And The Numbers Go Round & Round

In what I hope is proving as interesting week for you on BB&H as it is  for me, here's one more entry into the conversation about marketing/sales/advertising.  This terrific article was written by James Grippando and published this month in the MWA bulletin. With his generous permission I'm reposting it here. -- MJR

         “Buy New”:  The Internet, Used Books, and the end of the World as We Know It

Elbert Hubbard, a prolific American author who published more than seven million words before his death on the Lusitania in 1915, once said that, “This will never be a civilized country until we expend more money for books than for chewing gum.”  If that is so, we are well on our way to becoming the most uncivilized nation on earth.

If you have logged onto www.Amazon.com lately, you probably know that a “new” hardcover can be purchased from a “used” bookseller for as little as one cent.  Yes, that would be $00.01 (plus shipping, of course) for a book that has yet to be remaindered.  Cool, right?  Wrong.

Here is the problem.  Ask just about anyone in the industry these days, and you will hear the same sad story:  mass market is in the toilet.  Some of the most knowledgeable players in the industry have traced the cause of this downturn back to the fateful summer of 1996, when paperback distributors eviscerated the wholesale distribution workforce and began shipping books directly to retailers.  This shift in distribution patterns streamlined the way retailers ordered books from publishers, transforming mass market into another arm of blockbuster publishing—the brave new world of fewer titles and branded authors.  It’s not clear that mass market will ever recover from this blow, but one thing is clear:  the ready availability of cheap hardcover books over the Internet certainly isn’t breathing new life into dead pulp.  Readers who watch their pennies—and there are many of them—used to say, “Gee, I’d really like to have a hardcover, but I think I’ll wait for the paperback.”  Now, they don’t have to wait.  Buyer No. 1 purchases the new hardcover for $25, reads it, and then posts it for sale on the Internet for $13.00.  Buyer No. 2 reads the same book and resells it on the Internet for  $6.00.  The cycle goes on, until the reader who used to buy a new paperback now gets a “used” hardcover in virtually new condition for less than half the price of a mass market.  Toss a few thousand shiny new cloth remainders into the Internet pool, and why on earth would anyone plunk down $7.50 for a paperback?  The sole remaining mass market demographic is the poor slob who is stuck in the airport with absolutely nothing to read.  Of course mass market is in the toilet!

Obviously this used book cycle has some benefits.  Consumers get new or nearly new books for considerably less than retail price.  They read more, presumably, which helps to grow an author’s fan base.  There is a downside, however.  Sooner or later, the only people who will pay retail price for a new hardcover book are those die-hard fans who simply must get their hands on the next book by their most beloved author as soon as it hits the bookstores.  The rest of the world will wait for the used books to flood the market.  And they are waiting in ever-increasing numbers.  A recent report from the American Association of Publishers estimates that in the trade publishing market alone, annual used book sales are already at $700 million—roughly ten percent of the market.  The number is only growing.

Is this really a bad thing?  You bet it is.  If this trend continues, publishers may well be able to publish only those authors who can earn out the bulk of their advance in the first few weeks of hardcover publication.   That means fewer authors will get published.  In turn, that means fewer choices for readers.  To anyone who reads beyond the bestseller list, that is surely a bad thing.  It also hits bookstores right in the pocketbook, at least the ones that sell new books.  It’s hard enough for the independents to survive in today’s market without the added stress of a used book craze. 

So, what can be done about it?  First, publishers should rethink remainders.  Does it make economic sense to dump all those books into the used book pool?  A remainder is sold at dead cost, which means that it earns no profit to the author or publisher.  The publisher recoups its cost—in theory.  With the Internet, however, a remainder can be sold several times over.  Each hardcover resale eliminates another potential sale of a new paperback.  It doesn’t take Milton Friedman to figure out that the short-term benefit of recouping the hardcover cost will eventually be outweighed by lost profits on mass market sales.  Try telling the folks in Disney that, before putting Bambi and Snow White in the vault every six years, they should unload every last DVD and videocassette at dead cost.  Books are different, to be sure, but unless a book is truly going out of print, never to be reintroduced into the market in any form, the economics aren’t totally different.  At the very least, publishers should make sure that remaindered books are in fact sold with the remainder mark (usually a black magic marker along the outer edge of the pages).  To take it a step further, they might even want to consider selling remaindered books without a dust jacket, in effect turning all remaindered books into “hurt” books that are perfectly fine to read, but that won’t be sold again and again over the Internet. 

