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Hooray for Amazon!

When Apple rolled out the iPad, I squinted at the screenshots on Gizmodo that included the iBookstore, and noticed immediately that Apple was planning on charging $3 to $4 more per e-book than Amazon charges for the same titles. (I strongly suspect that iTunes' bookstore will go over about as well as Amazon's MP3 store.) I was wondering how they were planning on getting away with offering fewer titles and charging more per title.

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.


( 31 comments — Leave a comment )
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Jan. 30th, 2010 10:55 pm (UTC)
I may be in the minority, but I actually like amazon's mp3 store, ever since I found out that they have many of the same titles for $1-$2 less per album and generally $0.10 to $0.20 less per song.
Jan. 30th, 2010 11:11 pm (UTC)
Also there is not as much proprietary baggage attached to mp3s as with the iTunes format.
(no subject) - fannyfae - Jan. 31st, 2010 04:08 pm (UTC) - Expand
Jan. 30th, 2010 11:21 pm (UTC)
One slight quibble - as I understand it, being a large vendor Amazon has been able to negotiate much better discounts, and is paying something more like 35% of the cover price (on a par with Walmart).
Jan. 30th, 2010 11:43 pm (UTC)
I agree with your position on this.

(Which seems to happen often.)
Jan. 31st, 2010 12:56 am (UTC)
Amazon is being its usual dickish self--"we want to own ALL the book market, and anyone who doesn't cave to our demands will be punished."

That said, Macmillan is *also* being plenty dickish, with the "oh noes! Gods forbid customers think books might cost too much! Quick, raise the prices so they don't get used to cheap books!"

I hope they tear each other to bloody shreds, and a zillion small independent publishers & booksellers flourish by feeding on their entrails.
Jan. 31st, 2010 03:40 am (UTC)
Hear hear!
(no subject) - lordperrin - Jan. 31st, 2010 05:56 am (UTC) - Expand
(no subject) - aberranteyes - Feb. 1st, 2010 02:12 am (UTC) - Expand
Jan. 31st, 2010 12:18 pm (UTC)
It's a classic negotiation, complete with brinksmanship and god knows what else. None of this will make sense until the dust settles.

Re prices: there are good cultural arguments to outlaw discounting, it would be a lot better and a fairer to interfer with the market than handing out government grants via - in the UK - the Arts Council.
Jan. 31st, 2010 02:57 pm (UTC)
Thank you - I was beginning to feel quite alien amongst my friends, as a published author who thinks Amazon are right on this.
Jan. 31st, 2010 05:16 pm (UTC)
I follow a fair number of authors and I've been really disappointed in a lot of them- even folks I thought had their heads on straight have been all "AMAZON IS PERSONALLY OBLIGATED TO CARRY MY BOOKS" and "THERE IS NO PLACE TO BUY BOOKS THAT AREN'T AMAZON" and the like. It's baffling.
(no subject) - reverancepavane - Jan. 31st, 2010 06:48 pm (UTC) - Expand
(no subject) - ubiquitous_a - Feb. 2nd, 2010 04:17 pm (UTC) - Expand
Jan. 31st, 2010 04:05 pm (UTC)
The thought that the buyers of hardback books and the buyers of ebooks have very much overlap is the combatants' first fallacy.

(personally, I only buy paperbacks, and actually prefer the mass market ones, as they tend to have more interesting covers)

I think Macmillan is all in a tizzy over nothing, to be honest, and it's going to come back to bite them in the ass big time.
Jan. 31st, 2010 04:09 pm (UTC)
That being said, I think Amazon overreacted by pulling ALL Macmillan stock.
(no subject) - interactiveleaf - Jan. 31st, 2010 04:36 pm (UTC) - Expand
(no subject) - drooling_ferret - Feb. 1st, 2010 02:45 pm (UTC) - Expand
Jan. 31st, 2010 04:44 pm (UTC)
as someone who choses quite deliberatly not to get on the ebook band wagon... my reasons are my own, I do agree that this is a fight that needed to happen. Others get hurt when giants fight. But when one company tries to screw the public and another tries to tell them their wrong they have to have a good BITE or nobody cares.

Lets look at the cartel and monopoly issues with the oil companies going back to the Standerd Oil Trust which screwed everyone... if an early competitor of them had stood up and used some real bite back their monopoly would not have become reality.

Jan. 31st, 2010 06:05 pm (UTC)
I agree with you Brad as usual :0)

I haven't jumped on the Kindle or similar bandwagon because I don't like having appliances or any phone etc that only has one application use.

