Barnes and Noble reports a decline in revenue, Nook looks like a dead horse

Profits are improving, but this is entirely due to cost cuts. Sales of Nook devices and accessories are less than 1/4 than what they were a year ago. From the Press Release:

First quarter consolidated revenues decreased 7.0%, to $1.2 billion, as compared to the prior year. First quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $30 million, as compared to an EBITDA loss of $9 million a year ago. First quarter results were positively impacted by approximately $13 million of favorable adjustments resulting from cost rationalization efforts discussed in the NOOK section below.  The consolidated first quarter net loss was $28.4 million, or $0.56 per share, compared to a net loss of $87.0 million, or a loss of $1.56 per share, in the prior year [...]. 

The NOOK segment (including digital content, devices and accessories) had revenues of $70 million for the quarter, decreasing 54.3% from a year ago. Device and accessories sales were $18 million for the quarter, a decrease of 78.6% from a year ago, due to lower unit selling volume. Digital content sales were $52 million for the quarter, a decline of 24.2% compared to a year ago, due primarily to lower device unit sales. 

NOOK EBITDA losses decreased $50 million, as compared to a year ago, to $5 million, primarily as a result of the cost rationalization efforts that were initiated last fiscal year. 

Eleanor Catton will pay fellow writers to read, the grant might be called "Lancewood"

From the Guardian:

Eleanor Catton, the youngest ever winner of the Man Booker prize, has announced that she will put the money from her latest awards win towards establishing a grant that will give writers "time to read" [...]. 

The grant has yet to be given a name, "in case a nice philanthropist hears about this and would like to lend their name and support to the project", but Catton said that the word which keeps coming to her as a possibility "is the horoeka, or lancewood, a native tree that begins its life defensively, with sharp rigid leaves and a narrow bearing, and at a certain point transforms into a shape that is confident, open and entirely new – so different, in fact, that the young and old versions of the tree look absolutely unalike. That is what I believe that reading can do." 

Catton told the Guardian she intended that writers winning the grant would be awarded $3,000 each for "time to read". "My idea is that if a writer is awarded a grant, they will be given the money with no strings attached except that after three months they will be expected to write a short piece of non-fiction about their reading (what was interesting to them, what they learned) that will be posted online so that others can benefit from their reading too," she said.

Doug Preston prepares new attack to Amazon

Publishers Weekly has the letter that author Doug Preston, leader of Authors United, sent to colleagues to warm them up for a new public initiative, "perhaps as soon as next week".

Dear Author, 

I want to thank you for signing the letter, and I would also like to welcome those of you who have recently added your name to our effort. 

As you may have noticed, the letter we published in the Times generated a great deal of media attention and changed the conversation. In reaction, Amazon established a "readers united" website that seems to be a corporate creation posting official Amazon corporate statements. In the process Amazon managed to misquote George Orwell (which generated this response from the George Orwell estate.) 

Amazon is continuing to sanction books: 2,500 Hachette authors and over 7,000 titles have now apparently been affected. Hachette authors have seen their sales at Amazon decline at least 50% and in many cases as much as 90%. This has been going on for six months and it has been particularly damaging to struggling debut and midlist authors. Amazon is reportedly in negotiations with Simon & Schuster and we can only hope they will not start targeting S&S books next. 

Amazon has been falsely trying to depict us as "rich" authors who are seeking higher e-book prices, while it is fighting on behalf of the consumer for lower prices. Unfortunately, some media outlets have bought this Amazon disinformation campaign. We have not, of course, made any statements whatsoever on book pricing. Our point is simple: we believe it is unacceptable for Amazon to sanction books as a negotiating tactic. Amazon has other negotiating tools at its disposal than harming the very authors who helped it become one of the largest retailers in the world. Amazon could stop the sanctions tomorrow while continuing to negotiate with Hachette. 

And so we are forced to move on to our next initiative. I will be asking you once again for the use of your good name -- perhaps as soon as next week. Stay tuned. 

Again, I want to thank you most sincerely for your courage in standing up for books and the literary community. I will be in touch. 

Warm regards, 

Doug Preston 

P.S. In the meantime, it might be a good idea to do what we can through social media, blogs, opinion pieces, and other means to counter Amazon's disinformation campaign. The writer Janet Fitch, for example, publicly released her letter to Jeff Bezos, which generated this excellent story in the Los Angeles Times.

Spending money on white space

Craig Mod believes that properly sized book margins contribute to pleasurable reading and signal that the publisher cares about quality.

A book with proper margins says a number of things. It says, we care about the page. It says, we care about the words. We care so much that we’re going to ensure the words and the page fall into harmony. We’re not going to squish the text to save money. Oh, no, we will not not rush and tuck words too far into the gutter. 

A book with proper margins says, We respect you, Dear Reader, and also you, Dear Author, and you, too, Dear Book. [...] 

Text printed on the best paper with no margins or unbalanced margins is vile. Or, if we’re being empathetic, sad. (For no book begins life aspiring to bad margins.) I know that sounds harsh. But a book with poorly set margins is as useful as a hammer with a one inch handle. Sure, you can pound nails, but it ain’t fun. A book with crass margins will never make a reader comfortable. Such a book feels cramped, claustrophobic. It doesn’t draw you in, certainly doesn’t make you want to spend time with the text.
Hmmm, it doesn’t stick to the fingers enough. 

On the other hand, cheap, rough paper with a beautifully set textblock hanging just so on the page makes those in the know, smile (and those who don’t, feel welcome). It says: We may not have had the money to print on better paper, but man, we give a shit. Giving a shit does not require capital, simply attention and humility and diligence. Giving a shit is the best feeling you can imbue craft with. Giving a shit in book design manifests in many ways, but it manifests perhaps most in the margins.

HarperCollins raises royalties for authors when it sells their e-books through website

According to The Bookseller, HarperCollins will pay higher royalties to authors for e-books it sells directly through its website, compared to those payed for e-books sold through Amazon and other retailers. This makes sense only as way of incentivizing authors to direct readers to HarperCollins' website, e.g. when promoting their e-books on blogs.

HarperCollins unveiled its new site last week, which features a direct-to-consumer function, allowing visitors to the site to download e-books to read through a free HarperCollins app. The publisher also plans to make print books available for sale later in the year. At the moment, people looking for print books are given links to other retailers, including Amazon, Waterstones and W H Smith. 

The publisher has confirmed that authors will earn more through direct e-books sales through the site. A spokesperson said: "I can confirm that authors' net royalty is higher on e-books sold through our website because we don't have to share a commission with a third party." 

However, HarperCollins would not say what the exact rate was.

Sound of an author seeing his book in print for the first time

David McCandless received the first physical copy of his Knowledge is Beautiful.

