Amazon’s infinite stockroom

Amazon’s infinite stockroom

This may be one of Amazon’s biggest disruptions yet…and it could really benefit small publishers.

According to this

The Bookseller article by Benedicte Page

Amazon UK is pushing for new contract conditions with small publishers.

One of them I don’t like, and could run afoul of anti-competition agencies. That’s the so-called “MFN” (Most Favored Nation) requirement.

Essentially, having an MFN means that you can’t sell your product at a lower price anywhere else. In this case, it would mean that publishers would have to give Amazon as good as they give anybody else…including themselves.

MFNs haven’t been inherently found to be illegal, but they were a problem in the legal action taken against the Big 5 publishers for conspiring to raise e-book prices.

It feels to me (and I’m not a lawyer) like restraint of trade, since it controls what you do with another entity. That may be subtle, but I think it’s different from paying somebody for exclusive rights. Again, it’s just my feeling about it, but exclusive rights says, “Sell this just to us.” An MFN says, “We will control the pricing even when we are not part of the sales chain.”

The other rumored condition, though, is far more significant as far as I am concerned.

When I managed a brick-and-mortar bookstore, we would  occasionally  have someone come in who wanted us to carry a book they had self-published on a contingency basis.

In that situation, we don’t pay them anything for the book unless it sells.

They think that doesn’t cost us anything, which would demonstrate a lack of understanding about retail, as far as I was concerned.

In a brick-and-mortar, one of the biggest things you are battling is rent. Every day a book sits on a shelf, you lose money, because you have to pay the rent on the space under that book.

That’s one reason why books may turn over pretty quickly: if a book sold five copies the first day, three the second day, and one the next day, you might return it to bring in something hotter.

So, contingency was never risk free for the store.

However, what if the book did sell well? Wouldn’t that be worth it?

Books have a short sales cycle in a store. There just aren’t that many people who are going to come into a bookstore every day, and you have a core of regulars. If a bunch of your regulars buy a book as soon as it is released, they don’t buy it again, typically. Book sales are front loaded in most (but not all) cases. You need the book when it is hot…waiting a week can really cut into sales.

So, I would say to the self-publisher: “If I need ten more of these tomorrow, could I get them?”

Their answer would always be, “No.” It might take them weeks to get more printed.

That was why I would tell them I couldn’t carry it. A traditional publisher could drop ship me books that fast…certainly within a couple of days.

If a Random House author went on a local radio talk show (which was a huge driver of book sales), I could ask for a hundred more and get them while people still wanted them.

The little, independent publisher simply couldn’t compete, because they didn’t have the supply infrastructure.

That’s also been true online.

If you want a p-book (paperbook) from a small publisher, it might take weeks for Amazon to get it, even if they can then send it to you in two days.

Amazon has a solution (according to sources).

They are reportedly telling the small publishers that, if the publisher is out of stock, Amazon wants the right to print the book themselves.

Amazon has a huge “print on demand” operation already:

CreateSpace

I think most of the writing I’m seeing about this doesn’t adequately recognize what a game changer this would be.

Let’s take an easy example.

An author publishes a horror novel with a small press.

They print 500 copies, which seems likely to be adequate.

Stephen King writes about loving the book.

Suddenly, demand is huge.

Amazon could sell 10,000 copies tomorrow…but the publisher only had 500 for everybody…and it will take them two weeks to print more.

Under the reported proposal, the publisher has given Amazon the file from which to print the book, and Amazon just prints it themselves and gets it to the customers.

The publisher still gets paid.

My guess is that Amazon doesn’t need to charge them much (anything?) for having had to print it. The cost of printing a book is actually a small portion of what creates the consumer price. There are a lot of people costs (editors, cover artists, the author), marketing costs, and other things involved beyond the paper and ink.

The book now shoots up the bestseller list, and becomes an even bigger hit (competing strongly and directly with large publishers’ products).

If Amazon couldn’t print the book, they would likely lose the vast majority of those sales…some people would wait for it, but I think most would not.

Now, in the writing about these contract proposal rumors, the feeling is that publishers are pushing back against this one.

They don’t want Amazon to control the process…they may be concerned (not unreasonably) that the quality of the book might suffer. In the scenario that I’ve proposed in the past that new novels might cost $50, that includes them being printed in a much higher quality way than we usually see now…or that we would expect from print on demand.

What this does, though, is level the playing field between small publishers and the big tradpubs. Amazon becomes the back-up “factory” for the little guys.

In the same way that we’ve seen huge successes in e-book publishing for independents (where no factory is necessary), we would see gains for small publishers in p-books.

I also don’t see this being a problem under anti-competition laws.

This would further weaken the bargaining power of the Big 5 with Amazon, since little pubs could also have blockbusters.

I suspect this will come to the USA as well, if it hasn’t already.

What do you think? Would this be as big a deal as I think it would be? Will publishers push back against it to keep Amazon from having too much control…even if it might benefit them? What can the Big 5 do to maintain their marketshare? Feel free to let me and my readers know what you think by commenting on this post.