I do like Amazon's mp3 store because its easy to import into Windows Media Player! I don't own any Apple products but Apple seems to me like something going out of control with monopoly. I'm not convinced of the reliability of their products either.
Jan. 31st, 2010 10:12 pm (UTC)
Macmillan doesn't want to fix all ebook prices at $15. They want to price their books anywhere from $15-$6, getting cheaper as the book gets older.

One good thing about this is, it would let rich Musthaveittoday people subsidize poor Waittillthepricecomesdown people (and perhaps subsidize less popular titles also). Just like "I'll wait for the paperback."

Feb. 1st, 2010 12:28 am (UTC)
The big publishing houses are all doomed, so Amazon's impending victory is inevitable.
Feb. 1st, 2010 03:59 am (UTC)
Amazon gives in
Feb. 1st, 2010 04:23 am (UTC)
Amazon caved. Hope this doesn't set a trend.
Feb. 2nd, 2010 04:13 pm (UTC)
I don't have a decided position on this issue as yet, but did come across a published author's take on it that did provide some interesting information on the actual costs of publishing and how they are reflected. Also, it appears that Amazon didn't provide the entire story of MacMillan's proposal, which seems a bit disingenuous.

Feb. 2nd, 2010 06:21 pm (UTC)
You won't listen to me, because you almost never do, but you're just wrong on this one, Brad.

First, manufacture and shipping isn't "most of the cost of a book", as MANY people have pointed out lately even before this hit the fan. The short version: book publishing is a *ridiculously* low margin enterprise. 20% of the cost of a book, MAX, is the cost of manufacture and shipping. Most of it is the cost of the *services* of the people publishing the books, in WHATEVER format -- that's editorial services, proofing, copyediting, layout, typesetting, fucking with digital files in various formats, et cetera. You know, all the things that book publishers actually DO. Some people seem to think they sit around on their asses and cackle evilly all day, but that isn't in fact the case.

Second, Amazon isn't "acquiescing to publishers' demands to have DRM" -- publishers may want DRM too, but Amazon is FORCING them to use it. There's word on this from, among other people, the ebook publisher E-Reads (who handle e-publishing for a number of larger publishers). E-Reads in particular has explained this to some of their authors outright (this is documented in, among other places, a comment at Tobias Buckell's blog post on this weekend's Fail). It's also the case that the Fictionwise versions of E-Reads titles DO NOT HAVE DRM, while the Amazon versions of the same titles DO. That says "not a publisher decision" pretty loudly to me.

Third, Scalzi's article is good, but using Doctorow as your only other example (and making it about DRM, which is flatly NOT the issue here) is setting up a kind of straw man. Charles Stross, Jay Lake, Tobias Buckell, Scott Westerfeld (on the author side) and the Nielsen-Haydens (on the editorial side) all have more nuanced takes on the issue -- and ALL of them are pissed at Amazon. For a lot of reasons.

Also if you're going to link Scalzi, it would be nice to link his "final roundup" post, as well, which is here: All the Many Ways Amazon So Very Failed This Weekend.

Anyway, you're a total Kindle fanboy these days, so I don't expect you to listen to me. But I leave you with this thought: if these other people are right, and book publishing really IS that low-margin (and Amazon is selling books at a loss, right now, to disguise that), then Amazon getting its way would mean that publishers had to cut back. Way back. Fewer books would get published, and WAY fewer books that aren't "guaranteed sellers" would get published.

And how much good will a Kindle do you, if they aren't publishing any books you want to read because Amazon's tactics have gutted the industry?

Feb. 5th, 2010 12:54 am (UTC)
Actually the publishing industry has cut way back. New authors have been getting themselves known by using "Internet tactics" such as blog sites where you can find samples of their work or publishing serial or short stories. The short story market has pretty much dried up.

As far as Amazon's tactic gutting the industry, I think that is pretty much overstated. Eventually a compromise of some sort will be made one way or the other. Print isn't quite dead, but it is having some convulsions of one kind or another. Newspapers, magazines, and others are feeling it. And they don't need another Wal-mart dictating how the market will run, on EITHER side of the supply chain.

As far as the kindles go, right now I prefer holding a book in my hand instead of having a gadget that runs on batteries that I can forget somewhere. However, I cannot help but think that I would pay more or the same price for a text file instead of an object that I can hold in my hand that can be read by firelight when the electricity is off, for example.
(no subject) - alienne - Feb. 15th, 2010 08:54 pm (UTC) - Expand
(no subject) - alienne - Feb. 15th, 2010 08:54 pm (UTC) - Expand
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( 31 comments — Leave a comment )