Corrupt writers who tolerate typos

A typo in a book is like a paint scratch on a new car, in my humble opinion. But LA Times' Hector Tobar knows writers who aren't exactly nazi about proofreading.

The other day, I exchanged emails with a self-published writer. Discussing Amazon’s dispute with Hachette, he argued that books are overpriced and what traditional publishers have to offer isn’t worth the high price they charge for books. 

What about the cost of editors? I asked. Proofreaders? Book designers? All overrated, he said. “For better or worse, in the online era editing in general and proofreading in particular are becoming less and less important,” he wrote. Readers just don’t care anymore about typos, he said.

Evidence that e-books aren't price elastic

When Amazon called authors to arms against Hachette at the beginning of August, its main argument was that reducing e-book prices would increase total revenue:

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. 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. 

I wasn't convinced that e-books are price elastic. People working for traditional publishers, short-sighted as they are, have been in the book industry for decades. If demand for e-books was elastic, they would knew this and they wouldn't resist Amazon's request of lowering prices.

I looked for recent empirical evidence on price elasticity and found this nice paper written by Imke Reimers and Joel Waldfogel. They calculated price elasticity for e-books and traditional books sold by Amazon between 2012 and 2013. They found that price elasticity is, in absolute value:

• between .39 and .53 for non-self-published e-books
• between .08 and .22 for self-published e-books
• between .88 and 1.23 for physical books

What does this mean in terms of revenue? Let us take the example made by Amazon. The price drops from $14.99 to $9.99, which is a 33.3% decrease. If this is the price of an e-book that isn't self-published, and assuming that price elasticity is at the top of the range (.53), the number of books sold increases by .333 * .53 = 17.7%.

If customers would buy 100,000 copies of the e-book at $14.99, then they would buy 117,700 copies at $9.99. Not 174,000, as Amazon Books Team wrote in the letter. Total revenue would drop from $1,499,000 ($14.99 * 100,000) to $ 1,175,823 ($9.99 * 117,700). So, it is much better for publishers and for authors (who earn a percentage of the total revenue) that the price stays at $14.99.

Reimers and Waldfogel mention an interview in which Jeff Bezos adamantly says that price elasticity studies suggest that Amazon's prices are too low. Just what Reimers and Waldfogel found out and the opposite of what his team stated. You can see the video of interview here; the relevant passage is (emphasis added):

Jeff Bezos: In the long run, if you take care of customers, that is taking care of shareholders. We do price elasticity studies. And every time the math tells us to raise prices. 

Charlie Rose: But why don’t you do it? 

Jeff Bezos: Because doing so would erode trust. And that erosion of trust would cost us much more in the long term.

A different and common explanation of Amazon's low-price policy is that it uses books and other product categories as loss leaders. Another is that Amazon's prices are predatory, that is they are intended to put rivals out of business or to allow Amazon to dominate the book market in a delicate stage of transition from old to new technologies. This is a legitimate strategy, although I see some possible anti-trust issues in it. However, when Amazon tries to convince authors that e-books are price elastic it simply isn't honest.

Lexicography at the time of the internet

From the Economist:

The internet is radically changing lexicography. So many dictionaries—from both traditional and new publishers—are free online that lexicographers compete to offer features such as audio pronunciations, access to their database of historical citations and so on. Perhaps inevitably, online lexicographers include new words more quickly than their print counterparts do. There is no real space consideration, for one thing. And for some kinds of searches, an online dictionary that does not keep up with new language will be out-competed by other dictionaries that do. For example, Urban Dictionary, an online resource full of scurrilous definitions, included "side boob" in 2005. Pressure from internet dictionaries may have led Collins, an traditional dictionary, to allow Twitter users to vote for a new word to be included—the winner was "adorkable". So it is hardly surprising that even Oxford includes a few "cray cray" (in other words, crazy) new words each year. A final advantage of online lexicography is that over-hasty entries can easily be removed.

The article discusses the recent inclusion of "mansplaining", "side boob", and "neckbeard" in the venerable Oxford Dictionary.

Carmina non dant panem, with exceptions

From NPR:

Former U.S. poet laureate Robert Hass has won the $100,000 Wallace Stevens prize for "outstanding and proven mastery in the art of poetry" from the Academy of American Poets. Hass is much-lauded: he was a MacArthur Fellow, won a National Book Award in 2007, and shared a Pulitzer Prize in 2008, among other prizes.

There are probably more people who write poetry than people who read it. If you think that poetry is valuable, this implies that you should find some mechanism to force people to read poems. Actually, such a mechanism was invented ages ago. It is called "school".

Subsidizing production does not make a lot of sense, instead, since there are so many poets around already. Poets find a lot of pleasure in their craft, whether or not someone reads their verses. So poetry prizes are a waste of money, from a social welfare point of view.

Lawrence Summers, reader

Reading provides readers with different utilities. First, it is pleasurable, so it is consumption. Second, it makes you more informed, more intelligent, and more effective, so it is investment. Finally, it makes you predictable, which lowers the costs for other people of dealing with you. I thought of this after reading a beautiful interview with Lawrence Summers, "president emeritus of Harvard University, adviser to presidents, former chief economist of the World Bank and treasury secretary of the United States".

BOOKS: Which of your high-pressure jobs left the most time for reading? 

SUMMERS: I thought it was important to read in all of them. At the World Bank I read a set of ethnographies on village life in the developing world. When I was with President Obama I read a lot about the history of financial crises, the Great Depression and Roosevelt’s response to it. That had a significant influence on the advice I gave the president. 

BOOKS: Who influenced you as a reader? 

SUMMERS: My mother used to take us to the public library every week or two and that set the habit. Whenever I get separated from my family in an airport they look for the bookstore because they figure that’s where I am. 

BOOKS: Who do you talk books with? 

SUMMERS: I try sometimes with my wife, but she’s an English professor so she talks books in a more sophisticated way than I do. Sometimes we are able to find some convergence on something historical. I joke with her that the fiction she likes doesn’t have enough verbs in it. She finds the fiction I like to be a tad primitive, meat-eating and number crunching.

Twitch for books?

After Amazon bought Twitch, a huge community of people who watch other people playing videogames, experts wonder whether we are on the verge of "watching people read". I suppose this would be something like this.



I am not sure there is commercial potential in it. But, honestly, I would have said the same of Twitch.

The pain in the backside of stickering books

A recent Publishers Weekly article discusses net pricing. The current model is list pricing, in which the publisher sets the final price of the book, prints it on the back cover as a "suggested price", and sells the book to the distributor at a discount (like 50-55%). Bookstores are allowed to sticker a different price on the book, if they like so, but they prefer to avoid it because "stickering books is a royal pain in the backside", in the words of a bookstore owner. In certain countries (especially in Europe), the law may even forbid bookstores from stickering, except for used and damaged books or special promotions.