Second, authors, agents, publishers, and booksellers should do more to encourage the purchase of new books.  A serious campaign to educate the book buying public may be in order.  Though the purchase of used books is not even the remote equivalent of pirating music off the Internet, it is at least noteworthy that the music industry did quite successfully convince fans that there is nothing wrong with wanting to be paid for one’s efforts as an artist.  Our message should be this:  Hey, it’s perfectly legal to buy used books, but people who do it should know two things.  One, the author, publisher, and local bookstore make nothing on the resale of books.  Two, diminished profits for the people—yes, we are talking about people, not just corporations—who write, publish, and hand-sell books leads to one inevitable consequence:  fewer choices for consumers.

Sure, we all love a bargain.  But before you log onto your computer in search of yet another hand-me-down hardcover, ask yourself when was the last time you bought a new book.   If it’s been a while, why don’t you do all book lovers a favor?  Drop into a real bookstore, bring your credit card, and have yourself a ball.  And instead of bringing a bottle of wine to that next dinner party you’re invited to, how about bringing a book? 

Oh, and you can skip the chewing gum.

James Grippando is the author of eleven suspenseful thrillers, including two releases this year:  Got The Look, No. 5 in the Jack Swyteck series; and Lying with Strangers, available exclusively as a Main Selection of the Literary Guild, Doubleday Book Club and Book Of the Month Club.  Leapholes, his first novel for young adults, will be released in September.   His novels are enjoyed worldwide in more than 20 languages.

Copyright James Grippando 2006

Comments

[Maralily]

The end of USED books would also be the end of education for the middle and lower-income classes. I read approximately six novels a month. The average cost of each where I live is $12 to $16. For those of us that don't have much money- well, goodbye to reading.

Used books have been available to readers since the printing press was invented. Funny you should invent a sudden crisis now.

[Richard]

I don't think James is suggesting the end of the used book market. As he says, it's perfectly legal to buy used books. He supports a campaign to let people know that writers and publishers make nothing from the sale of used books. Will this work? I'm an author and I know this, but still I buy mostly used books. Yesterday I read Roth's Everyman, which I got for a dollar.

The reason selling used books is legal under U.S. copyright law goes back to the 1908 Supreme Court case, Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908), which established the first sale doctrine. In that case, the publisher, Bobbs-Merrill, had inserted a notice in its books that any retail sale at a price under a dollar would constitute an infringement of its copyright. The defendants, who owned Macy’s department store, disregarded the notice and sold the books at a lower price without Bobbs-Merrill’s consent. The Court ruled that the exclusive statutory right to vend applied only to the first sale of the copyrighted work.

Why did the Court make an exception to the rule that the copyright owner not be able to take action against someone who sold the book without their permission? The Court said:

"In our view the copyright statutes, while protecting the owner of the copyright in his right to multiply and sell his production, do not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract... The owner of the copyright in this case did sell copies of the book in quantities and at a price satisfactory to it. It has exercised the right to vend. What the complainant contends for embraces not only the right to sell the copies, but to qualify the title of a future purchaser by the reservation of the right to have the remedies of the statute against an infringer because of the printed notice of its purpose so to do unless the purchaser sells at a price fixed in the notice. To add to the right of exclusive sale the authority to control all future retail sales, by a notice that such sales must be made at a fixed sum, would give a right not included in the terms of the statute, and, in our view, extend its operation, by construction, beyond its meaning, when interpreted with a view to ascertaining the legislative intent in its enactment."

The first sale doctrine was later codified in the U.S. Copyright Act, Section 109. While there has been some controversy regarding its application to other media (see The Record Rental Amendment of 1984 and The Computer Software Rental Amendments Act of 1990), nobody has ever suggested any restrictions on the doctrine regarding books.

So no one is going to take away your right to buy used books. Whether this right is a good thing for authors, publishers and society in general is another matter.

[MJ]

What he's saying also is better to take them out of the library - where they count towards an author's sales. He's also not talking about 70% of book sales which are backlist titles. Any book that was published more than ten years ago - in my opinion - is fair game for used.

[Peter L. Winkler]

He's fixated on the wrong issue.

He says that if the used books supplanting the sakes of new books condition goes on, publishers will reduce the number of authors and titles they publish.

I don't see that as a problem, frankly. We keep hearing numbers bandied about on how many books are published yearly. For years I would read 50,000. Now it's supposedly near 200,000.

Nobody can sample, let alone read the tiniest fraction of that. Neither a librarian or the most dedicated book critic-people who's professional capacities put them in constant contact with new books-can hope to even skim the surface of this glut.

Publishing is structurally unsound. There are too many books chasing too few readers. The cost of publishing books, the returns on books that do sell, and all the other fixed costs entailed in maintaining this system are all passed along in the cost of new books.

