“Begun the e-book wars have.”
Yoda, Star Wars: Attack Of the Clones, slight paraphrase
Book shoppers going to Amazon on Friday were met with some puzzling results. All books published by MacMillan had been pulled from the site. Apparently, Amazon and MacMillan reached something of stalemate regarding terms for e-book pricing.
Late Sunday afternoon, Amazon blinked, but did so through a relatively charged post in its Kindle Community forum. It’s clear this won’t be the last shot fired in this skirmish.
Most in the publishing industry watched warily as Apple asserted control over the music industry, wondering whether a similar third party would try to do the same for e-books. As one of the largest media retailers in the US, Amazon was an obvious candidate for such a move, and their Kindle strategy goes way beyond asserting control over the nascent e-book market. Author Charlie Stross explains:
They’re trying to in-source the publisher by asserting contractual terms that mean the publisher isn’t merely selling them books wholesale, but is sublicencing the works to be republished via the Kindle publishing platform. Publishers sublicensing rights is SOP in the industry, but not normally handled this way — and it allows Amazon to grab another chunk of the supply chain if they get away with it, turning the traditional publishers into vestigial editing/marketing appendages.
These sorts of power struggles are going to be the dominant issue for content creators in the digital age. Is the content the valuable thing? Or does the networked retailer who makes the content visible/sells the content get to call the shots? Are music companies bigger than iTunes? Does Google need newspapers more than newspapers need Google?
In this case, the question was: Can publishers afford to do without Amazon?
Apparently, for now, they can.
MacMillan issued their own statement on what was happening. MacMillan is one of the companies that has signed on with Apple for the iBookstore, and has offered Amazon the same terms as Apple (the “agency model,” in which the publisher sets the price and the seller takes a 30% cut), or offered to continue the current Amazon wholesale pricing deal, whereby Amazon pays the publisher 50% of the hardcover’s retail price and then sells it at whatever price they want, but with e-book versions delayed by months :
In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.
Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.
The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.
Amazon publicly offered publishers and authors terms that cede a great amount of control to Amazon, particularly when it comes to pricing one’s own product. Not surprisingly, publishers are unhappy with someone else trying to control their business. John Scalzi has weighed in with an author’s perspective that the market should decide, not Amazon:
Do I think Macmillan (or anyone else) will be able to sell $15 ebooks? They could; after all, they sell $25 hardcovers (and similar amounts for ebooks, depending on the retailer). Now, some people won’t spend that much for a book, so they pick up the book later when it’s an $8 paperback. That’s fine, too. Likewise, I think it’s fine to attempt to charge $15 (or more) for an ebook for a brand-spankin’ new release to service the folks who just can’t wait, drop it to a lower price point (say, $10) later on in the run, and then drop it again to $8 or so when the paperback hits. That’s how I would do it, in any event. Would it work? Hell if I know. But that’s not to say it (or some other pricing scheme) is not in a publisher’s interest to try.
And to be blunt about it, it’s in my interest as an author as well, because, you know what? My royalty is a percentage of the sale price. . . . It’s not unreasonable to test the market and see what it will bear.
Variable pricing is incredibly important for publishers, and author Tobias Buckell has a lengthy post explaining the economics and the reasoning behind pricing a book high at its initial release, and gradually lowering the price over time (as so many other industries do as well). Theresa Nielsen Hayden predicts that with fixed pricing, “the result would be fewer and less diverse titles overall, published less well than they are now.” This is particularly crucial for scholarly and STM publishers, who often serve small academic communities. Having prices fixed at an artificially low point that’s unsustainable will mean that those communities are no longer served.
Publishers in this fight have advantages that their music and newspaper brethren lack in their struggles:
- The music industry was (and still is) fighting off a vibrant filesharing community that makes all of their products readily, if illegally, available for free. Boycotts, and taking their products off of the market, meant driving more customers toward filesharing. For the book industry, while piracy does exist, it is not yet at the level of music filesharing, where illegal downloads vastly outnumber legal sales. Refusing to make a Kindle version of a book available will certainly drive some to create their own unauthorized versions which they will distribute. But now is the time to make this move, as e-books only make up a small percentage of the market. Sacrificing those few percent of sales may be worth it in the long run.
- Unlike newspapers, publishers have unique content that isn’t easily replaceable. If you want to read about today’s top news story, you can get that information from a nearly infinite number of sources. If you want to read “The DaVinci Code,” you can’t readily substitute in another book to recreate that experience.
- There are plenty of other outlets for MacMillan’s books, both print and electronic. If you’re trying to buy book X from Amazon and they don’t have it, most people will head over to Barnes & Noble or Borders or countless other online booksellers to buy the same book (not to mention Apple’s upcoming e-bookstore). This is likely why Amazon blinked (and it would have been a great time for B&N to start a new “Not Available on Amazon” campaign with MacMillan).
Because of these factors, MacMillan seems to have made their move at the right time. We’ll have to see if other major publishing houses concur, but it’s important — unless publishers are willing to live under the thumb of the likes of Amazon, Google, and Apple. Remember that without products to sell, Amazon is just a bunch of empty warehouses, and the iBookstore is a blank website.
Amazon may be right — $9.99 may be the correct price for e-books. But that figure should be discovered by testing the market, not by decree. In their clearly angry and somewhat bizarre surrender notice (apparently monopolies are bad when it comes to MacMillan’s products, but good when it comes to the Kindle), Amazon assumes all MacMillan books will be $14.99, but I’m willing to bet this will not be the case, at least not over the entire course of the book’s lifespan.
This will certainly not be the last standoff between a content creator and a content retailer. Early confrontations like this will set the tone for how far the publishing industry is willing to go to remain independent and in control of its own business, and thanks to MacMillan, Amazon’s sweeping power play has for the moment failed. Other publishers will likely follow MacMillan’s lead and demand agency model deals.
These battles are far from over, but for now it seems publishers have the upper hand.
(10:51 AM, Edited to correct Amazon’s ranking as a bookseller, which was previously incorrectly stated, see comments below)