Here’s a recap if you don’t know what is going on. Macmillan’s contract with Amazon was up. Macmillan decided that it wanted one of two things:
1. Old pricing scheme in which it would sell to Amazon at list and Amazon would decide at what price point to resell to consumers but Macmillan would engage in “deep windowing” which means Amazon wouldn’t get the content for 6-7 months or maybe longer.
2. New pricing scheme wherein Macmillan sets the price and Amazon merely serves as the facilitator in the sale between Macmillan and the reader.
Amazon balked and expressed its disappointment by removing the buy it now button for all the Macmillan titles.
Authors became quite angry with Amazon, starting with John Scalzi and including others like Tobias Buckell, Scott Westerfield, and the like.
Scalzi believes that the fans of an author will abandon Amazon and that Amazon completely lost the optics of the weekend.
They feel somewhat connected to their favorite authors. So when their favorite authors kvetched on their blogs and Facebook pages and Twitter feeds about the screwing Amazon was giving them, what did many of these fans do? They also kvetched on their blogs and Facebook pages and Twitter feeds. So in pissing off a myriad of authors, Amazon also pissed off an exponential number of book readers, many of whom followed their favorite authors' leads in complaining about Amazon, and who themselves were read and followed by an exponential number of others.
If Scalzi and authors could convince their readers to buy en masse from a particular vendor, they have enough power to sell print and e direct.
Tobias Buckell accuses Amazon of price fixing which is sadly so incorrect given the price fixing requires collusion (in other words, Amazon can’t price fix by itself).
If Amazon were a smaller retailer, this probably wouldn't be a big deal. But Amazon pretty much, right now, has a monopoly on online bookselling. They're huge. As a result, this becomes nearly a form of de facto price fixing.
Indie author, April Hamilton, wonders why Macmillan authors are happy about the outcome:
Macmillan authors are rejoicing, and I'm shaking my head. Would musicians cheer a decision on the part of their labels to raise the price of their music on iTunes by 62%? I think not. Yet despite the fact that their books will cost 62% more than other Kindle bestsellers, and their royalty on those sales won't be even one cent higher, the Macmillan author "victory" dance continues apace on the interwebz.
Mike Shatzkin and Kassia Kroszer point out the authors in this situation are really losing out in the form of reduced royalties.
The proposed Agency Model will have publishers setting a price lower than the established retail they had before but higher than the deep discounts Amazon led retailers to sell at. The publisher intends to pay 30% of that established price to the retailer and 25% of either the full consumer price or of the 70% "net" (still to be determined) to the author. This means that the retailer will get a higher price from the consumer and a better margin than they realize now (even though a lower percentage of the "established" price). The author's cut per copy could actually be reduced!
From Kassia Krozser at Booksquare:
So what does all this mean? I imagine the next huge debate will be between agents and publishers as the new model is mapped to real money for the people who write books. Other retailers will be demanding similar terms to Amazon (and perhaps breathing a sigh of relief). Consumers will be sniffing at the new pricing model and voting with their dollars (one doesn't have to read between the lines of Amazon's statement to know where the retailer hopes this ends). DRM will remain on the horizon.
Richard Curtis believes that ebook royalties must increase as a result of this:
If, as a result of negative publicity, Amazon relents on its rigid pricing formula, e-book revenues will increase and it will be so much harder – indeed, it will be intensely embarrassing – for publishers to continue parceling out the mingy royalty they now proffer.
This is a debate that has emotions running high. A thread concerning this at Amazon has 807 posts and counting.
If Macmillan had tried this tack with Wal-Mart over the $9.99 books it was selling at Christmas, Wal-Mart most assuredly would have told them to go suck an egg. Frankly, I’m suprised that amazon didn’t, considering that even after the flack they received for th GLBT books being listed as adult, they’re still going strong. Macmillan is going to lose authors if they keep this mindset, because really, if amazon had been barred from selling them, its not like I’d notice. I read books by authors because I like the author or the plot intrigues me, not because of who publishes it.
From the Scalzi’s 7 point breakdown of where Amazon went wrong in his opinion, I thought his 6th point was the most interesting.
And he’s probably right. The majority of users could care less and are probably unaware of the e-book pissing match. They’ll just want to know why they can’t buy a PRINT version of a brand new book from the world’s biggest bookstore.
ETA: foolserrant, you should read some of the Macmillan author’s quoted above. Most aren’t directing their anger at the publisher, but at Amazon for their handling of the negotiations.
@Jessann Burton:
That is, I think, why they did it over the weekend. I believe the more casual online users and shoppers only do their thing from work M-F 9-5. Theoretically, the only people who’d notice would be the heaviest readers or internet users who would then whip it into a frenzy in blogland, while not really inconveniencing the people who could give a shit who did what.
@Ridley: That’s true, but as of this writing e-books and print books are still down. So people are probably starting to notice. :)
I am with Amazon. The problem here is with publishers trying to act like the costs to produce an e-book is the same as a print book. It’s not. If I was an author I would be tempted to only give print rights and retain electronic rights and just publish it myself and get all the profits.
9.99 is really too much, too. E-books should cost the same or less than paperbacks, in my opinion. I guess I’m just a cheapskate.
I think authors and readers should bond together. This whole thing is setting up an advesarial relationship between authors and readers, because that Amazon crowd is quick to put bad reviews there when pricing is not to their liking or the kindle version is not available, regardless of the quality of the book. I think Amazon’s going to see more retuns and complaining than ever. I know I am more likely to return a 9.99 book than I am a papeperback, becasue I feel like I am paying for the story not the binding and all that. If the book sucks and I can’t trade it in or lend it, then I am not getting my money’s worth. Let the trouble ensue.
