Shredded booksThe news that Amazon has turned a rare profit also turns the spotlight on another business, besides Walmart, whose sales are collapsing. Publishers. Wait: shurely shome mishtake here? Aren’t the Big Five reporting strong profits? Yes, but the actual situation which they tried to spin into a secular retreat in the e-book market is that their own e-book sales are slumping since they forced the reintroduction of agency pricing. They don’t seem able to set a price that the market is prepared to pay.

Is it any wonder, considering how dreadful they have been at understanding their own market? Partly because they haven’t had to. The book returns system leaves them uniquely cushioned against bad judgment calls. It also leaves them able to fund their own mistakes, through the book remainder/bargain books chains, an entire retail sub-sector built on publishers’ bloopers. Blogging in HuffPost in mid-2015, Brooke Warner quotes an incredible “industry standard” of 30 percent book returns on typical titles, with Barnes & Noble’s average rising to 50 percent. And the publisher has to eat the warehousing costs of all those returns. What other retail industry could even survive on that basis?

Fine, not every industry is like oil, where producers sell what they pump out of the ground, or mobile comms, where users subscribe to the networks that the producers have built. But publishing is uniquely, disastrously distanced from the distribution and actual sale of its product, with terrible results for its demand forecasting abilities, and massive market inefficiencies as a result.

An excellent breakdown on bargain books from Publishing Perspectives in 2010 gives some insights about this. It states that a $10.00 retail sale for a bargain bookstore “will yield an approximate, gross profit of between $5.20 and $6.50,” versus “$3.80 to $4.20 on the same $10.00 sale” for a new-books bookstore. No wonder the remainder chains can hold up their end. Publishing Perspectives quotes Gayle Shanks, former volunteer president of the ABA, saying: “If you are in the retail book business today and don’t sell remainders, bargain books and sidelines, you have a hobby, not a business.” Who’s subsidizing the bargain bookstores’ terrifically low cost of goods? Publishers, of course.

Does this padding leave publishers less beholden to commercial realities and more able to focus on great literature and their authors? Hardly. J.A. Konrath goes into great detail here about remaindering and what it means for an author. (Bottom line: It ain’t good.) The discerning will have noticed, though, that a great many remaindered books are non-books anyway: series titles or illustrated works commissioned by publishers to flesh out their own lines.

As well as remaindering, there’s also the unlovely practice of book stripping or book pulping, where mass market paperbacks that haven’t sold well have their covers torn off and are returned to the publisher to be pulped. Often these copies are simply destroyed by the end of the publisher’s fiscal year as a tax writeoff. Yes, you could call it ecologically friendly, since many of those copies are pulped for recycling into cardboard or other paper products. But I quote one of J.A. Konrath’s respondents: “What a stupid stupid waste this system is. I hate to say this, but print on demand may be the only thing that ends up saving this business.” Couldn’t have put it better.

Is it too much of a stretch to speculate that Big Publishing’s lousy record at predicting market demand is partly down to information buffers, as well as the lower financial incentive to do that? The returns, remaindering and pulping mechanisms surely have the net effect of cushioning or delaying the impact of demand shifts, so that publishers have an inbuilt information lag. No wonder they’re so lousy at calling the market.

Amazon, conversely, has just about the best demand tracking system going. It’s in a position to track who is buying what, anywhere, in real time. Its recommendation engines, and its ability to track the results of those recommendations, also give it tremendous power in forecasting demand. Yes, it can screw up at times, as with the Fire Phone. But that, significantly, was a strategic bet based on its own market ambitions, not a calculated move based on current demand.

There’s also an intellectual snob’s argument, exemplified by Andrew Wylie’s anti-Amazon rants, that distribution is a low, dirty business best left to tradespeople, not the sensitive cultivated minds of Big Publishing. Wylie says of Amazon: “It’s a distribution channel. You hire people to talk to distributors. It’s like groceries. You hire people to receive groceries. What’s that truck that shows up with all the green vegetables? You call out for Chinese, and you call out for Amazon. I don’t deal with it.” Well, maybe Wylie and his ilk had better stop “hiring people to talk to distributors,” and start talking to Amazon directly. After all, it seems that Amazon knows their readers better than they do.

Plus, Big Publishing’s genteel affectations don’t seem to have stopped it from gouging and exploiting its authors. Or deliberately deceiving its readers. Or Wylie from earning the sobriquet “the Jackal.”

