Pricing

Google I/O is tomorrow, so I’ll be snarking at their latest plans for world domination on Thursday. Today, though, let’s talk about Amazon’s latest move toward global conquest.

I mentioned it last week. Amazon has changed their policy regarding third-party bookresellers. In brief, when you search for a book on Amazon, it may not default to Amazon’s listing. Depending on where you are, what other booksellers are offering the title, and other information, the default “Add to Cart” button could be somebody other than Amazon, with the Big A’s listing being relegated to the “Other Sellers on Amazon” section of the page.

That sounds good for the shopper: who wouldn’t like getting a better price? But there are implications that have the publishing industry in a bit of an uproar. The Authors Guild, for example, believes that Amazon’s move will result in lower income for publishers and authors. If you didn’t read their press release last week, you can find it here.

Amazon’s position is that they’re simply bringing book sales into alignment with the rest of the site. And there’s some truth there.

But the publishing industry works somewhat differently than most others*. When you buy a washing machine, a computer, or box of cereal, the money goes to the seller, they give you the item, and the transaction is finished. That item comes out of their inventory–they’ve already paid the manufacturer. And if they can’t sell all of the washing machines, computers, or cereal they’ve stocked, they take a loss.

* I won’t speak to music and other arts; I don’t know enough about typical contracts between the creators and the sellers.

On the other hand, if you buy a book–and to be clear, I’m speaking only of new books here–those sales are reported back to the publisher. Why? Well, for starters, the publisher has to pay the author, and that payment is based not only on the number of copies sold, but (in some cases) the price the book is sold for. Furthermore, if the seller doesn’t sell all of the copies they bought, they’re not stuck with them in inventory. They can send them back to the publisher or destroy them and get a refund.

How does that make a difference? Well, many of those third-party sellers advertise really, really low prices. Like, in many cases, less than a dollar. They make their profit in “shipping and handling charges” that far exceed the actual cost of dropping the book in an envelope–but those fees aren’t counted as part of the purchase price.

So what happens if somebody sells a new copy of The RagTime Traveler* for $0.01 (plus $7.99 shipping and handling)? Well, for starters, Dad and I probably get nothing. According to our contract, we don’t receive royalties on sales where the publisher gets less than it cost them to print the book. Realistically, if the seller is going to make a profit, even with those fees, they’re can’t pay the publisher’s wholesale price.

* Let me be clear here: nobody is selling TRTT at that price. Yet–but that could change after the book is actually published.

Maybe they cut a sweetheart deal with the publisher and got the books at a steeper discount than normal. That can happen, especially if the seller gives up the right to return any unsold books. If their wholesale price is less than 56% of the cover price (which it would almost have to be for them to make a profit), but more than the cost of production, Dad and I do get paid–but only half the normal rate.

But let’s be honest here. As the Authors Guild points out, it’s unlikely that those low-ball sellers have bought their books from the publisher. From their press release:

The Authors Guild has spoken to several major publishers in the past year about where all these second-hand “new” copies come from, and no one seems to really know. Some surmise that they are review copies, but there are far too many cut-rate “new” copies for them all to be review copies. Could they be returns from bookstores that never made it back to the publisher? Did they fall off the back of a truck? We don’t know.

(There’s also speculation in the comments that those books could have come from the publisher: returns being resold at liquidation prices rather than destroyed. In which case, see two paragraphs up.)

And one other point: publishers look at how well an author’s previous books have sold in deciding whether to put out his next one. Any sales that don’t earn a royalty also don’t get counted in making that decision. So our hypothetical one cent copy of TRTT actually reduces my chances of finding a publisher for my current novel-in-progress.

So, bottom line: I doubt Amazon will rethink this policy change. They have a long history of making moves that lower prices to consumers, even if it means taking a loss for an extended period. It’s all about cornering the market. And in this case, Amazon still gets paid. The seller gets paid. The publisher might get paid. And the author? If they don’t like it, they can self-publish and set their own price.

Except, of course, if they want to sell through Amazon, in which case they need to go through Amazon’s self-publishing arm which bases author royalties on sale price.