Publishing Industry

Tag: Publishing Industry

Man Bites Dog Reading Book

It is well known that author’s clamor for Oprah’s endorsement because the book sales go bonkers, and sales of the author’s other books also go bonkers.  The conventional wisdom is that publishers love Oprah because she pumps up book sales.

On the other side of Chicago, however, Northwestern’s Craig Garthwaite has another tale to tell:  Oprah’s endorsements reduce overall book sales:

In the publishing sector, endorsements from the Oprah Winfrey Book Club are found to be a business stealing form of advertising that raises title level sales without increasing the market size. The endorsements decrease aggregate adult fiction sales; likely as a result of the endorsed books being more difficult than those that otherwise would have been purchased.

It is I who emphasized that startling finding. Here’s how Garthwaite describes it:

At the genre level, the post-endorsement period is marked by large sales declines in the romance, mystery, and action categories. These genres were popular prior to the endorsements in the geographic areas demonstrating the largest endorsement responses. Using quantitative measures of text readability, I show that endorsed titles require one additional year of education to read than is typical for romance, mystery and action books. Furthermore, the post-endorsement sales decline was largest following the endorsement of classic novels, which require nearly four more years of education to comprehend than typical romance, mystery, or action titles. Since the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent reading the text, the post-endorsement sales decline in publishing should be considered similar to endorsements in other sectors that shift consumers towards more expensive products.

The Late, Great Bubba Smith

I read through the paper this evening, and this will likely wind up on my Industrial Organization reading list for next year. We’ve seen a similar phenomenon in our analysis of the beer industry — advertising doesn’t increase overall sales so much as it redistributes sales within the sector. Indeed, we kick off that class with a simple advertising game model, where advertising expenditures are treated as a prisoner’s dilemma, and we learn why incumbents are often copacetic with an advertising ban.  The analogy here, I guess, is that a beer producer that heavily advertises a new, difficult-to-drink product could cause an overall beer consumption to go down (possible ad line: New Bud Super Dark: It’s Like Drinking a Bagel ! ).

I wonder if the “light beerrevolution of the 1970s had the opposite effect?

Via the fellas at Marginal Revolution.

Streaming Profitability? Less So Than July

Back in July I was telling you about Netflix and its remarkable stock price ascension.  At the time, its price was rising rapidly  with a price flirting with $300, and it was overall looking like a good bet (click on the chart to your right).  If the author was to be believed, it was a great bet.  Indeed, the stock price rose 60 points in the week following that post (did our loyal readers run out and bid the price up?).

So let this be a lesson about getting your stock tips from The Atlantic, things can change pretty fast these days.  Today I pick up my local computer and Netflix shareholders — the ones who haven’t bailed, that is — are bemoaning a stream of remarkable decisions that have kneecapped the company’s stock price, sending it into a free fall back toward $100 per share.

UPDATE: During the time I was writing this post, the stock price opened 40 points lower at about $75.  Wow. Here it is in real time.

Of course, this could be one of those cases where Netflix management is taking the long view instead of grubbing for short-term profits.  The original argument is that there were significant barriers to entry in streaming content, and that seems to be what management still believes — no close substitutes, no potential entrants with the same type of content.

This will likely make its way into both IO and the Senior Read.  A very interesting situation, indeed.

Is Amazon Going to Give Away Kindles?

The answer is yes.  The only question now is, to whom?

Okay, so that’s not the only question. Another question might be, why on earth would they do that?   Tyler Cowen suggests a durable goods monopoly (what’s a durable goods monopoly?),  while his commenters break into a fascinating discussion on platforms and other possible competitive dimensions.

The graph and some discussion are courtesy of the undoubtedly fine folks over at The Technium.  Though the story is more than a year old, the current superior Kindle is $137 and has been since December.

Okay, so maybe the answer isn’t yes, either.   In fact, in the short term the answer is a resounding no. But the idea that they would bundle them with Amazon Prime membership seems reasonable.

Textbook Tuesday

I’m a big fan of Steven Landsburg’s approach to micro theory, and hence I have adopted Price Theory and Applications the times I have taught the course (HT: Charles Steele).  The 8th edition is about to come out, meaning that there is no viable used market to purchase the 8th edition.  This also calls into question paying full price for a new version of the 7th edition (currently north of $160).

Since most Econ 300 students are majors (the ones that survive, at least), I am not worried about the resale market, because I think someone walking around calling themselves “an economist” should have a solid micro theory book on the shelf.