The consequence of list pricing is that customers expect that the prices of the books are the same in all the (physical) bookstores. This limits price competition among them, which was thought to protect their margins. That was until online bookstores entered the market, selling books at prices that they decided, usually different than the list price, and usually lower. Now list pricing + online retailing make very easy for the readers to find the best price of a book: just check the prices of online retailers.

In the net pricing model the publisher doesn't print a suggested price on the book. It sells it to distributors at a certain price, as it happens for most other products (from TV sets to parmesan cheese). The distributors apply a mark-up, which may vary from title to title, and set the price they ask to final customers or other distributors. This model is currently used by many bargain book wholesalers. The bookstores have the pain in the backside of stickering the books, but they can adapt the prices to local demand, using their information on customers. Independent bookstores are supposed to know readers well, so the advantages for these bookstores could cover the costs of stickering books.

However, the biggest benefit for physical bookstores is that under net pricing the market prices of books become more opaque to customers than they are now. There is not a list price anymore, each bookstore may have different prices, so the customers cannot be sure that the prices of online retailers are the lowest.

Of course, bookstores would like net pricing more if the costs of stickering books were lower. One of the bookstore owners mentioned in the article says that he still handles stickers with a price gun and standard address labels. Here there is room for technological innovation. Probably today one can invent something more efficient than price guns.

Bookstores could also experiment with formats that avoid stickers. For example, they could divide books in just a few price categories (e.g. $ 4.99, $ 6.99, $ 9.99, and so on) and put them in different areas of the stores or different shelves. This would also allow customers to browse books by price. I am sure that there are ideas that are even simpler. In any case, list pricing made sense for bookstores when it was effective in restraining price competition. Now that sales are moving to online retailers that use prices aggressively, net pricing (and/or efficient massive alternatives to book stickering) would give bookstores flexibility of response.

Theories of writing: Hyde vs. Bourdieu

Why do writers write?

In his great book The Gift (1983), Hyde tried to explain, against an American intellectual background of economic rationalism, why people would do something like write poetry. Bourdieu, whose work was beginning to be translated into English around this same time, had already prepared an answer to this question: people make art for the same reason people do everything—because they want to gain capital. In the case of art this capital was often symbolic rather than financial, but it was still capital. For Hyde, art-making looked more like the premodern gift economies described by anthropologists like Mauss and Lévi-Strauss—the creation of something without obvious utility that could be presented to the world as a gift. (Bourdieu had also written about gift economies; for him they were, like art, a winnable game with rules and strategies.) For Hyde, the secret of art was that there was no secret—art-making was what made us human. It was what we did for free.

This is from n+1 and is interesting throughout.

Drastic drop of e-book sales at Ellora after Amazon changed its search algorithm

From Publishers Weekly:

Ellora’s Cave CEO Patty Marks confirmed the house is downsizing in the wake of what she described as “drastic’ and unexplained declines in its e-book sales via Amazon. Marks confirmed the layoffs of freelance editors, and said the house continues to have discussion with Amazon to find the cause of the sales dropoff. 

Marks sent a letter to Ellora’s Cave authors about the major sales dip, and the note was then re-posted online. Marks said Ellora's Cave sales via Amazon have dropped by as much as 75%. "We’re talking to Amazon and trying to figure out why this is happening,” Marks explained, noting that Amazon is the biggest sales channel for the digital-first erotic-romance publisher. 

According to Marks, the issue is likely related to a change in Amazon’s search algorithm. Many of Ellora’s Cave’s bestselling authors and titles simply don’t show up in the Amazon search engine anymore. She pointed to one of the house's most popular authors, Laurane Donner, whose books are New York Times bestellers, noting that a search for her titles on Amazon initially retrieves only free giveaways.

File this under "risk of depending on one single customer which is so much bigger than you".

Word count of famous literature

HT: Book Patrol.

Self-publishing isn't necessarily about making money and hitting the charts

It can also be a way for writers with a day job to avoid agents, publishers and other moneymen. Sameer Rahim:

You can distribute poems and stories on social media – the equivalent of the Renaissance poet handing sheaves of poems to friends – or self-publish them on a website or as an e-book, charging a nominal amount or nothing. So far online self-publishing has been the preserve of fan fiction and erotica but it can’t be long before high-quality fiction starts to emerge. Right now there is a distressed writer sitting in front of her computer somewhere, worrying not about whether she’ll make enough money to give up the day job or how many copies she will sell, but obsessing over form and language, meaning and truth. Exactly what, in the long term, readers will always be hungry for.

Bookstores need to sell e-books

US bookstore sales were down 7.9% in the first half of 2014, compared to the same period last year. The total bookstore selling space in the US decreased 30% between 2008 and 2014. Some architects want to reinvent bookstores, and doesn't this sound like a kiss of death? These architects say that new bookstores should "anticipate every sort of literary need, from grabbing a paperback or download, to relaxed browsing, personally tailored reading-lists, self-publishing, book clubs, author events and even an enhanced experience of reading a book in the bookish equivalent of a flotation tank", which is fascinating but doesn't seem to involve actual selling of books.

The traditional advantage of bookstores was that their employees help customers in discovering books that don't show up in the recommendations of Amazon or other online retailers. These books include fine literature and quality non-fiction (such as stuff that is not written by Malcolm Gladwell). In the old times, this service was strictly associated with selling: the employee would find the book that was just right for you and you would buy it. Now you say "thanks for the suggestion" and then go home and buy it from Amazon at a lower price.

Bookstores are especially useful for small and independent publishers that cannot afford to spend a lot of money on promotion, like the Big Five publishers do. Tom Roberge, who is Publicity & Marketing Director at New Directions (they publish Roberto Bolaño, Muriel Spark, and Robert Walser, among the others) wrote a worried piece on Publishing Perspectives:

... we as publishers simply cannot function without independent bookstores. Apart from the sales revenue (and my employer, New Directions, relies on the these channels much more than any of the Big Five publishers, by a factor of ten), there is the less quantifiable and yet equally important fact that the indies support us in a myriad of ways. 

Unlike Amazon’s vaunted algorithm, bookstore employees talk to their regular customers, get to know their tastes, and recommend titles that Amazon might never deem appropriate. Individual book stores and booksellers are the most valuable participants in the crucial search for word-of-mouth buzz, championing our titles on the frontline of literary engagement. I could go on and on. The point is, bookstores matter. To see them slowly and steadily shutter their doors because they couldn’t slash prices enough would be heartbreaking, of course, but it would also be bad for the publishing business as a whole. 

Even the Big Five know this: why else would they devote so much time and effort to building relationships with thousands of unique stores despite the fact that those stores represent only 3-5% of their annual sales?

