just becoming more selective. And Boston isn’t a big college town…

    There is no way on God’s Green Earth – or anywhere else – that I’d fork over $25 for an e-book. Period. End of freaking sentence.

    But man, it’d be funny to watch them try it.

    • I just discovered the Flashman novels (which are some brilliantly cheesy men’s adventure stories from the ’70′s with the world’s most dislikable protagonist) and the ebooks are $12 each. I took a flyer on the first one and loved it, but then figured out how much it would cost me to buy them all. Now I won’t buy *any* more. If they were $5, I’d have owned them all the next day. If they were $8, I might buy them slowly. (Note this is not about money per se: I have enough money. I could buy them all if I wanted to without missing any meals.) But much as I like them I just won’t spend that much when there are so many other good books I can get for three and four and five dollars.

      • @MarcCabot – but those Flashman books are exceptionally good. I remember reading the Charge Of The Light Brigade one about 10 years ago….the wife was trying to sleep because she had an early start and I was trying not to laugh out loud so as to disturb her. Trying to hold my laughter in nearly gave me a hernia!

        But I know what you mean – $12 is a lot for an ebook!

  16. In the words of Bernard Black:

    “We can’t let them find reasons to leave. We can feed them! Lunch and dinner! We’ll build a pool! And a gym! And an Egyptian-style casino! No, that’s a bit much.”

    Random Penguin will do anything to keep customers except that which will actually keep customers and make them happy. So go on Random Penguin, build that 700-hole golf course in Roswell and be done with it.

    • +1 for the reference to Black Books. I just saw this episode the other night and it is SO apt! P-RH looks a lot like the girl who’s trying way too hard, and no amount of lipstick is going to make that pig pretty. Katheryn Loch has the right of it–Amazon is the comfortable old shoe these days, the friendly neighborhood mom and pop store, where you always know where to find the bread and cheese and always a shelf of cool new things you never knew you needed as well. Why take up with the strange new tart when you can stick with the girl next door (yes, I know, mixed metaphors to the max. It’s that kind of day).

      • And Amazon, you can be sure, will not give you food poisoning by serving you boiled belts in white paint. (Sorry, I’m going through a Black Books phase.)

        The thing of it is, all these publishers are having a cow because Amazon has successfully competed against their paradigm and is winning because the Big 5 refuse to actually participate in a meaningful way. They yell Amazon Monopoly at every chance, yet they have continually made it way too easy for Amazon to dominate. WTF, Big 5?

        They like their pig a little too much, in my opion.

      • Good point, Kat. Any start-up that competes with Amazon has to be materially better in some relevant area.

        • The almost universal belief among VCs and angel investors is the one thing they will not fund is a start up that competes with Amazon. Think about that. People who are in the business of funding the longest of long shots don’t see any possibility of taking on Amazon.

          • Interesting info, William, but not surprising.

            • Back in the 90′s there was a similar consensus: nobody would fund a startup going after Microsoft. However, startups looking to extend or leverage the microsoft ecosystem could get all kinds of funding out of the hope that if they did well they could sell to Microsoft.
              That too is starting to happen with Amazon. (Diapers.com, Ivona, Woot, Goodreads…)

          • Amazon’s extremely low margins, a large startup cost, and an extremely long time before they could be profitable likely are the main reasons. Something like Walmart could possibly do it if they found a lot of talented people.

  17. “There is no way on God’s Green Earth – or anywhere else – that I’d fork over $25 for an e-book. Period. End of freaking sentence.”

    And that is what RH are banking on. Publishers rue the day Amazon invented the Kindle and if they could I’m sure they’d erase the technology from the face of the earth. However, now Pandora’s box is open, and they yielded to Amazon’s initial demand to sell eBooks at the same time of hardcovers, there only option is to price eBooks to the point where hardcovers seem a much better deal to the consumer, and for them, normality will be restored.

    • Here’s the trouble with that. If they do price ebooks at that level, it won’t drive customers to buy hardcovers instead. It will drive them away.