So, with all of that said, I recommend that you either pony up for the 8th edition (which I have yet to get a desk copy of), or start scouring your used options now. Amazon doesn’t seem to be much help, but a quick search of Valore Books and  Big Words (< $40), eBay, and, indicates that you should be able to locate a copy at a pretty reasonable price.

Worth every penny.  But there’s no sense squandering the surplus.

It’s a (Very Exclusive) Jungle Out There

While we’re on the topic of the publishing industry, my insider contact has tipped me off to the latest delicious controversy.  Literary superagent Andrew Wylie is taking his clients’ backlist titles and selling the e-book rights directly and exclusively to Amazon.

Wow. I wonder what that means?

Let’s take a step back.  Suppose you are, say, John Updike, and Random House wants to publish your book.  The company gives you an advance and then pays you royalties based on sales and all things are right in the world.

But now, technology marches on and the next thing you know the Kindle and the iPad emerge, and all of a sudden there is a potentially new version of your product, the e-book.  What should we make of this? Does your contract with Random House extend to the right to publish the e-book? Or do they have exclusive rights to  Or do you maintain that right?

It wasn’t until the mid-1990s that Random House began explicitly covering e-books in its contracts, and Wylie seems to think that his clients maintain e-book rights.  The courts seem to agree.

It’s not clear from the article that that is the biggest problem.  According to the New York Times blurb:

John Sargent, chief executive of Macmillan, posted a response on his company’s Web site, criticizing Mr. Wylie for cutting an exclusive deal with Amazon for the 20 e-books, which in addition to Mr. Nabokov’s “Lolita” and Mr. Roth’s “Portnoy’s Complaint” include Ralph Ellison’s “Invisible Man” and John Updike’s “Rabbit” books.

“It is an extraordinarily bad deal for writers, illustrators, publishers, other booksellers and for anyone who believes that books should be as widely available as possible,” Mr. Sargent said.

Some of you may remember Mr. Sargent who locked horns with Amazon not too long ago over  rights to set prices for e-book prices.  The effect of that was for Macmilian and others to wrestle control from Amazon and raise consumer prices for many e-book titles.  Certainly, at least in terms of a partial equilibrium model, the higher prices aren’t consistent with “as widely available as possible.”

It’s probably more complicated than that, though.

The Price is Right? UPDATED, TWICE!

The Summer marches on, and that means it’s time for some more summer reading. My recommendation this week is from George Mason economist and Marginal Revolution blogger extraordinaire, Tyler Cowen.  His latest book is The Age of the Infovore.

So, I was poised to pick up a copy for my wife at Amazon for what seemed to be a bargain price of $10.88, but then noticed that the hardcover version, Create Your Own Economy, was selling for only $4.64.   It’s the same book, but the title changed when the paperback edition was released.

But then I thought, maybe she’d want the Kindle version instead.  But the Kindle edition of Create Your Own Economy is $12.99, whereas the Kindle for The Age of the Inforvore is $9.99.  Huh. So I’m paying a premium for a Kindle version of a hardcover version of the book, but I enjoy a steep discount if I actually purchase the hardcover.

Then I thought, well, maybe I’ll get her some perfume.

I think Yoram Bauman is right – choices are bad.

UPDATE: I sent this pricing info to Professor Cowen and he sent me a copy of his book with the inscription, “How is $0.00 for a price?”  Thanks!

UPDATE 2: While trolling the EconTalk archives, I came across an episode of Roberts and Cowen talking about the book.

Coming to an HBS Case Near You

A few months ago I had a series of posts on the Amazon-Macmillian-Apple fracas, related to publishing and sale of e-books.  A recent New Yorker piece provides a very nice discussion of the role of technological innovation and competition in reordering the publishing business, with Apple, Amazon, and Google all playing major roles.  One of the more interesting aspects is the blurring of the lines as firms integrate, disintegrate, or just try to make money.  My favorite line in the piece is this:

In (Amazon’s Russ) Grandinetti’s view, book publishers—like executives in other media—are making the same mistake the railroad companies made more than a century ago: thinking they were in the train business rather than the transportation business.

I’m not sure I have much to add to the article at this point, except to say that I recommend it.  And that you will probably be reading some version of this story as a business school case if you happen down the MBA route.

In fact, you will probably be discussing this in an Industrial Organizations course if you aren’t careful.

Revisiting the Amazon-Macmillian Fracas

The dust is settling on the, well, the dust up between Amazon and Macmillian over eBook prices. There are some excellent posts from Virginia Postrel, Lynne Kiesling, and Megan McCardle. Some great Industrial Organization topics here, like price discrimination, resale price maintenance, and why entry by Apple here is leading to higher retail prices. (Did he just say entry is leading to higher prices? Yes, he did).