As Roberge emphasizes later in the article, selling e-books would help bookstores. The technology for sending e-books directly to the customers at the desk of the store already exists. However, the e-book market is almost totally dominated by Amazon. I think that a strong anti-trust argument could be made that Amazon should make easier for e-book distributors to access the Kindle platform. This could involve abandoning DRM. In the Netherlands there is a thriving e-book market that is based on watermark. Opening up the Kindle platform would lead to a more diverse e-book ecosystem, with many different retailers, in which even physical bookstores could carve their niche.

Kindle Worlds is not taking off

From The Bookseller:

“Serious content restrictions” at Amazon’s fan fiction platform Kindle Worlds could be a reason why people are not creating as many works on the platform as elsewhere, a new study by Georgetown law professor Rebecca Tushnet said. 

Kindle Worlds allows people to write stories set within certain licensed worlds, such as Hugh Howey’s Silo Saga. When a reader buys a Kindle Worlds book, royalties are paid to both the author and the rightsholders of the world. 

The study, by US law professor Rebecca Tushnet, compared Kindle Worlds to other fan fiction sites and found that Amazon’s total for all 24 worlds it had available in June, after a year of operation, showed 538 works had been created. By contrast, a general search using fanfiction.net’s “Just In” feature, showed Tushnet 100 stories posted across all categories in the hour before her search. 

Meanwhile in June 2014 there were 46 works on Kindle Worlds for the "Pretty Little Liars" TV series, while there were nearly 6,000 for the same series on Fanfiction.net.

Kindle Worlds’ authors receive 20% of the net revenue for works between 5,000 words and 10,000 words, and 35% for works over 10,000 words.

German government supports the protest of local authors against Amazon

Monika Grütters, the German minister for culture and media, supports the recent protest of more than 1,000 writers from Germany, Austria and Switzerland. The authors signed an open letter to Amazon, accusing it of manipulations of reading recommendations and of lying to customers about the availability of the books published by Bonnier Group. Amazon did not deny accusations. It simply stated that it wants Bonnier Group to lower e-book prices, because it “offers most of its titles under conditions that make it significantly more expensive for us to sell a digital version, as compared to a printed edition”. Germany is the largest market for Amazon outside of the United States.
According to Monika Grütters, the book market is not like any normal market and needs protection.

"Market power and domination over central distribution channels should not endanger our cultural diversity," said the state minister for culture and media, Monika Grütters [...]. 

Her statement "welcomes and supports" a campaign by authors, some of whom have been caught in the cross-fire as Amazon re-negotiates its deals with publishers [...]. 

"If titles are removed from recommendation lists and deliveries are delayed to enforce discount demands from publishers, this is totally unacceptable," Grütters said, stressing that books are both "economic goods" and "cultural property" [...]. 

Grütters said that "literature, books, publishing houses ... are a foundation of our cultural life". 

"They must not be subject purely to market principles. Dealing appropriately with these values   also has an ethical dimension. This applies to all players - including Amazon."

Would she have said the same things if Amazon were a German company? Hard to tell.

Public libraries and e-books

NJ.com reports that US librarians are unhappy with the e-book availability and pricing policies of publishers.

Hamilton Public Library director Susan Sternberg said that local libraries, like thousands of others across the nation, are having trouble as they butt heads with publishers over the pricing and availability of e-books [...]. 

A hard copy of a book can be lent to a countless number of library patrons, but publishers will only license the use of e-books. This license is generally short-term, limiting how many times the library can lend a particular e-book and for how long it will be available in the library’s collection [...]. 

In three years, e-book distribution has grown from a few hundred a month to around 2,000 a month at the Hamilton Public Library, said Sternberg, though she still says that the high prices and limited use of these books is keeping hard copies the No. 1 commodity. 

“Until that model changes, e-books will not surpass books in a library,” she said. If more e-books were available in the library, they would be used more frequently, Sternberg said. 

On the state level, e-book purchases have skyrocketed, but still have yet to surpass hard copies. In 2009, New Jersey public libraries purchased nearly 2 million print books and only licensed 51,377 e-books, whereas in 2013, the library purchased 1.6 million print books and licensed about 879,000 e-books, said Bob Keith, the data coordinator for the state library [...]. 

Libraries are not the only entities offering electronic books. As sites such as Netflix, which provides thousands of movies for a flat monthly fee, increase in popularity, one major company is hopping on the trend, this time, offering books. 

For $9.99 a month, Amazon offers unlimited book downloads granting access to over 600,000 titles ready to be downloaded on a free Kindle app, which can be used on computers, smartphones, tablets, and of course, Amazon Kindle readers. Though the consumer pays for this service, which was launched last month, it still provides competition to local libraries.

US public libraries are serious competitors for Amazon's and other subscription services. As reported in a recent WSJ article, many of these libraries have rich and up-to-date e-book collections that surpass Amazon Kindle Unlimited catalogue:

Of the Journal's 20 most recent best-selling e-books in fiction and nonfiction, Amazon's Kindle Unlimited has none—no "Fifty Shades of Grey," no "The Fault in Our Stars." Scribd and Oyster each have a paltry three. But the San Francisco library has 15, and my South Carolina library has 11.

While Amazon asks you to pay $9.99 a month, public libraries are free.

The problem is that the model used by libraries for physical books cannot be easily extended to e-books. The number of physical copies held by the library limits how many times titles can be lent. No such natural limit exists for e-books. Publishers need to create the limit artificially, otherwise all the e-book distribution would move to public libraries. The road chosen by publishers is to put a cap on the number of licenses sold to libraries, which immediately leads to the question of which number is optimal (for the publishers or socially).

Julian Gough asks readers to finance his trip to Las Vegas

From the Guardian:

In the wake of a new survey which revealed a dramatic drop in author incomes, the award-winning Irish writer Julian Gough is funding his new novel with an unusual Kickstarter offering backers the opportunity to receive postcards from Las Vegas bearing whisky stains, lipstick, and even bullet holes. 

Gough has dubbed his "economic-slash-literary experiment" Litcoin, and hopes the concept might be copied or modified by other writers. Winner of the BBC short story prize in 2007, and author of novels including Jude in London and Juno and Juliet, Gough says he was inspired "by the fact that James Joyce died leaving an estate valued in total at £908 … but a single letter handwritten by him sold after his death for $445,000", a situation he describes as a "massive market failure". He hopes his project – which has been hugely overfunded – could "help remodel the economics of writing". 

The idea of asking his readers for help came to Gough while he was finishing his new novel Infinite Ammo, which is set in Las Vegas. The author found he needed a final research trip to the city, and although he received help with flights and accommodation from the Downtown Project in Las Vegas, he "just didn't have enough money to live on for the month, and there was only a week or two to go before I flew out". 

