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Is Amazon Evil?

Amazon's cheap books are easy on our wallets, but publishers have been deeply undercut by the rise of large retailers and predatory pricing schemes.

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For decades the publishing world has been anxious about the end of books. Industry consolidation has led to a much-lamented shift to a business-oriented ethos, particularly at some of the larger conglomerates. With corporate ownership came a demand for profit margins that the book-publishing world had never seen. Yet even if new management is nothing like that of the past—gentlemen with large fortunes who became gentlemen with small fortunes—publishing remains an intensely people-driven business, the kind where folks meet face-to-face. Even today most people involved in publishing are there because they love good books.

For most of their modern history, the primary goal of publishers was to find brilliant writers and produce books. Publishers left it to other book lovers—independent bookstores across the country—to sell the fruits of their labors. Booksellers not only carried books tailored to their local audiences, but also promoted their favorite new books through personal recommendations to their customers. All indies ordered books at a standard discount—somewhere around 40 percent off the list price. In the ’70s and ’80s the number of new book titles grew steadily, as did the number of independently owned bookstores.

But this trend came to a halt when chain superstores such as Barnes & Noble and Borders began taking over in the late ’80s. They set up shop down the street from successful independents, lured customers with a broader array of books and lower prices, and put their competitors out of business. In the early ’90s there were roughly 6,000 independent bookstores across the country. Today, that number is closer to 2,200.

There is not a whole lot of mystery behind these stores’ runaway success. Barnes & Noble wasn’t getting rich by offering caffeine with the classics; it was negotiating better discounts from publishers.

In 1994 the American Booksellers Association (ABA), a group that represents independent bookstores nationwide, filed suit against five major publishing companies for offering discriminatory discounts that weren’t justified by costs. One large publisher, for instance, was requiring that bookstores order 3,000 of their books in order to get a 48 percent discount. A smaller order would net a 40 percent discount. That meant that smaller stores, making smaller orders, could not afford to meet larger retailers’ prices. With even the higher-volume indies unable to compete, small bookstores across the nation were forced to close their doors.

While publishers were guilty of providing two-tiered discounts, there was reason to believe that the chain stores were using strong-arm tactics to demand these discounts of larger publishers. Bruce Spiva, one of the lawyers who brought the ABA’s case, recalls hearing that the chain stores had threatened to remove publishers’ books from stores if they didn’t cooperate.

The five publishers (Houghton Mifflin, Penguin USA, St. Martin’s, Rutledge Hill, and Hugh Lauter Levin) settled, but in 1997 the ABA found that the chain bookstores were still demanding and receiving discounts that weren’t being made available to independent bookstores. The ABA sued Barnes & Noble and Borders directly for leveraging discriminatory discounts. In 2001 this lawsuit, too, was settled, on the condition that a large amount of the evidence the ABA had collected against the chain stores be destroyed.

This era of publishing consolidation and chain growth also marked the rise of “promotional allowances” or “co-operative advertising” (co-op). Big chains pressured bookmakers to pay for top placement in outlets—$20,000 for two weeks in the front of the store, say—or to provide customers special in-store discounts. Such promotions are now standard, with roughly 4 percent of publishers’ net revenue devoted to them.

As the focus shifted to the bottom line throughout the industry, the ABA and many others in the publishing community worried about the effect of revenue-obsession on what would get published, and with good reason. It has become common practice for representatives of large retailers to weigh in on everything from book covers to sample chapters of manuscripts. In some cases, retailers even demand changes. One editor at a major publishing house, who agreed to speak on condition of anonymity for fear of employer sanctions, told me that agents of Barnes & Noble, Borders, and Target are frequent participants in meetings about potential books. Without their buy-in, the publisher is unlikely to go forward with a book. Ideas that excite independents might be scrapped if they don’t get a chain’s stamp of approval.

 
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