When you see Snooki’s book on the New York Times Best Seller List, you know publishing is in trouble.

You can blame readers and say publishing is just giving the public what they want. But that’s only half the problem.

The rest is a lazy publishing industry that does far too little of the work that got them here: Discovering new authors and giving them a shot. Instead, they go for the lazy lay-up: Overpaying on celebrity memoirs and pop culture phenomenons with a built in audience.

But that was a short term mistake that has put the publishing industry behind the eight ball. And, according to this industry insider who asked not to  be named, a familiar bully is about to take them out. From an email:

So Amazon, pretty much since they started selling books, has been selling them for razor thin or zero margin. We sell them books at 50% of the retail price. You’ll notice that popular books are usually selling for more than 50% off. So they’re actually losing money on them. For years Borders and Barnes and Noble maintained that this was unsustainable, but the tactic succeeded in putting Borders out of business, putting BN on the ropes, and destroying hundreds of indie stores. It also lowered customers’ perception of what a book *should* cost.

When ebooks started, we were pricing ebooks at the same price as the print book, and Amazon was selling them all for $9.99. So they were losing like $3-$4 per book. And they weren’t doing it simply to move Kindles, since they don’t actually make any money on the Kindle unit sales. Now with the “agency model” we get to set the ebook price and Amazon simply takes 30% of that.

We all kinda assumed that Amazon was either using books as a loss leader for other things (like getting people to sign up for Prime or simply gathering customer data), or was maybe planning on raising the prices they sell books for once BN and Borders were eliminated as competition. But I think they actually intend to keep print books at their current prices, and they want ebooks to be even cheaper. What they’re actually targeting is the publishers’ margin.

Long-term there’s no future in printed books. They’ll be like vinyl: pricey and for collectors only. 95% of people will read digitally. Everybody in publishing knows this but most are in denial about it because moving to becoming a digital company means laying off like 40% of our staffs. And the barriers to entry fall, too. We simply don’t want to think about it.

Amazon is thinking about it, though, and they’re targeting the publishers directly.

Publishers like to pretend that we make our money from discovering unknown talents for small advances  and selling millions of their books. That’s a very small part of our business. The bestselling books are all written by celebs, by people with huge platforms, by fiction writers with a long history of bestselling books, or by people who do a proposal that’s on its surface brilliant. In short, there’s a bidding war among the publishers over the big books. We all know what the good books are–it all comes down to how much of an advance we’re willing to pay for them. The hotly fought-for books are the ones that sell. And while we might not make huge profit % on these, we make big profit $ on these. They keep the lights on by covering overhead. Better to cover our fixed costs by going all in on a few big books than trying to buy dozens of mid-list books.

But in recent years, as book sales have declined, the advances for the biggest books have gone down proportionally, too. What used to be a $1 million book is now a $400,000 book. Publishers are thinking, “OK, we’ll move less copies but we’ll pay less for them, so we’ll survive.” Enter Amazon’s print publishing arm. They hired this guy Larry Kirshbaum to run it–he’s a savvy vet with 30+ years of publishing experience–and they have some editors, too. And they’ve been paying a ton of money for books.

I saw this [redacted] proposal a few weeks back. It was okay–[same redacted author] is an asshole but [redacted] has a certain following and it would probably be a bestseller. Bestseller now means selling 20,000 copies, so I was thinking of offering like [hundreds of thousand] for it. But Amazon had already bid $1 million for it. A similar thing happened with a [redacted] memoir a few months back. Traditional publishers are snickering, “Look at stupid Amazon–overpaying for books!”

But Amazon isn’t stupid. They’re overpaying intentionally to keep advances high (and high advances will bankrupt publishers). And they’re also taking away all the authors who actually move units. They gave Seth Godin really favorable terms on a deal. Only a matter of time before they snag a James Patterson or some other big genre fiction name.

We can’t pay $1 million for books anymore. Amazon could probably afford to lose $20 million/year in their publishing arm just to put the other publishers out of business. I think that’s what they’re trying to do–throw money around in an industry that doesn’t have any, until Amazon becomes not only the only place where you buy books, but the only place that publishes books, too.

So rather than getting a 30% of an ebook (with the other 70% being split between the publisher and author), they’ll be getting a 70% cut (with the other 30% going right to the author). Funny thing is that it’s actually better for authors.

To be honest, publishing is a quaint little industry based on romance and low profit margins. But now we’re in Amazon’s sights, and they’re going to kill us.

I have no insight into whether Amazon has planned this out, or it’s just a happy accident given the success of the Kindle, the iPad and other eReaders and the general dysfunction of publishing. But I don’t have much more sympathy for publishing than Farhad Manjoo has for independent book stores. Amazon didn’t create publishing’s woes, any more than blogging created the challenges of newspapers. The company is just cleverly exploiting them.

And good for them. My hope is disgruntled publishing executives like the one above will quit their comfortable jobs at dysfunctional prehistoric companies and start innovating on the model. I don’t believe the public only wants books written by over-tanned drunks who go clubbing anymore than blog readers only want slideshows and posts on Apple.

Someone will build the next great publishing imprint out of these ashes. And as a reader and an author, I can’t wait.