So he put together the Kickstarter, to which readers can pledge between $1 and $10,000. For $25, backers will receive a coffee or whiskey-stained postcard from Gough in Las Vegas; for $50, it will also feature lipstick; for $100, a bullet hole; for $500, it will be written in Gough's own blood. Gough was hoping to raise $1,500 to help him fund his trip. The Kickstarter, which closes on Wednesday, is already topping $7,300.

Read the whole thing, which includes a video pitch by Gough.

The point on the failure of the markets is well taken. I can imagine Robert Shiller figuring out a futures contract for posthumous letters of writers who are still alive.

BISG Guide to identifiers (or all you wanted to know on ISBN, ISNI, IPI, ISMN, ORCID, etc. and you were understandably afraid to ask)

Here. HT: Jason Allen Ashlock.

On free speech, editorial work, Stendhal, and the future of books

FT (August 15, 2014).

FT published a second summary of the Amazon-Hachette fight (the first one was this). Nothing that was not written in every place on the internet the last week. The piece included a nice pie chart of Amazon's proposal for e-book revenue sharing though. And it reported a couple of opinions that are widely held but largely wrong. I start with Amanda Foreman.

Amanda Foreman, the Whitbread Prize-winning author of Georgiana, Duchess of Devonshire argues that Amazon’s grip on the book market presents “a real and present danger” to consumer choice. “The fundamental principle here is preserving pathways to free speech and freedom of thought in the marketplace of ideas.”

Amazon's grip on the market causes a real risk of estinction for physical bookstores and for traditional publishers as we know them. However, books are only a small part of the marketplace of ideas. Even if books come to be monopolized by Amazon, there are newspapers, magazines, social networks, blogs, and various internet outlets, which will still be open to writers and thinkers of every kind.

Moreover, it is impossible to establish a monopoly in the book industry, because barriers of entry are too low. Digitization is making them even lower. The costs of publishing e-books are virtually nil, as self-publishing demostrates. The costs of setting up alternative e-book formats or distribution platforms if Amazon's grip on the market becomes total are within reach of small start-ups, which would not fail to spring up everywhere, in a monopoly scenario.

So (luckily) there is no chance that Jeff Bezos or Russ Grandinetti will decide what we are allowed to read.

Then there is an anonymous author.

“It’s megalomania,” says one author who asked not to be named, citing past Amazon threats to stop selling his books. “What I fear is . . . we may see a disintegration of the book market. You’ll have no guarantee of quality through a publishers’ imprint.”

This is the fear that only the traditional publishers allow authors to achieve the quality that we are used to see in serious novels or essays. The easy answer is that traditional publishers are not that traditional after all. The current system, under which editors hired by the publishers work with the authors to improve the manuscript, is no more than 100-year old. You know that serious novels and essays existed before.

Homer, William Shakespeare, Gustave Flaubert, or even Charles Dickens had no editors. Sometimes it shows! One cannot read the holy mess that is the final chapter of the Charterhouse of Parma without wishing that Stendhal had some editorial advice. But great authors are usually able to take care of themselves. They are pretty good at self-editing. And they try to achieve quality standards that are higher that what is required by editors. Their models are the great works written by other great authors.

Of course some authors are not so great and really need editorial help. For them, there are alternatives to traditional publishers. Think of the peer-review system in scientific journals. In many disciplines, reviewers do not limit themelves at evaluating the soundness of the empirical results: they intervene on the organization of the manuscript, the flow of reasoning, the quality of the arguments, the balance between different parts, even the style. Many rounds of reviewing are sometimes expected. Authors always curse at reviewers' requests but at the end of the process they have to admit that their manuscript is a lot better than what it was at the beginning. Peer review is gratis, entirely based on reciprocity between authors and the idea that quality of research is important and must be preserved.

I am not saying that peer review is the future of books. It is only an example of how editorial services can be provided by people or organizations that do not work for traditional publishers. There is value in the quality of books, there are people who can do editorial work, and there is no reason that a market could not find a good replacement for traditional publishers if they are going to disappear.

New probably misleading similitude about the book industry

Amazon recently wrote that e-books are like paperbacks. Now Peter Hildick-Smith, president of Codex Group, says that physical bookstores are like movie theaters.

Based on Codex survey data, Amazon has more than tripled its book unit share, from 13% in 2008 to 40% in 2014, which has contributed to an estimated 30% loss of physical bookstore selling space over the same period. With that loss of bookselling space has come a 4% decline in U.S. households reading fiction from 2008 to 2012, according to research by the National Endowment for the Arts. 

In Hildick-Smith’s view, just as Hollywood movie studios would be reduced to mere video producers without movie theaters to launch their latest blockbusters, trade publishers without physical bookstores to accelerate new book discovery would be robbed of their unique ability to make break-out bestsellers and author brands, and ultimately be reduced to the role of Amazon associates, reliant on daily deals to promote new titles. 

Whether openly acknowledged or not, the book market is “now in a battle for both the survival of physical-world book selling and the trade publishing business model that depends on it,” Hildick-Smith said. “The choice is either to emulate the film industry, with its theaters and strong multiple channels of distribution, or else by default, go the way of the music industry, which has endured a massive revenue decline since it became dominated by digital distribution.”

This similitude does not sound right to me. Movie theaters add to your experience, because you watch the movie on a screen that is a much larger than your typical tv set. And you make your kids/significant other happy when you bring them to the movies, or you enjoy the company of other people. Bookstores add nothing to the experience of reading a book, which is exactly the same whether you bought it in a bookstore, on the internet, or is landed in front of your house by drones.

Moreover, movies are first distributed through theathers and then through other channels. Books are distributed through physical and online bookstores at the same time. There is a sequential model in the book industry as well, but as we know it is based on different book formats, first the hardback, then the paperback. By the way, one should asks Amazon how come that hardbacks are still the format that publishers prefer for the new titles, if paperbacks were so beneficial to the industry.

Probably books are more like music, which is substantially the same in all formats and across all the distribution channels, even though books are less exposed to piracy than music is (with some exceptions).

À La Guerre Comme À La Guerre

Publishing Perspective's Edward Nawotka thinks that Hachette's CEO strategically choose to get the fight with Amazon out on the public eye.

I think it was smart of Pietsch to take his fight with Amazon public. Maybe it wasn’t Pietsch himself — maybe the order came from France, from Arnaud Noury of Hachette in France, or perhaps someone higher up at Lagardere (it’s no secret there is no love lost between the French and Amazon)? Either way, it doesn’t matter. If you want a general in this war, Pietsch is your guy [...]. 

The fact is that this has now become a war of words. And for this reason alone I think it was in Hachette’s best interest to make their disagreement with Amazon public. They made the battleground into a place where they have a natural advantage. 

Amazon, which is reticent to speak publicly or with substance about any issue with true importance, has already proved itself clumsy with words. To wit: its embarrassing misquotation of Orwell…While it’s not a fatal blunder, it is revealing. 

