Home » Amazon, Big Publishing » Book wars: A monopolist vs. the cartel

Book wars: A monopolist vs. the cartel

9 June 2014

From The Washington Post:

The book world is once again in a state of high dudgeon over the “thuggish” behavior of Amazon, which has begun slow-walking customer orders for books published by Hachette (James Patterson, Malcolm Gladwell, a.k.a. J.K. Rowling) in an effort to win more favorable terms in its next contract with the publisher.

. . . .

In business terms, what is about to play out is the next round in a long-running battle between a manufacturing cartel (the publishers) and a monopoly retailer (Amazon) for control of the value chain that links book writers and their readers. In most respects, it is similar to the battles in other parts of the news and entertainment sector where digital technology has also upset the old order but a new order has yet to emerge.

. . . .

I recently gained some new perspective on these issues while trying to sell my first book. While I came away from the process with a greater appreciation for what publishers, editors and agents do, I also came away thinking that the industry’s pricing practices are a bit screwy.

Let’s start with the author’s advance — or more precisely, the non-refundable cash advance against the author’s royalty payments for every book sold. In theory, the advance is supposed to reflect the publisher’s best estimate of how many books will be sold. In practice, 80 percent of books don’t sell enough copies to “earn out” the advance.

This is a curious way for an industry to set pay for talent. If publishers are so bad at predicting book sales and can’t stop themselves from overpaying on advances, then why not change to a system that doesn’t require them to take virtually all of the upfront risk? As it happens, authors from time to time have offered to take a smaller advance in exchange for a royalty rate higher than the 15 percent industry standard. Such offers, however, are routinely and universally rejected.

This is the kind of business practice that is common in cartel-like industries, like real estate agents and their 6 percent commissions. In this case, it’s a way for publishers to stop themselves from getting into self-destructive bidding wars for best-selling authors and celebrity writers. And as long as all the publishers tacitly agree to play by the same rules, it allows them to under-pay these winners, to the benefit of both their shareholders and authors who never earn back their advances.

. . . .

Another oddity of the publishing world is that those royalties are set differently for printed books and e-books. The accompanying chart, drawn from a recent presentation made by HarperCollins to industry analysts, tells the story. Authors makes about $1.60 less from a typical e-book sale than a hardcover sale, while the publishing house is left with $2.20 more in gross profit.

. . . .

The irony here is that despite the best efforts of the publishers to slow the migration from $28 hardbacks to $10 e-books, the shift has provided a significant boost to their profits and profitability. Cannibalizing their old business turns out to have been very good for the publishers’ bottom line. So you can perhaps understand why Amazon — which for all its market power makes very little profit on its e-book sales — is now demanding a bigger slice of the pie.

Link to the rest at The Washington Post and thanks to Meryl for the tip.

Amazon, Big Publishing

24 Comments to “Book wars: A monopolist vs. the cartel”

  1. I thought I couldn’t be surprised by yet another incorrect application of the “monoploy” label to Amazon, but I wasn’t prepared for it to come from Bezos’ own newspaper.

    Stop. &^%$#@!. This. Up.

  2. Of all the untrue statements routinely appearing in the coverage of this story, if I’m Kobo, Barnes&Noble, Smashwords or Apple, I think constantly calling Amazon a “monopoly” hurts the most.

  3. And the authors get crumbs.

  4. “The irony here is that despite the best efforts of the publishers to slow the migration from $28 hardbacks to $10 e-books…”

    Not to mention, the problem of slowing the migration to $4 (indie) ebooks.

  5. Th writer was recently trying to sell his first book? And already he understands how all of this works?

    Amazing!

  6. Wow, I was a little surprised by the twist ending.

    It’s kind of like the guy said 1+1=2, 2+2=4 (a nice straight forward laying out of certain points), but then he ended with a 3+3=62.

  7. 80 percent of books don’t sell enough copies to “earn out” the advance. If publishers are so bad at predicting book sales and can’t stop themselves from overpaying on advances, then why not change to a system that doesn’t require them to take virtually all of the upfront risk?

