October 27, 2009

Collusion, anyone?

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In an essay on his personal blog, Thomas Nelson CEO Mike Hyatt lays out perhaps the most concise detailing so far of how the Walmart/Amazon/Target price war is laying waste to the literary lanscape — threatening, he says, even the devil-may-care mega-retailers themselves.  “The mass retailers have had the luxury of being able to skim the cream off the publishing milk pail without investing in the process that creates the milk in the first place,” he says. “In my opinion, they are about to kill the cow.”

His notes on authors, publishers, and consumers are equally, brutally, to the point:

For consumers: “Yes, lower prices are good for consumers — in the short run. But they are not good in the long run if authors and publishers are no longer willing to assume the risk of creating and producing the kind of quality and selection consumers currently enjoy.”

For publishers: “Amazon, Walmart, and Target are systematically conditioning consumers to expect these lower [i.e., untenable] prices.”

For authors: “If retail prices collapse, it will mean that royalties and advances will also fall. You don’t have to be a mathematician to figure out that 10-15% of $9.00 is dramatically less than the same percentage of $25-35.”

For other booksellers: “Booksellers count on these same bestsellers to bring customers to their stores. Most are willing to discount the books and accept lower margins, but few are in a position to actually lose money on every sale. It is not a sustainable model.”

And yet Hyatt doesn’t approve of the call by the American Booksellers Association for the Justice Department to step in. (See the recent MobyLives report.) (And by the way, it should be noted here that the ABA is the only trade organization to speak out for the American reader, let alone its membership. Where is the Author’s Guild? The Association of American Publishers? Busy renegotiating their 30 pieces of silver with Google.) Says Hyatt: “I do not believe that asking the government to solve the problem is helpful. I think this will only lead to more red-tape, additional cost, and a raft of unintended consequences.”

“Instead,” says Hyatt, “I think that the publishers themselves need to find the courage to act in everyone’s long-term interests. As the content providers, they have all the power they need to stop these pricing practices.”

It is a bracing call in an industry famous for its lack of backbone. After all, this is the only industry that allows returns, something no one seems to like yet no one has moved to stop for decades now. And more to the point, it has similarly allowed discounts to continue for years … until what’s going on now seems to be a case of reaping what you sow.

But Hyatt suggests, for one thing, controllng the release of certain formats to certain kinds of retailers. For example, if Amazon won’t raise their ebook prices to reflect the costs of front list titles, he says “we as publishers should delay the release of eBooks and think of them more as a digital mass market product.”

However, he’s got something even more radical up his sleeve:

According to anti-trust legislation, it is illegal for publishers to dictate the ultimate price at which a reseller sells a product. Moreover, publishers cannot act in concert with one another to establish fixed prices or discounts. But any publisher can act unilaterally to establish a minimum advertised price. Using the MAP model, Amazon, et. al., could sell their books for any price they want, but they could not advertise a price that is below the minimum.

But that’s ultimately toothless, and more importantly, Hyatt isn’t necessarily right. That is, it’s not illegal for publishers to collude on setting a floor price for books — i.e., to stop discounting. Not according to a June 29th, 2007 Supreme Court decision that overturned a 96-year-old antitrust rule that said “resale price maintenance agreements were an automatic, or per se, violation of the Sherman Antitrust Act.” As this New York Times report on the decision explains, the Court ruled that it is sometimes permissable for “manufacturers and distributors to agree on setting minimum retail prices” if it promotes competition and is therefore beneficial to the consumer.

At the time of the decision, I contacted Wall Street Journal book industry report Jeffrey A. Trachtenberg and told him that I thought the ruling meant the book industry could finally put an end to discounting. To my mind, it would have led to a scenario like that of Germany or France — the healthiest book cultures I know — where “net pricing” laws assure that everyone must sell a book for the same, marked price. Little indie booksellers have a chance against giants, and publishers would be able to price their books more accurately to costs. (See the earlier MobyLives report.) Intrigued, Trachtenberg called the legal offices of several of the big publishers in New York — he wouldn’t say which ones — to see if they agreed with my reading of the decision. Then he called me back to say that they all did … and they wondered if I wanted to be the first to test it?

Well, as much as we here at Melville House — the “best small press of the year,” after all — like to think we lead the industry in some things, that was too big a windmill for us to attack. And the bigger boys who could have pulled it off, you’ll be shocked to hear, stayed as timid as ever. But times have gotten more extreme and maybe … well ….

You say you want a revolution — here’s the plan.

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives

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