Discounted to Death

I was momentarily filled with glee when I saw a headline reference to an article on Salon.com last week, “Here’s how Amazon self-destructs.” Were my prayers being answered? Unfortunately, it seems, not in the immediate future. But this article summarizes quite well the long-term catastrophic results that a continuation of Amazon’s practices will have on the publishing industry, on all of us here at Dead Guys, from author to bookseller and in between, and ultimately, to Amazon. I suggest that all of you reading this post stop here and link to it; I wish I could make it required reading for all book buyers.

The event that generated this piece was a judge’s ruling that Apple and five major publishers in the US had colluded to raise e-book prices. Apple was left as the sole defendant when all of the publishers caved in the face of huge legal bills and decided to settle. In another lifetime I was (actually still am) an attorney, and this case has troubled me from day one. In general, I am always troubled when litigants with meritorious cases are forced to settle because of the financial power of their opponent, who can bankrupt them with legal fees, dragging out the case until the wronged party is penniless and still has not been heard in court. I am just as distressed when any business, large or small, is forced to settle a case against it which obviously lacks merit, at the behest of an insurer who would rather pay a token sum than incur legal fees, again avoiding a fair adjudication of the dispute and rewarding “nuisance” filings. I am not an expert in antitrust law, but I do recall that at the time Apple and the five publishers involved “colluded,” Amazon was consistently selling e-books below its own cost. Although an occasional “loss leader” (Eggs 29 Cents a Dozen! This Week Only!) is a valid marketing tool, consistently selling under one’s cost in order to drive a competitor out of business is as much an antitrust violation as price-fixing among competitors. It just doesn’t happen as often because few can afford to do it. The publishers may have erred in responding by cutting off Amazon and making an arrangement with Apple; but the Justice Department made no effort to pursue Amazon for predatory pricing. The publishers’ concern at the time was that the consumer would believe that the price of a book should be $9.99 and never pay more, even if Amazon itself was paying $14.99 to the publisher. The end result would be a cheaper book, but the quality of the product would suffer. The expense is not just paper and printing, but just compensation to the author, the agent, the editor, etc. Josh Getzler’s post “What I Do” on July 18 shows the work that just one person in the process does to bring a quality product to the market. If the book cannot be sold for a fair price, the writing and editing will be done hastily and sloppily or not at all. Maybe Coca-Cola can streamline their production so that they can meet Walmart’s price demands; the creative process does not lend itself to shortcuts for efficiency and low prices.

I don’t believe that Amazon ever wanted to permanently lower the price of books for the benefit of the reading public. They want to be the only game in town. I frequently remind those who tell me that they can buy a book cheaper on Amazon after they browse in my shop (see the Salon.com piece section on “showrooming,” browsing in shops and then buying on Amazon) that they will be surprised when Amazon is the only seller left and decides it actually wants to make money. They will pay whatever Amazon wants; there will be no other option. Our short-sighted Justice Department has in many cases, including several recent mergers, overlooked the dangers of monopoly in the long term in order to lower prices to the consumer immediately through the “efficiencies” of larger enterprises. In the case of Amazon’s selling below cost, the Justice Department could have initiated its own legal action if it was too expensive for the publishers or other retailers to undertake. But the policy, for a couple of decades and through several administrations of both parties, seems to be lower prices rather than the long-term health of the economy or various market segments. So instead of pursuing the anti-competitive behavior of pricing below cost, they pursue those who try to find an outlet that will price reasonably for a quality product. Perhaps they are setting up their own job security, looking at the work that will be generated by another round of “trust-busting” similar to the one in the early 20th century. Or maybe big business will just rule the world.

Evan Hughes, the author of the Salon.com piece, shares my view of what Amazon has been up to. After outlining Amazon’s feeble attempts to imitate the bookshop experience of “discovering” a book (“Look Inside”; buying GoodReads; quirky algorithms to make recommendations) and pointing out that they still get the sales because of their discounting, he says, “Those prices are made possible by the fact that for all intents and purposes, Amazon does not make money. It lost money in 2012 overall and made a virtually meaningless margin, relative to its size, in the most recent quarter….Jeff Bezos has managed to convince shareholders to have amazing patience while he pleases customers….Matthew Yglesias has cleverly written, ‘Amazon , as far as I can tell, is charitable organization being run by elements of the investment community for the benefit of consumers.’”

The hope that Hughes holds out to us is some anecdotal evidence that Amazon is beginning to reduce the discounts on books. The company denies this, but Hughes says the people there are “no dummies.” It is probably better for Amazon in the long run if they don’t put publishers and other booksellers out of business. No, our dormant Justice Department won’t go after them. But they won’t have a product to sell if publishers can’t make money selling to Amazon at the price Amazon wants. And they haven’t found a way to showcase books to the reader the way a bricks and mortar shop does, or offer the personal recommendation that so often is the tipping point on a purchase. If they discount at only 10 or 15 percent, it would be possible for independent shops to compete, and the “showroomers” would have a place to browse. If they plan to make a profit any time soon, maybe the rest of us can too. If not, I am glad I have a backlog of high quality “to be read” volumes that will probably last my lifetime.

It seems my friend and fellow Dead Guy Lynne Patrick and I have once again been mentally on the same track this week, although thousands of miles apart and having had no verbal communication for a few weeks. I had already been fired up by the “Here’s How Amazon Self-Destructs” article when I read her post from three days ago, “What’s Happening to the Book Trade?” ; it seems the problem is the same on both sides of the ocean, and Lynne is much more articulate than I, particularly on the attempts to turn books into commodities. Please read her post if you haven’t already; I think our two views complement each other and give a larger picture of the situation. And Lynne – there isn’t enough mouthwash in the whole state of New Jersey after having used the A-word so many times; but sometimes you just have to face the devil and wrestle with him.

Shelf Awareness published a special News Edition on Saturday July 27 making the same points, with even more frightening details.
http://www.shelf-awareness.com/issue.html?issue=2049

Comments

[Lynne Patrick]

Marilyn, your post made me want to weep with frustration all over again, after I'd finished screaming 'Yes! Yes! YES!!' There's no doubt about it - money not only talks, it holds all the reins and never hesitates to jerk them around so that those of us it bankrupts never forget who has the power.
Why don't enough people see what's happening, and simply refuse to go along with it?

[Lynne Patrick]

Yay! It looks as if Typepad is letting me post comments again!

[Pam]

I share the frustration and worry, but I see how consumers are tempted by cheap pricing. They don't have the foresight to see that a monopoly may wipe that off the face of the earth. Anyway, Marilyn, thought of you again today when I saw this: http://www.visualthesaurus.com/?word=rant. In this case, a "rant" is well deserved.

[Pam]

And my husband said: "Amazon has turned out to be a very canny company, with deep pockets and a very long planning perspective, and not hesitant to use its market power when needed."