Publishing Trends

“Due to fixed book prices, we Germans have 25 spaghetti cookbooks, and you poor Americans only have three,” jokes Christian Sprang, lawyer for Börsenverein des Deutschen Buchhandels (the Association of German Publishers and Booksellers). Even though US publishers might quibble, there’s no doubt that book pricing methods are controversial around the world, and will probably only get more complicated with further globalization. So, here’s an update on the various continental pricing policies, specifically focusing on the debate between fixed (retail price maintenance, RPM) and free pricing (no controls by either law or industry cartel). How do the industry’s contradictory assumptions of the two systems measure up to their known effects? The European Union seemed like a good starting point, since this spring’s addition of 10 countries to the trading bloc make it the world’s largest, with a population of 455 million

As a single economic unit, the EU may have thought it could legally dictate book pricing terms to its members — it can when it comes to the size of bananas — but cultural, historical, philosophical, and educational factors are conspiring against any neat solutions. Though there is hardly one unified system for book pricing in the EU, most members (excepting Finland, Sweden, Ireland, and England) have some variant of a fixed pricing system. And the number is increasing, despite the European Commission’s general suspicion of any national system that may hamper cross-border trading and the threat of proceedings against fixed pricing, which so far have had mixed success. Just last month, Slovenia announced plans to fix pricing starting in January, while Norway is stalled in negotiations over pricing issues. Veikko Sonninen of the Finnish Book Publishers Association, where they have had free pricing since 1971 and think fixed pricing is “old-fashioned,” says one’s attitude is based solely on which system is familiar. Each system has its nay-sayers — or, as the case may be, its discounters. The general philosophy behind fixed pricing is that it prevents the commoditization of books, maintains their cultural significance, and keeps in business a diverse selection of publishers and booksellers. Although it seems publishers have the upper hand in fixed price regions — they not only decide the price at which they will sell to the bookseller, but then tell the retailer what to sell it for, thereby, determining the retail margin — some sources say that’s not the issue. “It benefits smaller entities and hinders the big fish from eating the smaller ones,” Sprang argues. A small store with an eclectic mix has the same odds of surviving as a store that only stocks titles with mass market appeal.

In Defense of the French

For the most part, those countries who have a fixed system, love it. In France, publishers and booksellers alike are rather proud of their “loi Lang,” which has regulated book prices and prevented anything greater than a 5% discount for the past 20 years. “There is no polemic here — we all agree it is a fantastic law which has saved small, independent bookstores from disappearing. Such was the aim, and the challenge has been met,” says Anne-Solange Noble, Director of Foreign Rights at Gallimard. She adds, “constant and tiresome French-bashing in the past months have made Anglo-Americans very little receptive to French points of view. [Our system] is too often labeled by our opponents as ‘vile government intervention against the sacred free market.’ ” In fact, for some countries, the French are setting an example. In Poland, where there is neither a Lang-like law nor a Net Book Agreement (NBA), they find it works for the publishers to print the price on covers, in essence fixing the price. (Funny, it doesn’t work like that in the US!) “The question is still discussed,” says Regina Greda, Director of the Polish Book Chamber. “There is not one clear position of the publishers and booksellers association. In my opinion, the French system is very efficient and in our post-communist countries with a free market, we really need a very strong book policy of the state.”

Before 1995, England and Ireland operated under the NBA, a collective agreement between publishers and booksellers that granted the former the right to fix retail prices for books, but did not require them to do so. In 1995, they “denetted,” amidst huge controversy and dissension, and some industry experts say it’s all been for the worse. “Denetting seems to have screwed a lot of value out of bestsellers, which should be the lifeblood of the supply chain,” says British consultant Barney Allan. “Not many industries discount their bestselling product 40% or more on release. I think it has handed the initiative to the supermarkets and damaged both the publishers and the trade.” Also controversial in the US, discounted bestsellers are designed to be loss leaders, to get customers in the store and lead to other purchases. (Without Robertson-Patman controls, the Brits’ margins are even thinner.) In regard to the pricing of imports, Allan continues, “I think all British publishers should be really worried about the challenge from the US houses. If the US publishers can overcome their fear of flying, they will become the locus of the world’s English language book supply. Better cost structure, bigger runs, and a weak dollar all add up to a big headache for British publishers.”

