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Price-Fixing Is Bad for Both Readers and Authors

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I'm not crying crocodile tears over the decision by the Justice Department to sue Apple and the major publishing houses for price-fixing, especially since it will benefit not only readers, but also authors. But I am bewildered by the hue and cry from the publishing community by the argument that setting artificially high prices on e-books is somehow good for everybody.

The truth is that this dispute is not about saving literature or the sanctity of the literary world, it is about the publishers' business model. Since the advent of digital technology, the book business -- along with the music business, the film business and a slew of other traditional businesses -- has been broken. When the major publishers had a chokehold on both book production and distribution, they could reap huge profits, which were generally not shared with authors, and certainly not passed along to consumers.

Let's take the example of authors' royalties. Authors are generally paid around 10% of the price of a hardcover book and 6-8% for paperback book. For a hardcover book originally priced at $30 (minus up to 30-50% discount for many books), the author generally gets between $2-3 per book. For paperbacks, it's under a buck.

Now compare that with what an author can make if he or she publishes the book independently and offers it on Amazon as either a print-on-demand hardcover, paperback or e-book. Depending on how many copies are printed, the cost of producing a hardcover book is between $5 and $10 (the print-on-demand cost for a single 300-page hardcover). For a $30 book, that means a profit of between $15 and $25 per book, depending on discounting.

E-books can be even more profitable for authors. At virtually no cost, authors can upload a book to Amazon and offer it for sale. If the sale price is $9.99 (the price the publishers call untenable), then the author can earn over $7 per e-book (three times the publishers royalty for a hardcover). Even at $4.99 per copy, the author is making more than publishers would pay.

So what is it exactly that publishers are offering to authors that they would accept a pittance in royalties compared to what they could make on their own? The publishers argue that they offer editorial, production, marketing and distribution services that no small publisher or independent author can provide. But that is patently false. To begin with, for an investment of under $2000, an author can hire highly professional freelance editors and designers to design the book.

What about production costs and expertise? With today's technology, authors can work with very competent print-on-demand companies and produce a hardbound book for around $10 (which still leaves them with a profit of $15 per book, compared with royalties of two bucks.) If the author decides to print 5000 copies, the cost drops considerably. And, by the way, an author can get the book produced in a month or two, compared to the two years it often takes major publishers.

Then how about marketing? The truth is that, with exception of celebrity authors, the major publishing houses do virtually no marketing on behalf of authors. The first question every author is asked is "What is your platform?" Which means "How many followers do you have you will buy this book?" If your platform is not big enough to cover the publishers' costs, you probably won't get published.

Then what about distribution to bookstores? In that area, publishers have an advantage, but it is disappearing. More and more, distribution companies are looking at the potential market for handling distribution with independent authors and small publishers. But, more importantly, the brick-and-mortars bookstore market is a dwindling.

Which brings us to e-books. E-books are the fastest growing segment of the publishing business -- arguably the only growing segment. Readers of e-books read more books than those who read only printed books. And while some traditionalists have argued that e-books will spell the death of printed books, the truth is that most e-book readers generally read both print and e-books.

In the face of these new realities, it is hard to make the argument (as the publishers and some authors are doing) that having lower prices for e-books is a bad thing, either for readers or for authors. The publishers have argued in the past that that high prices for books subsidize publication of authors who would not otherwise get published. That suggests that the publishers are in a charity business, which they are decidedly not. And it is hardly true anymore, when the bookshelves are crammed with celebrity biographies, vampire romances and flimsy self-help tomes. The reality is that authors who would not otherwise get published can now get published in a variety of forms -- e-book, print-on-demand and other forms -- and make three to four times the money per book.

Despite all the fuss about diversity, literature and the "unique" aspects of book publishing, it is a business like any other, and must operate within the realities of the marketplace and the law of the land. Artificially raising prices simply to preserve an outdated business model is not the way to preserve the critical importance of books and reading in our culture. Perhaps the major publishing houses will suffer - they may even wither and die (although I doubt it). But books will go on in many new and old forms. And readers - and authors - will be all the better for it.

This article originally appeared in The Chicago Tribune.