Publishers Have Pea Brains

After months of wondering whether the Amazon vs. Hachette dispute was over the pricing of e-books, Amazon has finally revealed that the fulcrum of the argument is indeed the pricing of e-books:

A key objective is lower e-book prices. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book.

Even without knowing the exact details I’ve been on Amazon’s side since the beginning based simply on my belief that most publishers are idiotic criminals. No, I’m not just referring to the DoJ’s suit against Hachette and others for conspiring to fix e-book prices — by “criminal,” I mean many publishers are too stupid and lazy to earn their money sensibly, so like purse-snatchers they must resort to stealing it.

How else to explain the atavistic business model of publishing heavy, antiquated hardbacks for $30, then a year later a less-expensive paperback edition? Or delaying an e-book version until well after the print copies have laid on the bookstore tables? Or not offering e-books at all, even though sales of print books are estimated to be down 8 percent since 2008, the year after Kindle was introduced?

Consider these three personal anecdotes:

• Earlier this month, it was announced that Arcadia Publishing would be acquiring The History Press, publisher of Samuel Smedley, Connecticut Privateer. All well and good. Yet buried in the Publisher’s Weekly article was this fact: although Arcadia has a catalog of 9,000 titles, only “about 4,000” of them are offered as e-books. The CEO explained, “Since Arcadia’s titles are heavily illustrated, it has been cautious in moving them into digital format.” Except the postcards and photos included in most Arcadia titles are already black-and-white, which means they would translate well to Kindle’s E Ink or a Nook, let alone a tablet. I can understand how the nature of Arcadia’s books might slow down the conversion process — but less than half their catalog? The article also notes, “nearly all of History Press’ titles are already sold as e-books.” Methinks Arcadia, raising their serpentine necks from the mire with mouths full of water weed, saw the comet tail in the heavens and sought to stave off extinction by very quickly diversifying their backlist.

• While standing at the school-bus stop one day, my neighbor who works for a well-known publisher in New York mentioned his efforts to digitize some of the processes at the company. I asked, Is this part of a green initiative to use less paper? He said it was an attempt to use less paper period. He then went on to tell me that no part of the process for publishing a book at his company was digital, save for the copyediting — and that, he said, was a recent development. The author submitted a hardcopy manuscript, edits and additions were made in hardcopy, and eventually the whole thing was shipped off in a big box to the printer in Quebec who, as my neighbor said, “somehow makes sense of it.” I was gobsmacked; the process for Smedley was entirely digital. But then again, small companies like The History Press don’t have cash to waste like the big houses do. So authors: when the publisher tells you it can only spare an eight-percent royalty, now you know the other ninety-two percent goes to Dunder Mifflin.

• Chaosium mainly designs role-playing games but they also publish a line of Lovecraftian fiction. I’ve been interested in checking out a few titles, if only to read (and support) my old pen-pal Jeffrey Thomas, whose work appears in some of their releases. Yet Chaosium doesn’t offer e-book editions of their fiction. At all. In the year 2014. Because plugging the completed manuscript into, say, Jutoh and spitting out a .mobi or .azw is just too tough. This week I wrote the company asking if they had any plans to offer e-books. I haven’t received a response.

Meantime, Amazon has had to teach the concept of price elasticity to Hachette, a giant multinational company:

It’s also important to understand that e-books are highly price-elastic. This means that when the price goes up, customers buy much less. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.

What dark sorcery is this? Is this so-called “price elasticity” some new, overwrought theorem clawing its way out of the black pits of the Chicago school of economics? No, wait — price elasticity in regard to e-books has been bandied about since at least January 2010, at a time when self-publishers, wondering how to price their e-books and unencumbered by the publishing industry’s arch-conservatism, had a crash course in the subject and determined pricing lower was better.

Publishers like Hachette, by pricing e-books at $14.99 or $19.99, want them to be comparable to their paperback editions, which by their nature they cannot be and which the public, realizing this, rejects. And yet the dinosaurs insist because they perceive e-book editions as competitors against the print editions of the same title. They think the cheapest edition will cannibalize sales of other editions. While that’s definitely true of hardbacks, in my experience sales of paperback vs. e-book come down to preference. People like one or the other but both can live alongside. A frustration with Smedley was the nine-month delay between publication of the print and e-book versions; while promoting the book in 2011, I had many would-be customers ask me if it was available as an e-book. Alas, at the time it was not. Those were lost sales. But the publishers in their skyscrapers never see this, so they stagger the release of editions and try to hike the prices of e-books.

Unable to adapt either processes or economics, publishers — the large ones, anyway — instead resort to gouging readers, shafting writers with low royalties, and colluding to form trusts. Rather than hate the orange smile, I see Amazon as the asteroid that is cleansing the Earth of predatory gargantua, allowing the rest of us small, shrew-like mammals to rise.

Update: I added a link to a New Yorker article to illustrate a point above about cannibalizing sales, but the story criticizes Amazon on several other issues worth noting:

For one thing, he said, Amazon doesn’t actually get to decide what share of revenue publishers pay authors, a fact that the company is aware of. Its call for a thirty-five-per-cent share sounds nice, [literary agent Brian] DeFiore said, but it means little.

So how is that Amazon’s fault? That’s an indictment of Hachette, not Amazon.

DeFiore also pointed out that Amazon doesn’t quantify what lower e-book prices would mean for sales of physical copies of the same books. Authors who work with traditional publishers like Hachette tend to make more, per copy, from hardcover sales than from e-books. If cheaper e-books draw people away from hardcovers, that could hurt these authors financially.

Yes, usually authors do receive a higher royalty on hardbacks. (A conspiracy theory of mine: publishers offer higher royalties on hardbacks than on the paperback rights because they know damn well about price elasticity, and realize they stand to sell greater volume of paperbacks and hence make more money on them.) But, over time, how many $30 hardbacks do you think an author will sell compared to its $9.99 e-book counterpart? The conclusion in the above graf does not follow from its preceding sentences.

If lower e-book prices were to eventually destroy the market for physical books entirely—or even shrink it enough so that it wouldn’t make financial sense for traditional booksellers to publish them—that would help Amazon consolidate its power, which would ultimately be dangerous for authors.

I admit this is a legitimate concern. If we only read e-books and Amazon is the solitary stall in the marketplace, that would be bad. But again: whose fault is that? The reason we’ve arrived at this destination is because Amazon moved faster and more nimbly than legacy publishers; it’s the Year of Our Lord 2014, and publishers can’t decide on a strategy for e-books or, like Chaosium, whether they should even offer them at all. As a writer of alternate histories, I can imagine a world where publishers established their own online market site to sell their products, bypassing Amazon altogether.

In the end, what confuzzles me most is why so many authors loathe Amazon for theft and bullying that has yet to occur while meanwhile defending publishers like Hachette, who are stealing from and bullying them right this minute.