Well, I guess now we know.
For those of you who weren't paying attention when the blogosphere lit up over it this morning, Macmillan has been putting the screws to Amazon in what had been, until late Friday night, quiet contract negotiations; New York Times technology blogger Brad Stone just posted the details ("Amazon Pulls Macmillan Books Over E-Book Price Disagreement," 1/29/10). Apparently Amazon has concluded that Macmillan has stopped negotiating in good faith, that Macmillan hopes to put the Kindle e-books store out of business by taking its business to the iPad in two months when it finally ships. If so, Amazon is calling their bluff: Amazon yanked all Macmillan titles, e-book and paper, from Amazon.com Friday night. For how long? Who knows?
John Scalzi, who's sold books to Macmillan, is watching his potential royalties from Earth's biggest bookstore drop to $0/day, and is unsurprisingly appalled that Amazon is refusing to cave in. Cory Doctorow, for whom being anti-DRM is a matter of religious principle and who therefore would be expected to hate Amazon even if they cured cancer, unsurprisingly hates Amazon.
I'm going to take Amazon's side on this one, and if you look at the NYT blogger's post, you can see the outlines of why. And if, like me, you'd read Ben Bova's Cyberbooks novel years ago, which predicted all of this, you'd have seen this coming, too.
When you buy a $20 hardcover or a $10 paperback, the author gets a few cents to maybe a buck out of that. The publisher gets a couple of bucks out of that. All, and I mean all, of the rest of that price covers the cost of getting that physical object manufactured, shipped to the distributor, distributed to the bookstore, stocked at the bookstore, and sold to you. To that end, Amazon made publishers what seems to me to be an entirely fair and reasonable offer: we will (against our will) cave in and give you digital rights management if that's the only way to persuade you to let us sell e-book copies of your books. (Amazon is already nudging publishers away from that position, as made the news about a week ago. Apple had to offer music publishers the same deal to get iTunes launched; just as iTunes dropped DRM once the music publishers stopped fearing iTunes and embraced it, there's every reason to assume that publishers will drop the encrypted wrapper around what turn out to be plain old open-format ".mobi" ebooks at Amazon.)
And ... and here's the contract sticking point ... Amazon cheerfully pays the same wholesale price per copy sold that every distributor of paper books pays, 50% off of hardcopy cover price. In exchange, Amazon gets the same privilege that every retailer gets, the privilege of setting the actual sale price to whatever they want. For almost all $20 or so hardcovers, Amazon is paying publishers like Macmillan $9.99, and selling the books to the public at wholesale cost, to promote the Kindle, the Kindle app on smart phones, the Kindle ebook application for Windows, and (most importantly, to them) the Kindle e-book bookstore. For your average $10 paperback, Amazon is paying publishers like Macmillan $4.99 or so, and setting the price (depending on the book) anywhere from $6.99 to $9.99, with occasional sales on backlist from authors they're trying to promote as low as $0 to $2.99. And as far as they're concerned, and as far as I'm concerned, Macmillan and every other publishing conglomerate have no more legal or moral right to dictate Amazon's price to their customers than they have to tell Books-a-Million or Borders how much they have to sell the books for. (The US Department of Justice would, probably, look in fact rather harshly askance at any publishing conglomerate that engaged in price-fixing behavior at the consumer level.)
As far as I can understand Macmillan's argument, I think it goes something like this. Macmillan knows that the average book-buyer has no idea who gets what slice of their $20 hardcover book, and doesn't care; they just know that if they want to read that book while it's still in hardcover and aren't able to borrow it from a library or a friend, it costs them $20. Macmillan also knows that fewer than 10% of all bookbuyers have a Kindle or a smartphone with the Kindle app. What they appear to be afraid of is that if the other 90%-plus find out that Amazon sells their favorite hardcover author's latest book for $9.99, they'll think that that means that the hardcover ought to cost that much, too; that they'll boycott bookstores until prices come down to that; that bookstores will then demand a sharp cut in the wholesale price because customers will no longer pay more than $10 for a hardcover; that Amazon will demand the new wholesale price and continue retailing e-books at the new, lower, wholesale price; that consumers will conclude that Amazon's new, lower wholesale price is what books "should really cost," and the resulting death spiral will kill the industry.
And so, what they've demanded, and what Apple is enthused to give them if it lets them kill a competitor for their late-to-market ebook reader, and what Amazon considers not just bad business practice but actually morally and/or legally wrong so they won't give in no matter what it costs them, is the right to set Amazon's (and Barnes and Noble's, and Apple's, and any other e-book provider's) retail price, paying the e-book vending website 30% of the price. I sincerely hope that this was merely a starting offer on that price, by the way, since among other things, since if they're planning on gradually raising the e-book price to equal the hardcover price to keep from cannibalizing hardcover sales, it'd be a sharp hike in the wholesale cost (from 50% to 70% of cover) to the ebook vendors. But even if it werern't an indefensible raise in the wholesale cost, even if they offered to keep the current 50/50 split, it'd still be wrong, wrong, wrong of Macmillan and the other two companies (yes, there are only three publishing conglomerates who own almost the entire book publishing world) to even try to collude to set, and raise, consumer prices. Period.
Thank the gods that Amazon is standing up to them. They have my full support in this.
Edited to add: Macmillan has given their side of this dispute. It exactly confirms my suspicion that this is all about Macmillan's demand that they, not the retailer, be allowed to set the retail price of a book, their demand that anybody who discounts a book below their preferred price must die. This makes it even easier for me: I sincerely hope that it's Macmillan, not Amazon, that goes out of business.