Beating the System

Few can deny, however, that fixed pricing has its flaws. Plenty of countries with retail price maintenance find their publishers and booksellers looking for every chance to get around the law. Many countries allow discounting, but only a year or two after publication; so publishers are finding ways to circumvent even these restrictions. In the Netherlands, where an NBA-like system works well for independents because they compete on service and location instead of price, Rene Prins, senior buyer for B.V. Van Ditmar, a distributor of English and Dutch books, admits to some weak links in the system. “Publishers try to work around the system by producing ‘specials,’ special editions of an existing title produced to sell in supermarkets and gas stations or used for other b-to-b sales opportunities.” New houses are emerging intent on publishing for non-traditional outlets, but they add a separate imprint for the book trade to cover their tracks. One such player, Foreign Media Group, even recruits authors and editors from existing publishing houses.

Italy has also seen a rise in low-price special editions, with newspapers like La Repubblica repackaging novels from the likes of Isabel Allende and James Joyce, and selling them for about 5 euros. Other papers have followed suit, with some titles selling as many as 500,000 copies and initial print runs as high as 1 million. Because newsstands are a part of daily life, this has proved an effective marketing technique. (See PT, March 2003.)

Germany, whose book market has had a general malaise of late, made what used to be fixed pricing by cartel into law in 2002 to curtail any trouble from EU authorities. The first line of the law reads: “This law serves protection of the book as a cultural asset.” Germany allows discounting, but only 18 months after the publication date, but “everyone and his grandmother are circumventing [the fixed law] by issuing at a dizzying pace ‘special editions,’ and now the cat is really among the pigeons since the Süddeutsche Zeitung did a copycat of the La Repubblica success and issues 50 backlist classics (from Kundera to Ecco to Simenon) in hardcover at 4.90 euros each,” says German agent Michael Meller. This same book in paperback costs about 9.00 euros and more — much to the chagrin of paperbook publishers. The book mail order house and retailer Weltbild (with Weltbild Plus stores), which makes even Bertelsmann look small, has joined with BildZeitung to offer 25 modern classics at 4.90 euros. All a bookseller can do is refuse to deal with those publishers who supply that venture (most titles have been bought for sky-high prices in auctions). Like the US, remaindering is a market staple. “It now happens that a big chain store like Hugendubel offers on the ground floor a book at 6.95 euros, which on the first floor is still priced at the original 19.90 euros,” Meller explains, adding that publishers panic and declare mint condition titles as damaged returns to clear their balance sheets. “It can only be a matter of time till the cartel people declare the retail maintenance law as invalid due to the permanent sneaky violations.”

And here’s a lesson to others working the system: In the 1990s, the publisher Weltbild bought up illustrated books from packagers in huge quantities to sell them at bargain-basement prices. Other illustrated publishers entered the fray, and the illustrated book market in Germany collapsed completely. The final days of the NBA in the UK were characterized by a similar state of affairs: large numbers of mass market outlets (Marks & Spencer, Tesco, Sainsbury’s) were buying non-returnable editions from packagers, also priced low for exclusive sale in their stores. In the absence of price controls, they now offer discounted regular and returnable editions from publishers. Could this be called a net gain?

In the end, books are not bananas and there’s probably no easy way to price them. As CPB Netherlands Bureau for Economic Policy Analysis author Marja Appelman argues in “The Future of Fixed Book Pricing” (2002), fixed pricing can actually lead to higher prices, and “in the Netherlands quite a few publishers and booksellers hardly contribute to the cultural objectives, but concentrate on commercially interesting bestsellers instead.” Go figure — seems that happens regardless of the pricing structure. Appelman defines the book as different from other goods because it is an “experience good” that can be valued only after consumption. Bengt Nordin, director of his eponymous literary agency in Stockholm, reports that sales in Sweden are much higher than other small European countries, with more than 100,000 copies of a popular book selling, compared to 10,000. “We believe the free price is one of the most important things behind this great result. Specially reduced prices get readers interested in buying books, like they buy other goods,” he argues.

This is the US market’s philosophy, as well. Notwithstanding the broad range of nontraditional book-selling outlets — very much a result of free pricing — units have been declining for a while. This has forced US publishers to increase their retail prices, possibly painting a rosier picture of the business than it deserves.