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Monday Midday Links Roundup: ABA Wants DOJ to Investigate Discount Pricing

Mobile adoption is occurring at a faster rate than any other adoption of internet in the past. Further, at the leading edge of mobile adoption is the growth of the iPhone/iTouch market. Morgan Stanley is essentially telling investors that those that can anticipate and deliver products to the mobile space are those who will be winning the future.

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Dovetailing this report are the findings that Greystripe, a mobile ad network, is releasing about iPhone moms, mothers of young children who own iPhones.   TechCrunch reports on the usage of the iPhone by moms. Moms are using iPhones to make their shopping easier (by locating stores nearest to them and keep track of shopping lists) to entertaining their kids (59% allow their children to use the iPhone) and for personal entertainment purposes.

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Brewster Kahle announced last week that over 1.6 million books have been scanned and digitized.   All 1.6 million Internet Archive books to be available on the OLPC. Approximately 750,000 to 1 million people have OLPC. All books that have been scanned and digitized are in the public domain.

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The American Booksellers Association wants the government to save independent bookseller’s bacon. The organization has asked the government to investigate what it believes to be predatory pricing by Amazon, Wal-Mart, Target for its $9.00 hardcovers and the $9.99 ebook pricing.

Now I don’t know of any caselaw that would support this and essentially it seems like the ABA is asking the government to step in and save the hardcover business model. A government investigation in pricing would necessarily involve an investigation into the entire business model of publishing. Maybe we should welcome this. Publishers would be called to testify why they essentially gamble on books and hope to make up the gambling in large margins on hardcover bestsellers.

Publisher Michael Hyatt argues that this pricing isn’t good for anyone, arguing that the loss of hardcovers will result in lower advances, driving authors out of the publishing space. Commenter Mark McElroy points out that the digital market space can actually result in more authors being successful because of the elimination of the middle man.

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The FTC is changing its mind, again.   It’s fairly difficult to keep up with these folks.   According to reports from kidlitcon, Mary Engle, Associate Director for Advertising Practices at FTC, says that independent blogging reviewers do not need to disclose the provenance of their books but that affiliate links will need to be disclosed.   The FTC will be providing updated guidelines or FAQs or clarifications soon (hopefully before December).   We’ll be watching and will be sure to comply with whatever rules the FTC is going to implement.

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In summing up the take away from the Frankfurt Book Fair, Richard Nash blogs that publishers need to engage in reality based business decisions.   This is a world where piracy can and does happen and will not go away. Conversely, the mobile market is expanding and this means growing business opportunities.   Change is here and those that are most adaptable will succeed.

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According to the AAP, August sales were fairly flat, only increasing 0.9% over same sales last August:

  • Adult Hardcover = up by 12.3 percent   ( $110.6 million); YTD down by 12.2 percent.
  • Adult Paperback = up by 3.2 percent   ($152.7 million); YTD down by   9.0 percent.
  • Adult Mass Market= up   1.3 percent ( $70.4 million); YTD down by 4.5 percent.
  • Children’s/YA Hardcover = down 12.9 percent ($84.5 million); YTD up by 14.0 percent.
  • Children’s/YA Paperback = down by 0.2 percent ($69.4 million); YTD up by 1.7 percent.
  • Audio Book = down by 12.5 percent ( $12.9 million);   YTD down by 25.1 percent.
  • E-books= up by 189.1 percent ($14.4 million); TYPD up by 177.3 percent.

Jane Litte is the founder of Dear Author, a lawyer, and a lover of pencil skirts. She spends her downtime reading romances and writing about them. Her TBR pile is much larger than the one shown in the picture and not as pretty. You can reach Jane by email at jane @ dearauthor dot com

13 Comments

  1. RStewie
    Oct 26, 2009 @ 12:18:37

    My God, those ebook numbers should have publishers sitting up and taking notice!! Instead, they’re wandering around with their heads up their respective a$$es, crying about Hardcover prices at WalMart.