      When I see that an ebook is ridiculously priced, I don’t buy the print edition instead. Unless it’s a book that I must acquire without fail (meaning: require for a class or for research purposes), I go and buy some other book that is reasonably priced.

      I could quite comfortably go the rest of my life without ever buying another book from the PRH combined trade catalogues.

      • If I have to have an ebook that is ridiculously priced, I buy a used paperback copy. Not only is it cheaper, but I’ve cut out the publisher. Not to mention that Amazon makes it ridiculously easy to compare prices across formats and buy used books.

  18. This article is part of a peculiar genre of publishing industry punditry that I call “Great White Hope”-ism. Much like the stupid, irrational racism of America during the early 20th century, Amazonophobia grips the old guard of publishing and their sycophantic acolytes in the press. They lurch from one title challenger to the next. Barnes & Noble, Apple, and Penguin Random House have been the most popular vessels for the fear and loathing, but the same articles get written about various start ups (Bookish, anyone?).

    The thing that all of the articles in this genre have in common is that they are completely divorced from reality. You can summarize all of these articles as variations of the Underpants Gnomes business plan:

    1. Collect Underpants (i.e. create Nook, iBookstore, merge two big publishers)

    2. ???

    3. Beat Amazon

    Anyway, good luck with that…

    • I have just realized that my dog is attempting to summon the Underpants Gnomes. This is a most alarming revelation.

      • Underpants Gnomes reference…LMFAO!

        Ok, but seriously, here’s a perfect foolproof plan for Random House of Penguin Publishing Solutions to destroy Amazon.

        1. Collect Underpants (i.e. create Nook, iBookstore, merge two big publishers) Had to leave this as step one, of course.

        2. Lock really smart computer guys in a room to come up with website just like Amazon. I mean, it’s just a website! High school kids have websites. Should only take a few days.

        3. Smile and laugh as millions of readers completely abandon Amazon because of how amazing our brand is.

        4. Continue to grab e-rights through our 18.5 vanity scam…I mean publishing solution platforms and recycle all titles that we already own forever from writers who gave them up for 4-figure advances.

        4. Watch Amazon wither and die. Pop champagne corks.

        5. With no prominent indie platform, we rest easy as the worlds writers return to their approriate spots in line in our gatekeeping system with their silly dreams of being published hinging entirely on our one sided contracts.

        6. Regain complete control of what’s published and drive all prices back up where they belong.

        7. Take pride in having restored the natural order and bringing balance to the universe.

  19. So Random Penguin’s going toe-to-toe with…their biggest distributor? And we’re anticipating them pulling their titles from the company responsible for more a really huge percentage of their income? I’m not saying it won’t happen, but THE STUPID! IT BURNS!

    I’m looking forward to the story about them hiring the people who design and run B&N’s website, ‘cos they’re about to be unemployed.

    • I dunno, those high school kids may be too busy with their college classes.

      (Yeah, B&N “support” really, really cheesed me off on the topic of B&N website design.)

  20. So, I doubt that Random Penguin is considering opening a bookstore to compete. They may open a bookstore, or invest more in Bookish, but not to compete.

    That’s just what this (rather clueless) techcrunch author is recommending.

    First, I don’t think the Big 5 have as much trouble with reducing prices as they used to. I’ve seen seriously discounted books, and free giveaways – I think they realize the intelligence of lower prices.

    And I don’t think they are so dumb as to think they can compete with Amazon with a higher priced bookstore (as you put it, PG). I think that’s too silly even for them. I could be wrong, of course, they can be pretty silly, but I suspect they will put their “clout” behind I-books or the Nook.

  21. My thoughts…

    The new mega-publisher could indeed pull their books from Amazon. However, I seem to remember that when another publisher did that, the books could still be purchased on Amazon through third party retailers. The publishers have no control over that unless they refuse to sell those retailers copies – which seems foolish.

