If Amazon had asked publishers what they thought about locking in e-book prices at $9.99, it would have been subjected to a chorus of outrage. That’s because the math behind publishing is seldom in a publishers’ favor. The sale of a $20 hardcover nets a large publisher about $10. Royalties run the publisher about $3, and the costs of printing, binding, and paper are a further $2 (more for low-volume titles). Take $1.20 for distribution, $2 for marketing, and that leaves a publisher with roughly $1.80 to cover rent, editing, and any other costs. A smaller publisher might keep closer to a dollar per book.

The New York Times (3/1/10) did a similar exercise, basing its analysis on a $26 hardcover rather than $20--out of which the publisher keeps $13 instead of $10. (The Times' reporter, Motoko Rich, sources these figures to "interviews with executives at several major houses''; she's by no means anti-publisher--see FAIR Blog, 3/2/10, 3/18/10.) The costs cited by the Times are similar--$3.90 for the author's royalty, $3.25 for printing, storage and shipping (vs. the Review's $3.20 for printing plus distribution), $1 (rather than $2) for marketing. The Times breaks out editing, design and typesetting as its own item, listing it as 80 cents. This leaves $4.05 for the publisher as profit before overhead--math that is considerably more in the publisher's favor.

When it comes to contrasting the hardcover economics with ebooks, the Review piece becomes very vague:

E-books reduce the cost of printing, binding and paper, but royalties tend to run higher, and all other costs are largely unchanged. Publishers account for these costs when they slap a price tag on a book, so Amazon's decision to set the price irrespective of them set off a wave of anxiety.

Actually, according to the Times, royalties run lower in electronic publishing--$1.75-2.50 on a $9.99 ebook. Books published electronically, of course, eliminate rather than "reduce" the costs of printing. Other costs go down, because your sales volume goes up when you reduce the price to the consumer by more than 60 percent. And the retailer--the evil Amazon--gets less of a take from each sale, so the publisher winds up--according to the Times, which, again, is quite sympathetic to the publishing industry--with about as much profit on each copy sold: $3.51 to $4.26, depending on how the author's royalty is calculated.

What actually set the big publishers off was not worry that they could not make as much money selling electronic books at Amazon's price, but worry that they would lose out on the opportunity for windfall profits that comes with a new technology (FAIR Blog, 7/23/10).  Is that evil? No, that's capitalism. Or, if you prefer, "Yes, that's capitalism." There's certainly not a lot to prefer about the publishers' business model, either from the reader's or the writer's point of view.

The Review's website blurbs the piece, "What happens when an industry concerned with the production of culture is beholden to a company with the sole goal of underselling competitors?" That's what's most misleading about the article: the suggestion that corporate publishers are not profit-maximizing enterprises in the same way that Amazon is. This would surely come as news to News Corporation (i.e., HarperCollins), CBS (Simon & Schuster), Bertelsmann (Random House), Reed Elsevier (Houghton Mifflin) et al.

P.S. Daniel Ellsberg makes a stronger case for the evil of Amazon here.

Dennis Loy Johnson, co-publisher of the Brooklyn-based independent Melville House, is one of the few publishers who have dared to speak openly about Amazon's bullying. His story is far from atypical. In 2004 a representative of the retailer contacted Melville's distributor demanding an additional discount. Such payments are illegal under antitrust law, which precludes selling at different prices to different customers. Large retailers circumvent this restriction by disguising the extra discount under the rubric of "co-op," money paid to the bookseller for promotional services, often notional. In this case the distributor did not bother with such niceties, describing what Amazon was after as "kickback."

Johnson resisted Amazon's pressure and complained to Publishers Weekly about what he saw as the retailer's capo-like tactics. What happened next evidently still rankles. "I was at the Book Expo in New York and two guys from Amazon came to see me. They said that the company was watching what we were doing and that they strongly advised us to get in line. I was shocked at how blatant the pressure was." Within a couple of days Johnson noticed that the buy buttons for his books had been taken off Amazon's site, making Melville's titles unavailable.

If Amazon is violating anti-trust laws, the Justice Department should take action; certainly, putting an embargo on one's critics is creepy. But when Robertson suggests that the treatment Johnson describes is akin to Amazon's interaction with Macmillan chief John Sargent, "another man who recently lost his Amazon buy buttons," he seems to be seeking underdog sympathy for the publishing giant that is not really deserved.

The dispute between Macmillan and Amazon had to do with the pricing of ebooks; Amazon wanted them at 10 bucks, Macmillan at $13 or $15. The $10 price, Robertson writes, "was a concern throughout an industry worried that low prices of electronic versions would undermine profits from printed books and generally lower the perceived value of the product."