    Volume sales should trump higher margins every time, according to most economic theories I’ve seen, so why is the Book Industry so damn against ebooks??

  2. Mireya
    Oct 26, 2009 @ 15:20:55

    Because all readers are potential thieves, that’s why. They associate the word e-book with thievery. Until they get their head out of their assess (pardon the vulgarity but this whole deal does piss me off) those numbers will be meaningless.

  3. jmc
    Oct 26, 2009 @ 17:42:58

    I’m having a hard time drumming up sympathy for indies or the ABA. (Am I bitter about the pretentious indies near me who sneer at genre fiction? Just a little. Well, a lot, really.) Perhaps the hardback business model *needs* to be broken and the price war will do it.

  4. Heather Massey
    Oct 26, 2009 @ 18:14:34

    Thanks so much for pointing out McElroy’s comment. I’m marching that information right over to the aspiring science fiction romance authors who hang out at my blog. Niche genres and the authors who write them need these kinds of creative publishing choices available. So do readers who want more stories. I become frustrated with the limited slots available from traditional print publishers even as I understand the realities. Physically, they can only put out so many books. Maybe that type of limit is coming to an end with the rise of ebook technology.

  5. Dana
    Oct 26, 2009 @ 19:47:43

    @jmc: Same. I don’t want independents to fail, but at the same time I’ve never been in one where they don’t sneer at romance. I live right outside of Seattle and there are several great independent bookstores if you want lit fic, sci-fi/fantasy, or mystery. But if you want romance you have to go to B&N, Borders, or a used book store.

  6. DS
    Oct 26, 2009 @ 19:51:51

    Does anyone know if Amazon is still paying the 1000 Euros/day fine to the French Booksellers Association because it was determined by a French court that Amazon’s free shipping was violating a French law that capped discounts on books at 5%? Apparently it was more profitable at the time for Amazon to pay the fine and keep the free shipping.

    Would the ABA have nerve enough to suggest that the US needs a similar law?

  7. Bev Stephans
    Oct 26, 2009 @ 22:18:36

    I can’t imagine buying a book that I don’t want just because Walmart, Target or Amazon has priced it ridiculously low. That’s like buying something at the grocery store you dont want just because you have a coupon.

    I honestly don’t think this will have much of an impact on hardcover sales. From my understanding, there is only a limited number of titles. When I decide that I want a hardcover, I definitely look for the lowest price, but if it isn’t in the aforementtioned piles, I’ll buy it elsewhere.

  8. kaigou
    Oct 26, 2009 @ 23:56:42

    Hey. As a former bookseller, I find your characterization of the ABA’s actions to be offensive and insulting. The ABA goes off half-cocked in plenty of things, and I don’t always agree with them, but that doesn’t mean they’re wrong in this case.

    I don’t know case law, but I do know that antitrust laws have been used to force a halt to situations like this. To be applied, predatory prices must be below cost (as they are here), and predatory pricers must be demonstrably big enough that they can comfortably eat losses that would swallow smaller businesses whole (sure looks that way).

    If I’d been facing this situation when I’d had my bookstore, you’d better believe I’d be panicking. We’re coming into the hardback time of year; coffee-table doorstop tomes are a classic holiday gift. There’s no way I could compete with those prices — and for every person going to Amazon, or Target, or Walmart for the big-name hardbacks, those books may be successful loss leaders, and any other book shopping will be done there, as well. End result: customers may bypass me completely.

    Most people don’t realize that a bookstore does the vast majority of its sales — and its most profitable (hardback) sales — in the last quarter. Even when times were good, my bookstore, like many others, still counted on those last few months of the year to really get us home. A year of bad drops like this one, if christmas don’t come through, it can be touch-and-go. Severe predatory pricing like this — at this time of year, no less! — could be, hell, will be, a death knell for many smaller bookstores.

    But I don’t consider you Janes to be most people, so the glib attitude here is not only a surprise, it’s also patently unfair. Would you rather we wait to cry until we can actually point at a monopoly? By then those indies will already be shuttered, and the damage already done.

