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Retailers Predatory Pricing Draws Fire in Media and on Net

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November 5 – November 12, 2009 Edition

Retailers’ “Predatory Pricing” Draws Fire in Media and on Net

NEW YORK, NY/AUTHORLINK NEWS/11/05/09–The American Booksellers Association’s request last week that the http://news.bookweb.org/read/7130 U.S. Department of Justice investigate “illegal predatory pricing” practices by Amazon.com, Wal-Mart, and Target,” has created a buzz on the Internet and in the media. The letter stated that the price wars on new hardcover bestsellers, including books by John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, James Patterson, and others, of between $8.98 and $9.00 was damaging to the book industry and harmful to consumers.

According to the ABA’s website, the move drew widespread media coverage, including the New York Times, Time magazine, the Boston Globe, CNBC, other news outlets, and bloggers. Many media outlets simply reported the facts in a straightforward manner; however, in some coverage, authors, including Stephen King, and some publishing executives spoke out against the practice. On the other side are some columnists who argued that such loss leaders were a part of standard business practices. Here, BTW provides a sampling of comments in recent coverage.

The New York Times (October 17) quoted David Gernert, John Grisham’s literary agent, who noted, “If you can buy Stephen King’s new novel or John Grisham’s Ford County for $10, why would you buy a brilliant first novel for $25? I think we underestimate the effect to which extremely discounted bestsellers take the consumer’s attention away from emerging writers.”

Stephen King himself concurred in an interview with Entertainment Weekly (October 23): “It’s time to give the smaller bookstores a little breathing room (although not much chance of that, with Walmart offering Dome for nine bucks),” he said.

In the New York Times (October 23) David Young, chief executive of Hachette Book Group, publisher of James Patterson’s I, Alex Cross, said that he would like the U.S. to follow France’s prohibition of selling books for less than the cover price. “I do think this massive

devaluation of the industry’s crown jewels could very quickly be extremely harmful,” Young said. “And I would not be alone in thinking that.”

On http://michaelhyatt.com/2009/10/my-response-to-the-current-price-war-over-books.html his blog, Michael Hyatt, CEO of Thomas Nelson, offered his opinion as to why the price wars “will prove damaging to publishers, authors, booksellers, mass retailers, and ultimately consumers.” Because “Amazon, Walmart, and Target are systematically conditioning consumers to expect these lower prices,” Hyatt wrote, “eventually, these retailers will be in the position to force publishers to lower their retail prices.” About booksellers who don’t rely on sales of household goods and other items to boost sales, he asked, how can they “compete with big box or online retailers who are willing to sell books at below-cost prices?… Most [bookstores] are willing to discount the books and accept lower margins, but few are in a position to actually lose money on every sale. It is not a sustainable model.” And, while Hyatt acknowledged that such prices might be good for consumers in the short run, “they are not good in the long run if authors and publishers are no longer willing to assume the risk of creatingand producing the kind of quality and selection consumers currently enjoy.”

Time magazine (October 27) quoted Michael Norris, a publishing-industry analyst for the research firm Simba Information, who said, “The fear is that people get used to paying less for books than it costs to make them, which puts downward price pressure on everything,” including wholesale prices for publishers and advances for authors. In the same article, David Heupel, a senior equity portfolio manager at Thirvent Financial in Minneapolis, observed, “I wouldn’t want to be a mom-and-pop bookseller right now.”

However, in a Boston Globe article (October 28), Jeff Jacoby considered the price war “spirited competition” that spurred sales: “If ‘the very concept of the book’ is being shredded by low prices, the message hasn’t reached the millions of Americans who buy books…. The rise of discount book chains and online booksellers has certainly altered the industry, but it has only increased the appetite for books.” He added that “as in every other industry, innovation and technology have changed the way books are bought and sold — and in the wake of change there are always winners and losers.” Indies, he said, should tout their advantages — “attentive and knowledgeable service, eye-catching displays, a reader- and author-friendly atmosphere, community involvement, the serendipitous joys of browsing.”

And in The Atlantic, business columnist Megan McArdle wrote: “The American Bookseller’s Association represents independent bookstores, whose members cannot afford to sell top bestsellers as loss leaders. But the interest of antitrust law does not lie in protecting small, inefficient sellers for the tiny minority of Americans who prefer to shop there. They lie in making sure that there is robust competition in the bookselling market. What they’re trying to do here is stop bigger, more diversified companies from competing with them, because they’ll lose.” The recent price wars, she said, make it clear “the big players are competing: with each other, and this “is where the market is going to end up anyway.”

In a column on the Huffington Post and reprinted in today’s http://news.bookweb.org/read/7137 BTW, Bill Petrocelli, co-owner of Book Passage in San Francisco and Corte Madera, California, offers a thoughtful argument about why all this is not a simple price war, but rather a fight over what consumers get to read. “Some readers think that if their favorite store closes they can always buy the book they want somewhere else. But that’s a dangerous delusion,” Petrocelli said. “The books they want may not be there at all. In fact, these types of disruptions in how books are sold or distributed have a profound effect on what publishers decide to publish in the first place.” And, he noted, “It’s hard to exaggerate the consequences of this mass-merchandiser dominance. These outlets carry, at most, a few hundred titles at any given time. This means that a handful of books — far less than one percent of all the books published — are probably accounting now for more than 30 percent of all sales in America. Price wars in this segment of the market only make matters worse, driving more customers to these merchandisers in search of quick bargains on a handful of big-name books.” (Read Petrocelli’s column in full http://news.bookweb.org/read/7137 .)