    If the publisher plays hardball with Amazon, then there is nothing to stop Amazon from torpedoing the visibility of the publisher’s titles and pushing other titles in preference. Amazon’s main concern is that customers can find the titles at Amazon if they are looking for them. They have no vested interest in selling one publisher’s books over another’s (except for where Amazon is the publisher.)

    If the publisher sets up a competing web store – even if they strike deals with other publishers, they are unlikely to allow indies to publish there except under draconian and unreasonable terms that any well-selling indie (or any indie who reads terms and conditions) would run a mile from. Seriously – given the forays into vanity publishing and electronic only deals – can you IMAGINE what you’d have to agree to in order to e-publish through their site?

    If you want customers to come to your site to shop then you need to be offering them a product they can only obtain there, or a better price, service, or aftercare than they could find elsewhere. I can see readers who love a particular author’s work going to the site – but I can also see them resenting the higher charges. I also don’t see why they’d stop shopping at Amazon – because Amazon will still have other titles that they want – as well as other titles priced, in the eyes of the customer, much more reasonably.

    If they want to make this work, then they need to either run it alongside Amazon and do what they can to encourage readers to shop direct with them without breaking their agreement with Amazon – Or, they need to replicate what Amazon does in terms of arrangements & terms for other authors, so that customers can find everything there and don’t need to go to Amazon. That second one isn’t happening in a million years, so the first is their only real shot at making this work. It will be interesting to see what happens.

  22. “If Penguin House is dedicated to the proposition of forcing ebook prices up, it must have one giant blockbuster after another. This means huge advances for the winners, but it also means that non-blockbuster authors will be treated even worse than they have been in recent years. Such treatment will tend to push smart authors toward indie world.”

    I believe this may be the next truly disruptive wave in the book world. The current trickle of traditionally published midlist authors moving to self-publishing could well become a flood as more and easier ways of self-publishing open up and contracts squeeze writers financially. And the midlist could even be followed by a few big names.

    Once self-publishing becomes the route of choice for midlisters, the problem of distribution to bricks-and-mortar stores may solve itself. With many self-publishers now selling in the thousands of copies a month and the entry of potentially tens of thousands of established midlisters with high sales potential, the large publishers may find themselves challenged from a different direction than Amazon. The only way they could possibly retain control of the situation would be to offer better terms to more authors, and they appear to be going in the opposite direction.

    • Companies like Penguin-Random House are increasingly positioned for best-sellers, but they are making it harder to acquire them in the first place. One problem is that no one knows where the next best-seller will appear, & another is that the big publishers are making it harder for a best-seller to appear in their offerings.

      Consider J.K. Rowling was rejected umpteen times before her first book was picked up — & that was when the industry was more receptive to new writers. And as Jane Steen points out, more mid-list writers are moving to independent publishing.

      The next best-seller may not be an independent — as Fifty Shades was — but the odds favor that it will be. And the big publishing houses will scramble after getting a slice of it, wondering why the manuscript was never offered to them in the first place. Even if it was, as part of a slush pile where it sat until rejected unread.

      • True, Geoff, although it strikes me that there may be some complacency among the large publishers when they see how well Random House did out of FSoG. It looks like a solid strategy: just wait for the next hot item to emerge and join in the feeding frenzy, relying on your ability to outbid the other guys.

        But I remember an article that appeared on this site about how much MORE E.L. James could have made by staying indie. And then there’s Hugh Howey…happy to let a publisher in on a reduced slice of the pie but keeping a large chunk of it for himself. If the Big 5 don’t become more proactive about encouraging new writers with fair contracts, the sheer weight of authors moving to indie status will make print-distribution-only contracts the norm and cut the traditional publishers out from future hits. Right now they have the weight of prestige and custom in their corner and that might buy them ten years. Maybe. But if the Brain Drain of authors, editors, designers and other talent continues, they’re not even going to have access to the slush pile.

        • “Right now they have the weight of prestige and custom in their corner and that might buy them ten years. Maybe.”

