A Publishing Monopoly and Two Conflicting Models

The publishing industry has long been dominated by the Big 6 Publishers (Hachette Book Group, HarperCollins, Macmillan, Penguin Group, Random House, and Simon & Schuster). Pick up a random book that happens to be lying around and see who published it; chances are, it’s one of the Big 6 or an imprint of one of them. (The book I’m currently reading was published by HarperCollins, more specifically their imprint Cliff Street Books.)

Lately, huge companies like Amazon (which currently seems to have a monopoly on Internet shopping) have slowly begun to take over the publishing industry, more and more so in recent years. Amazon threatens the Big 6 Publishers because of its cheap prices and because of its self-publishing arms (CreateSpace, Kindle Direct Publishing, etc.)… but will it eventually drive the Big 6 out of business? Amazon makes publication so much easier for writers who don’t want to have to go through the gatekeepers at the Big 6 Publishers.

I heard about the “agency model” from a lovely blog called Publishing Trendsetter and it prompted me to write this blog post. The agency model is when a publisher (say, for instance, Simon & Schuster) sells a book through a vendor (Amazon, for instance), and then the vendor sells the book to the customer. The publisher and the vendor each get a certain percentage of the customer’s payment. Opposing the agency model is the wholesale model, in which the publisher sells books to the distributor at a certain price and the distributor chooses the price at which to sell the books to the customers.

In other words, the difference is that in the agency model, it’s the publisher who sets the final price for the customer. In the wholesale model, it’s the distributor who sets the final price.

Amazon uses the wholesale model, often selling books at extremely low prices, even if that means Amazon itself loses out on money. This is why it currently controls 70% of the market share. Why would a customer go to a bookstore and purchase a book for $10 when they could order on Amazon and have that same book for $6 or less? This is especially pertinent when it comes to ebooks, which can be obtained for 99 cents or less on Amazon. The Big 6 Publishers say that because of Amazon’s monopoly on the marketplace, their product is being devalued since it is being sold at such a low price. They are also worried about losing money, since they cannot possibly compete with the ridiculously low prices at Amazon.

Of course, if Amazon continues using its wholesale model, it could eventually drive the Big 6 out of business, since it will be the cheapest (and eventually the only) place to buy books and ebooks. Once Amazon has no competition, it will be able to raise the prices of the books and hurt customers.

What this all leads to is a number of questions: Will Amazon eventually totally take over the market? Will the only place to buy books in the future be online? How will the publishing industry look from the perspective of those who are looking to have their books published? After all, if the Big 6 cave and there are no gatekeepers, anything and everything can be published. Authors will have to fight for attention amid the masses. Definitely something to think about, and Publishing Trendsetter’s article lays it out much better than I have done in this post, so if you’re interested, check it out.

4 thoughts on “A Publishing Monopoly and Two Conflicting Models

  1. It always seems to be the goal in a publicly traded company to drive any real or imagined competition out of business. A healthy profit margin is not enough, but a certain growth percentage has to be sustained to satisfy shareholders, who want their investment to grow. That growth is also a sign of “good” leadership, and results in hefty salaries and bonuses for the companies’ officers. Whether or not that growth is sustainable, or even good for the business in the long run, is another matter.

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  2. This is a complex situation, and I don’t know where it will end up any more than anybody else does (and beware those who are absolutely certain of the final result 🙂 ). But I can make a couple of predictions (guesses).

    The Big Six are not going to go away, though they may not stay the “big six.” In difficult times, mergers and acquisitions are possible, and maybe even likely. We’ve seen this in a lot of industries, including the music industry (when I was young there were a lot more “record companies” than there are now), the cell phone industry (where there also used to be a “big six” companies), daily newspapers, and others. But they serve a purpose (for writers, readers, and actually for Amazon, too) and can’t really be replaced by a universe of millions of tiny independent publishers.

    There are two big factors in the situation besides the Big Six and Amazon, too. One is Apple. It doesn’t seem (I haven’t studied this) that they’re putting a big emphasis on e-books, but they’re clearly a player, and they have more money and much higher profits than Amazon. If Apple decided to be a big deal in e-books, they would be.

    The other is Microsoft. I was surprised by their move into the Nook business (I think everybody was surprised by that), but I think it makes the Nook into a much more viable alternative to the Kindle. And if, as many people predict, dedicated e-readers will gradually be replaced by tablets, Amazon will have to deal with the fact that the Kindle Fire is a piece of junk.

    So, as I said, a complex situation. It will be interesting to see where it goes. By the way, one of the best resources I know of about these questions is Stephen Watkins’ blog The Undiscovered Author (http://undiscoveredauthor.wordpress.com). Stephen has two advantages over a lot of other people who write about this subject: 1) He has an MBA, so he understands a lot more about how businesss works than most writers; 2) He has not yet thrown in with one side or the other (indie or trad), so he can be fairly unbiased. Most of the bloggers I’ve seen who are the most ardent about predicting the impending collapse of Big Pub are indie publishers who have a business interest (they think) in that happening.

    Here’s a recent post on the subject:
    http://undiscoveredauthor.wordpress.com/2012/04/27/logic-error/

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