And the fact of the matter is, if publishers can’t themselves win a war of words, they are doomed as it is.

The real source of Amazon's competitive advantage, if any

From Bain partner Darrell Rigby:

Analyzing the profitability of public e-commerce retailers, including the mighty Amazon, Bain finds that e-commerce’s pricing advantages mostly stem from unsustainably lower profit margins rather than from lower costs. The information technology, distribution centers, shipping, and returns processing required by e-commerce companies can actually cost as much as running physical stores.

It is common to hear that Amazon is at the forefront of innovation in the book industry. Traditional publishers are the dinosaurs. But innovations are here to stay, and are good for the trade and the customers, only if they are efficient. In a market, the only real proof that they are is that the innovators are able to profit from them. As a matter of fact, Amazon is not profitable, while traditional publishers are.

Study suggests that people are less focused when reading on Kindle than when reading a paperback

From the NYT:

A team of researchers led by Anne Mangen at the University of Stavanger in Norway and Jean-Luc Velay at Aix-Marseille Université in France divided 50 graduate students — with equivalent reading habits and experience with tablets — into two groups and had them read the same short story by Elizabeth George (in French translation). One group read the story in paperback, the other on an Amazon Kindle DX. All the while, researchers measured the students’ reading time and their “emotional response” — using a standard psychology scale — to the text. Afterward, they were tested extensively on different aspects of the story. 

In most respects, there was no significant difference between the Kindle readers and the paper readers: the emotional measures were roughly the same, and both groups of readers responded almost equally to questions dealing with the setting of the story, the characters and other plot details. But, the Kindle readers scored significantly lower on questions about when events in the story occurred. They also performed almost twice as poorly when asked to arrange 14 plot points in the correct sequence.

“It’s interesting to us that the differences were both related to time and temporality — why is that?” said Ms. Mangen, who presented her team’s study last month at a conference in Turin, Italy.  

Here is a diagram with the results. The Kindle group underperforms the paperback group on any dimension. Since n = 50, some of the differences may be not statistically significant and the study definitely needs replication on larger groups and with different types of screen devices.

Terry Pratchett and the learning curve effect

Interviewer: What’s the worst book you’ve ever read? 

Terry Pratchett: Probably the first draft of the first one I ever wrote, but I think I’ve got better since then.

The interview is at the NYT.

E-book sales across book categories

From conversations, it’s been sounding like “adult books,” as broad as that is, have been shaking out to be more 50/50 physical books vs. e-books, whereas in categories like young adult fiction, sales are still 80% physical books.

This is from Elisabeth Donnelly.

Are the interests of book authors aligned with Amazon's?

I understand that the elevator pitch of Joshua Gans is something like "I am arguably the world’s leading economic expert in the area of digitization and its implications for antitrust". So it is not a surprise that he wrote to Hachette's CEO regarding the fight with Amazon. He raised interesting points about elasticity of demand and Amazon possibly abusing his quasi-monopolistic power.

Dear Mr Pietsch 

I am writing to you at the request of Amazon but, in fact, it is to plea with you to ask them some important, but as yet unasked, questions. 

This is no time for modesty. I am arguably the world’s leading economic expert in the area of digitization and its implications for antitrust. I’m a Professor at the University of Toronto, an author at Digitopoly.org and have written and published eight books. Thus, I am in a unique position to consider this debate in economic and business terms. 

Thusfar, Amazon has been straightforward in terms of what it is asking for. Amazon have argued that reducing eBook prices will increase revenue and they want to share that revenue three ways between themselves, yourself and your authors. If it is true that the eBook prices you would prefer are not revenue maximising, then you need to explain why you think that is the case. Amazon have stated that their data reveals that the price elasticity of demand for eBooks, on average, is 2.42. What is Hachette’s corresponding estimate? 

There are, however, many questions that Amazon have not answered that I believe you should ask them. 

1. Regarding their stated price elasticity of demand, does this calculation take into account the impact of lower eBook prices on the revenue from print books? Does this calculation take into account the change in revenue that would result if all publishers (not just for the price of one e-Book), moved from $14.99 to $9.99? 

2. Regarding Amazon’s claim of promoting a reading culture, why does Amazon require exclusivity from publishers/authors when opting into pricing models such as Amazon’s lending library and Kindle unlimited? This exclusivity reduces the ability of consumers to choose between alternative eBook platforms/retailers for individual e-Books and thus reduces competition at the retail end of the market. Specifically, this (negatively) impacts the very authors that self-publish and bypass traditional publishers. 

3. Regarding reader lock-in to the Kindle platform, will Amazon agree to support a diverse array of formats and arrangements with publishers that will permit readers to port their collections across platforms? Once again, reducing lock-in will empower readers to choose platforms that best suit them and to ensure that the bottlenecks — such as those Amazon asserts exist at the publishing level — do not arise elsewhere in the industry. 

Hachette has remained silent in this debate and has let authors do the work in promoting their cause. The author statements, however, do not reveal a proper economic foundation and do not answer Amazon’s main claim for lower prices. There may be more nuanced reasons for that but Hachette has, thusfar, failed to demand the answers necessary to move this debate forward. 

Sincerely 

Joshua Gans

The probable answer to the first question is: Amazon does not calculate the impact of lower ebook prices on sales of print books sold in the Amazon store. For sure it does not calculate the loss of revenue from print books sold in independent stores (or ebooks sold by rival distributors).

So, even if lower prices for ebooks increase revenue from ebook titles, this does not mean that the combined ebook and print book revenue from those titles increase. The lower ebook price can simply shift demand from a format to the other. In this case the royalties for authors do not increase. Indeed, they probably go down, due to the lower price of the ebook format.

If authors and publishers are locked in the Amazon ebook platform (second and third questions), Amazon will cash in all the increase in revenue from the ebook sales, while the smaller revenue from the print book sales will be shared with other sellers, especially independent bookstores. In this scenario Amazon wins and everybody else loses.

There are many ifs in this argument, but it shows that authors should think twice before assuming that their interests and Amazon's are aligned.

What are traditional publishers good for? Absolutely nothing

Or at least this is what John Kay writes on the FT. He states that traditional publishers have weak contractual power in the new market landscape because they disinvested from all the real value-added publishing activities, i.e. helping authors writing great books and promoting them.

The role of the book publisher has been based on control of access to channels of distribution. The ambition of the aspirant author has always been to “get published”. Along with the decision as to what should be published, the company has traditionally provided a collection of associated services: identification, support and finance of the underlying literary project, editing of the draft manuscript, and marketing and promotion of the finished work. 

But the large conglomerates that have come to dominate publishing are run by people who love money more than they love books. These support activities have been cut back in the interest of maximising the revenue, from control of access to distribution. Today’s bestseller lists are filled with imitations of books that have already been successful; footballer’s memoirs, celebrity chefs, vampires and female-oriented erotic literature [...]. 

