Yesterday, Amazon touched off something of a firestorm by emailing hordes of readers and KDP authors for help, requesting authors email Hachette CEO Michael Pietsch to explain why lower prices are better for readers and the publishing industry.

Today, Pietsch has been responding to everyone who’s emailed him. I find his response reasonable enough — for the most part, he claims, Hachette’s ebooks fall beneath Amazon’s preferred $9.99 cap — but there’s one part that stuck out to me.

“The invention of mass-market paperbacks was great for all because it was not intended to replace hardbacks but to create a new format available later, at a lower price.”

This is false.

Well, technically, it isn’t false — it’s true that mass market paperbacks weren’t invented to replace hardbacks. But they weren’t published in the modern fashion, with a publisher releasing them months after the more expensive hardback. Rather, paperback rights were purchased by competing publishers who were able to sell their paperbacks for 10% of the price of the original hardcovers.

In other words, they were invented to disrupt the hardcover industry.

In 1939, the average hardcover cost $2.50-3.00 — the modern equivalent of $40-50. The new paperbacks cost $0.25 — a little over $4.00. Presumably, the first paperbacks were reprints in order to ensure the audience for those titles was already in place and minimize the paperback house’s risk of printing a dud. However, paperbacks blew up the market so well that by 1950, publishing houses were publishing paperback originals. It was feared these paperback originals would “undermine the whole structure of publishing.”

And they might have.

For more than twenty years, paperback prices held steady. They even declined; in 1961, some paperbacks cost as little as $0.35, just $2.79 in modern dollars. Then a funny thing happened. Starting around 1966, costs climbed to an adjusted $4-5. By 1975, they hit $6-7. And by the mid-1980s, mass market paperbacks cost the equivalent of $7-9.50. They’ve hung around $7.99-9.99 ever since.

After 25 years of steady prices, what happened to cause paperback prices to triple over the next twenty years?

When I first did this research two years ago, I stumbled onto the fact that this timeline coincided precisely with the conglomeration of the publishing industry. Beginning around 1958 and accelerating in the ’60s, small and medium publishers were gobbled up by the majors, culminating in today’s environment of the Big 5 (formerly 6). I assumed that the decrease in competition allowed the major houses to increase prices.

However, I think that’s only part of the puzzle. I am now entering the realm of speculation, so take the following with grains of salt. But I believe two more factors are at play.

First, most of the independent paperback publishing houses were bought up by larger houses. In other words, not only was competition decreased, but in many cases, it was gone. Meanwhile, tenfold disparity between the price of hardcovers and the price of paperbacks may have felt like far too much. Undermining the value of literature, if you will.

Second — and this is pure intuition; more research is required here — I expect that major publishers quit selling off their paperback rights. Likely, they used their newly acquired paperback imprints to handle publication of that format. No longer did you have two different publishers competing on price for the exact same title. Rather, you had a single company whose interest, obviously, was that these two separate editions wouldn’t compete at all.

That, I expect, is when Pietsch’s model finally came into play: a company releases a new book in hardcover, selling to all those who prefer the format or can’t wait to read it. Sometime down the road, months or even a year later, a paperback format is released, picking up a second market of readers.

Whatever Hachette would like us to believe, this is a radical change in intent from the paperback’s original role.

As a result, rather than selling a hardcover for $50 and a paperback for $4, they’re selling the hardcovers for $25-36 — often discounted by Amazon to $15-20 — and the paperbacks for $8-10.

Meanwhile, ebooks are lodged messily in the middle. It’s 2014. You can’t delay the ebook release the way you can delay the paperback release. You’d lose out on all those readers who now primarily or solely read ebooks. But so long as it is less than the hardcover, it’s still a bargain. Sort of. $8-15 is less than $15-20, right? Just make sure to drop it to $6-10 when that $8-10 paperback is finally made available.

It’s no wonder traditional publishers and Amazon are at loggerheads. Like Penguin and Pocket Books in the 1930s, Amazon essentially invented a new format of book. One that, with no per-unit production costs and negligible returns, could be the cheapest format yet. A format capable of opening up a new market of readers.

Or, more accurately, of resurrecting it.

 

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13 Responses to The True History of Paperbacks: A Small Correction to Hachette CEO’s Response to Amazon

  • Dan Meadows says:

    I noted the point on paperbacks in that response as well. He’s both right and wrong. Right in that paperbacks more recently didn’t compete with hardcovers because of windowing but wrong because that was not their original intent or how they operated for quite a while. I actually think print and digital should be handled the same way early paperbacks were, separate entities for each. Otherwise we get what’s going on here, preferential treatment for one format over the other, handicapping digital to benefit print, for instance. There’s also the somewhat disingenuous argument that ebook sales cover production expenses without noting that the royalty structure for the print versions are already designed and implemented to cover those expenses. Not surprisingly, publishers engaging in this are showing large and growing profits, mostly from ebooks. Funny how that happens.

    • Ed Robertson says:

      Great comment. I don’t think we’ll see digital and print handled separately, though. The history and absorption of paperback presses sure seems to indicate it’s a lot more profitable to a) control prices and b) use windowing to eke out every dollar from the various types of readers. They don’t want these formats to compete with each other. This seems like a major reason we aren’t really seeing any more print-only deals for self-publishers.

