The following article appears in the Huffingtonpost and while it is about the book industry, the implications are real for all independent businesses. ~ Clark Kepler

Not a Simple Price War — It’s a Fight Over What You Get to Read

By William Petrocelli, Author, attorney, and bookseller

What looks like a simple price war between Amazon, Target, and Walmart over a handful of bestsellers is symptomatic of a much deeper problem in the book business. The larger fight is really over what you get to read.

The price war began Oct 15 when Walmart.com dropped its prices drastically on several bestsellers. Amazon.com and Target.com quickly followed suit, and within a couple of days the prices were down to $8.99 and heading lower. At this point, these behemoths were clearly selling those books below cost and engaging in an illegal form of predatory pricing.

The authors affected by this price-slashing were not amused. James Patterson said “Imagine if somebody was selling DVDs of this week’s new movies for $5. You wouldn’t be able to make movies.” John Grisham’s agent added, “I think we underestimate the effect to which extremely discounted best sellers take the consumer’s attention away from emerging writers.” (N.Y. Times, Oct. 17, 2009). The American Booksellers Association saw things the same way, saying in a letter to Christine Varney, Head of the Anti-Trust Division of the U.S. Department of Justice, that these companies are using books as loss leaders to sell other kinds of merchandise. “The entire book industry is in danger of becoming collateral damage in this war.” (Bookweb.org, Oct. 22, 2009)

Predatory pricing is a means of driving other booksellers out of business. When this happens, the choice of books is one of the first things to suffer. Some readers think that if their favorite store closes they can always buy the book they want somewhere else. But that’s a dangerous delusion — the books they want may not be there at all. In fact, these types of disruptions in how books are sold or distributed has a profound effect on what publishers decide to publish in the first place.

Think of the book business as a giant funnel, in which millions of authors are trying to reach tens of millions of readers. The image is a telling one, because the literary life of America has to go through two very narrow choke points: publishing and bookselling. Both of these choke points have become more and more constricted in recent years as a result of economic concentration and market manipulation.

Publishing is now consolidated in the hands of a few large conglomerates that control most of what is published in America. There are, to be sure, many booklovers in the publishing divisions of these giant corporations, but they are outnumbered and out-maneuvered by the bean-counters. Sadly, many of these publishing divisions could probably be shutdown entirely without having any significant affect on the bottom-line of the parent corporations. It is not an atmosphere that favors innovation or literary discoveries. In many cases the attitude seems to be to hold on and hope that declining sales and stagnant readership doesn’t cost you your job.

Concentration at the retail level is now becoming even worse. The chain stores had been doing their best to squeeze out the independent stores over the last 20 years or so, and now they in turn are being squeezed by the mass merchandisers. According to retailing expert Stacey Mitchell, big-box mass merchandisers, like Wal-Mart, Target, and Costco, have taken over 30 percent of the book market. These mass merchandisers are now selling as many books as Barnes & Noble and Borders combined. (Death of the Category Killers, June 28, 2009)

It’s hard to exaggerate the consequences of this mass-merchandiser dominance. These outlets carry, at most, a few hundred titles at any given time. This means that a handful of books — far less than 1% of all the books published — are probably accounting now for more than 30% of all sales in America. Price wars in this segment of the market only make matters worse, driving more customers to these merchandisers in search of quick bargains on a handful of big-name books. Publishers are under more and more pressure to subsidize these new, ruinous prices, and they will probably end up pushing more and more of their resources in that direction. But it’s a devil’s deal. The time may not be far off when publishers decide they can make more money by shrinking their breadth of titles and concentrating even more on just a few bestsellers.

How does a new author break into this landscape? It’s never been easy. The key has always been diversity at the retail level. There’s a big difference, say, between 500 buyers all buying for their own stores and one chain-buyer purchasing for 500 outlets. Buyers for independent stores tend to cancel out each other’s mistakes; no single error in judgment can sink a prospective literary career. But when the system is dominated by a small handful of powerful buyers, their decision can make or break a book. Often, there is no appeal from such a decision. One of the dirty little secrets of the book business is that publishers often check in advance with the buyers for the chain stores and mass merchandisers before agreeing to publish a book. If the answer they get is no, the book may never see the light of day.

One of the ironies of the current price war is that it includes The Lacuna, the latest novel by Barbara Kingsolver. But Kingsolver wasn’t always a best-selling author. When her first novel The Bean Trees was published in a modest print-run in 1988, independent booksellers recognized it as a literary treasure and sold thousands of copies. After that the chain stores climbed on the band-wagon, but without that first push from independent booksellers Kingsolver’s career might never have taken off.

Anyone who loves books should worry that the doors seem to be closing on the Barbara Kingsolvers of tomorrow.