As I’m sure you’ve heard by now, here was a major kerfuffle between Amazon and Macmillan over the weekend that is so hugely important it will necessitate the postponement of my planned “Last Week in Publishing” post. I KNOW. Didn’t Macmillan and Amazon realize the implications to my blog???
Stay with me, because I’m going to go into the weeds a bit to break this down. And to do that I need to provide some background info.
The Background Info
The whole issue revolves around e-book pricing: many publishers have long been extremely uncomfortable with the $9.99 price point that Amazon established for e-books, feeling it’s too low and acclimating consumers to a price that is, from a publishers’ perspective, unsustainable. In the words of Hachette CEO David Young when Hachette announced that they would delay some e-book releases: “I can’t sit back and watch years of building authors sold off at bargain-basement prices.”
Here’s the interesting thing about that, and something to keep in mind because it’s not often mentioned in the discussions surrounding Amazon: major publishers weren’t getting paid based on the $9.99 price point. According to the NYTimes, for a new release publishers have been receiving roughly the equivalent of half the hardcover retail price. For a $24.99 hardcover book available as an e-book for sale at $9.99, again, according to the NY Times, Amazon pays the publisher somewhere around $12.50 and uses it as a loss leader, presumably to sell Kindles.
Along comes the iPad and Apple’s “agency” model. Apple is allowing publishers to set the list price of their own titles, and they pay publishers a 70/30 split. E-books will cost no more than $14.99. This means that for a $14.99 iBook, publishers will receive $10.43. (note: Random House hasn’t come to an agreement with Apple and is still in discussions)
Do you see what’s interesting about this?? Take this hypothetical $25.00 new release hardcover. Publishers are willingly taking less money from Apple ($10.43 in our hypothetical example vs. $12.50 for Kindle) in exchange for setting what publishers feel is a more sustainable list price.
Assuming all these reports are right. Also my math.
This past week, as Macmillan CEO John Sargent explained, Macmillan told Amazon they wanted to use the Apple agency model for Kindle e-books. Essentially, Macmillan was proposing that Amazon could pay them less money per title if Amazon would let them set their own e-book prices.
Amazon reacted with what Mike Shatzkin called the “nuclear option”: they took down the buy buttons for nearly all Macmillan titles. As in: they pulled down the buy buttons not only for the e-books, but for print books as well. Some customers reported that Amazon removed Macmillan titles from their wish lists and deleted Macmillan sample chapters off of Kindles. Yowza.
The dust settled somewhat Sunday afternoon as Amazon said that they would “ultimately capitulate” to Macmillan’s demands and abide by the agency model with Macmillan, though the buy buttons have not yet, as of this writing, been reactivated. And that brings us up to speed.
Say What Now?
So. Why would a publisher willingly take less money per e-book copy sold in exchange for, essentially, the ability to charge consumers more money for an e-book? And why would Amazon react so vehemently when Macmillan was proposing that they receive more per copy?
Well, you’d have to ask them yourself to get the real answer. I have a few guesses though (and everything below should be taken as such).
Amazon’s position is relatively easy to guess at: they want e-book prices to be as low as possible to entice more people to buy Kindles and to make sure they have the lowest prices period. The more people who buy Kindles, the more people who are locked into their proprietary format, who are probably likely to stay with Amazon to buy e-books in the future, and, by the way, who may be less likely to buy paper books from a bookstore, further consolidating Amazon’s position as the dominant player in the bookselling world. They want the ability to sell products to consumers at as low a cost as possible.
Presumably, publishers are (presumably) concerned about losing control over the price of their books in the marketplace, especially when they compete with higher priced editions of the same work.
And, of course, lurking behind all of this is the iPad.
The iPad Factor
I plan on delving into the book world implications of the iPad in a later post, but one of the great ironies of the iPad, as Bloomsbury publisher Peter Ginna recently noted, is that Amazon and Apple are very likely going to be competing against each other on the very same device. Apple will be selling e-books through the iBooks store, and Amazon will (I’m guessing) make books available via its Kindle app.
