@Duckie. They're already doing it to a large extent. Anecdotally they've cut most of their mid-list and are insisting on even harsher terms. The cross subsidies that Hitch was referring to were for works never likely to be profitable which she referred to as specialty books. She wrote:
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poetry, chapbooks, literary fiction, kids' books, art books, coffee-table books--all those hundreds of thousands of specialty books, etc.--would never be published, period.
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I want them "to have the ability to discover and produce new authors, to produce and publish those "small" books that will never sell like Sandford or Brown, et al. Without the profits--from all types of production--they won't be able to do that."
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ekbell expanded this to refer to cross-subsidies in a more general sense than Hitch's specialty books, basically the flops in a sense being subsidised by the successes, which is inherent in their business model:
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book publishers are required to be gamblers. For every successful run they have multiple failures and they need to price their books so that they'll still make a profit. And to make matters worse they have no guaranteed method of determining ahead of time which books will have successful runs
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I think the Big 5 has the option to choose not to publish the type of books Hitch referred to. These are books where they don't even expect to make a profit. However, the type of books ekbell referred to, the ones they intend to make a profit on but don't, are part and parcel of their business model. In some ways publishers are like venture capitalists or professional gamblers or real estate agents. Successes and failures are part of their business model, and the successes in a sense subsidise the failures. Even an e-book, though it has effectively no marginal costs, does as Hitch pointed out have substantial initial costs. At least the better ones do. In the case of an author self publishing through KDP, they themselves bear their own costs. Indie publishers, in fact any publishers who bear costs or pay advances must bear this risk as part of their business.