Can We Have A Little Chat About Money?

If you read the N.Y.Times in its cov­er­age of the dis­rup­tion of the Kin­dle, you might think that pub­lish­ers are los­ing a for­tune from the sud­den rise in Kin­dle sales.

Actu­ally, the oppo­site is true. Ama­zon is buy­ing Kin­dle rights from pub­lish­ers at the same price they’re pay­ing for phys­i­cal books. And Ama­zon is stick­ing with its pol­icy to sell Kin­dle books at no more than $9.99. So take your aver­age $20 list price hard­cover book (if I were a shame­less self-promoter, I would use my book The Genius Machine as an exam­ple, since it also has a list price of $20. But I will resist the temp­ta­tion.) The pub­lisher sells it to Ama­zon for 50% off, or $10. Ama­zon could sell my the book for $20, but they dis­count it down to $13.57, and make a profit of $3.57, or maybe a lit­tle less if Ama­zon is pay­ing for shipping.

Now take the same book sold as a Kin­dle. Ama­zon pays $10 for those rights, too. And Ama­zon sells the down­load for $9.99, thereby earn­ing a gross profit of 1¢ on each copy. On books that whole­sale for more than $9.99, Ama­zon seems to be locked into a loss with every sale.

And what about the pub­lisher? On a $20 retail book they get the same $10 for the Kin­dle edi­tion as they did for the actual hard­cover that cost them some $2.00 to man­u­fac­ture, ship, and even keep a reserve for returns of unsold books. So who is mak­ing a killing on the Kin­dle? The pub­lish­ers. And Pub­lish­ers, please, if I’m wrong about these num­bers, share the facts with us in the com­ments below.

Pub­lish­ers are wor­ried that Ama­zon will choose to stop los­ing money on Kin­dle sales at some point. They are just wait­ing for that shoe to drop. Hence the cheer­ing for Barnes & Noble’s new reader, Nook. (Nook. Inter­est­ing name. Just ask­ing, but what would you call a dimi­nu­itive ver­sion of the Nook?) Pub­lish­ers are beyond eager for some­one, any­one, to stop Ama­zon from com­pletely own­ing ebooks! Now let’s talk about those ten books that Wal-Mart and Tar­get are offer­ing for pre-orders at $8.99 and Ama­zon at $9.00. These are for hard­cover books rang­ing in list price from Linda Howard’s Ice at $22 all the way up to Stephen King’s 1088 page mon­ster Under the Dome that lists for a mighty $35. What is the mean­ing, if any, in these door-busting discounts?

Comes now (“Comes now” is a locu­tion reserved for colum­nists who can’t find a bet­ter way to intro­duce a new char­ac­ter into a story. But I digress.) Motoko “Cas­san­dra” Rich of the N.Y. Times in her “Price War” story in last Saturday’s paper, wherein she wor­ries that Wal-Mart sell­ing some pro-orders for books as a loss-leader will some­how “fun­da­men­tally dam­age the indus­try and the abil­ity of future authors to write or pub­lish books.” And, once more, end pub­lish­ing as we know it.

To tell her story, Ms. Rich inter­views best­selling author James Pat­ter­son, who she was appar­ently grate­ful to reach before her dead­line, since she quotes him at length no mat­ter how lit­tle light he has to shed upon the sub­ject. Frankly, inter­view­ing an author about retail price dis­count­ing is akin to inter­view­ing a tuna about the price of a Salade Niçoise.

The fact is, pub­lish­ers don’t really care what a retailer sells a book for. Retail­ers want to take a loss? No prob­lem. What every­one needs to be con­cerned about, though, is when a Wal-Mart or Ama­zon pres­sures a pub­lisher to sell at what is known as a “deep-discount.” That should set off alarms for authors and agents, since most author agree­ments call for author roy­al­ties to take a severe hit when the pub­lisher sells at a deep dis­count. Authors: Read your con­tracts! Find that “Deep Dis­count” clause. Does it say some­thing to the effect that when the pub­lisher sells your book for more than a 50% dis­count, the author roy­alty sud­denly gets cut in half? Think about that. The pub­lisher gives Barnes & Noble an extra 1% dis­count and you lose half your roy­al­ties on every book sold.

The big take-away here is that nine of the ten books being hacked down in price by Ama­zon, Tar­get and Wal-Mart are fic­tion titles. Only one calls itself non-fiction. And this is the clue to smart book pric­ing. Fic­tion is gen­er­ally sold as enter­tain­ment. Enter­tain­ment tends to be more fun­gi­ble. Non-fiction is gen­er­ally sold on the value of the infor­ma­tion it con­tains. So pric­ing the two in the same way seems crazy.

How much would you pay for infor­ma­tion that can change your life? Heal a child? Save your busi­ness? Is that infor­ma­tion worth only $20? Is that all you’d pay for it?

We haven’t begun to touch value pric­ing for non-fiction. That is the real gold mine just wait­ing for pub­lish­ers. We’ll write more about the poten­tial and the the­ory of value pric­ing soon. In the mean­time, you have to won­der about the one non-fiction title that’s being treated just like all those other nine fic­tion titles being deep dis­counted. Yes, it’s Sarah Palin’s mem­oir. Now, if what she were about to dis­close had great value, say infor­ma­tion that could, in some way, save the Union, it cer­tainly would be worth a lot. Some of us would pay real money for that kind of knowledge.

But Wal-Mart, Tar­get, and Ama­zon say we can have it all for just $8.99. Maybe they know something.