From veteran publishing consultant Mike Shatzkin:
My “position” on all this is that it reveals an imbalance that only the government can fix.
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Even when I’m credited by somebody else with coming up with a suggestion —raising the author split of ebook revenues so that the publishers don’t wave fat ebook margins in front of observant and powerful retailers — that would have made Hachette’s position stronger had they accepted it, I am dubious that the publishers can do much about this. Nothing publishers can do — or could have done in the past — would change the fact that Amazon controls anywhere from 35 to 75 percent of the sales for most trade books. Anybody with that much market inside its corral can charge a considerable toll for getting inside its gates.
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Amazon used the book business to build an enterprise no longer dependent on books. Although the executives at Amazon I know maintain that they have always had a “profitable” book business (and I don’t doubt them), the company has famously been willing to live with less margin than its retailing competitors. That takes the oxygen out of the room for any retailer competing with them within the four walls of the book business. Amazon has skillfully used books as a customer acquisition tool and focused on the lifetime customer value across product types, not the margin that could be earned from the book business alone. There’s nothing morally, ethically, or legally wrong with that, but it has been steadily demonstrated for the past two decades (and acknowledged on this blog years ago) that it makes it very hard, perhaps impossible, for somebody retailing books alone to compete with them.
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Amazon, at great expense and with great vision, made the ebook business happen. Before the Kindle, the ebook marketplace was small and unambitious. The biggest player in terms of sales was Palm, which wasn’t really interested. The most interested party was Sony, which repeatedly tried over more than a decade to establish some sort of ebook device and ecosystem. But Amazon made a significant corporate commitment — creating the Kindle device, pressuring the publishers to make much more of their catalog available as ebooks, and investing heavily in discounted sales and screen real estate to build the consumer market. When B&N with Nook in late 2009 and Apple with iPad and iBookstore in early 2010 entered the market, they were attempting to capitalize on a product class that Amazon had pretty much single-handledly created.
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Amazon is just about every trade publisher’s largest and most profitable account.
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Because they don’t have to stock tens or hundreds of far-flung stores, their efficiency of sales, as measured by their very low returns, is almost certainly the highest among retailers and probably the highest of all accounts.
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Amazon has no interest in being anybody’s most profitable account; what the publisher profitability suggests to them is that their efficiencies are responsible for a lot of margin generation and they are inclined to want more of it. From Amazon’s perspective, being equivalently profitable to other large accounts is “generous” enough. From many publishers’ perspective, the enormous marketplace control Amazon has was built on the back of the publishers’ and authors’ intellectual property.
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Amazon wants lower prices for consumers — at least right now. (They’d say it is a core value and they’ll want it forever; there is room for an honest difference of opinion about how they’ll feel about it when their market share rises further.) Everybody else in the book business (authors, agents, publishers, other retailers) want prices at the very least maintained and probably would prefer they rise. This is the crux of the publishers’ problem with the government and with some quarters of public perception. Lower prices for consumers is catnip for politicians. They simply can’t resist it.
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Amazon pays amateur authors, often unedited, who upload files not yet ebook-ready to them and don’t know anything about marketing or metadata, as much as 70 percent of retail if they meet certain exclusivity and price stipulations. (Obviously, there are great gems among those, but they are still mostly unproven, unknown, and unsuccessful.) They are apparently fighting hard to avoid giving Hachette — which invests substantially to be consistently superior to a fledgling author on all these counts — the same cut.
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Amazon has plenty of internal justification for believing that their investment and risk-taking has been a huge benefit to publishers for most of the 20 years of their existence. But that doesn’t change the fact that an imbalance exists that will feed on itself. Amazon will grow at the expense of all other book and ebook retailers and Penguin Random House will grow at the expense of all other trade publishers.
Link to the rest at The Shatzkin Files
Any industry that relies on the government to fix problems with its biggest customer is in perilous shape.
Passive Guy does credit Mike with avoiding the extreme displays of Amazon Derangement Syndrome that have characterized so much of the commentary about Amazon/Hachette.
It’s interesting that a generous right of physical bookstores to return unsold printed books to publishers is one reason that Amazon is the most profitable customer for Big Publishing’s offerings, both print and ebook.
Return rights are one of the many archaic practices that make both publishing and bookselling markets ripe for technology disruption by more efficient competitors.
One of the reasons publishers pay a substantial amount of money to Ingram and Baker & Taylor to distribute print books is the right to return. Essentially, publishing has outsourced the logistics of handling returns to these distributors. An enormous weight of dead trees moves in and out of book distributors’ warehouses every day in support of returns from bookstores.
PG remembers reading a former bookstore employee’s account of a Barnes & Noble store that was moving from one location to another location about a block away. Instead of moving its stock, this store simply returned all its books to the distributor, simultaneously ordering an entire new stock, including many of the books just returned, to be shipped to the new location.
As with almost everyone involved in Big Publishing, Mike has a huge blind spot when it comes to indie authors, or “amateur authors” as he calls them.
Author Earnings and reams of other information clearly demonstrate that indie authors sell a lot of books. A small minority of indie authors sell a majority of indie books, but that is exactly the same phenomenon traditional publisher experience – most new authors don’t earn out their advances and the financial success of a traditional publisher rests upon big sales from a small portion of the books it publishes.
Perhaps it’s because so many in tradpub have looked down on romance (and, to a lesser extent, other genres) for such a long time that they don’t see it, but indies and non-traditional publishers that pay higher royalties are taking over a larger and larger share of big-selling genre markets. PG just checked and only four of the top-ten Kindle romance bestsellers were published by traditional publishers.
Regardless of how Amazon/Hachette resolves, Big Publishing is being crowded into a smaller and smaller portion of the total ebook market. As its authors either leak away into self-publishing or never show up in the first place, tradpub faces increasing pressure to put out at least one huge book every quarter.
Without home runs, it’s going to fail because the players that reliably hit singles and doubles, including some that would have developed into home run hitters, aren’t on the team any more.