The tech giant and book merchant is signing its own authors to get a leg up on Apple and Barnes & Noble. It just might crush New York's publishing establishment in the process.
In the world of publishing, Amazon is Godzilla. It's one of the largest book retailers in the country. It owns at least 60% of the eBook market, thanks to the Kindle. It's known to breath fire at uncooperative publishers. When it moves, the ground beneath the industry shakes, and sometimes there's collateral damage.
That's why its hard to blame industry veterans for reacting like a group of terrified Tokyoites as Amazon moves from just selling books to publishing them. The newest issue of Bloomberg Businessweek takes a long look at the Internet giant's attempt to start recruiting its own stable of authors, concluding that it "could be an unstoppable competitor to big publishing houses."
Amazon is a threat to the old New York-based publishers because it has both a cost free platform to promote its own authors the resources to cherry pick top talent. Book publishing, like the music industry and Hollywood, is a hit-driven business. Most titles break even or lose money, while only a select few are profitable. For every Going Rogue, Twilight, Harry Potter, or The Help, there about seven releases that either barely make a financial blip or bomb outright. And while publishers make most of their money off their back catalogs, they need titles readers recognize. All this leads to a fierce competition, and hefty advances, for the most bankable writers.
In a financial arms race, publishers simply can't beat Amazon's arsenal. Not only does it have the coffers to hand out big, fat advances, but also it can offer larger royalties, since it's cutting the middle-man out of the publishing process. As this chart shows, publishers usually take about half of a book's retail price. An author gets 20%. With Amazon, they might get closer to half.
Amazon also has the luxury of being able to overpay, because the company doesn't need to turn a profit off its publishing business for it to be successful. As Bloomberg Businessweek writes: "If history is any guide, [CEO Jeff] Bezos...doesn't care whether he loses money on books for the larger cause of stocking the Kindle with exclusive content unavailable in Barnes & Noble's Nook, or Apple's iBookstore."
Amazon is trying to win the tech wars, not the book wars. Ironically, that might make them an even greater threat to the likes of Penguin, Harper Collins, and Random House, who are just bit players in the bigger battle. If they don't survive, it'll be as if Godzilla, in a fight with King Kong or Mothra, accidentally stepped on a few tiny tanks during the scuffle.