What matters to the success or failure of a book is the quality of conception and execution of the underlying project, the competence of the editing, and the effectiveness of marketing and promotion. Most new self-published titles fail these tests; in particular, the lack of a competent editor is often obvious. But this is also true of many titles now published by established houses. 

Some existing publishers will thrive on the basis of their strengths in author support services. But most will not. Savvy and well-advised authors, often helped by agents, will be able to buy editing and marketing skills with the receipts from a much larger share of the sales proceeds than the traditional royalty model allows.

You see an application of this in the experiments of traditional publishers with Swoon Reads (owned by MacMillan) and other websites in which readers are asked to decide which manuscripts or book projects deserve publication. If successful, these websites will allow publishers to save costs by firing editors but ultimately will also make publishers irrelevant.

Prices of e-books in presence of piracy

... it's true that prices are unjustifiably high given the cost of producing e-books. In Russia, for example, where book piracy is much more of a threat than in the U.S., electronic bookseller Litres.ru manages to sell nonpirated e-books for half of what Amazon charges.

This is from Leonid Bershidsky.

Harvard professor gives false hope to traditional publishers that they can disintermediate platforms

FT's media correspondents summarize the state of affairs in the Amazon-Tradpub fight. Some space is given to the theory that publishers could disintermediate Amazon and sell e-books to customers directly through their own websites.

“In the online context, one can absolutely imagine one day publishers will provide books directly to consumers,” says Prof Edelman. Doing so could undermine Amazon’s market share and its buying power. 

Some publishers agree. “We have to have a relationship with the consumer,” says Stephen Page, chief executive of British publisher Faber & Faber. “At London Book Fair this year, all the talk was about data.” 

Understanding consumers’ habits could help publishers better decide what titles to acquire and how to market them. But there are obstacles. Even selling direct, publishers are unlikely to match Amazon’s prices. Individual houses also lack Amazon’s brand and range. “It’s very, very hard to create a destination site because we don’t represent the entirety of the market,” says Chantal Restivo-Alessi, chief digital officer at HarperCollins, which started selling books direct to US consumers last month.

Benjamin Edelman recently argued that companies can deploy a number of strategies to attract customers directly to their websites, circumventing the dominating platform. While in some cases this could work, I am highly skeptical that this is going to happen in the e-book market. E-books need devices. The history of consumer products say that customers eventually concentrate on no more than 1-2 devices/standards/platforms. For e-books, it will probably be only one. No sane reader wants to have half of her book collection in a format and another half in another, with two devices needed to read all of her books. Publishers can easily attract readers to their websites, but they will need to make the e-book compatible with the dominant device. Which will be a Kindle (physically or as an app). You can complete the story yourself.

This looks as pretty easy stuff to me but Edelman is at Harvard Business School, so maybe I am missing something.

Stephen Colbert on Amazon vs. Hachette

I know this has been around for awhile but it cannot be left out of a serious blog about the economics of books.

The Colbert Report
Get More: Daily Show Full Episodes,Indecision Political Humor,The Colbert Report on Facebook

How much did book authors collect on Kickstarter last year?

On Kickstarter, writers last year collectively raised $22 million in funding for some 6,000 works in progress, which ranged from teenage novels and comics to nonfiction books.

This is from the NYT. The article is about traditional publishers that are experimenting with crowdsourcing for evaluating manuscripts.

Indie authors join Amazon in asking big publishers to lower prices: rational or not?

DBW's Jeremy Greenfield wonders why many self-published authors are supporting Amazon in its request that big publishers lower their prices. Self-published authors sell their books at low prices so they should be happy that Hachette, HarperCollins and so on keep prices high, right? Nobody has ever saw H&M, Zara, Forever 21 and other low-cost fashion retailers begging Ralph Lauren or Giorgio Armani to lower prices and steal their customers.

Greenfield quotes publishing expert Mike Shatzin:

One other aspect of this whole discussion which is mystifying (or revealing) is Amazon’s success getting indie authors to cheer them on as they pound the publishers to lower prices. (The new Amazon statement is made in a letter sent to KDP authors.) This is absolutely indisputably against the interests of the self-published authors themselves, who are much better off if the branded books have higher prices and leave the lower price tiers to them.

Greenfield also reports the opinion of (former self-published and now Amazon's author) Barry Eisler:

It’s certainly possible that high legacy prices create an opportunity for indie authors to sell their books for less. But there is another possibility — that more readers will spend more money on all books overall if more individual books cost less. 

To put it another way: if I had a choice between selling my books at $5.00 into a market where all other books were priced at $15.00, on the one hand, and selling my books at $5.00 into a market where all other books were priced at $5.00, on the other hand, I would prefer the second market because it would be so much bigger [...]. 

The point is, you can grow a market with low prices in such a way that individual sellers make more money in the bigger low-price market than they would have made undercutting prices in the smaller, high-priced market. When perceived value goes up, consumers spend more money. The market thereby grows, and individual sellers, even if the percentage of their slice of that market remains constant, make more money.

I am sure that Barry Eisler's novels are beautiful but I would not recommend a business strategy handbook written by him. His argument rests on:

• the strong assumption that the market demand for books is elastic (when you lower the price of books the number of books bought increases more than proportionally, so the total revenues grow); this is one of the claims made by Amazon in its appeal to authors, but it is not supported by independent research, as far as I know;
• the delusional idea that all individual sellers win when the pie of the market is larger; this is obviously not so; the share of pie for each seller will depend on the price of their products; price competition by big publishers would reduce the market share of indie authors, possibly more than compensating the increase in the size of the market.

So why do self-published authors want big publishers to lower prices? I list some possible answers:

1. they do not, except for some prominent or vociferous indie authors;
2. self-published authors are mad at the traditional publishers and they secretly want that Amazon kills them all;
3. they believe that a "thick market" for books will benefit authors; in a thick market there are many sellers and many buyers, which makes easier for each of them to find a good match; this is the reason why, for example, it is better to be a software programmer in San Francisco than in Kansas City; it is true to you face a lot of competition by thousands of other software programmers in San Francisco, but there are so many possible employers there that it is more probable (than it is in Kansas City) that you will find one that values exactly your specific competencies. This means that you will get paid for what you are really worth. 

Less technical version of the thick market effect: self-published authors did not find a good match among the traditional publishers, because there are only a few of them and they own the trade; lower prices could create a more democratic market environment, with more readers and in which publishers have less power and authors have more options, extracting more value from their talent.

The thick market effect is well documented for labor, housing, and other markets. I am note sure that it holds for the book market, but I suppose this was the general idea behind the (per se wrong) Eisler's argument.