          That and deep pockets. These are corporate conglomerates that have their fingers in many pies. That is why the are so infernally slow to acknowledge the change the business let alone do anything about it.

          But I do think you’re onto something there. We’ve hearing stories of top indie authors getting the big contracts from big houses. That’s tradition because those big companies can open doors with Hollywood and so forth.

          I have a feeling its not going to be very long before the Hollywood Execs just go straight to the indie, and not worry about the rest. Then people like PG will really see a boom in the their biz. ;)

          • Booming business is always a good thing for authors and attorneys, Kathryn.

            From a pure risk-management standpoint, signing a successful indie author is one of the smartest things a publisher can do.

          • Already happened. Blake Crouch got a TV mini-series deal with FOX and M. Night Shyamalan for “Pines”. Like his pal Konrath, He turned his back on legacy-pub some time ago and shows no interest of wanting back in.

            But compared to the total number of self-pubbers this makes Howey and Crouch very much outliers. That said, if their two projects take off and do well (fingers and toes crossed for two of my favorites) we could definitely see H-wood and foreign filmmakers eyeing indies as their new slush pile and/or gold mine. Interesting to see.

          • “I have a feeling its not going to be very long before the Hollywood Execs just go straight to the indie, and not worry about the rest. Then people like PG will really see a boom in the their biz.”

            I happen to know that the movie biz is already scoping for stories among the indies, even the obscure ones. :D Like the reading public, I don’t suppose the movie people care very much where their stories come from as long as they have a pitchable idea. And Hollywood has a very good nose for what the average guy in the street–rather than the literary elite–wants to see, doesn’t it?

            And, come to think of it, when Hollywood goes directly to an indie it knows it won’t have to fight its way through a publishing company to get to the meat. That makes us an attractive proposition.

            • Yes, even I have had Hollywood producers contact me directly about the film/TV rights for LOVE HANDLES, the first novel I self-pubbed in early 2011. They’d read it, loved it, sent me an email.

              I can’t be the only one.

  23. There isn’t an author alive for whom I’d pay $25 for an ebook. I’d just find someone else (several someone elses, for that price) and live life just as well.

    If Ranguin (loving these portmanteaus) thinks that a lot of people will go with them to get gouged, I’d love to see them try.

    • There are three authors who could motivate me to drop that kind of cash, but…none of them are published by Ranguin. So, hah! :D

      • I wouldn’t even drop it for Stephen King just on principle.

        Don’t get me wrong, I’d still read it through borrowing or a library, but Hell no for an ebook.

    • I’ve paid that kind of money for an ebook twice.

      Once it was for McKee’s Story, which was a required text for a writing workshop I had enrolled in. No brick-and-mortar bookshop within driving distance had it, Chapters/Indigo didn’t carry it in their online store, and Amazon couldn’t deliver it quickly enough; so I knuckled under and bought the ebook. (By the way, it was well worth having, even at that inflated price.)

      The other time, I bought Isaacson’s biography of Steve Jobs and loaded it on my iPhone. It just seemed the appropriate thing to do, for that particular book.

      So there is no actual principle involved in my case; just a hell of a hill that any publisher has to climb in order to part me from $25.

  24. They are the Pauline Kaels of publishing. “I don’t know anyone who can’t pay $25 for the privilege of owning an ebook.”

  25. I suspect they’ll open their own store and push Amazon and other etailers to accept a deal similar to what Rowling did with Pottermore.

    • And what happens when hardly any customers show up? Then what sort of leverage will they have? It would be better to try to negotiate a deal before they take the risk of showing their cards by putting up their own store. If the store fails (which seems likely), then RH/Penguin’s leverage is gone.

      It’s worth noting that Rowling’s attempt at exclusively selling ebooks on Pottermore didn’t seem to produce the number of sales she was looking for. If even Rowling decided it was better to work with Amazon, then there’s little hope RH/Penguin can do much better.

