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Blog: At What Discount Should Publishers Sell E-Books to Resellers?

March 5, 2012

Discounts matter. Here is a little history to illustrate that point:

When the mall stores—B Dalton, Walden—arrived on the scene, followed closely in the 1970s by the big box stores—Barnes & Noble, Borders—the big publishers rolled right over to their demands for better discount and of course the independents had to follow.

For the most part these demands for better discount were justified. Better discount for higher volume is a fair and time-honored principle because higher volume usually leads to lower transactional costs. And the book business in those days was very much in need of more marketing push than the small booksellers, who had long dominated the market, could deliver.

But the result was a very wide discount differential, in retrospect too wide. The chains could command a discount off list price of 48-50%. The small stores had to accept 42-44%, on average about 4 or 5% less. The higher discount allowed the chains to mark down the prices of some titles for their customers. The small stores did not have the margin to afford such markdowns. Thousands of independent booksellers went straight out of business. Most of the independent booksellers went straight out of business. The mistake was not that the chains got too much discount; it was that the independents got too little.

How smart does this discount differential look now, as we survey the gaping hole left in the market by all those empty Borders superstores? Perhaps no amount of discount would have saved Borders. But are independent publishers and distributors willing to give the eBooks resellers such favorable discounts that they can afford to lower prices enough to put what is left of the bricks-and-mortar bookstores out of their misery? Are we willing to repeat this sad discount history with eBooks?

My last note in this space compared print prices with eBook prices to try to arrive at an estimate of what eBooks really should cost. A few people commented that my numbers were not exactly right. Nor could they have been because there is no such thing as a typical book. Now let’s have a look at the costs of running a bricks-and–mortar store versus a web based operation. Here again the actual numbers will be all over the map, and the best that can be done is a rough approximation of the comparative costs.

Barnes & Noble was able to build and operate over seven hundred huge, well appointed stores working on a 50% discount arrangement with its suppliers. And the independent booksellers still in the game run shops, much loved by their local communities, on less discount. These booksellers big and small somehow even manage to collect and pay sales taxes! Shouldn’t an eBook reseller be able to thrive on a much narrower margin?

After all, most of the much-celebrated if exaggerated cost savings for publishers enjoyed by eBooks over print books—no warehousing, receiving, picking, packing, or shipping costs, no title ever out-of-stock, no expensive physical stores to build and maintain—surely also accrue to web-based eBook resellers. Can a website be as expensive to run as a shop on Main Street? Can storing just one book file in the cloud cost as much as shelving thousands of print copies in a store?

The big six publishers have used their market power to insist on an Agency Model that gives the eBook resellers 30% of the action. The independent publishers, lacking that market power, have had to settle for a deal that gives most eBook resellers over 50% of the action.

(Yes, there are some complicated side issues having to do with the Agency Model and the Wholesale Model. But the big six publishers went to the mat to get the Agency deal. Which deal would you want? The arguments for the Wholesale deal are just obfuscations offered up by those who would benefit from it.)

If this discount differential persists, many independent publishers will be driven out of business, just as so many independent bookstores had to close their doors when they were denied equitable terms. And what is at stake here is not just money.

Curt Matthews

CEO, IPG/Chicago Review Press, Incorporated

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