This set up an interesting scenario where these models could potentially compete against each other head to head: Amazon presumably selling an iPad compatible e-book for $9.99 and Apple selling an iBook for $14.95. This led Ginna to ponder whether the iPad was actually a trojan horse for Amazon, who could use their app presence on the iPad to further corner the e-book market. Or, even if Amazon decides against making an iPad app available, they could still offer the same e-books at a lower price on the Kindle in order to retain a key Kindle selling point.
And that, I would postulate, is the one of the keys to all of this. Macmillan’s books will now be the same price on the Kindle as they are in the iBooks store on the iPad (and on the Kindle App on the iPad if Amazon goes that route). Amazon made an audacious bid to retain the ability to be the lowest priced e-book vendor for Macmillan’s books. Amazon blinked.
Oh Yeah, What About the Consumer?
This ain’t over. Not by a long shot.
As we’ve seen repeatedly in digital media (hello, music industry!), consumers are the ones who are going to have the most power to determine what the coming e-book landscape is going to look like. And this is where consumer experience and expectations, DRM, proprietary e-book formats, piracy, and competition are going to come together to dictate prices. I’m not exactly going out on a limb to say that consumers have their own expectations for what an e-book “should” cost, and these might not mesh with what a publisher thinks they “should” cost.
And as a recent NY Times article points out, customers are not exactly lacking for free or cheap e-book options. On the iPad and similar devices of the future, they’re not going to be lacking for cheap or free non-book distractions either.
You didn’t hear it from me, but they might even still want their books on paper too. Which they bought at their friendly neighborhood bookstore.
When the dust clears on all of this, will publishers regret accepting a lower price per copy in exchange for the ability to set higher prices? Or was Macmillan smart to take a stand against very low discounting to help level the playing field? Have we seen Amazon’s peak as an e-book player or will they continue to dominate the coming e-book world? Will publishers follow Macmillan’s lead or work out their own arrangements? Are you on Team Amazon or Team Macmillan? Or maybe even Team Can’t We All Just Get Along?
You tell me. I’m extremely curious to know what you think about all of this.
Nathan Bransford says
There are rumors that 3 million Kindles have been sold. There are not 3 million agents and editors out there.
Jenny Woolf says
An interesting and clear analysis of the situation. I have an unusual perspective – as a Macmillan's author. My book, THE MYSTERY OF LEWIS CARROLL, published by a division of Macmillan was launched today in the US. Can't say I feel too warmly towards Amazon for making it impossible for people to buy it.
No, correction : they CAN buy it –from third party sellers who have bought the review copies given out free by the publishers. So I won't earn anything on them.
Not sure what my conclusion is yet, except that I'm glad to have a different publisher in the UK, and one who is not in dispute with Amazon.
Dawn Anon says
I had been one of those readers who was very suspicious of the Kindles (etc). Then i had read more on the subject, including your blog a few months ago that talked about myths about eReaders. My significant other recently offered to buy one for a gift for me, and i was very close to saying yes… until now. Now i'm very suspicious again.
Perhaps amazon cut their nose off to spite their face?
I'll stick with printed books for awhile longer.
Elie @February 2, 2010 1:39 AM wrote, "What about an e-book library system where you just rent the book for a period of time?"
SFPL is already doing something like this, although the system isn't set up for a Kindle app or an iPad app yet. …
The formats used are Mobi, Adobe, and Overdrive. You select a title. The e-book downloads to your device. You have x number of days to read the book and at the end of that time period *poof* (sort of like the self-destructing tapes in MISSION IMPOSSIBLE). If you want more time with the title, you have to ask for it again, download it again, &c. No renewals. 🙁
Still, it's a start and the wave of the future. No rental involved. Free with your library card.
Aren't e-books at the library like piracy on the internet? Off subject, I know.
As for the $3 – $4 difference, you are suggesting that is the only cost to paper and ink. Can this be true?