    Sure, Amazon, Target, and Walmart may pay antitrust fines after the fact, but those fines won’t revive the bookstores closed by their price war. For that matter, Amazon et al may be considering the reduced competition worth any fines. They may be price-warring to put publishing over a barrel, but if it also wipes the board of competition, hey, that’s a benefit of its own, as well.

    For that matter, I don’t see how you get the idea that the ABA’s request amounts to an investigation into “the hardcover business model”. Maybe the models are different for publishers, but we’re talking about retailers. Wholesale is 60% of cover. There’s no hardback model. There is only the book model. (Which is why I don’t even touch on ebooks; most booksellers don’t sell those, so it’s a negligible part of the business model right now.)

    What hides under this predatory pricing — and has the ABA scared, I’d bet, because it’s what would scare me as a business owner — is the potential for massive damage to the entire (wholesale and retail) book industry, because we value a thing based on its cost. What do you get when you buy a $1000 car? You get a car only worth $1000. If you want quality, then you pay for quality.

    If people start thinking $9 is reasonable, they’ll not only equate hardback with cheap, they may backlash in the idea that the industry’s been taking them for a ride all along with higher prices. The industry can’t afford any of that, not in this economy, not with ebooks already troubling the waters — and that’s not even counting the price war’s own damage.

    The Feds don’t have to question the hardback model, or even the publishing model as a whole. It only needs to determine whether it’s a violation of antitrust laws when three greedy corporations engage in a price war, use predatory pricing to destroy small competitors, and practice implicit price fixing. Seems to me the ABA and its booksellers have a valid concern, given what’s at stake, and they don’t deserve your flippant dismissal.

  9. mina kelly
    Oct 27, 2009 @ 04:27:50

    Re: the ABA thing, I don’t really see where eBooks come into it. Not yet, anyway – in my ideal world you could buy eBooks in real-world shops, but in my ideal world I’d have an eBook reader to read them on too.

    But with the hardcopy books… When the last Harry Potter came out in the UK independent booksellers were buying them at Asda because it was cheaper than ordering them through the distributors, and then selling them at RRP (or with a small discount). Asda (part of the Wal-mart family, unsurpisingly) can afford the sell books at a loss because they have other lines of income; booksellers don’t. Even shops like Borders and Waterstones couldn’t price-match the supermarkets for Harry Potter. £4 hardcover? That’s less than $8, and for a book that size!

    Amazon’s been very canny in branching out beyond books, because it allows them to follow the supermarket model, rather than the booksellers model though (at least in the UK) they’re still primarily thought of as a bookseller. Which makes real booksellers look like their overcharging customers.

    Kaigou’s right; it’s not about the publishing model, it’s about the business model. The publishers aren’t gaining or losing any money if supermarkets and Amazon chose to sell their books for less than cost. There’s been rumblings about a similar case in the UK for a while (after every Harry Potter book came out, for a start) but as yet no move appears to have been made. It’s not just booksellers, either; CD and DVD shops have also complained at the supermarket business model. There’s a risk of losing specialist shops, and though Amazon has the space to stock one of everything available, most supermarkets don’t. It feels to me like we’re risking the loss of publishing diversity – that if the supermarkets get their way it’ll be reduced to a few key authors and a lot of celeb bios, and very little shelf space for anything new.

  10. kaigou
    Oct 27, 2009 @ 11:32:49

    @mina kelly:

    Ayup, Amazon’s also considered mostly a bookseller in the US, too. The issue with ebooks isn’t relevant to the brickfront section of the book industry, except in that Amazon’s muscle has already been successful at strong-arming ebook pubs.