So, rather than sustaining an unsustainable, wasteful business model, why doesn’t Big Publishing turn an honest penny and learn to sell what it shovels? I won’t hold my breath.

(My thanks to Sophie Littlefield for the image here, from her visit to the Harlequin Distribution Center, in Buffalo, NY, and her insight into how Big Publishing really treats books.)



  1. An excellent article. Let’s also not forget that returns or the lack thereof were a major part of how Amazon wormed its way into big publishers’ trust circle back in the beginning. They were suspicious of the e-tailer at first, but it placed big orders and didn’t send back much in the way of returns (since it was selling all over the country and could do a pretty good job of estimating nationwide demand after a while). So that meant they had to process that many fewer returns from Amazon, which cost them less money, while selling it a big chunk of their output.

  2. QUOTE: “Is it any wonder, considering how dreadful they have been at understanding their own market?”

    Since I am not a journalist, I’m not so vain as to think that I have more business savvy than executives at giant publishing companies. I know those executives are quite smart and that their business interests simply differ from mine.

    The major publishers are being clever given the current state of the market. They know precisely what print and ebook sales mean for their long-term future. Print sales help local bookstores and bookstore chains who are a major part of their business model. Amazon is scrambling, so far without much effect, to remove the major advantage a physical bookstore has. You can walk into one and walk out five minutes later with a popular title. For many customers, guaranteed-now delivery beats Amazon’s maybe-next-day delivery.

    Since these publishers can virtually guarantee that their more popular books will be on the shelves and even in prominent displays at those bookstores, they want to keep that market alive and profitable. Contrast that to Amazon, which has a nasty reputation for making print books hard-to-get as part of a negotiating tactic (i.e. Hatchette). These executives have noted that and want to help their friends (bookstores) and punish their largest enemy (Amazon). That’s good business sense.

    They’re certainly not like those the mousy little independent writers who bow to Amazon’s every demand and even seem grateful to be abused by the giant. “Oh Great A, pay me half what Apple pays per sale when I don’t price my ebooks between $2.99 and $9.99, I don’t care. I’m here to do your will oh Great A.” Pitiful!

    Contrast print books to the ebook market, which is heavily dominated by Amazon, 70% by some figures. From the perspective of these publishers, while lowering ebook prices may increase their short-term profits, but that comes at a dreadful long-term cost. For example:

    * Amazon makes a big slice of those ebook profits and, I suspect, has a greater return on investment than from print sales, where it has more price competition. Smart publishers want to keep Amazon’s profits down and those of bookstores up to keep their book distribution healthy and varied.

    * Amazon already dominates ebooks sales, so increasing that share of all book sales increases Amazon’s dominance of publishing in general. The fewer the ebook sales, the less Amazon dominates. Higher ebook prices insure fewer sales. That’s Business 101.

    * Amazon gets the valuable ‘who buys what’ data from both its print and ebook sales. When a major publisher diverts a sale to a local bookstore, it may not acquire that data, but that bookstore does, reducing Amazon’s market advantage a bit. That’s good.

    I could go on, but the real reason ebook prices remain high is obvious. Amazon’s dominance of the ebook market and its brutal, bullying tactics directed at publishers mean that it’s to the latter’s advantage to maintain high ebook prices, even if that comes at the expense of short-term profits.

    In short, calling these publishing executives stupid is in itself stupid. They know what they’re doing. Given how unhealthy and lopsided the current book market is, they’re doing their best to restore balance and competition. For that they deserve commendation from us not condemnation. They’re sacrificing short-term profit to keep publishing healthy for all publishers and authors.

    Need I add that, by keeping the price of their bestselling books high, they’re actually helping small publishers and independent authors by making the latter’s less-expensive books more competitive?

  3. “…there’s also the unlovely practice of book stripping or book pulping, where mass market paperbacks that haven’t sold well have their covers torn off and are returned to the publisher to be pulped. Often these copies are simply destroyed by the end of the publisher’s fiscal year as a tax writeoff.”

    Only the covers are shipped back to the publishers, actually. The books are recycled from the bookstore. Before recycling was a thing, they just went out to the bin. And it IS unlovely, and another good reason e-books could easily replace the mass market paperback. Oh, except for the fact that BPH e-books are usually priced $3-4 HIGHER than MMPBs. Which is why I buy almost none of them.

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