Book People Archive

Subject: Re: More On Book Price Inflation

Hmmm, this exchange is beginning to touch upon economic philosophy and
differing beliefs on the way things ought to be in the business world,
so obviously can get a little contentious. I'll try to keep it within
Book People guidelines and focus.


Michael Hart wrote:
> Jon Noring wrote:

>> Well, we need real data.

> The real data we all have is that we pay 60 times as much today
> for paperbacks than we did when I was a kid, verses 12 times as
> much for gasoline, but gas prices get all the coverage.

O.k. If the general population is willing to pay 500 times as much
today for paperbacks as they did years ago, then the price jump is
irrelevant. It's a supply/demand thing. If I had a item that only cost
me $1.00 out-of-pocket to produce, and for whatever reason I could
legally, and without resorting to fraudulent claims, sell it for $1
million (that is, find an actual buyer), I would, and feel good about
it.

Trying to convince the general population that book prices are too
high because a typesetter or editor or CEO or whoever is getting
"filthy" rich will be met with deaf ears, as it should. I've bought
many items where I *know* someone is getting filthy rich because *I*
get something out of the item which is worth the price *I* pay for it.
Sometimes I think to myself "I'm glad that person is getting wealthy
because they are providing a lot of happiness for me and for many
other people..."

If Michael is put off buying a "luxury item" (as books are by and
large -- if someone can't afford to buy books, they can go to the
public library and borrow it for free, or loan a book from a friend),
and someone in the chain is getting filthy rich, then Michael should
not buy that item, as I suspect he will not. Fine. That's his choice,
and it is my choice to consider buying the item without regard to who
else is getting wealthy. I only determine that based on selfish
reasons of what I get out of it, and am I willing to pay for it. And
I believe this is the way it ought to be.

(That is, I don't base buying decisions based on envy of others.)

And unless one believes in conspiracy theories, I believe there is
more than enough competition between the various book publishers to
keep prices in line. If there's *huge* money to be made in book
publishing, and filthy profits, we'd see new paper book publishing
companies being formed all the time by new "Big Boys" to undercut the
others and still make a healthy profit. (Those who believe that greed
drives our economic system then have to accept that if there's a lot
of money to be made, then other greedsters will jump in to claim
their piece of the pie, and this ultimately keeps prices in check.)

That we see consolidation, and lackluster stock prices for the various
media giants, tells me that competition is there, that the market is
*shrinking* on a per customer basis, and that prices cannot be cut too
much further before losing money, at least with the business models
being used (and Michael later touches upon new business models
employing new technology to *compete* with the existing business
models -- and I support new business models to drive out the old since
the new business models will almost always provide more for the
consumer for less money.)


> We know the Britannica President's claim of paper costs isn't a
> reason simply because we can still buy blank books for $4, with
> more pages of higher quality than "The Nothing Book" was.

This is between the stockholders and the management to sort out. As a
consumer, this is all irrelevant. I only go by the price on the shelf
and what I get out of it...


> We know the binding costs aren't it, due to the "Nothing Books"
> [meaning modern day competitors to the original] still sell for
> incredibly cheap prices, with or without ink.

I would say that the costs for the actual physical manufacture of
paperback books is relatively quite small, especially when amortized
over 50,000+ units.


>> I would think that typesetters today (who mostly now work with
>> computer-driven typesetting applications) earn a living wage or
>> salary which is not much different from that of 50 years ago.

> The average typesetter today makes about $32,500.

*smile*

A family making $32,500 per year is just above the poverty line.

Maybe typesetters should earn more, but wait, that will increase the
cost of paper books. Those greedy typesetters!


> Besides, I have never seen a business in which each person
> was paid exactly what they were worth. . .even on average.

Companies are always looking for ways to cut costs and increase profit
for the "greedy" owners. So everyone is being paid what they are worth
*to the owners/management*, and only the minimum. I'd even argue that
inflated CEO salaries, in many cases, still follow this law because of
the very limited pool of those with the special skills required to run
large companies these days.

Let's say I am on the Board of XYZ Corporation, with $1 billion in
annual sales, and I am adamant that we should not pay more than
$100,000/year salary to the CEO (regardless of how well the company
does, I do believe in performance bonuses.) I wonder how many
*qualified* candidates would step forward? Probably none.


> 1.  There is hardly any "rank-and-file" in the salaried employees
> of the publishing industry.  Of course there are some wage slaves
> and they know exactly who they are, interchangeable workers, with
> the exception of those belonging to the Teamsters Union, or those
> who belong to the Longshoremans Union, or the like.

I include salaried employees as "rank-and-file". Anyone in the company
is expendable. If we look at the various "upper-level" people involved
with book publishing, such as editors of all flavors, etc., and most
of their salaries are probably *much less* than $150,000/year, which
in my book is rank-and-file based on living standards today. And these
people are expendable, so if companies could get the same expertise
for $20,000/year, they would eventually evolve in that direction.

*Until* we fully understand how all the money gets divied up when we
go to Borders to buy that paperbook, only then can we draw conclusions.
Until then, it is important that we stay objective and not let class
"envy" drive our research. The numbers are what they are, and Michael
has not yet fully pulled together the numbers to draw conclusions.


> And you can be sure those union workers are getting plenty, while
> those who are not union workers are getting much less, in nearly,
> but not all, cases.

I agree with Michael here. But I would assert that even in the most
egregious cases of union-based overpay, the impact of that on the cost
of paper books is not that major. It simply adds to the cost of
production, which the consumer ends up paying. Now if the consumer
says "enough is enough", then the company goes belly-up.

(Let's say I am not a friend of the current system of trade unions.)


> 2.  Mr. Noring also makes the mistake of mentioning "editor" with
> none of the extremely wide variation in pay scales for those whom
> we list as taking home "editor's paychecks."