  26. If they wanted to become Amazon’s competition, instead of creating Bookish and buying Author Solution they should have bought Goodreads, but it’s too late for that now, Amazon beat them to it. Like most people here I doubt that Random Penguin Solution will dare to pull their books from Amazon, the loss of revenue would be too great. Amazon as a retailer was good to Random House, very good, and on it’s own, I think, Random House got enough money with 50SOG to be able to suffer the loss of revenue for a period of time, but with Penguin Solution and its burdens (like the buy-off of the AS and with that DOJ thing) by its side, I somehow doubt it. And don’t forget all that internal ‘charades’ that must be right now happening because of the merger.

    • I think a better option would be to merge or at least partner with some other large online retailer (Walmart comes to mind), or have themselves bought out by some Google billionaire with some tech savvy. Goodreads has a community, but their online infrastructure sucks. Can you imagine the mess if Goodreads suddenly started selling books? Or if the designers of the Goodreads site tried to build a competitor to Amazon? Scary thought.

      • You can already sell books through Goodreads, but according to rumours the number of sales is so low that is not worth the trouble. IMO the problem of publishers is that they are too focused on Amazon, instead they should focus on readers; on what readers want and what they like. In that regard Goodreads’s data would a gold mine. They could also use it as a distribution channel, but not to compete with Amazon (since there’s very little chance they can compete with Amazon, so they shouldn’t even bother trying) but to less the distance between them and their end consumers.

  27. Yes, The word entrenched was used by someone up above and it is a good description of people’s current relationship with Amazon.

    There is no way I am bouncing between multiple book sites to try and save a buck here or there. Nor am I signing up for a new Pendom site simply to purchase their exclusives.

    I will either wait for the book to be offered on Amazon for a reasonable price or simply find another book book to read. As an example I would like to read World War Z, which is a Random House book, but there is no way I am paying $11.99 for the e-book version of a 6 year old book.

    • I agree completely with Tom. Not only do I not want to visit multiple sites, I don’t want to have that many retailers with my credit card information. I trust Amazon. It’s wonderful to deal with a company with such great customer service. I know if I have a problem that I can talk to an actual person about it — usually within seconds. I also like that I don’t have to worry about rebuying a book I already have.

      I used to buy directly from Baen because they sold their ebooks for $6.00 without DRM. Also they weren’t available on Amazon. Unfortunately that must have not worked out for them because they now sell through Amazon and books are $9.99.

    • Years ago, I used to prefer Barnes & Noble’s site for buying books. But that platform became stagnant, and I found myself going to Amazon because I was buying more than books. There’s room for innovation. Someone could easily come along and knock Amazon off its pedestal on book sales by offering a new platform with great, new features. But I doubt that RH/Penguin is even interested in doing such a thing, let alone capable of it.

      For many, Amazon is the only place they go for purchasing things online. Like Diane says, Amazon has built up a certain amount of trust with customers that other e-tailers haven’t been able to earn. I just think of people I know who are scared to death of buying things online with a credit card. They don’t think think twice about dealing with Amazon. For an online company, that’s money in the bank.

  28. B&N reported that 30% of their eBook sales are already independent if I read it right. The percentage has to be at least a bit higher at Amazon since it draws a lot of self published support and directly allows foreign authors (like me) to publish. If Random Penguin wants to take a stand against Amazon then now is the time. The longer they wait the less of a percentage they are of the business.

    Or they could actually think about the fact that their business is selling books and try to maximize profits in the long run without screwing their authors.

  29. @Diane: “I used to buy directly from Baen because they sold their ebooks for $6.00 without DRM. Also they weren’t available on Amazon. Unfortunately that must have not worked out for them because they now sell through Amazon and books are $9.99.”

    Actually the $9.99 price is for books that are in hardcover. Other books are $6.99 or a bit less. I’ve bought a lot from Baen over the past 10 years or so and it’s nice to just be able to buy right from my Kindle. They also still offer the free library books free on Amazon (some of them, anyway.)

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