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Summary:

Amazon went on the offensive over the weekend in a brief battle with publisher Macmillan, pulling the publisher’s physical and digital titles on Friday from Amazon.com and the Kindle Store. By late Sunday, Macmillan was back and Amazon was beaten. While this is a victory for […]

Amazon went on the offensive over the weekend in a brief battle with publisher Macmillan, pulling the publisher’s physical and digital titles on Friday from Amazon.com and the Kindle Store. By late Sunday, Macmillan was back and Amazon was beaten. While this is a victory for Apple and the iPad, it’s a loss for consumers, at least in the short term, and probably forever.

As of today, Amazon’s policy of standard pricing for e-books at $9.99 effectively ended, at least for Macmillan books, but it’s hard to imagine other publishers won’t follow with new pricing from $12.99 to $14.99. While many will blame Apple for this outcome, it’s a little more complicated than that.

Author Charles Stross gives his opinion on the matter, as well as offering a description of the competing business models, which look something like this:

Supply Chain Model: Author -> Publisher -> Wholesaler -> Bookstore -> Consumer
Agency Model: Author -> Publisher -> Fixed-price distributor -> Consumer

In the supply chain model, Amazon is both the wholesaler and bookstore. Amazon profits by buying in bulk from publishers at a discount and selling for what they can, and in the case of digital books that’s $9.99. It’s a great business model, unless you are a publisher or author. The agency model gives the publishers control over pricing and relegates Amazon to being a book store.

This is a zero-sum game, one which the publishers were losing until Steve Jobs introduced the iPad. Since Apple is interested in selling iPads and wanted to attract publishers, the agency model was adopted for iBooks, even if it meant higher, variable priced e-books.

Macmillan tried to negotiate a new deal with Amazon, or to continue the current deal with changes like delays for publishing cheaper e-books to protect hardcover sales. Amazon refused and Macmillan’s books got pulled. That resulted in a paid advertisement in Publishers Lunch on Saturday from Macmillan CEO John Sargent defending the agency model and saying nice things about Amazon.

On Sunday, Amazon posted a not-so-nice letter in the Kindle Community, saying that “regardless of our viewpoint,” Macmillan wants the agency model. Of course, Amazon expressed that “viewpoint” by “temporarily ceasing the sale of all Macmillan titles,” not nice at all, but in the end was forced to “capitulate.” However, Amazon doesn’t believe all publishers will switch to the agency model. Sure, they won’t.

So, the bad news is we can all expect to pay $12.99 to $14.99 for what used to cost $9.99. The good news is, if there is any, that competition between Amazon and Apple could ultimately force prices lower in the long term. After all, there is no rule that says either company must take a 30 percent cut of each book sold, except the one where it would destroy Amazon’s business not to.

Finally, if this entire saga doesn’t sound familiar, it should. It’s not unlike Apple’s fight with the music industry, with Apple in the position of Amazon and arguing for flat pricing of 99 cents per song. The music industry demurred and went to Amazon with DRM-free songs. They got their variable pricing with Amazon, and Apple ultimately capitulated. We now pretty much pay $1.29 per song at the iTunes Store.

Not to say Steve Jobs is a vengeful iGod or anything, but you can almost see him smirking down from The Campus in Cupertino right now.

  1. [...] The e-Book Wars Rage On [...]

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  2. “While this is a victory for Apple and the iPad, it’s a loss for consumers, at least in the short term, and probably forever.”

    That’s very foolish. Amazon’s looking after Amazon’s interests and not those of consumers. A loss by Amazon isn’t a loss for consumers.

    Read Amazon’s new royalty agreement for Kindle ebooks and that couldn’t be clearer. To sign up for it, authors and publishers must agree not to:

    1. Sell an ebook elsewhere for less than the price on Amazon, even on their own websites where there’s no Amazon taking 30% off the top. That prevents real competition.

    2. Sell printed versions of that ebook for less than a price well above the ebook price that Amazon has set. That drives prices up.

    Given those rules, Amazon obviously doesn’t want to drive prices down. They’re playing the classic game of nineteenth-century robber barons, selling below cost (here $9.95) to destroy competitors. Once their competition is gone, they’ll dictate prices. They’ll squeeze publishers and authors so badly, the entire book industry will suffer. That’s precisely what Macmillan’s CEO was talking about. Among other things, if Amazon gets its way, publishers will be forced to stick with well-established authors rather than risk money they don’t have (and Amazon won’t let them make) on publishing and promoting new authors.

