Losing Money by Taking Profit

“No one ever lost money,” my father used to say, “by taking a profit.”

True enough.

But what are the consequences when one takes too little of a profit? And, to sound like you-know-who, how small is “small”?

Amazon and its founder, Jeff Bezos, are to be admired for a culture of modesty. With a willingness to work on a tiny profit margin (a few percent of gross), an empire was built that today includes (in Bezos’s personal property) The Washington Post.

Also today, however, Amazon is the omnivorous distribution behemoth, at least among book publishers. As a book-seller, if you’re not on Amazon, you’re not in business. And, with selling fees topping 40 percent, Amazon makes it mandatory that book publishers also take small profits – in the 10-20 percent over cost neighborhood, sometimes less.

With a virtual monopoly on online book sales, Amazon now calls the shots in the publishing industry. Brick and mortar bookstores disappear daily, used bookstores don’t “count” among publishers (who, along with authors, receive no “cut” from the secondary market) and e-books (with still skinnier margins) are on the rise.

Because most books not only don’t make money for publishers or, for that matter, their authors, the book commodity is a financial loser. The content may be brilliant, but the profit unseen.

Losers!

As with the movie industry, where nine out of ten films fail to generate a profit (even with $100 million in gross revenues), the book publishing industry is not the place to be for profit-seekers.

Who cares?

We readers should care.

As an industry consolidates from (a more) open market with multiple sellers to an oligopoly and, maybe eventually, a monopoly, so too does the product become homogenous.

Lowest common denominator and least objectionable content become watchwords guiding attentive accountants.

In truth, book selling never was a place where a quick buck was to be made. We know about book sales for Harry Potter only because it is the exception, not the rule. Kind of like defining “news” as when a man bites a dog: the unusual, not the usual.

More on Amazon’s chilling effect to the knowledge industry in next week’s Frans Wildenhain Blog.

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