Friday, July 5, 2013

University and Small Presses are Shocked that In the Face of Virtually No Competiton, Amazon Cuts Discounts.

I try not to comment too much on the goings on of the industry, but today's article in The New York Times, "As competition wanes, Amazon cuts back discounts" has got me a little perplexed. Publishers and authors are mad that Amazon is cutting the discounts they offer to consumers. Doesn't anyone understand that the goal of competition is to eliminate competitors, and that anyone who reads "long-term profitability" in their business plan understands that they have to either decrease discounts or increase margins?

In the case of university presses, they have been particularly clever. As the percentage of sales that went to Amazon hits a certain number, say 75%, and note that I am completely speculating here, publishers are encouraged to move discounts to super short, meaning around 20%, with no trade override to retailers, even for small non-class-size orders.

That means that the book is likely going to be sold either as a textbook, or on Amazon. And now I have to apologize in advance, because I'm going to have to get a little jargony. Moving a book to even a middle-ground tier (of 20% discount with a 40% override for trade bookstore display,for example) is going to eliminate most retailers from the mix, because they are not going to have the volume to buy these books directly from the publisher.

Most bookstores would prefer the books to be what we'd call "full trade" so they can restock them from a wholesaler. Otherwise the wholesaler will set the purchase discount somewhere between net (no discount) and 25% off. There are still a few great stores in the country (Seminary Coop, Harvard Bookstore, University Press Books of Berkeley come immediately to mind) who will jump through any number of hoops to have a strong academic presence, and we'll do a bit of this as well, but it's the exception, not the rule.

But once it's super short, we have to pass, as we'll lose money on every transaction, when you factor in our cost structure. And then Amazon has pretty much all the business. And I've got to side with Amazon on this one--once you've knocked off all the competitors, the market for a $65 book is not going to increase much by discounting the book to $45. I probably wouldn't go into the predatory pricing mode to begin with, but if I was brought into one and saw the lay of the land, I'd cut discounts too.

Maybe an academic no-margin website will spring up one day, but good luck convincing your investors that selling at virtually no margin is a good model. And you won't have the truly profitable parts of Amazon that underwrite these losses, like data warehousing.

You can see the "we have all the market so we don't need to discount" model at work in their contract publishing program. Did anyone notice that Amazon's CreateSpace self-published titles are all 25% and nonreturnable, meaning most bookstores, if they carry them at all, only bring in the local ones through 60/40 consignment. And how much does Amazon discount those self-published titles? Based on the way they discount trade books, you'd think they would discount them if not completely (25%), then almost completely (20%) with the knowledge that as the co-publisher, they are still making a hefty margin, as the self-published partner authors can buy their own books for about 75% off.

But in the case of our friend Tricia O'Malley's The Stolen Dog (I'm using her book as I'm touting her event coming up on Friday, July 12, 7 pm), Amazon's only discounting the book 10% and in most cases, it's usually zero. No competitors, no discount, right? The Stolen Dog, by the way, is about Briggs, who was dognapped out of the O'Malley yard, just blocks from Boswell, last year, in plain sight (and with a witness). The neighborhood, and then folks from further afield, got involved in trying to find Briggs. What happened and how Tricia eventually got Briggs back is recaptured in this story. Should be a great time! Briggs is coming too, and he'll be pawprinting (Tricia had a stamp made) the books. More on the Facebook event page.

I just want to say one word about the Penguin Random House merger. There were many reasons why Pearson gave up control to Bertelsmann (the final merger is 53% Random House parent owned, 47% Penguin parent owned) but one has to figure that getting to a size that could compete with Amazon was one of the concerns, especially in light of the Justice Department price fixing suit with Apple.

The Justice Department basically said that publishers could not work together to outmaneuver a predatory opponent like Amazon, who has been fairly public about their vision of upending the traditional publishing model. But the Justice Department has said that it is ok to buy each other. Collaborate, no. Consolidate, yes. It's really our government that led us to this outcome, and I'm not sure what they think the difference is.

The good news for some (not necessarily us and other remaining indie bookstores, who are helped by softening discounts) is that publicity on this move could change Amazon's behavior. I wouldn't be surprised to see some discounts increase in lieu of this New York Times article and the wave of publicity that will follow. For a while.


Bruce Joshua Miller said...

The fact that the reporter of the NY Times piece was able to find publishers who were upset about Amazon's lower discounts does not mean that large numbers of publishers (or authors for that matter) are upset about this. Certainly, none of the publishers I work for (nor the ones I contacted) were upset about this. In fact, most of them are upset about the way Amazon has been able to dominate the market, because,as you correctly point out, their project is to eliminate the competition.

The reason I thought this was an important story, and the reason I offered some information towards its completion is simply because the general buying public has the impression that Amazon always has the lowest price. If Amazon is selling scholarly titles at list, then why not buy the book from your local bookstore?

Many stores DO order books that carry only a 40% discount, and Amazon is not happy when discounts are changed to strictly 20%. As you also point out, Amazon must eventually face the music of its own slim-to-nonexistent margins.

Furthermore, I can't tell you how many times I see people posting comments on blogs and other places saying that Amazon "has a better business model." As Streitfeld points out in his piece, Amazon's profitability (despite being a Wall Street darling) is questionable.

So, my view, for what it's worth, is that anything that puts a chink in the armor of the Big A is good, and I think this story does that.

Tilly said...