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Page 2 of 3 What did the publishers do in response? They succumbed to the blockbuster mentality, spending heavily to acquire bestsellers that presumably guarantee profits. And still they lost money, tons of it, because no one had attacked the root of all evil, the system founded on the right of booksellers to return unsold stock for full credit. To better compete for bestsellers, dozens and dozens of cash-starved publishers, with classic names like Doubleday and Knopf and Scribner and Little, Brown were forced to merge with better financed houses or sell out to global conglomerates, companies that made bathroom cleansers and pantyhose and other products that fit synergistically with books. Oops, there I go again. But look, you don’t have to be a Warren Buffet to figure out that you can’t make money producing two units of something and selling one. Has that stopped publishers from doing it anyway? Look at your royalty statement for the answer to that one. Okay, publishers are human, they make mistakes, we all lose a billion dollars from time to time, right? But – in 1994 something really important happened: amazon.com. And we realized there was a new way to distribute books, one that had nothing to do with bookstores. Publishers shipped copies of their books to amazon’s airplane-hangar sized warehouses, from whence they were mailed directly to customers ordering them online; customers prepaying for them with credit cards. The rest is history: amazon revolutionized bookselling. Does that mean the revolution is over? Scarcely. In fact, it’s just begun. What’s the next phase? For the answer to that one, let’s return to those listings on amazon, the ones for books that have not yet been published. As I prepared these remarks, I visited amazon to check on the ranking of a Random House book scheduled for publication two weeks hence: it was # 17,577. This morning, ten days before its release date, it’s #11,384. How can an unpublished book be #11,384? Obviously, it’s being ordered by customers. Now, let’s say for the sake of argument, five thousand customers pre-order this book on amazon. How will amazon fulfill those orders? Random House will deliver five thousand copies to an amazon warehouse, where they will be dispatched to the people who ordered them. Of course, Random will also be distributing copies to bookstores and chains, and we hope for the author’s sake that the stores sell every copy. But if history is any guide, after some months about forty or fifty percent of the stock will be returned to Random House, a shameful waste of paper, fuel and manpower. By contrast, how many copies will amazon return to Random House? Does the word Zero resonate with you? Now let’s see, zero returns versus fifty percent returns, which one is better…?
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