Can consumers be made to understand the "middle men" between the author and themselves have enriched the book and put a spotlight on an otherwise overlooked commodity? What is that value?
For me it is price point. No book is worth $25 unless I can reference it. As for e-books, $9 for a file that is worth nothing after reading, hardly seems a bargain at $15. Do people throw books away? GASP! I know computers are trash, I mean, they crash.
In the end the author will suffer sales while the consumer decides. Amazon and McMillan have shown authors they will lose sales and consumers they are in charge. Amazon thought they would block sales; watch the consumers stop buying. McMillan thought they would set prices; consumers have the purchasing power. End of story.
I think the only thing we can say with any certainty about this, is that neither side has the best interests of the writers at heart.
Dana Stabenow says
I'm supposed to be writing a fricken' book and instead I'm dealing with this crap, as in https://danastabenow.cmail1.com/T/ViewEmail/r/F8C89793A58697B3. I'm on Team My Head Hurts, too.
(1) Amazon wins in the short run because they will now be making instead of losing money on every book from MacMillan (and any other publishers who follow that publisher's lead)
(2) Inter-publisher rivalry and simple market forces will drive down ebook prices to perhaps as low as $9.99 again. (Lower prices is what happens to artificially elevated prices in the absence of monopoly power and collusion.)
(3) Publishers will make less money in the long run and have less to offer authors, with the result that more authors will bolt their publishers for Amazon in the way Steven Covey, Martin Amis, Ian McEwan and now Paul Coelho have, giving Amazon the win in the next round too…
Amazon is offering free Kindles to their high-volume book customers:
Anon E Mouse says
All I have to say about this whole ebook vs paper thing is: every time I go to one the public libraries near me, the parking lots are always full.
Technology will change things and we will have to make adjustments to those changes, but people aren't going to stop reading.
The difference between Amazon and ITunes is simple. A real album (at least the ones I priced) generally costs about the same for the electronic version as it does for the disk. If you buy all the songs as singles, it costs more, not less, for the entire album.
And some albums still cost more than others.
I've read several comparisons of Amazons to ITunes on other blogs and in press releases. The comparison is only valid if Amazon upholds the hardcover price and/or starts selling books by the chapter. Otherwise, they are undercutting prices that the industry (lead by them in a few cases) has already established the general public is willing to pay.
This is more about profit margin versus volume with the publishers arguing for the profit margin and Amazon pushing for volume (i.e. remark: Incomplete sentence books), which makes sense. Even if it hurts the publishing industry, Amazon still wins because it sells a diverse array of products. Seriously, when is the last time you only ordered a single item?
As for the "we provide DRM and keep your product safe" argument… I wonder how anyone can be naive enough to believe this. DRM is a euphemism for "hack me".
It's irrelevant that MacMillan won. No one is going to buy an ebook over $10. Go look at the top 100 bestsellers on Amazon. Not one is over $10 and around 50% are $1 or less. MacMillan may have won against Amazon. It won't win against the consumer.
I am with Amazon all the way. Apple had a big hand in destroying the music industry. Now Steve Jobs who has said no one reads anymore, is going after the publishing industry. The publishers were getting paid more under Amazons system. Steve Jobs and the publishers are in collussion. He stated in an interview when asked how he would be selling books at higher prices he stated they would be the same. He and his Ipad are no winners for a true reader that reads hundreds of books a year I do not want a back lit screen. I was waiting to see the Ipad as a replacement for my laptop. I do not own an Apple product now and NOR WILL I EVER BUY AN APPLE PROUCT. I will not even buy an Apple product, or contribute to the purchase of one for someone else.
Apple can not compete with Amazon in regards to the book industry, without fixing the prices first. Shame on Apple.
Barry Eisler's framing of the battle is the best I've seen (retweeted from JA Konrath).
This is another good one that makes the argument that Amazon is the big winner. I think that's probably right:
I'm on Team Consumer.
