NYT: Amazon's E-Book Pricing a Cons
TULSA, Okla. - Plenty of people are upset at Amazon these days, but it took a small publishing company whose best-known volume is a toilet-training tome to give the mighty Internet store the boot.
The Educational Development Corporation, saying it was fed up with Amazon's scorched-earth tactics, announced at the end of February that it would remove all its titles from the retailer's virtual shelves. That eliminated at a stroke $1.5 million in annual sales, a move that could be a significant hit to the 46-year-old EDC's bottom line.
"Amazon is squeezing everyone out of business," said Randall White, EDC's chief executive. "I don't like that. They're a predator. We're better off without them."
It is an unequal contest. EDC has 77 employees, no-frill offices on an industrial strip here and a stock-market valuation of $18 million - hardly a threat to Amazon, a Wall Street darling worth $86 billion. But Mr. White's bold move to take his 1,800 children's books away from the greatest retailing success of the Internet era is more evidence of the extraordinary tumult within the book world over one simple question: who gets to decide how much a book costs?
The Justice Department last week sued five major publishers and Apple on price-fixing charges, simultaneously settling with three of the houses. The publishers say they were not illegally colluding but simply taking advantage of a new device platform - Apple's iPad - to sell their e-books in a different way, where they controlled the prices.
The publishers wanted to stop Amazon from using what one of them called "the wretched $9.99 price point," according to court papers. Selling e-books so cheaply, they feared, would solidify Amazon's robust grip on the business while simultaneously building a low-price mind-set among consumers that could prove ruinous to other bookstores and the publishers themselves.
EDC does not produce e-books, but saw exactly this happening with its physical inventory. Amazon was buying EDC's books from a distributor and discounting them to the bone, just as it does with everything it sells. This might have been a boon for readers, but it was creating trouble with other retailers who carry the company's titles, as well as with EDC's network of independent sales agents, who market its books from their homes.
"They were becoming showrooms for Amazon," Mr. White said. "We were shooting ourselves in the foot."
Amazon is generally reluctant to explain its business practices and declined to comment for this article. But its executives say it is shaking up an antiquated business model by eliminating middlemen and passing the savings on to consumers. Publishers that try to cling to the past, they have said, will die.
The retailer's growing list of critics, however, argue that Amazon has $48 billion in revenue but hardly any profit, proof that its approach is opportunistic and unsustainable. When traditional publishers, booksellers and wholesalers are destroyed, these opponents say, Amazon will be left with a monopoly that will be detrimental to the larger health of the culture.
In recent months, the dispute over Amazon's strategy of selling books below cost has boiled over from several directions.
During the holiday season, Amazon encouraged customers to use physical stores as showrooms before ordering more cheaply online, a move that infuriated bookstores in particular. Publishers and distributors say that Amazon, never exactly shy in negotiating terms, has been more assertive in its quest for ever-better deals.
In February, Amazon demanded better margins from the Independent Publishers Group, a Chicago distributor of dozens of small imprints. IPG balked, so Amazon removed nearly 5,000 of the company's e-books from its site.
"Amazon wants the price of books to be very, very low - lower than the publishing community can support," said Curt Matthews, IPG's chief executive. "Making a book is still a craft industry. Books need to be edited, to be publicized. Someone needs to say this is good and this is not. If there is not enough money to support that whole chain, the system will break down."
Publishers have often been ambivalent about Amazon. On the one hand, it offers an extraordinarily efficient method of distributing their wares. Readers anywhere can easily order the most obscure volume and have it delivered the next day. With e-books, access is even easier, but publishers' vulnerability is compounded; Amazon controls not just the method of distribution but the actual device the text is consumed on.
"Last year was the best in our 37 years, mainly due to the way Amazon was pushing the books," said Bryce Milligan of Wings Press in San Antonio, an IPG client. "Then Amazon cut us off because they couldn't get a better deal. Now our e-books sales are down 50 percent."
If publishers and wholesalers feel threatened, writers are caught in the middle - both pawns and prize.
Ted McClelland, a writer in Chicago, had two IPG e-books dropped by Amazon. He just got a royalty statement on one of them, "Horseplayers: Life at the Track." Half of his modest income on the book came from Kindle sales on Amazon.
"I don't know whether Amazon is being greedy or IPG is being cheap, but I'm caught in the middle," Mr. McClelland said. "What matters to me is getting my books back on Kindle."
Here in Tulsa, EDC operates out of offices on the eastern outskirts in a less-than-glamorous district of warehouses and auto supply shops. Like IPG, it is primarily a distributor, selling picture books developed in England by Usborne Books to toy stores and bookshops in the United States. Its publishing line, Kane Miller, produces the popular "Everyone Poops" book and its sequels.
EDC's so-called consultants - a direct sales force of about 7,000 women - sell to friends and acquaintances as well as their local schools. For a while the party plan was successful. Sales more than doubled from 2000 to 2004.
In recent years, though, the consultants have found it rough going. They would pass around a picture book like "The Noisy Body Book" or "Guess How Much I Miss You," talking it up, and then the customer would order it online. Sales fell about 20 percent. Frustrated consultants began quitting.
What happened in February to Christy Reed, a sales consultant in Pleasanton, Tex., was becoming all too routine. Her school district decided to order 16 copies of a science encyclopedia and a science dictionary but then completed the deal on Amazon.
"I worked so hard to sell those books," Mrs. Reed said. "I had to talk to so many different people. Then I lost the sale to a couple of clicks on the computer."
She acknowledged that the district saved a few dollars but added: "I'm here, in the neighborhood. I went to school here. My kids went to school here. Yes, they got the books for less. But my earnings go back into our community. Amazon's do not."
After Mr. White, EDC's chief, heard about that episode, his exasperation with Amazon peaked. Several times in the past, he had grappled with the retailer. He tried to get it to lower its discount on his books three years ago, but a tentative deal did not stick, he said. He was outraged that the company did not collect sales tax, which had the effect of making its books even cheaper.
Two months ago, he asked his biggest wholesaler, Baker & Taylor, to stop selling all EDC books to Amazon. When Baker & Taylor refused, Mr. White canceled its account. Baker & Taylor declined repeated requests to comment about EDC.
Of EDC's $26 million in annual revenue, Baker & Taylor was responsible for about 6 percent, most of which was because of Amazon. Mr. White, a trim 70, said that when he made the decision to bail out, his blood pressure soared. But he's also reveling in the excitement, just a little. He commissioned a drawing of EDC in the role of David taking on the giant Amazon. "I'm Type A," he said. "I don't mind a fight."
Somewhat to Mr. White's surprise, EDC is doing better without Amazon, at least for the moment. (Some of its books are still available on Amazon from third-party sellers.) Sales in March rose, in part because of new accounts like a toy store in Round Rock, Tex., that placed an initial order for 61 books. And colleagues in the business have been congratulating the publisher, or at least expressing their admiration for Mr. White's guts.
"I tell them, 'You never had the chance to make 7,000 women happy in one day,' " he said.