WordPerfect still in use at Harper's

From the NYT:

When John R. MacArthur, the publisher of Harper’s Magazine and a zealous promoter of the virtues of print journalism, sits down at his desk to write, he has three options — a typewriter, an ancient beige PC and a modern Apple desktop computer. 

To correspond with literary friends like William T. Vollmann and Robert A. Caro, who enjoy the feel of thick paper and embossed type, he chooses the typewriter, bought at Tytell on Fulton Street in Manhattan decades ago. 

He composes articles on the PC, loaded with WordPerfect software because he feels Microsoft Word argues with him. He saves them on a 3.5-inch floppy disk. 

Only for email, a modern necessity that contrasts with the wood-and-leather bookishness of his corner office overlooking Broadway in Greenwich Village, does he turn to the Mac.

MacArthur does not google stuff either:

On several occasions during a recent interview, he could not quite remember a fact that supported a point. His version of searching for it on Google was yelling to a staff member, who hurried to deliver the information.

I am not totally unsympathetic to MacArthur's uneasiness with the new writing and reading technologies. I still do most of my writing with a pen and a piece of paper. Like MacArthur, I print out articles to read, at least when they are long or I think they deserve my full attention. I do not like e-books. However, I cannot live anymore without Evernote, my feed reader and my subscriptions to online newspapers and magazines.

Above all, I try not to mix my personal idiosyncrasies with an objective evaluation of the benefits of the web for the readers. Most of them are not like me. Reading can be a contemplative experience, which probably needs isolation, silence, and paper. But other forms of reading, quicker and less contemplative, have value. Real lovers of books and writing should be happy to see people try to read a novel on their Kindle in the metro, instead of playing some stupid videogame on their cell phone.

MacArthur's opinion is different:

His thesis is built on three pillars. The web is bad for writers, he said, who are too exhausted by the pace of an endless news cycle to write poised, reflective stories and who are paid peanuts if they do. It’s bad for publishers, who have lost advertising revenue to Google and Facebook and will never make enough from a free model to sustain great writing. And it’s bad for readers, who cannot absorb information well on devices that buzz, flash and generally distract.

One can easily answer that: a) if a writer is not disciplined enough to reserve time without distractions for her work she is not a good writer; b) the free model is only one of the models available to publishers; c) MacArthur underestimates the power of interesting facts and good writing.

Are e-books really the new paperbacks?

In response to Amazon's appeal to authors, Hachette CEO Michael Pietsch argues that the parallel between e-books and paperbacks is misleading:

The invention of mass-market paperbacks was great for all because it was not intended to replace hardbacks but to create a new format available later, at a lower price. 

As a publisher, we work to bring a variety of great books to readers, in a variety of formats and prices. We know by experience that there is not one appropriate price for all ebooks, and that all ebooks do not belong in the same $9.99 box. Unlike retailers, publishers invest heavily in individual books, often for years, before we see any revenue. 

We invest in advances against royalties, editing, design, production, marketing, warehousing, shipping, piracy protection, and more. We recoup these costs from sales of all the versions of the book that we publish—hardcover, paperback, large print, audio, and ebook. While ebooks do not have the $2-$3 costs of manufacturing, warehousing, and shipping that print books have, their selling price carries a share of all our investments in the book.

You can read the rest of his answer here.

Amazon appeals to authors, against Hachette

As a Kindle Direct Publisher subscriber, yesterday I received this email message from the "Amazon Books Team".

Dear KDP Author, 

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year. 

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion. 

Well… history doesn’t repeat itself, but it does rhyme. 

Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive. 

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.
The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books. 

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive. 

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. 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. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger. 

But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that. 

And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read).  A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures.  And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading. 

We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle. We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity. But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle. 

We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us. 

Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com 

Copy us at: readers-united@amazon.com 

Please consider including these points: 

- We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive. 

- Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did. 

- Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle. 

- Especially if you’re an author yourself: Remind them that authors are not united on this issue. 

Thanks for your support. 

The Amazon Books Team 

P.S. You can also find this letter at www.readersunited.com

The first thing that stroke me is that it is really well written. Amazon's PR did a nice job in avoding all the corporate jargon. The second thing is that I could not believe for a moment that George Orwell campaigned against paperbacks and invited the publishing industry to collude against them. As a matter of fact, he did not. The New York Times was quick in setting the record straight:

The retailer argues that people against e-books are against the future, and talks about how the book industry hated cheap paperbacks when they were introduced in the 1930s, and said they would ruin the business when they really rejuvenated it. Unfortunately, to clinch its argument it cites the wrong authority: 

“The famous author George Orwell came out publicly and said about the new paperback format, if ‘publishers had any sense, they would combine against them and suppress them.’ Yes, George Orwell was suggesting collusion.” 

Could the Amazon Books Team, which is credited as the source of this post, have really written this? Because a moment’s Googling would have revealed that the team is misrepresenting this “famous author.” 

First, when Orwell wrote that line, he was celebrating Penguin paperbacks, not urging suppression or collusion. Does Amazon, which early in its e-book days made copies of “1984″ vanish from Kindles after discovering it did not own the rights, really think George Orwell — of all people! — would want to suppress books? 

Here is what the writer said in the New English Weekly on March 5, 1936: “The Penguin Books are splendid value for sixpence, so splendid that if the other publishers had any sense they would combine against them and suppress them.” 

Get it? He liked them.

The article also reports that George Orwell did not share Amazon's belief that the demand of books is elastic (i.e. you can increase revenues by lowering prices).

But Orwell then went on to undermine Amazon’s argument much more effectively than Hachette ever has. “It is of course a great mistake to imagine that cheap books are good for the book trade,” he wrote. “Actually it is just the other way about … The cheaper books become, the less money is spent on books.” 

Instead of buying two expensive books, he says, the consumer will buy two cheap books and then use the rest of his money to go to the movies. “This is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author and the bookseller, it is a disaster,” Orwell wrote.

The issue of the price elasticity of books is entirely empirical and is important. I have no special reason to believe in the estimates that Amazon provided in its appeal against Hachette. However, there is some evidence that, at their current prices, e-books increase margins for publishers. For example, higher e-book sales were credited as one of the reasons for HarperCollins's improved margins in their recent financial report. So there is obviously room for a reduction of prices of e-books and the fight between Amazon and the traditional book publishers will go on.

Welcome to Bookonomics

This blog is about books, their writers, their publishers, and their readers. The general opinion on books is that they are powerful: they can change the inside of people and the external events that shape the history of the world. However, they are a smaller part of the economy than cars, tv sets, or even hot dogs.

Most writers cannot make a living from their job, publishers routinely say that Amazon is going to destroy their business, and readers are substituting endless texting and Facebook networking for deep immersion in books. As any human activity, producing books requires resources, and reading them use time. Both resources and time are finite.

In this blog I will collect news and analyses on the economics (and sometimes the sociology, and the psychology) of books.