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This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy  Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

13 Responses to “Amazon’s infinite stockroom”

  1. Edward Boyhan Says:

    MFN has been around for donkey’s ages — I first came across them more than 40 years ago. Ironically back then (and AFAIK even now) the biggest insistor of MFN arrangements was the federal government! Basically if you contracted to sell something to the federal government at a price, they insisted that you had to sell it to them at a lower price (if subsequently you ever offered to sell that product at a lower price to anyone else). You got around that by changing the SKU (and perhaps some minor features).

    Absolute control of the selling price has also been a long standing part of supply chains. Often manufacturers (Apple comes to mind with their devices) insist that their products or services be sold by every distributor at a fixed price set by the manufacturer — no discounting allowed (this is often called “fair market” pricing). If you do discount, the manufacturer will cut off your access to the product. This leads to “grey market” goods, and sometimes the bundling of gift cards with the price-controlled products.

    What appears to be new here is that MFN and absolute price control is being required by a middleman in the supply chain (ie Amazon) rather than an entity at one end (manufacturers) or the other end (customers) of the supply chain.

    This gets even more complicated when you consider eBooks instead of pBooks (the referenced article mostly addressed pBooks). In the eBook case, the supply is effectively infinite and universally available — further the incremental cost of producing one more eBook is effectively zero. Traditional pricing concepts from classical economic theory then go out the window (:grin)

    Amazon isn’t doing anything that hasn’t been done before when suppliers, distributors, and consumers negotiate terms. New technologies (and Amazon’s ability to leverage same) are fundamentally altering the boundaries of the price negotiation playing field. While this indubitably helps Amazon at the expense of some traditional players, it also has the potential to manifestly benefit two other players: authors and consumers.

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      As far as p-books vs. e-books go, Amazon already “manufactures those on demand”. You would think the small publishers would see how that has helped equalize things with the big publishers for them.

      MFNs have been around, as you note, but the positioning of it does seem different to me. I remember something about an issue with the publishers giving big bookstores a better discount than small bookstores (regardless of quantity ordered), and that being stopped by some outside agency (this was some time back). When you look at the Federal government, you are looking at a entity at a different level than a public sector company. When you look at Amazon controlling how much you can charge Barnes & Noble, you are really looking at two entities at the same hierarchical level. That’s what seems odd to me.

  2. Edward Boyhan Says:

    One further thought: the concern about quality for print on demand is probably misplaced for almost all mass market titles. Most publishers internally carry high quality electronic renditions of their works through the book production process (the industry has more or less standardized on a description format related to PDF) so quality versions are available for print on demand.

    Where quality becomes an issue is in books with complex layout and page formatting requirements (such as technical/professional books). I know of a couple of such authors who prepare their manuscripts in MS Word (this would not be my first choice :grin), and then publish using Amazon’s KDP. The translation of complex books in MS Word format into the KDP environment is not straight forward, not subject to easy revisions, and KDP doesn’t have the layout sophistication (such as PDF/Postscript) that technical/professional books require.

    Nonetheless the KDP recommended input format is MS Word, but Amazon caveats that complex layouts might not be correct. PDF which has superior layout control to MS Word is also supported by KDP, but has even more conversion caveats.

    Third party conversion products (such as Calibre) are often interposed before KDP to get something with reasonable layout fidelity — this complicates indie publishing of complex books, and I assume those complexities would carry over into the print on demand environment.

    Color is probably not a big deal in the mass market fiction arena, but is indispensable in technical/professional books — I wonder how well print on demand can handle color?

    Amazon eBook formats are well suited to the mass market, but when complex layouts and formatting is involved they are less so.

    • Lady Galaxy Says:

      As a consumer, I would want to know if I’m going to be receiving a book that was printed by the publisher or printed by Amazon. I know books have a very low “resale” value, but books not printed by the original publisher, such as book club editions, have an even lower value.

      • Bufo Calvin Says:

        Thanks for writing, Lady!

        Well, my feeling is that you wouldn’t get (or really be entitled to) that kind of information. Right now, you generally don’t know where a p-book was printed, right? Presumably, the publishers end up using different printing companies in different locations and at different times, and that might affect the quality…but we aren’t told that.

        I think book club editions are a different case, and are worth less not because they weren’t printed by the publisher, but because they were made more cheaply. That’s part of why the book club could discount them. They could use cheaper paper, cheaper ink, cheaper glue, cheaper covers…now, the savings on that isn’t all that much, but it does matter. A lot of book club editions, as I recall, had a tendency to fall apart over time…

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      Actually, I’ve gotten the best results with KDP using SeaMonkey to do HTML. Word didn’t work at all well for me.🙂

      Mass market paperbacks are generally similar in being of somewhat poor production quality…but that’s sort of the point. If a publisher is selling a new novel for $50 and it’s leather-bound and gold-trimmed and acid-free paper, they wouldn’t want Amazon sending out a cheapo version.😉

      • Edward Boyhan Says:

        I don’t think the deal with print on demand has anything to do with the leather bound gold filigree segment of the marketplace. I think the desire to print on demand is purely a mass market play. And if a publisher did have a concern about quality in the “carriage trade” segment, I’m sure that could easily be addressed in the negotiating process.