    He fails to realize that a book which doesn’t earn out can still make a profit for the publisher, because the publisher receives a much bigger percentage of each book sold than the author does.

    It’s the writer, who has to complete a book before discovering whether he will make any money at all from it, who takes the upfront risk.

    • He has some interesting thoughts, but I agree that he doesn’t know a lot about the book business, Lexi.

    • Agreed. When royalties are tiny, then it takes a LOT of sales before those royalties add up to the amount of the small advance. This is just a case of publishers paying too little royalties, not a case of them overpaying the advance.

  8. This is becoming a big game of Whack-A-Mole. There is a huge supply of books and authors putting downward pressure on prices. With the internet and eBooks, they can’t be stopped. Whack them down in one place, and they pop up in another. People are worrying about the angle of attack on one whack without considering the pop-up effect. The details can’t be predicted, but the direction can.

  9. I am so sick of the mantra that “publishers take all the cost risks upfront.” No. B*******. Writers take time to write books–including time and money to buy references, take classes, learn new skills, etc–and that time is money. It means they couldn’t do other things during the hundreds of hours they spent writing.

    Maybe they bypassed high-paying work with longer hours and responsibilities in order to have time to write. Maybe they stayed home and were supported by significant others or family in order to write.

    The writer took the first upfront losses and risks, not the publishers. And considering the trad pubs are making profits, they clearly are making MORE than the writers on those books. The laughable royalties mean more for pubs, and advances staying unearned. And I”ve read about some of their creative accounting practices. They aren’t charities.

    • Well said.
      But they do act like they are charities, who nurture authors with dedication and pour into them their time and money until those authors become new King or Nora Roberts and produce masterpieces that are not only going to preserve the literal culture for generations to come, but they will push it up on a whole new level.

    • Excellent points. If it weren’t for so many writers being so passionate about what they do (or maybe just seeking the glory of having their name on the front of a book), it wouldn’t make financial sense to keep this system going the way trad pub wants it to keep going. It’s a completely lopsided system that has few tangible benefits to authors.

  10. margaret rainforth

    I fully agree with the comment but I had to chuckle….Nora Roberts/Masterpiece?? Push literary culture to a new level?? Don’t misunderstand, I love Nora Roberts/JD Robb’s work; entertaining, yes, but masterpieces? I don’t think so!

    • How do you dare say that Nora Roberts/JD Robb’s work are not masterpieces? Of course they are, so are books produced by Mr. Patterson’s, because BIG SALES = A MASTERPIECE. I mean who wants to be a (for example) next Tolstoy, when there’s a possibility of them becoming Mr. Patterson? And I bet publisher would prefer to ‘nurture’ into existence next Patterson than Tolstoy, too.

  11. Another correction for the article: the big name authors are overpaid in their advances, too, so that the Big X don’t have to be seen negotiating higher royalty rates. So those folks aren’t being underpaid, and they aren’t paid a percentage over time, they’re just paid. Lots.

  12. Let’s start with the author’s advance — or more precisely, the non-refundable cash advance against the author’s royalty payments for every book sold. In theory, the advance is supposed to reflect the publisher’s best estimate of how many books will be sold. In practice, 80 percent of books don’t sell enough copies to “earn out” the advance.

    I think these were called advances to make it look like the publisher was doing the author a favor, and to hide what it really is.

    If it is “non-refundable,” then it isn’t an advance. Rather, the publisher is buying something. What? The rights to publish and profit from the book. The more the book is projected to sell, the more valuable are those rights, and the more the publisher will pay for them.

    If actual sales “earn out” that payment, all it means is the book sold better than projected, so the publisher is going to provide the author with additional payments through royalties.

    By calling these advances against royalties, they hide what they are really buying with that money, giving the author less negotiating power who buys into that concept.

    “Lower advance? Well, it is after all, just an advance. Sure.”

    And, just because an author doesn’t earn out his “advance” doesn’t mean the publisher didn’t make money on it.

Sorry, the comment form is closed at this time.