The POD manufacturer Lightning Source International (LSI), owned by Ingram Content Group, announced on Friday (yes, a typical release-bad-news-on-Friday-and-hope-nobody-pays-attention move) that LSI will no longer be distributing directly to Amazon, B&N, Baker & Taylor, Espresso Book Machine, and NACSCORP, and to other wholesale distributors in the U.S. Instead, all titles will now be distributed only via Ingram Book Group, who in turn will resell to all retailers and other wholesale distributors. What this means is that Ingram, who previously did not earn a fee on LSI sales to the aforementioned Amazon et al, will now earn a cut of all LSI sales, regardless of the customer. The move will be rolled out over the coming months, and is intended to be fully in place by mid-2015.
Why the change? I suspect this is payback for Amazon’s predatory behaviour through which they forced many of LSI’s customers to contract with CreateSpace.
LSI were also selling directly to Amazon, ensuring the retail giant received the maximum discount, giving it an advantage over smaller bookstores. This change kills two birds with one stone: it replaces (or attempts to replace) revenue lost to CreateSpace, it lowers Amazon’s profit, and, one would expect, it therefore raises Amazon’s prices. (This change also affects the others named above, but I think this is a fight between Amazon and LSI.)
We know that Amazon’s predatory behaviour has had an effect on small publishers, many of whom now use the CreateSpace/LSI POD combination; this means LSI, and through it Ingram, lost revenue to CreateSpace. This latest moves strikes me as a way for Ingram to make money on what is left of LSI’s sales to Amazon and B&N, and to try to create a power shift in the marketplace back to the indie booksellers by lowering Amazon’s profit margin at a time when their overall profits — and share price — have already taken a considerable hit. In this respect the move should be applauded because it may level out at least part of the playing field.
However, while the move may breathe new life into independent bookstores, it will also consolidate yet more power into the hands of Ingram.
If Ingram take an estimated 15% cut before one’s title is offered to other wholesale distributors like Baker & Taylor, who will then take their cut, the discount eventually offered to customers of these other wholesale distributors will be too little to make any fiscal sense. If these book buyers and resellers want a bigger discount, they will have no choice but to open an account with Ingram, eliminating Ingram’s competition. Publishers will simply be trading a retail near-monopoly for a wholesale distributor near-monopoly. And if the book buyers and resellers opt not to be coerced, this will have the effect of decreasing the distribution opportunities for publishers using LSI and the POD business model.
What does this mean for indie authors? To begin, one has to assume this change will also extend to Ingram Spark, since Ingram Spark and LSI are essentially one and the same.
Right now most indie authors sign up with CreateSpace because it is cheaper (no title set-up fees, no charges for revisions), because CreateSpace sell to their parent Amazon at 40% off, providing the author with a 60% royalty for sales on Amazon sites in the U.S. and Europe, and because LSI made it difficult for indie authors to open accounts. Ingram Spark was finally created to address this issue; the lure for indie authors is the access to the other markets outside of Amazon that LSI publishers enjoy. Since this move by Ingram does not yet extend to LSI’s distribution partners outside the United States, this perk of signing on with Ingram Spark will remain.
For authors who currently use the twin CreateSpace/LSI POD model, nothing will change on the surface of things, at least not at first, and certainly not if one’s titles were not being picked up by the likes of Baker & Taylor anyway. But any fight between two giants, each of whom already enjoy a near-monopoly in their respective corners, cannot bode well for the industry, unless the fight causes them both to implode.