        As to mass market paperbacks being of “poor quality” — I couldn’t disagree more — great strides have been made in production quality. Many college textbooks are now done in paper. In the thousands of pbooks I own — bought over a span of 50 years — about 20% are hardbacks the rest paper. Save for the very oldest of my paper titles (bought when production quality wasn’t as good), I would have to say that the repeated “readability” of my paperbacks is every bit as good as the hardback — and in many respects the smaller size of the paperback is more convenient.

        Back when I was in to buying pBooks (not anymore :grin), the only reason I would ever buy the hardback was because the hardback had about a year’s lead over the paperback for availability, and for certain authors I just couldn’t wait😀 . That lag seems to have disappeared for eBooks vs hardbacks. What seems to happen now is that when the paperback becomes available, the eBook price seems to drop a dollar or two. I do see a trend on the part of tradpubs to try and narrow the price discrepancy between eBook and hardback prices at first publication.

        Production costs used to justify the gap between hardback and paperback. Technology has narrowed those cost differentials almost to the vanishing point, and for eBooks there is not much of a production cost at all.

        There’s quite a bit of yelling about how Amazon is a big bad monopolist. All this pricing discussion makes me think why does no one scream about the monopoly control that a tradpub has over an individual author’s output. In an eBooked world why couldn’t an author “publish” through many venues where each venue could compete against each other vis a vis royalty paid to an author and the price charged to a consumer?

        Just letting my brain run off at the mouth here — (:grin)

      • Bufo Calvin Says:

        Thanks for writing, Edward!

        We’ve had different experiences with paperbacks.🙂

        I have hardbacks which are over 100 years old, and still in pretty good shape (the pages become a bit brittle, but the binding is good).

        I have paperbacks from the 1960s and 1970s which are literally held together with rubber bands. I’m very gentle with my books…they’ve just fallen apart. I’ve also had paperbacks (glued together, by the way) where a section of the book will come out, or the entire text will separate from the cover.

        Now, I’ll freely admit that I haven’t bought a mass market paperback in some time, so perhaps improvements have been made in the past…oh, ten years or so.

        For indie e-books, publishers (often just the author) do what you say: they sell the same book through different platforms, including Amazon, Barnes & Noble, and Smashwords. However, having them priced differently (in terms of the royalty paid) is just the sort of thing that an MFN stops…

      • Edward Boyhan Says:

        I generally agree that things like MFN and “fair trade” relationships are “bad”, and even if not legally, they are in spirit, in restraint of trade (MFN did figure — as I think you mentioned — prominently in the DOJ action vs Apple et al).

        These arrangements don’t get a lot of scrutiny because the players in the retail space have found numerous ways to get around them — the simplest just being to just change the item in question’s ID. Enforcement is also problematical, and can lead to lots of embarrassment.

        As a confirmed shopping addict, I can see many advantages to a super monopolistic single shopping venue (something I’m sure both Walmart and Amazon aspire to :lol ). People tend to underestimate the costs of search IMO. Amazon’s approach of allowing thousands of independent vendors under their roof could provide sufficient competition to keep prices mostly in line (with perhaps a soupcon of government oversight :grin).

        Economists believe that there is a class of “natural” monopolies (electric power distribution come to mind) in which the monopolist’s disadvantages are outweighed by only having a single provider. Technology continuously changes the considerations here — a generation ago telephony was considered a “natural” monopoly. I wonder if a “super” Amazon might not be a better place for retail? Do multiple internet search engines provide many advantages?

        BTW I have observed many of the problems you mentioned with paperbacks, but for me I haven’t seen those for many years. I have about 1000 pBooks in the house here with me — all bought between 2004 and 2009. I have read some of these more than once, and I’ve had no problems at all.

  3. rogerknights Says:

    I’ve also had paperbacks (glued together, by the way) where a section of the book will come out, or the entire text will separate from the cover.

    I glue those back together with a (heated) glue gun. The glue is flexible, non-degradable, and cures within 15 minutes.

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      Ooh, making changes in the physical world with a tool…you’ve passed out of my area of expertise.😉

  4. rogerknights Says:

    Book sales are front loaded in most (but not all) cases. You need the book when it is hot…waiting a week can really cut into sales.

    So, I would say to the self-publisher: “If I need ten more of these tomorrow, could I get them?”

    Their answer would always be, “No.” It might take them weeks to get more printed.

    That was why I would tell them I couldn’t carry it. A traditional publisher could drop ship me books that fast…certainly within a couple of days.

    But you’d still have to wait a week until they arrived, right? That’s one more reason why TradPubs should consider POD delivery to stores. (Or to a feeder store in each big city, anyway.)

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      Actually, the publishers’ reps could sometimes get them to us right away, and they could be overnighted. The reps typically came by once a week or so (depended on the publisher), but they could make an exception.

      POD would have saved us when the publisher ran out…that’s when there would be big delays.

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