Pacific Views

Authors Under Siege

According to today's Guardian, there's a push by book retailers to get rid of the suggested retail price on the inside covers of books. I'm fuzzy on the details, but it sounds like it would turn the publishing industry into the equivalent of the music industry - a few big names get promoted to the near exclusion of other voices, it becomes harder to break in, and we get less variety when we go book shopping.

The article says that among the people making the most noise about this currently are bestselling authors concerned about the future of literature. It goes on:

...It is understood that one big publisher is already trying to steal a march on its rivals by tempting its bestselling writers to accept new forms of payment. These are called net receipt deals or dealer pricing. Publishers would charge booksellers a net price for their books which would remain secret to the public.

Authors would lose the royalty system, now calculated on the RRPs of their books, and would expect to be poorer. ...

Phillip Pullman explains more in another Guardian editorial titled, Books are not eggs:

...But if there were no RRP, how could we tell? We wouldn't even know if the bookseller was charging more, rather than less. We don't buy the same book 50 times a year; there is nothing to compare it with except itself. That would be an inconvenience. What follows from it would be a disaster.

At the moment, an author's income depends on royalties, which are calculated as a percentage of the recommended retail price - say 8% on average. The royalty on a book with an RRP of £15 would be roughly £1.20, whether or not the bookseller decides to sell it for three pounds less. This system has worked reasonably well for many years, though not many writers make much money; a recent survey by the Society of Authors found that three-quarters of the members made less than £20,000 a year. The royalty system has a sort of clarity and fairness about it.

But if there wasn't an RRP anymore, royalties would have to be calculated on some other basis, and the most likely one is a percentage of net receipts, or the money that the publisher actually gets from the bookseller. In order to produce a roughly equivalent income, authors will have to receive something like 25% - and they are not in the least likely to get it. ...

And in addition, since 1979 any author's books have been backstocked for shorter periods, and remaindered faster. All this due to a tax dispute with a power tool company that went all the way to the Supreme Court:

...Prior to Thor Power Tool, companies would often write down the value of slow-moving inventory, even when its market value had not dropped.

Their reasoning went like this: "We have 100 widgets in inventory. Each widget cost us $2. That sets the inventory value at $200. However, at the rate we're selling them, we'll only sell 75 widgets before they become obsolete. So, the real value of this inventory is $150 (75 x $2), because 25 of the widgets have no value at all."

By writing down inventory, they increased COGS, and thus decreased taxable income.

The IRS did not like this, because lower taxable income means lower tax receipts. The IRS said, "Look, you still have 100 widgets. They cost you $2 apiece. The market value is over $2. Therefore, your inventory is worth $200. We will let you value it at $150 only if either (a) the market value of each widget drops to $1.50 or (b) you throw 25 of the widgets out. You can't have 75 worth $2 and 25 worth nothing. Period."

So they went to court.

The Supreme Court's Decision

"In (Thor Power Tool Company v. Commissioner of Internal Revenue)...the IRS negated Thor's practice of writing down the value of its spare parts inventory which it held to cover future warranty commitments. Thor contended that, although the sales price on the individual parts did not decline over the years, the probability of all the parts being sold decreased as time passed, and thus so did the net realizable value of the inventory as a whole. The IRS contended that a decline in inventory values for tax purposes must await actual decline in the sales price of the individual parts. The Supreme Court indicated that for tax purposes, the lower of cost or market method was to be applied on an individual item basis and that if no decline in sales price occurred, no loss should be permitted." (Intermediate Accounting, Kieso & Weygandt, 4th Edition, John Wiley & Sons, 1983, pp. 392-393) ...

The article goes on to explain in more detail why this means that publishing companies and booksellers are less likely to keep much of a backlist already. So, with authors currently getting minimal income from backstock of their work, and the possibility that current work will have an even harder time breaking into the market, you can see the problem.

I have no idea what to do about it, only recently finding any of this out, myself. But it doesn't sound promising for bibliophiles.