Publishers Weekly just issued a bulletin that “the board of directors of the American Booksellers Association requested that the government begin an investigation into what the organization believes is the illegal predatory pricing policies being carried out by Amazon, Wal-Mart and Target in selling 10 hardcover titles for as low as $8.98. The ABA requested a meeting with officials as soon as possible, arguing that left unchecked, the predatory pricing policies ‘will devastate not only the book industry, but our collective ability to remain a society where the widest range of ideas are always made available to the public.’”

PW‘s Jim Milliot writes:

“The letter charged that the big box retailers are using predatory pricing practices to ‘attempt to win control of the market for hardcover bestsellers.’ By selling books below cost, Amazon, Wal-Mart and Target ‘are devaluing the very concept of the book. Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows,’ the letter stated. Furthermore, the letter noted, the companies involved in the price war are not engaged primarily in selling books, yet their fight could result in the entire book industry becoming collateral damage.

“The letter added that the price war over hardcovers was precipitated by Amazon’s decision to price e-books at $9.99. “We believe the loss-leader pricing of digital content also bears scrutiny,” the letter stated.”

From time immemorial, loss-leader pricing has been an instrument to drive competitors out of business. But with so many retailers and big-box stores joining in the sale of books below cost, the ones being driven out of business are publishers, authors and independent booksellers. We don’t know if ABA has a case but kudos to them for trying.

Richard Curtis

Are books worth fighting over? Wal-Mart thinks so and has put its money where its mouth is by cutting to the bone the list price of more than 200 hardcover books by such bestselling author-stars as John Grisham and Dan Brown. And whether you think of Sarah Palin as either an author or a star, her forthcoming memoir Going Rogue will go off at the same retail price as Stephen King. Amazon promptly matched Wal-Mart’s $10.00 price, whereupon Wal-Mart dropped theirs to $9.00.

What’s behind these dramatic moves? Who benefits? And can anyone make money retailing books at half- or two-thirds-off?

To answer the last question first, it’s hard to see how either Wal-Mart, Amazon or any other retailer can earn a profit at those prices. Retailers buy books from publishers for a wholesale price of approximately 50% off the list price. If the buy is big – five or ten thousand copies or more – the publisher will give the retailer a better discount. But when that discount crosses the 60% line, the publisher’s profit margin becomes dangerously thin and at some point the publisher will have to say No Can Do. The retailer then has to decide if it wants to sell the books at a loss. From where I sit, that’s just what Wal-Mart has decided to do.

Why? There are two reasons a retailer will sell at a loss: short term and long. In the short term, loss leaders (as they’re called) are created to attract business. In this case, Wal-Mart wants to call attention to a new service it calls “America’s Reading List.” That’s fair, and it answers the question of who benefits: the customer does. But usually, once customers start patronizing the store, prices go up again.

But what if Wal-Mart’s discount extends for a longer period of time? Then you have to wonder whom they’re trying to knock out of the tournament. The obvious competitors are retailers like Barnes & Noble (Publishers Lunch reports that B&N’s stock fell more than 5% in morning trading), Borders, Books-a-Million, big-box stores like Costco, and above all, Amazon.com. I don’t think anybody – Amazon, B&N, or Wal-Mart itself – can sustain break-even or losses for an appreciable period of time. And independent bookstores? As if they didn’t have enough trouble, an extended price war could drive remaining indies out of business completely.

There’s someone else who stands to get hurt in a discount war. It’s called the author. Typically, publishing contracts reduce author royalties when the discount offered to retailers reaches a certain threshhold. I’m looking at some contracts with big houses that state that when the discount reaches 56%, the author’s royalty is cut from one based on list price to one based on net receipts. For example, on a $25 book that means your 10% royalty drops from $2.50 (10% of the list price) to $1.10 (10% of the $11.00 your publisher actually collects from the retailer).

So, authors, this is not merely a spectator sport. Some of you are gonna get killed.

Why Wal-Mart embark on this suicide mission is unclear, but we’ll be watching the fireworks attentively – and anxiously.

Read details here: Wal-Mart offers new books for $10.

Richard Curtis

Keith Kelly of the New York Post reports that two major magazine distributors, Anderson News and Source Interlink, have imposed a 7-cent surcharge per copy – what they call a “handling fee” – to place magazines in stores. It doesn’t matter if a copy gets sold, it’s 7 cents going in. Several major magazine publishers like Time Inc. have refused to pay it. Wal-Mart, a huge source of retail magazine sales, is standing by the distributors.