Image: Latest book prices at Walmart.com

The argument over book pricing started to heat up with Amazon and then BN.com offering e-books at $9.99; now that Wal-Mart and Amazon have started offering the top ten industry hardcovers for $10.00 each, that argument is reaching a boil. Beyond the news stories about this “price war,” there is a lot of traffic on blogs, Twitter, etc…about what this means for authors and publishers. For instance, on today’s “ShelfAwareness” Robert D. Utter of the Other Tiger bookstore in Westerly, R.I. says,

What ARE the economics? How much money are these two behemoths losing on each sale when costs are taken into account? What would the P&L and balance sheets look like for this model? At what point is their behavior illegal and anticompetitive?

To answer him briefly, retailers pay publishers roughly 50% of the suggested retail price for books. For instance, when Wal-Mart buys a $35.00 book from Scribner, they pay Scribner about $17.50. If Wal-Mart then chooses to sell that book for $10.00, they are losing about $7.50 per copy sold. So, the “P&L” doesn’t look so good in this case for Wal-Mart, but clearly there are larger agendas involved for these companies, who are willing to use these books as “loss leaders” to establish their predominance on the retailing landscape. Their behavior is not illegal or anticompetitive; in fact, it would be illegal for publishers to tell any American retailer what to charge for a book; that’s why it’s called a “suggested” retail price.

The short-term results of this price war are some losses for Wal-Mart and Amazon, and some brisk sales for the publishers whose books have been chosen. But the “road kill” here are the accounts who can’t afford to participate in the race—traditional booksellers. And in the long term, these large retailers may succeed in convincing consumers that $10.00 is the right price for a book, whether digital or physical. That would put an enormous squeeze on an already-squeezed business, since of the $12.50 we get now for a $25.00 book, we spend about $2.00 to produce each copy, about $1.00 to market each copy, and another $1.00 or so on freight and warehousing, etc., leaving us roughly $8.50 out of which we must pay the author (who would get $4.25 if this were a profit-share, or $3.75 if this were a 15% royalty) and cover our significant overheads, before we end up with a slim profit.