Agreed, but my list included "etc." or its equivalent.


> No one wants to admit to being the editor, not even those with an
> average yearly compensation enough to drive those Ferrari's above
> in Mr. Noring's over the top examples.

If such people earn this level of money, then they do so because
they are worth it to the company and to their profitability. No
company is going to pay someone more than they ascertain (over time)
will bring into the company coffers. The qualified candidates for any
high-level job are quite few. Supply and demand. If the editor-in-
chief of XYZ Publishers earns $50,000/year, and does a great job, then
ABC Publishers will offer him/her $100,000/year to join them. So in
the long-run it all evens out to a supply/demand situation.

But the comment to make again: until we have a complete "pie chart" of
where the money goes when we buy a paperback book, we can't even begin
to draw any conclusions. I know that Big Publishers have such pie
charts, and they look at them closely to see where a $0.10 pie
slice could be cut to $0.05.


> Given that we have already accepted, months and years ago, that a
> retail chain gets 40% of the retail prices [I'm willing to say it
> is 30%, by the way] and that production costs are about 20%, this
> statement is a non sequitur because ALL the rest of the gross can
> not add up to anything more than a fraction of the retail price.

Irrelevant. If the publishing company is able to make a 90% profit on
the books they sell, then all the power to them. I firmly believe
companies selling "luxury" items can sell them for whatever the market
will bear.

If gross inefficiencies exist in the paperbook publishing business, it
is probably due to incompetence and being inextricably wedded to old
ways, rather than greed, mainly because if it had huge profits for the
stockholders, I'd guarantee some other "Big Boy" will see that and
drool, and then act accordingly. If a big company is inefficient, that
is their problem, not mine as a consumer.


> 1/2 the money is already accounted for, so any other fraction has
> to be less.

Shrug. If the other half is sheer profit, so be it.


> Irrelevant?
> 
> Only when there isn't any healthy competition.

I would assert that there is competition, and if we don't see any new
competition arise, it's because the profit margins are not enough to
attract some other Big Boy to start up competing ventures based on the
same business model.

And for a "luxury" item as books are, again it's supply and demand,
and that's all that matters.


> Then why have the reprint houses always been such a threat?
> 
> Otherwise there wouldn't be such a frenzy to extend copyrights.
> 
> Why?

As Michael knows, I'm a firm believer in very short copyright terms,
which could be extended by paying $$$ to the Copyright Office (and
over time the rate goes up to very high amounts.) So I am not a
copyright term apologist by any means.

But in this context, bringing up copyright lobbying efforts is
irrelevant to the discussion of where the money goes when we go
into Border's and buy that paperback book.


> The fact that these reprint houses could make a living with an
> average price structure so far under the major publishers' has
> always demonstrated that the old boy network of publishers had
> some serious cash flow going to the top.

Does this matter? I have no difficulty with Big Publishers earning
*huge* profits. Consumers will not buy books if they are priced too
high.


>> The bottom bottom line to all this discussion is that book 
>> publishers can damn well please set any price they want for a 
>> book, and consumers can damn well please not buy those books if 
>> they feel the price is too high.

> False.
> 
> Publishers are scared to death each and every time a technology
> comes along that can be used to make books

They are scared to death of any competition, and that's the way it
should be. And note that the Big Boy Publishers cannot keep other Big
Boys from entering their turf. That we don't see other Big Boys enter
the picture shows that maybe profits are not high enough to warrant
a major jump into that business model. Anyway, consumers can quit
buying books (and it seems like they are quitting) if they deem the
price too high.


> "of the people"
> 
> "by the people"
> 
> "for the people"

Agreed! If consumers (the people) decide en masse that something costs
to much to buy, they will vote with their pocketbook and not buy the
item. Consumers are not being forced at the point of a gun to buy
books.


> New authors are learning to make their contracts not last from
> here to eternity, but to keep the rights for themselves so the
> options for competition on their behalf stay open.

Which is great. I'm all for authors being more hardnosed on how
they license the copyrights of their creations.


> I have personally seen our own ibiblio.org server, as in above
> mention by Mr. Noring, carry the music of The Byrds' founder's
> current output on freely downloadable bases, and Roger McGuinn
> say he had already made more from that than from his ~20 major
> million selling records.

Which is great!


> For each million dollars they make on their own, that would be
> $19 million NOT made by the chain of distribution that we have
> been buying records through since they were invented.

Which is great!

Remember, though, that these people still need to produce creative
works that people are willing to buy. It still works under the law of
supply and demand.


> Now THAT must have the systems of publishers of all kinds just
> shaking in their boots, or worse, at this very moment.

Probably, which is fine. Media producers do appear to have control
over copyright law, but in this case they really can't do much since
much of the "new way" to publish is not stoppable by copyright law. We
are now back to healthy competition.


> What's going to happen if Radiohead gets a million seller here?
> 
> It could spell the end of publishing and distributing. . . .

No, it will be the beginning of new and more profitable business
models that benefit both consumers and businesses.


> Then we will find out just how much those salaried employees on
> the payroll who somehow managed to take 95% of the money either
> for themselves or for the 25% of the actual production costs or
> distribution costs. . .actually brought to the game.

As I mentioned above, "those salaried employees" are expendible,
but deemed by the company to be important to their book publishing
business, and are being paid what the company believes they are
worth. If major chunks of the "pie chart" are to pay these people,
then so be it. Why do we care what they make anyway? It's the
cost of the product, and whether consumers want to pay that price,
is all that matters.


> Not to say, of course, that tere haven't been some dynamite and
> great people in the publishing, arranging, editing, etc., but a
> new era may be dawning. . . .

I hope so, as a long-time ebook publisher myself.


Jon Noring