  • Amazon invented the ebook??

    • Ed Robertson says:

      I think you know they didn’t invent the ebook any more than Pocket (or Penguin) invented the paperback. But much as the paperback market was tiny at best before Pocket, “the ebook market” didn’t exist in a meaningful sense before the popularization of the Kindle.

  • Andrew Shaffer says:

    “Presumably, the first paperbacks were reprints in order to ensure the audience for those titles was already in place and minimize the paperback house’s risk of printing a dud.”

    While that may have played some role in the equation, the main reason early paperbacks were reprints is because the content was so cheap. In 1939, authors were being paid a royalty of half a penny (or 9 cents, adjusted for inflation) out of each mass-mark paperback sale; the hardcover publisher received the other half a penny. Pocket Books’ profit margin was also razor thin: one penny. It’s not surprising that the cost of paperbacks has outpaced inflation, as both publishers and authors sought bigger pieces of the pie.

    • Ed Robertson says:

      That is supremely interesting, thanks for breaking down where the money went. Hey! You wrote that Mental Floss article I referenced in my first post on this subject. That was a great piece, I really enjoyed it.

      I wonder how much increased volume made up for lower royalties. I highly doubt it bridged the gap — modern authors get what, 8-10% or so of paperback gross? — but I expect the difference in historical royalties isn’t quite as stark as it appears.

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  • The statement that most of the ebooks they publish are priced at $9.99 or lower (he specifically says 80% list for $9.99 or less) is misleading on Pietsch’s part: what matters is the list price of actual ebooks sold. It is possible that only 20% of the ebooks they have published have a list price above $9.99, but that nonetheless some other percentage (maybe even a large percentage like 80 or 90%) of their ebooks that actually sell each day are listed for over $9.99. This could easily be so if their bestselling ebooks, which undoubtedly make up most of their sales, are all listed for over $9.99.

    To exaggerate a bit to make the point clearer: if Hachette only published 100 ebooks and had 99 ebooks priced $9.99 or less and 1 ebook priced at $14.99, then Mr Pietsch could accurately claim that 99% of the ebooks Hachette publishes are available for $9.99 or less. But let’s say that all of those lower priced ebooks sell on average a total of 1 book a day for a total of 99 books a day, and that the one book at $14.99 sells 10000 copies a day. Well guess what, in that scenario over 99% of the ebooks that Hachette sells are priced $14.99 (even though it is still true to say that 99% of the books they publish are priced at 9.99 or less).

    The difference is probably not even close to being that extreme, but since Hachette did not tell us, we have no idea what percentage of actual sales (not the percentage of ebooks published) are at a price of $9.99 or less. It is reasonable to assume that they price their best selling ebooks higher, so it is reasonable to assume that a much higher percentage than just 20% of sales are at a price point above $9.99. As always, there are lies, damn lies and then there are statistics.

    • Ed Robertson says:

      Well stated. Given the practice of windowing — which, according to him, is the purpose of paperbacks, too — it’s not crazy to assume most of those $15 ebooks are new releases from popular authors. Those will be outselling the average lower-priced backlist title by.. a considerable margin. :)

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  • Steve says:

    Second — and this is pure intuition; more research is required here — I expect that major publishers quit selling off their paperback rights. Likely, they used their newly acquired paperback imprints to handle publication of that format.

    I used to work in SF for an imprint under the Random House umbrella back in the late 80s and early 90s, and I can verify that this intuition is almost entirely correct (there were still a few authors who had the clout to separately auction off PB rights, but they were pretty rare, and occasionally a hardcover imprint would auction off PB rights on an “open” market).

    I can’t speak on the early days of PB publishing, but contracts for PB rights usually contained “windowing” clauses that delayed publication of the soft-cover edition.

    As to the larger dispute between Amazon and Hachette, it’s true that publishers have been slow to adapt their business models to the reality of ebook publishing, but most are onboard with a “digital first” approach and are getting their heads around the pricing issue–well many of them.

    But Amazon is no white knight for authors and readers in this story. Yes, readers benefit from lower ebook pricing, but the main issues aren’t really about pricing, or at least not primarily about pricing. Sure, Amazon would love to dictate to publishers how they should set their price points, but that’s a secondary concern. I’m not privy to the details of the negotiations between Amazon and Hachette, but I can make a fairly confident guess that Amazon wants a bigger cut of each sale, usually by getting a much deeper discount per unit on the publisher’s cover price.

    Amazon’s strategy for a long time was to deeply discount ebooks regardless of what the cover cost was. In many instances they were taking a loss with each ebook sold. But their aim was/is two-fold: establish a “set price point” in consumers’ minds about ebooks, not hard to do, really, and put pressure on pricing with the competition, iBookstore and Barnes&Noble Nook primarily. Now, Amazon would like to pressure publishers to bear a greater share of the cost of that strategy, and Hachette is balking. So Amazon is playing games with their titles, removing “buy” buttons, delaying delivery, etc.

    It’s not personal, it’s just business. But ultimately, Amazon wants to squeeze publishers and drive its competition under. And they are succeeding. It’s not necessarily a good thing.

    • Steve says:

      Sorry, meant to add that I found my way here after picking up the first Breakers novel. I am nearly finished and have been enjoying it, which is not always the case with some of the indie or self-published books I’ve been sampling.

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