    The result will be bad for “consumers” and even the use of that word instead of “readers” is revealing. Reading will become dismal, dull and predictable. Books are not boxes of corn flakes, something to be produced as identically, quickly and cheaply as possible. The robber barons in their obsession with efficiency never understood that. They could think in no other terms that “cost per unit of production.” Apparently, neither does Amazon.

    There’s no need to fear Macmillan. If they overprice their books, we can buy from numerous competitors who will price their books a bit more cheaply. But if there is reason to fear an Amazon if it gets a stranglehold on ebook distribution and pricing. There are many publishers from giant to small to keep competition alive. There’s only one Amazon.

    That’s why Apple is so important. They’re about the only company who can compete with Amazon on a level playing field. And with the iPad, they’ve got a product that’s miles ahead of the Kindle.

    We live in interesting times…..

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    1. What Amazon would have done in the future regarding prices is a matter of opinion, but the present facts are up to a 50 percent increase in book prices. Not good for consumers or readers.

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  3. @ Mike

    LOL. What do you think Apple is going to do? They’re going to let publishers screw consumers now, and then once the iPad becomes dominant they’re going to drive the prices way lower, screwing publishers and authors, but selling tons of hardware. And if iTunes ultimately dominates books like it does music, how is that good for your “keep competition alive” argument?

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  4. Paul T. McCain Monday, February 1, 2010

    It never ceases to amaze me how some people think that book publishing is accomplished with generous servings of spare change from the Tooth Fairy. “Consumers lose?” Huh? Really?

    Consumers have to pony up and actually pay for intellectual property in amounts that make it possible for book publishers to keep publishing and writers to keep writing?

    You bet they do.

    The notion that the book writing and publishing business can continue to survive at a $9.99 price point is simply dead wrong.

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  5. When e-Book and hardcover pricing becomes closer together it becomes more ridiculous.

    With eBooks with get DRM, can’t share the book, can’t sell the book after we are done and they save money in publishing costs.

    I have bought a lot o books in the Kindle format because the price makes the trade-off worth it. But at a $15 dollar price point it makes it hardly worth buying since that is the price-point Amazon sells a lot of hardcovers.

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  6. The notion that the book writing and publishing business can continue to survive at a $9.99 price point is simply dead wrong.

    With distribution and printing costs at zero, how do you figure? Ebooks are overpriced. There’s no way I’d buy an ebook when at $9.99 it’s usually more expensive than a paperback, and at $15 about as expensive as a hardback. Real books are just better, easier on the eyes when reading, don’t need an expensive gadget, provide some satisfaction just looking at them on my shelves, and can be resold to recoup some of their cost. For these reasons I’m not buying ebooks until they’re significantly less expensive than paperbacks, and I suspect the majority of the book buying public agrees.

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  7. I believe that if all books suddenly went digital with a $15 price point, and printing suddenly disappeared, it would kill reading.

    How many books did I get from my friends or parents as a kid that I could not have afforded on my own, or that my parents could not have afforded to purchase for me? All of them. And I read a lot. I still do, when I have time. But as much as I enjoy ebooks, it has to be a rare treat. I just can’t spend $100 a month on books, and I could easily read 10 full length ebooks a month.

    The part about not being able to share combined with the price point, and the fact that apple and amazon are paying for the distribution tell me that publishers are being disingenuous about their ebook cost. They simply are afraid of them cutting into print sales.

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  8. I won’t spend $10-$15 on a book I can buy in the bookstore for $5.99. Besides, nothing beats holding a real book in your hands, and they look great on the bookshelves. I might by an iPad, but I won’t be spending my hard-earned cash on overpriced ebooks, which are essentially a lot of 0s and 1s.

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  9. I can’t see me ever buying ebooks unless they cost, well, very little. When I buy a book, I am buying the thing to put on my shelf or hold in my hand. And if I want something digital to read, I will go online and read for free. There are out-of-copyright books and self-published fiction communities, comics and blogs and interesting new mediums, not to mention piles of fan works, and a lot of the time this reading comes with an extra reward in terms of community and connection, of participation in the creation of something and the ability to say to an author, directly, that it moved me. Which generally makes me want to put both time and money into the project, and generally I feel better about doing so than when I pick up a book in a big chain bookstore.

    So if I don’t feel like carting around a book collection, I’ll just put up with the eye strain, and stick to taking my laptop on holiday. Or maybe my iPad…

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