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.