The argument against Amazon seems to rest on the proposition that if trad-pubs aren’t awarded excess returns, over and above the actual free-market value of their products, then there will be no money to pay authors to write “serious literature,” irreparably harming our culture and society.
This is really a very dense proposition with all kinds of unstated and unanalyzed assumptions behind it. It would take a lengthy and complex essay to thoroughly deconstruct all these notions, and few would have the patience to read it. But it’s worthwhile to quickly review some of the main issues.
1. How much “serious literature” do advances truly subsidize?
There isn’t any comprehensive public accounting but from various sources we get a general impression of where advances actually go. A large portion is paid to popular novelists like James Patterson and John Grisham and popular nonfiction authors likeEdward Klein. Another big slice of the advance pie is served to entertainment and sports celebrities who put their names to various books that are supposedly nonfiction. And prominent politicians often get remarkably large advances for memoirs and ruminations. Calling any of this “serious literature” is stretching the term to the point of rupture.
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2. Why do the publishers have to act as investment banks for books anyway?
The publishers rig the game in such a way that in most cases authors can turn only to them for advance funding, even for books that clearly have major sales potential. They do this for bestseller-potential titles by setting royalty rates so low that there’s little chance that the nominal royalties will ever catch up with the advance. Thus if a bestselling author financed her book from another source she couldn’t make enough from royalties on sales to pay a good return on the investment; the publisher would simply appropriate most of the value of the book. (Big-name authors could push back on royalty terms, but most find it simpler and safer just to go for big advances.)
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This is not of course what we hear from Foer or other attempts to justify trad-pub without actually understanding much about the business. It’s only the benign, benevolent publishers who would advance authors money against unwritten books, they claim. This is remarkable nonsense. Players in finance long ago learned how to make good profits by investing money in risky propositions. If the publishers ever paid economic royalty rates there would be no shortage of sources of advance funding for books that had even modest prospects for success. And the financial system would certainly do a better and more efficient job of it.
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3. Is Amazon threatening the excess profits publishers need?
Trad-pubs need to collect substantial economic rents — excess profits over and above their costs of operations and capital — so they can bestow generous largess on worthy authors. Or so they and their apologists would have us to believe. (Most of them no doubt believe it themselves, as they don’t seem to be very deeply knowledgeable or analytical.)
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How does Amazon generate large cash flow? Not by pricing high, but by buying cheap and selling large volumes. The publishers, however, believe it serves their objectives to charge high unit prices. Amazon thinks the publishers lose more through reductions in the number of books sold than they gain by jacking up the price per book — and they know that Amazon does. In the end Amazon believes that both they and the publishers will make more by selling more books at lower price per book, and they have data from their immense volume of book sales to back this up. Data-schmata, the publishers say: they simply want higher net prices per book.
PG would suggest that Big Publishing is also trying to prop up its physical book store distribution channel which has been shrinking over many years. The Borders bankruptcy happened about three years ago and caused 399 large bookstores to disappear almost overnight. Barnes & Noble is closing about 20 large bookstores per year and another batch will disappear after Christmas.
Amazon-style pricing won’t support the high overhead of a physical bookstore.
For all intents and purposes, Big Publishing and some larger independent publishers have pretty close to a monopoly in distribution to large numbers of physical bookstores where discounting from list price tends to be more limited than in the online world. Smaller publishers often use the resources of larger publishers (for a price) to access sales and distribution channels to physical bookstores.
Big Publishing lacks a similar dominant position in online sales and authors understand that publishers don’t add any material distribution value with Amazon.
BPH-think says that prices have to be forced higher on Amazon so more people will go to physical bookstores.
PG is pretty certain that a great many of the smarter people in Big Publishing understand it is highly unlikely that the decline in the the number of physical bookstores can be stopped or reversed. The inherent economic advantages of ebooks and etailing are simply too compelling to save more than a relative handful of boutique bookstores in major metro areas.
However, as subsidiaries of large international media conglomerates, Big Publishers are servants to quarterly and annual sales and profit numbers. If BPH executives are judged on short-term results, they tend to develop short-term strategies.
If only enough pressure can be applied to Amazon, the decline of sales in physical bookstores can be deferred for a few more quarters and the Armageddon of a book business that is almost entirely online won’t happen quite so soon.
So Big Publishing trots out its pet 1% authors to decry Amazon as part of a marketing strategy to persuade a few more people to shop at Barnes & Noble for a few more months.