The
Big Fix
European Book Markets Experiment With
Pricing Policies
FROM PUBLISHING
TRENDS (October 2004)
“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.
©2004
Publishing Trends
