Round One: Macmillan

If you haven't already heard, a small war broke out in the publishing biz over the weekend. It went something like this: Macmillan had a round of talks with Amazon about increasing the price of their e-books from $9.99 each to somewhere between $12.99 and $14.99 each. When Amazon said they wouldn't do it and it was clear Macmillan wasn't backing down, Amazon responded by pulling all Macmillan titles from its e-shelves on Friday. Macmillan cried foul and, late yesterday, Amazon caved. Macmillan titles sold through Amazon will, starting next month, be priced between $12.99 and $14.99.

[EDIT: Apparently only hardcovers and new releases will be in the $12.99 to $14.99 range; Macmillan titles may appear on Amazon for as little as $5.99, as reported by Macmillan CEO John Sargent.]

What do we make of all this?

It's important to understand that Macmillan's move is based on the long-term goal of keeping e-book prices in the same ballpark as print book prices (as well as their recent deal with Apple), whereas Amazon's goal is to deflate the price of e-books to 1.) sell more Kindles and 2.) gain enough electronic market share to be able to dictate to the publishing industry what books will cost. As we've just seen, Amazon doesn't (yet) have that kind of clout, but that doesn't mean that day will never come.

To quote the Times article: "Book publishers, meanwhile, are volunteering to limit their digital profits. In the model that Amazon prefers, publishers typically collect $12.50 to $17.50 for new e-books. Under the new agency model, publishers will typically make $9 to $10.50 on new digital editions." Publishers are willing to take a short-term loss in order to maintain the status quo; their fear is that if consumers become accustomed to a $9.99 price point for new books, they'll eventually believe that's simply what a book costs, which just isn't true for their print counterparts (hardcovers). Whether this will be the case remains to be seen.

Some are concerned that Macmillan will start seeing a drop in sales if their e-books are priced in the $12.99 - $14.99 range while the rest of Amazon's e-books are sold for $9.99. Although Macmillan may see some shortfall due to lower rate-of-movement and lower profits per book (see above), I don't really think they're going to be hurt by their pricing model in the marketplace. This is chiefly because, unlike vegetable oil or aluminum foil or ball bearings, books are not fungible—that is, one book is not more or less identical to any other and therefore readily exchanged for another. Sure, individual copies of the same title are fungible—you would trade one brand-new hardcover copy of The Help for another brand-new hardcover copy of the The Help—but books in general are not (you wouldn't buy The Help for $9.99 on Amazon simply because it's cheaper than The Gathering Storm at $12.99).

Buying books is not like buying tupperware; consumers do not automatically go for the cheapest product that will get the job done. For this reason, I disagree with anyone that believes Macmillan's breaking Amazon's $9.99 standard will hurt them or the sales of their books; after all, they've competed just fine in brick-and-mortar stores where prices vary significantly from title to title already.

Finally, it's important to realize that neither publishing companies nor Amazon are charities. While both are looking to provide consumers with goods they will purchase (thereby earning profits for the companies involved), none of them believes that they "owe" customers low prices or that they should lose money to keep everyone satisfied. Most importantly, Amazon's imposition of a uniform price should not be misconstrued as the result of market pressure. Regardless of whether the market could tolerate, or even favor, a higher price point—and we'll soon see whether it will—Amazon has made its position clear. We'll see whether their predictions bear out.

PSA: PSA

In the case of the former, a Public Service Announcement; in the case of the latter, another heretofore mysterious aspect of the Sales Side (patent pending): the Per Store Average.

When sales folk (in any industry, not just publishing) talk about PSA, they're referring to the number of units sold, on average, by any given store in a chain. For example, if Joe's House o' Books has 100 store locations and sells 1,000 units of a given title over a given length of time, their PSA for that interval is 10 units per store (1,000 / 100).

PSA is important to the sales force because it allows us to make direct comparisons between national accounts that have different store counts; it's not exactly fair to tout Book-O-Rama's superior net sales and market share against Joe's House o' Books if Book-O-Rama has 500 store locations and Joe's only has 100. Compare:

Book-O-Rama: 2,000 net copies sold of Disaffected Teen Vampires.
Joe's House o' Books: 1,000 net copies sold of the same title.

Assuming these two are the only competitors in the market, B-O-R outsells Joe's 2:1 and has superior market share (67% to 33%), but their PSA is suprisingly low: only four units per store (2,000 / 500) compared to Joe's ten units per store (1,000 / 100). Why the discrepancy, you might ask? If so, congratulations: you're thinking like a salesperson. We'd be asking the exact same question. Low PSA can be indicative of anything from problems with store location (the stores are in low-traffic or low-population areas, or are in areas not heavily populated by their target client) to insufficient market penetration (though not always, as we've seen that low PSA can be accompanied by high market share).

What does this mean for you? As with market share, not a huge amount, since these comparisons are designed to provide information to publishers and retailers, not individual authors. However, a low PSA could be the result of your title not being in promotion at a given account, so it's always good to ask your agent a few weeks or months before on-sale whether (s)he knows where your book will be placed in-store at various locations.

Tomorrow: PW reports and another management shakeup... what's in store for Borders?

A Word on Market Share

When I talk about market share in the book publishing industry—or, more specifically, with regard to national accounts—what I'm referring to is the market segmentation observed in the sales figures of any given title. For example, The Time-Traveling Vampire's Daughter might sell 1,000 copies: 200 (20%) at National Account A, 350 (35%) at National Account B, 300 (30%) at Online Retailer A, &c. (The data are always expressed as percentages.) Market share analysis allows both the publisher and the individual retailers to view how sales are distributed throughout the marketplace and to address any discrepancies or opportunities that may emerge from that analysis.

Market share analysis is a handy tool for a couple of reasons. First, it allows publishers to discuss competitors' sales figures with an account without giving away confidential point-of-sale information (e.g., "your life-to-date market share for this title is only 16.2%, compared with Competitor A's 22.8%"). To be clear, I'm not using "Competitor A" in my usual tongue-in-cheek way; we actually don't reveal the names of the competitors whose sales data we're citing, simply because the account in question clearly has access to their own sales data and could reverse engineer the competitor's sales data from those numbers if they were so inclined. (For example, if I were to tell Barnes & Noble that Borders had 20% market share against their 15% for a given title, Barnes & Noble could simply look up the number of copies they sold of that title and calculate how many Borders must have sold.)

Second, market share analysis provides context for the discussion of a title's sales record. Saying "Chain A sold 4,282 copies of Boy Wizard and the Impossible Task" at a publisher meeting or telling Chain A that they sold 1,421 copies of Comp Title One during a sales call isn't very effective if you don't provide any data that illustrate the size of the overall market. Those numbers might be great if they constitute 30% market share, but disastrous if they work out to 4%. You get the idea.

Third, trends in market share allow publishers to see how various accounts are selling (either overall or by format, genre, &c) over any given interval of time. Is National Account A losing market share to National Account B overall? What about just hardcovers? Are both A and B staying roughly even, but losing proportional amounts of market share to Wholesale Club C? Is this largely due to a few titles or an entire format (e.g. mass market paperbacks)? The list goes on.

What does this mean for you, gentle authors? Well, not a lot, to be honest—market share discussions are much more salient for publishers and retailers than they are for individual authors. That said, it might be helpful for you during the publication process to think about how and where your book might be sold: do you see it as a grassroots-type literary epic that will take hold by word-of-mouth and primarily sell at independent bookstores? A mass market paperback paranormal romance that will sell thousands in the $8 rack at Walmart? A cyberthriller that will take off on Amazon? There's a different sales model for each, and the way the market divides those sales helps determine how your book will do and how your career as an author will evolve.