But as the New York Times' Motoko Rich has pointed out--and a more publisher-friendly reporter you could not hope for--publishers make about as much profit per-unit on a $10 ebook as they do on a $26 hardcover, and would get considerably higher profits on a $12 or $15 ebook. What Macmillan and other big publishers are trying to do is use a technological change to get windfall profits--just as the record labels did when they moved from vinyl to CDs (which even back then cost less to make), and just as the movie studios are doing right now with 3-D films. This is understandable behavior on the part of for-profit entities, but it's not particularly noble.

If Tower Records, say, had had the market clout to tell the labels that they should pass CDs' manufacturing savings along to the consumer, would it have been accused of trying to destroy music? If Loews told the studios that their 3-D markups had to come down, would people say the theater chain was going to be the doom of cinema? Corporate publishers are engaged in the same profit-maximizing behavior at the expense of consumers.

"The [publishing] industry's great hope was that the iPad would bring electronic books to the masses--and help make them profitable. E-books are booming.... But publishers were concerned that lower prices would decimate their profits." If Amazon gets away with selling e-books for $9.99, Auletta quotes one publishing CEO, "to my mind it's game over for this business." Amazon is depicted as controlling and mercenary:

Many publishers believe that Amazon looks upon books as just another commodity to sell as cheaply as possible, and that it sees publishers as dispensable.... Publishers maintain that digital companies don't understand the creative process of books. A major publisher said of Amazon: 'They don't know how authors think. It’s not in their DNA."

Publishers, on the other hand, are remarkably altruistic: "Publishers' real concern is that the low price of digital books will destroy bookstores, which are their primary customers," Auletta writes. But they're equally concerned about the well-being of authors:

Good publishers find and cultivate writers, some of whom do not initially have much commercial promise. They also give advances on royalties, without which most writers of nonfiction could not afford to research new books....  Although critics argue that traditional book publishing takes too much money from authors, in reality the profits earned by the relatively small percentage of authors whose books make money essentially go to subsidizing less commercially successful writers. The system is inefficient, but it supports a class of professional writers, which might not otherwise exist.

It's a good story--but it belongs in the fiction section: The idea that publishers need to break Amazon's $9.99 pricing structure in order to be profitable is self-serving spin. As the New York Times' Motoko Rich reported in a story that bent over backwards to give the publishers' side (FAIR Blog, 3/2/10), publishers make about as much from a $10 e-book as they do from a $26 hardcover: $3.51-$4.26 vs. $4.05, by Rich's estimates. The  higher prices that publishers claim are necessary to keep the industry alive will actually give profits a nice boost: to as much as $5.54 for a $12.99 e-book; Rich doesn't give figures for a $14.99 book, but much of that extra price would go to the publisher.

Although Auletta allows publishers to pat themselves on the back for their "author-oriented culture," they give themselves a much better deal than they give writers on e-book sales: While a traditional hardcover sale nets about the same amount of money for author and publisher,  with e-books the publisher takes almost twice as much in profits as they give out in royalties.

The publishers' goal is to get an e-price that gives them sharply higher profits per unit with far less investment--and isn't that every capitalist's dream?  It's a shame that Auletta feels the need to dress that up as some kind of salvation of literature, though.

This is a case of epic proportions, where our commons, the lungs of the planet, have been violated needlessly and carelessly, to save money with no thought whatsoever paid to the thousands of people, and millions of species, that would be poisoned while the American media basically slept. Those of you who may have noticed the cozy interview with the [executive vice] president of Chevron in the SF Chronicle last week might not have noticed the small article in the Chronicle's business section mentioning the protests outside of the Chevron stockholders meeting in San Ramon on May 26. Cofan Indian leader Ermenegildo Quillolo, and lead-American attorney for the defense Steve Danziger, Ecuadorian community organizer Luis Yanza, members of Amazon Watch and a host of NGOs seeking to protect the Amazon were there protesting the actions of Chevron, and alerting stockholders that their company paid $30 billion dollars for a company with $27 billion dollars of liabilities attached, a gross failure of due diligence. We, the public, were not offered a comparable interview with the Ecuadorians, Steven Danziger or members of Amazon Watch.

Even though "this spill dwarfs the Exxon Valdez," Coyote notes that it, "aside from an excellent piece on 60 Minutes, remains virtually unreported. How many of you know about it? And if not, why not?" Listen to a similar story of oil company crimes and media neglect on the current FAIR radio program CounterSpin: "Han Shan on Shell & Ken Saro-Wiwa" (5/29/09).