Well, as we try to sort that out, it appears the dust is on the rise again, as a third publisher is demanding the “agency model” in the pricing of e-Books.

The future of the $9.99 e-book is in danger. A third major publisher, Hachette, is going for Apple’s agency model in order to sell e-books for up to $14.99 apiece, the company revealed in a memo to agents.

Following Amazon’s public dispute over e-book prices with Macmillan early this week, Hachette is also seeking a shift to the agency model, which allows the publisher to set the price for the e-book, while the retailer keeps 30 percent of the sales.

I wonder if that “agency model” bears any relationship to the “principal-agent” problem we will be covering in 450 after the break?

Stay tuned.

Did Amazon Blink?

Looks like Amazon might have blinked.

Dear Customers:

Macmillan, one of the “big six” publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer.

More on the Amazon-Macmillian Fracas

Excerpts from a very illuminating discussion:

Greed, no doubt, exists on both sides, living as we do under capitalism, but greed alone doesn’t explain the dispute. Yes, Amazon wants to sell e-books for $9.99 or less, and Macmillan wants Amazon to sell them for $15 or less. But as Macmillan’s CEO John Sargent explains, in a statement released today as an advertisement to the book-industry newsletter Publisher’s Lunch, Amazon and Macmillan aren’t at the moment fighting to see who can make more money on a book sale. They’re fighting to see who can lose more money. This is a very peculiar battle.


Most publishers have until now sold their e-books to Amazon for the same wholesale price that they sell their hardcovers–roughly half the hardcover’s list price. It is up to a retailer like Amazon whether to sell the book to consumers at its list price, as printed on the inside front flap, or at a discount. With e-books, Amazon has usually offered a discount so low that it actually loses money. That is, Amazon buys for $12 an e-book whose hardcover list price is $24.95, and then Amazon sells the e-book to its customers for $9.95.

Macmillan has probably been selling its e-books to Amazon at the wholesale price of about $12, and Amazon has been selling them retail for about $10. Macmillan says that it would like to sell its e-books at the wholesale price of about $10.45, and have Amazon sell them for the retail price of $14.95. In other words, Macmillan was offering to earn $2 less per e-book. Amazon, however, insisted that it would prefer to take a $2 loss on each e-book, instead, and became so indignant over the matter that it has now ceased selling any Macmillan titles, print or electronic. Macmillan’s proposal is known as the “agency model” for e-book pricing, and the company probably only dared attempt it because Apple has promised that it will sell e-books for its new tablet on exactly those terms. (Amazon has said that they’re willing to accept the agency model, starting in June, but only if an e-book’s list price does not exceed $9.99.)

Thank you, Mr. Shatzkin.

Big Apple Stirs Up Bezos’ Hive

A few months ago we saw Amazon and Walmart and Target engaged in some aggressive price competition in the sale of on-line books. I haven’t heard to much on that front of late, so I assume that the dust has settled and those firms will fight another day. Amazon is back in the thick of things, this time aggressively defending its Ebook turf from the encroachment of Apple and its new iPad.

The book world is all a flutter. Here’s a note from one of friend of mine, who has intimate knowledge of the sordid dealings of the book world (edited for content; these book people drink like journalists and swear like sailors):

So this ebook pricing conflict is getting serious. Amazon has pulled all of Macmillan’s titles from its store — physical, ebook, etc. — in response to Macmillan wanting higher prices for some kindle editions than $9.99. So, for example, you can’t buy any Picador titles. That’s a lot of bestselling books.

[I’m not certain I agree with Amazon’s actions here]. To dictate $9.99 for all books and instill that price point in readers minds as the only appropriate ebook price is just ridiculous — especially when they’re losing money on every kindle edition they sell of a hardcover book.

And this:

So it’s about Macmillan trying to switch over the agency model of pricing, which is what Apple is offering with their new ibookstore. It makes a lot more sense than the distribution model that Amazon uses for ebooks.

Nothing like a good old fashioned price squabble to keep things interesting. I’m looking into the details of this “agency pricing” model and of course will let you know when I find out.

Stay tuned to this space.

Update: This stuff is so delicious I just want to take a big bite out of it. It appears to be more of a market power argument than a transaction costs argument. And it appears this may well have all come to a head with or without the iPad.

Thanks to my source, “The Big Stick,” for the tips.