Publishers have been battling Amazon (AMZN) over the price of e-books, only to get outflanked by Wal-Mart (WMT) last week on the bread-and-butter best-sellers. In an effort to boost traffic on Wal-Mart.com, the Bentonville, Ark., retailer is offering select hardcovers that are among the most anticipated of the season for $8.99. Who saw that coming?
Not the publishing world. Book people are easily spooked. And their first line of defense is to hyperventilate. That's what literary agent David Gernert did in the New York Times when he claimed, "[P]ublishing as we know it is over" if readers come to expect hardcover best-sellers for $9 at Wal-Mart, Amazon, and Target (TGT) (which matched the offer.) He feared the low price would turn readers off to literary books at $25: "I think we underestimate the effect to which extremely discounted best-sellers take the consumer's attention away from emerging writers." But instead of fretting over first novels, publishers and agents should latch on to this development as a way to restructure the economics of the industry to everyone's benefit.
In truth, there are no barriers to success in the book business. Publishing is ruthlessly efficient. Books that excite readers take off; those that don't disappear fast. There's no evidence that John Grisham crowds out the great American novel. In fact, it's quite the reverse. What the industry lacks are products that excite readers. Where publishing is brutally inefficient is the process by which it selects products and allocates resources. And those toxic assets—all the unearned advances—are paid off by the best-selling authors. Stephen King, John Grisham, and the Freakonomics guys cover the cost of failed books.
So fighting the low-priced book—either electronic or hardcover—is a red herring. Consumers are already accustomed to paying varying prices for different editions of the same title. Many a book sells well in the higher-priced trade paperback form even when a cheaper mass market edition is available. The same is true for hardcovers, in many cases. More to the point, Costco trained customers to expect to pay half the cover price on hardcovers and paperbacks many years ago. The impact on independent bookstores—the entities that supposedly support and nurture emerging writers—and chains has been profound but is hardly new.
Wal-Mart's loss-leader campaign only emulates what Amazon and Costco have already done: Use cheap books as a signal of value. It has seen how successful books can be for customer loyalty, especially among women, who compose the majority of shoppers and readers. The discounts will be very hard for Wal-Mart, Target, and Amazon to sustain because they must purchase the book from publishers for more than they charge customers. But watch out. Like Amazon's 40 percent discount on best-sellers and the 50 percent discount by other physical retailers, the overall trend in the book business has been toward price deflation. Wal-Mart can keep the cuts up if it arranges a deal that allows the publisher to sell books to the giant on more favorable terms. So, once again, it is the very success of books—a medium no one supposedly cares about any longer—that continues to erode the economics of the publishing industry.