Will Penguin-Random Raise the Price of My Book?
I have a new book out, and it’s been for sale at various prices. Try $9.99, $13.75, $16.17, $18.25, $21.66 and, with tax, $27.18.
Welcome to the tumultuous world of book selling and book pricing, particularly online, where “bots” scurry around virtual bookshelves, checking competitors’ prices. Lawsuits, buyouts and mergers also flourish as publishers and online retailers vie for control.
With the proposed merger between Penguin and Random House, through their corporate overlords -- U.K.-based Pearson Plc (PSON) and Germany’s Bertelsmann SE -- it seems as if the traditional book world is joining forces to stem the tide. Instead, the new behemoth will be carried on the wave with everyone else, as companies large and small adapt to the rise of the e-book and the low and unpredictable prices charged by the dominant e-book and conventional book seller: Amazon.com Inc. (AMZN)
When my hardback book became available for “pre-ordering” in May, the Seattle-based retailer sold it for a bit more than $22, a few dollars less than the $25 list price. In July, though, Amazon (AMZN) had lowered the price to $13 and change. A few weeks later, it was more than $18. Then it became $16.50. For any of these, I would have to pay $3.99 shipping unless I had an Amazon prime membership at an annual cost of $79. Still, most of these total prices were substantially below list.
There is no shipping charge on an e-book. And on Sept. 1, my book’s official publication date, Amazon began selling the electronic edition in its proprietary Kindle format for $9.99.
I happen to know that my publisher, the University of Texas Press, sells the book, whether paper or digital license, to Amazon and all other direct retailers for $13.50. So that means Amazon was losing $3.51, a 26 percent loss, on every Kindle edition. That’s a hefty negative margin.
Why was Amazon doing this? It wasn’t making it up on volume. Amazon had no comment. The usual interpretation is that the online publisher is using low prices, not only on e-books but also for its e-reader, the Kindle, which it also sells at or below cost to expand the markets for e-reading. Once readers are hooked, then the company is expected to raise prices.
Other retailers understandably don’t like competing with someone who sells below cost. But in the short term, it was fine by me. The lower the price, the more people buy and read my book. And my royalties are based on the book’s listed retail price, not its selling price.
Some other retailers seemed to follow Amazon in their pricing, while others went their own way. Google Play is selling its digital edition of my book for $14.75 without noticeable fluctuations. In contrast, the prices for the hardback edition at Barnes & Noble Inc. (BKS), Amazon’s biggest competitor, have followed those on Amazon, going up and down a few days afterward and often ending up a few cents cheaper. Industry watchers told me this was probably due to “bots” from Barnes & Noble checking Amazon’s prices and matching them at a set interval.
This sort of automatic price setting can produce peculiar results. Last year, Amazon was briefly listing a used copy of Peter Lawrence’s “The Making of a Fly” for more than $23 million. This reportedly occurred because two of Amazon’s affiliate sellers had proprietary algorithms automatically setting their prices against the other, causing the prices to escalate without limit, until a human intervened.
In late September, Amazon raised the Kindle price of my book to $13.75, or 25 cents more than its wholesale cost. It has since held steady there. My publisher tells me Amazon does this frequently -- why, is anyone’s guess. The hardcover price has continued to fluctuate, often daily. At this moment, it is $16.17. Once, I noticed the price was different on my mobile phone than on my desktop computer.
The pricing decisions of Amazon and other retailers lead into a centuries-old battle among publishers, sellers and printers over who should set a book’s price.
A few years ago, five commercial publishers made a deal with Apple Inc. (AAPL) to sell their books through Apple’s iBooks. The agreement allowed publishers to set prices because Apple used “agency pricing,” where it simply got a 30 percent cut of the selling price, instead of a wholesale-retail model. Aspects of this deal loosened Amazon’s chokehold on the e-book market. Instead of applauding this, the U.S. Justice Department’s antitrust division sued Apple and the publishers for price fixing and raising costs to consumers.
In September, Judge Denise Cote of the U.S. District Court, Southern District of New York, approved the settlement between the Justice Department and three of the five publishers. Apple and two of the publishers, Penguin and Macmillan, are going to court. Cote put aside concerns that Amazon was selling below cost to unfairly drive out competitors. “Even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price fixing,” Cote said, and that was that.
When the Apple case goes to trial, with the new Penguin- Random House company possibly as one of the parties, the courts will decide which is the greater priority: lowering prices or preventing monopolies. They could look to the experience of Germany, which has long had laws forbidding retailers from selling books below list price. Random House, which was praised for sitting out the price deal with Apple and thus avoiding being sued by the Justice Department, will now be tied at least partly to the fate of Penguin in the court case.
As the courts and legislatures mull these questions, the old-fashioned bookstore persists. On Prince Street in SoHo in Manhattan, McNally Jackson has well-spaced shelves on polished wood floors under twinkling spotlights.
The store had my book in stock, which was pleasing. It gives a 20 percent discount on best-sellers and “staff picks.” My book didn’t make either of those lists, so the price at checkout would be what was inside the front cover, plus the 8.75 percent sales tax charged in New York. That would come to $27.18.
Today’s highlights: the editors on the power grid in a perilous world; Susan Antilla on the hustler who bilked investors in a Broadway show; Caroline Baum on what women really want from a president; Michael Kinsley on why Stuart Taylor is wrong about affirmative action; Virginia Postrel on how new findings will revolutionize cancer drugs; part four of A. Gary Shilling’s series on how low interest rates are creating a buildup of risk and leverage.
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