    The potential monopoly isn’t just that one seller could rule the roost and set prices really high (which is usually the fear of monopoly, economically). It’s the risk of limited sellers effectively censoring products. The publisher-half of the model is going to continue to set their wholesale prices based on what their business can sustain, and that’s not affected at all, really, by what Amazon et al are doing — until we get into Walmart et al simply refusing to carry certain titles, or alternately making the books really hard to find. (Frex, only making the book available on the website: yes, we’re selling that, but you’ll never see it in a store, and strangely it’s always on backorder…)

    If Amazon, Target, and Walmart (the last of which is particularly known for attempting to censor music and book content) can drive out smaller competition, they’ll be closer to being able to destroy a genre by simply refusing to sell it. Think back to the whole AmazonFail escapades. What’s pertinent isn’t whether or not that was intentional; what’s pertinent is that such a massive company can censor, so easily, and it wouldn’t necessarily be immediately apparent. We have to acknowledge that this is a risk, given these company’s histories, when we consider a world with supermarket-style books-as-sidelines sellers dominating the marketplace.

    It’s already bad enough with Barnes & Nobles and Borders being the reason many publishers now push for smaller and smaller books, even in formerly doorstop-happy genres like fantasy and romance. B&N and Borders want more titles per shelf. Smaller, thinner books make that possible, and publishers aren’t immune to the fact that the two biggest purchasers have such strong preferences. You please the customer, after all, and publishers’ customers are partly us (the consumer) but also partly the retailers, who are the final gatekeepers.

  11. Jane
    Oct 27, 2009 @ 13:28:59

    I totally disagree with you kaigo and when I am home, I’ll articulate at greater length. Books are sold in hundreds of different retail locations and only a few are subject to the discounting and only a certain type (hardcover) are subject to the deep discounting. For those (and many other reasons), I don’t see the pricing as anticompetitive. Remember that predatory pricing can occur. It just can’t be anticompetitive. That’s the measurement of the antitrust law. Further, there isn’t any evidence, particularly with ebooks, that the pricing will result in censoring of product. Simply because a retailer won’t carry a product or a publisher wishes to meet retailer need does not result in censorship.

  12. Jane
    Oct 27, 2009 @ 15:58:16

    Okay, have had more time to sit down and type.

    1. Essentially the ABA is a lobbying group that is asking the federal government to give preferential treatment to a small class of business owners, in this case the independent bookseller.

    2. The basis of the indie bookseller complaint is that their money is made off pricing hardcovers based on the retail price printed on the book by publishers (that is one of their complaints against the big box retailers).

    3. The indie bookseller wants the hardcover model of business which relies on the consignment business model to be supported preferentially against other business models out there which include lowered pricing in hopes of increased volume of sales and other formats.

    4. Because the demise of the hardcover business model would not a) decrease books being published or b) even sold, it is hard to see where the anti competitive nature of loss leader pricing as it pertains to hardcovers

    5. Ebooks, which are part of the complaint made to the DOJ, are not exposed to the same censorship or space constraints that you reference. The fact is that the market, not necessarily the retailers are responsible for the pushing of books that you might deem weighty enough. Further ebooks and ebook sales, because of the low barrier to entry can actually increase competition rather than decrease it. Similarly, as we have already seen, ebooks can increase the variety or fill a genre need that is not represented in print publishing.

    6. Sustaining a business model that already has been called into question by its various producers (i.e., Picador choosing to dual release in trade and hardcover) via governmental intervention is dangerous for all areas of economic trade and consumption.

    7. Finally, I’d almost welcome a DOJ investigation whereby the publishers and independent booksellers would be called upon to justify the legalized gambling publishers undertake in giving out high advances on books that rarely ever make them any money.

  13. XandraG
    Oct 27, 2009 @ 16:28:00

    Commenter Mark McElroy points out that the digital market space can actually result in more authors being successful because of the elimination of the middle man.

    Of course, there are already middlemen in the ebook market, that ask publishers for discounts comparable to wholesalers of print books, without the warehousing and shipping/distribution costs. I don’t mind “e-distributors” getting a discount for their troubles, but asking for the deep discounts just doesn’t seem justified.

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