The reader seeks to lower the cost and discounts, remainders and used books are his methods.

Publishers and authors should stop blaming readers who are their only audience for acting rationally and instead trying to fix the root problems.

I have yet to hear the CEOs of Ford or GM blame their falling sales on the used car market. They accept that the sales of used cars impact new car sales. The sale of a used item of any kind diminishes sales of a new unit. So what?

Unless you want to legislate the purchaser's rights to used goods away, then what is your solution? Make readers guilty enough about the impact of buying used books so that they'll buy new? You think that'll work?

[David J. Montgomery]

One quibble...

James writes: "Sooner or later, the only people who will pay retail price for a new hardcover book are those die-hard fans who simply must get their hands on the next book by their most beloved author as soon as it hits the bookstores. The rest of the world will wait for the used books to flood the market."

Books can't flood the used market unless they were first purchased as new books. If nobody buys the book at retail price, it can't be sold on the used market. Instead, it will be remaindered (or pulped).

I just don't see the used book market as being one of the major challenges facing publishing.

[Jeff Nordstedt]

I tend to agree with David and Peter. More often than not, when I hear publishers bemoaning something--be it the growing used book market, the algorithm-driven buying procedures of the chains, or the high fees for warehousing and returns--I always think that sloppy publishing is more to blame than anything.

Sometimes I buy used books. Its usually when I am on Amazon and I am looking for a niche book. Often software books or how to books of some sort.

But when I get excited about a book, I go out and I buy it new so long as the price is not ridiculous.

In those instances, the publisher has done a good job of developing a book that gets a rise out of me. They've done an even better job of marketing it so that it crosses my path somewhere.

The point is, I am more likely to buy a used book when it is something that I had to hunt for. However, when a book finds me, I just go out and get it.

If publishers did a better job bringing good books to appropriate readers I am sure no one would be worried about used book sales.

[Peter L. Winkler]

UC Berkeley economics professor Hal R. Varian considered the impact of used book sales on new books in an article published in the July 28, 2005 edition of The New York Times.

http://www.nytimes.com/2005/07/28/technology/28scene.html?ex=1280203200&en=33765024cbf62d4c&ei=5090&partner=rssuserland&emc=rss

"When used books are substituted for new ones, the seller faces competition from the secondhand market, reducing the price it can set for new books. But there's another effect: the presence of a market for used books makes consumers more willing to buy new books, because they can easily dispose of them later.

But Mr. Bezos is not foolish. Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small.

One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books. As a result, the used market does not have a big impact in terms of lost sales in the new market.

Applying the authors' estimate of the displaced sales effect to Amazon's sales, it appears that only about 16 percent of the used book sales directly cannibalized new book sales."

[Lana Lang]

I've heard a lot about how mass market publishing is in the "toilet" but I've never heard a coherent explanation about why that is.

[Annalee]

Trying to figure out why people spend money is a funny thing. Someone brought up that car manufacturers aren't blaming the used car market on weak sales of new vehicles. I do hear them blaming gas prices yet I can think of one corner here in town where a gas station on one side of the street is ten cents a gallon more than the competition across the street. Guess what... they both have customers all the time!

[J. W. Coffey]

No, used books will not put new books out of the picture. As someone has pointed out, a new book must be purchased to be used. And, in the case of some textbook wholesalers, they may not have sold the books to a reader. They purchased from the publisher, didn't sell all the stock, but can't return the lot. So they can turn around and sell them as "used," even in mint, new condition.

The issue is not whether purchasing used books will put the new market out of business, but who makes the money. I am an author, as well. And I make my money only on the original sale. And most of the time, it's not as much as it should be. If my publisher has a deal with Amazon to sell books to that retailer at 50% off the net price, I'm only making half the royalty fee that I should have gotten. Amazon is then allowed to resell that book at a discount of--for instance--25% off list price and they still make money on that book. But I don't get a portion of that. Now, add the glut of used books that can be sold and resold...and I'm losing money on my own intellectual property. That's the point. And that's the part I resent!

[Jeff Hull]

If you published your books yourself, you would keep a much larger share of the proceeds, and keep your intellectual property out of Amazon's resale system. I think the real problem is the publishers' racket of woefully underpaying authors simply because (up to now) they have been able to run the game to their own advantage.

[David J. Montgomery]

I disagree that authors are woefully underpaid. If you sell books, you'll make money. Most authors don't make any money because they don't sell any books.

[Van Leasing]

I visited this blog first time and found it very interesting and informative.. Keep up the good work thanks..