Whilst i admire MacMillan for standing up for what they presumably believe in but i'm with Amazon the cheaper e-book front. I love apple but i wish they would make the books cheaper although i'm British and i don't yet know the pricing in £.
Although, I much prefer holding a book in my hand. Plus i distrust anything with DRM, i don't like how i can't move my purchase to other devices or do what i've been free to do since before everything went digital.
I like that it protects the work but i hate the limitation so for me its books, cds and DVDs maybe in blu-rays in the future.
Cassandra Bonmot says
I'm on 'Team Ink.' 😉
I am not paying $10 for an e-book when paperbacks are $8. I don't want hard covers.
I am exploring Project Gutenberg because they haven't come up with a decent metond of evaluating sci-fi. The Liberal Arts people don't care about science. SF is no different from fantasy to them.
I can't understand how people might think the MacMillian model is a good thing. Just apply this to other things you buy daily. Imagine that there's ONLY list price. No black fridays, no discounts, no sales. EVER. All stores with the exact same price. That's the MacMillian model.
I, for one, don't think it is in the consumers best interests.
I'll remind everyone that a book is a monopoly. That's what copyrigth is, a monopoly. There's no competition, because books aren't interchangeable.
I'm a newbee to all of this. A new writer, new to this website and a new e-book user, receiving the Barnes and Noble Nook for Christmas.
I love to read! My house is full of books that I have no room for. The main reason I love my ebook is because I can carry around an entire library without putting my back out and if I happen to finish a book and I'm sitting in the doctor's office waiting, I can download a new one.
I believe ebooks are here to stay and the publishers need to resolve this issue because it's not going away.
Michael Stubblefield says
I'm sorry, but as a writer or a reader, I'm not on either side. I'm against Amazon's attempt to play monopoly, and I'm against the idea of charging or paying more for ebooks. Why should anyone less for a paperback book that they can keep for a hundred years if they take care of it, as they do for an e-copy which probably won't be supported by the software vendors even ten years from now?
Books, music, movies, whatever — it ought to cost less as an e-copy.
Very interesting and educative post about price war, but I think your math from the beginning of the article has at least one big error. Paper copy really costs more than e-book beacuse the complete cost of print, storage and transport is all on publisher, not on bookstore. So publisher of e-book can lower his share and still make even bigger profit.
In our country (Slovenia) we have also a law of fixed price (price of book must be printed on book), so the seller really doesn't have much of maneuver place. Law says the publisher dictates the price, but in reallity the seller says if he wants the book on his shelve.
In my opinion after the global price war settles down winners should be books – printed and electronic editions.
CK Rifle says
As an Author to be, I wonder how all of this is going to hit my fellow aspiring Authors, and already established Authors. Will they be forced to price higher, or if I understand it, have no choice at all in how much their book costs? Will that have an effect on their sales and ability to survive in the ebook business?
And what about the Author in relation to getting their work published? Will the controls put in place by Apple and agreed to by Amazon cause the process of getting published quickly ebook style a thing of the past?
On the other hand, competing businesses are supposed to be a good thing fro the consumer, but perhaps this case is different.
Can anyone help with answering these questions? Thank you much!
Okay, thanks for the info in your blog. I have been comparing e-readers over the last few days and finally came to the most important criteria somewhat by mistake; the fact that e-books are essentially the very same price as their paperback counterparts! Your blog certainly brought some detail to my level of understanding, however, I virtually never buy hardcovers, and had to adapt your model to the world of paperbacks. As a consumer, and perhaps it's on principle alone, I won't pay the same price, much less more for a digital file. I have purchased several new release paperbacks over the last 12 months for an average retail of 9.99; and I think that is too high but I guess the market will bear it because I keep buying books. However, I won't even pay close to that for an e-book, even if they start handing out the very best e-readers for free! Only when or if e-book prices descend somewhere between 5-7 dollars per file will I embrace digital conversion.
TEAM AMAZON! AMAZON! AMAZON! AMAZON! Team Amazon all the way!