The argument against Amazon seems to rest on the proposition that if trad-pubs aren’t awarded excess returns, over and above the actual free-market value of their products, then there will be no money to pay authors to write “serious literature,” irreparably harming our culture and society.
This is really a very dense proposition with all kinds of unstated and unanalyzed assumptions behind it. It would take a lengthy and complex essay to thoroughly deconstruct all these notions, and few would have the patience to read it. But it’s worthwhile to quickly review some of the main issues.
1. How much “serious literature” do advances truly subsidize?
There isn’t any comprehensive public accounting but from various sources we get a general impression of where advances actually go. A large portion is paid to popular novelists like James Patterson and John Grisham and popular nonfiction authors like Edward Klein. Another big slice of the advance pie is served to entertainment and sports celebrities who put their names to various books that are supposedly nonfiction. And prominent politicians often get remarkably large advances for memoirs and ruminations. Calling any of this “serious literature” is stretching the term to the point of rupture.
To be sure, there are truly serious writers of nonfiction, such as Doris Kearns Goodwin, who get good advances — but only if they’re working on “bankable” books that are almost sure to have wide appeal and bring in big sales figures. This is not a big slice of the pie, however.
And there are superb, highly-honored authors who have a great deal of difficulty in getting advances large enough to support research on serious topics that aren’t guaranteed of a large market. In recent years the “midlist” author has been relegated to a sweatshop ghetto, where $30,000 counts as a good advance, regardless of the literary merit of the work.
So overall, publisher advances do fund some genuinely serious literature — but the bulk of advances go for books that don’t qualify under any reasonable definition of the words, and many books of high merit cannot attract a significant advance because sales prospects don’t seem to be very bright.
2. Why do the publishers have to act as investment banks for books anyway?
The publishers rig the game in such a way that in most cases authors can turn only to them for advance funding, even for books that clearly have major sales potential. They do this for bestseller-potential titles by setting royalty rates so low that there’s little chance that the nominal royalties will ever catch up with the advance. Thus if a bestselling author financed her book from another source she couldn’t make enough from royalties on sales to pay a good return on the investment; the publisher would simply appropriate most of the value of the book. (Big-name authors could push back on royalty terms, but most find it simpler and safer just to go for big advances.)
For midlist titles the publishers simply exercise their market power to avoid promoting them enough to make for good sales prospects. Thus their royalties usually aren’t enough to pay off even their meager advances. Again the publisher is assured of a large share of the value because his costs are kept low. The value of any particular midlist book may be low, but it does mount up when a lot of books are involved.
This is not of course what we hear from Foer or other attempts to justify trad-pub without actually understanding much about the business. It’s only the benign, benevolent publishers who would advance authors money against unwritten books, they claim. This is remarkable nonsense. Players in finance long ago learned how to make good profits by investing money in risky propositions. If the publishers ever paid economic royalty rates there would be no shortage of sources of advance funding for books that had even modest prospects for success. And the financial system would certainly do a better and more efficient job of it.
Regardless of royalty rates of course, speculators are not going to be attracted to the book that’s socially important but has little prospect of sales. But publishers very rarely finance these either, except on the whim of someone in a position of power. Authors of serious but not popular books have to look to foundations, their day-job employers, or their own resources. It’s hard to see a real alternative for such books.
3. Is Amazon threatening the excess profits publishers need?
Trad-pubs need to collect substantial economic rents — excess profits over and above their costs of operations and capital — so they can bestow generous largess on worthy authors. Or so they and their apologists would have us to believe. (Most of them no doubt believe it themselves, as they don’t seem to be very deeply knowledgeable or analytical.)
This isn’t a place for a thorough analysis, but analogies can be illuminating. How about an analogy with the Great Satan itself, Amazon?
Like most diversified corporations, Amazon doesn’t break out results by division or line of business in its reports to the SEC. The overall outlines of how the business operates are clear, however (and very different from what most people imagine). As is usually the case for “growth companies,” Amazon’s objective is to grow sustainable free cash flow from operations (not accounting profit) as rapidly as possible and to do so it reinvests most of its free cash flow in expanding operations. (The idea that Amazon has to cut its growth so it can report profits and pay dividends is market lunacy; as long as it can keep growing its stock will rise. Only if investors lose confidence in its growth prospects will the market for its shares soften.)
How does Amazon generate large cash flow? Not by pricing high, but by buying cheap and selling large volumes. The publishers, however, believe it serves their objectives to charge high unit prices. Amazon thinks the publishers lose more through reductions in the number of books sold than they gain by jacking up the price per book — and they know that Amazon does. In the end Amazon believes that both they and the publishers will make more by selling more books at lower price per book, and they have data from their immense volume of book sales to back this up. Data-schmata, the publishers say: they simply want higher net prices per book.
That’s all there is to the dispute, at base. Amazon isn’t trying to cut publisher profits, but they want to change the strategy for getting them. They claim (no doubt sincerely) that this will be at least equally good for the publishers — as well as better for Amazon. Make the pie bigger, they say, and there will be enough for all. And in the process customers will be better off (unless they get psychic income from paying more rather than less for a book, as some no doubt do), which is also part of Amazon’s strategy.
The publishers no doubt have their reasons for resisting Amazon’s embrace, but we have to guess what they are because instead of explaining to us they’ve been encouraging the likes of Authors United and David Streitfeld to put out confused and confusing red herrings. One thing we do know, however, is that it doesn’t really have anything to do with protecting the wellsprings of serious literature.
(Disclosures: I have a business economics and management background, but not in publishing. I’ve published in the past with W.W. Norton but in recent years have self-published on Amazon’s CreateSpace and KDP platforms. I have no beneficial interests in any firm engaged in publishing or book retailing.)