Reading many of the author comments, I feel like they aren’t consumers. Do they BUY books? Do they BUY ebooks?
Some of the commentary really upsets me because I feel like this is really an issue of Macmillian trying to force me to buy the hardcover instead of my choice – which is ebooks.
Macmillian has a history of pricing their ebooks at higher price points than their MMPB’s even when they are available. Now they’re just pushing consumers more in that direction so they can set minimum prices.
These authors like Scalzi need to just be quiet. I know that I won’t be buying any more of their books in the future – this based on their lack of sympathy to the shopper.
@Jessann Burton: But by the same token, Amazon, not Macmillan, is also going to get blamed by the casual buyer for a higher selling point.
Between the publisher and the retailer, consumer loyalty (and exit) more naturally attaches to the retailer. Which is what I think some of these pro-Macmillan arguments ignore or underestimate.
I don’t think of myself as anything but a casual buyer but the only thing I blame Amazon for is thinking on my behalf. If you want me to shop at Amazon, don’t cut me off from books I might want to buy.
As for Macmillan, what’s the matter with let the marketplace decide? If I don’t like the prices, I’ll get the books at the library or used.
@Robin: You’re right, and I totally didn’t think of it that way. Perhaps because I’m not personally super invested in the $9.99 e-books, most of the what I buy is already at paperback pricing.
However, I can totally see how someone who has grown accustomed to and is buying a lot of $9.99 e-books would feel cheated if the price suddenly bumped up $5. And, once again, the average consumer is going to direct that rage at Amazon.
I suppose people will vote with their wallets once the books are back online. Wonder if we’ll get any sort of data out of either Amazon or Macmillan about book sales before and after the price bump?
@Jessann Burton: As I commented on Twitter this morning, John Sargent may have single-handedly accomplished what no one else has heretofore been able to: drastically curbing my purchase of new books. Or at least new Macmillan books.
I thought the whole point of selling the Kindle books at $9.99 was for Amazon to gain market dominance. If they ever do achieve that, does anyone really think they’ll keep the price at $9.99?
While I disagree with MacMillan’s e-books-are-a-tool-of-the-devil strategy, I hardly buy Amazon’s we-have-to-do-what-they-say-but-we’re-innocent-good-guys-in-all-of-this attitude either.
Amzon “expressed its disappointment by removing the buy it now button for all the Macmillan titles”
Could you have expressed this more euphemistically? They shut Macmillan print titles out in order to force ebook pricing compliance.
Amazon is now the largest player in books-’and will soon surpass Borders and Barnes and Noble combined. No publisher in the world can stand up to being delisted like that.
How would you feel if Barnes and Noble escalated a disagreement over Nook pricing by suddenly removing all of a publishers’ books from its store and sticking them in the basement until the publisher relented? And Barnes and Noble is much smaller than Amazon now.
It’s an abuse of power and proof, if we needed it, that concentrating so much power in the hands of a single retailer is dangerous.
As for your first comment writer yesterday, who will now have to buy used books, what delicious irony. If the Kindle succeeds, and without concerted effort to change its model, used books and used bookstores will be a thing of the past-’for your “ownership” does not include the right to give or sell it to others.
Same here Robin. I will not allow any publisher to dictate how I choose to read a book. I realized that I’m not the occasional book buyer. I’m a $200 – $400 a month book buyer and I now buy on my kindle. It was a choice I made when I ran out of room for my form of entertainment.
I think it’s disgusting to charge a customer $14.99 for an electronic version when the mmpb is selling for $7.99. That won’t make me buy it in paper form, that makes me NOT buy it at all.
I also noticed some publishers not releasing the electronic format weeks and or months after the release of mmpb. I’m not talking Hard Cover. If those publishers think that they will rely on their Author’s fan base, I can tell them not this consumer.
My tbr pile is so huge I can go years without ever buying another book again. E-book or the paper kind. I also realized why should I get annoyed with dumb business practices. I can save my $200 – $400 a month and take a vacation or buy that fuel economy car and drive to my nearest library or used book store.
I will vote with my wallet. I don’t like being forced to purchase things based on what publishers THINK I should do, simply because they don’t want to move with the times.
Also, as a huge Apple fan, I will not be purchasing their iPad or buying books from their iBook store.
@Tim Spalding:
As someone who used to buy for a chain. How is this an abuse of power? I got into it with a publisher because I found their terms unsatisfactory and decided not to carry their product.
If you, as a consumer, do not like it, you can purchase books elsewhere. THAT very statement about Amazon having “too much power” confers more power on Amazon. The real power is in the consumer. But consumers like cheap and easy.
As a retailer they have the right to pull merchandise and to decide to not sell product. I get very wary when a manufacturer/publisher tries to dictate price. Consumers always end up paying more in such cases.
I am with Amazon. The problem here is with publishers trying to act like the costs to produce an e-book is the same as a print book. It's not. If I was an author I would be tempted to only give print rights and retain electronic rights and just publish it myself and get all the profits.
How is that different from Amazon wanting to take the same percentage of list price on ebooks as on print? Are you going to argue that the costs of shipping, warehousing and handling physical books are the same as running an automated shopping cart?
As for this quote from April Hamilton:
Macmillan authors are rejoicing, and I'm shaking my head. Would musicians cheer a decision on the part of their labels to raise the price of their music on iTunes by 62%? I think not. Yet despite the fact that their books will cost 62% more than other Kindle bestsellers, and their royalty on those sales won't be even one cent higher, the Macmillan author “victory†dance continues apace on the interwebz.
Last I checked, Macmillan pays authors 20% of net. Anything that increases the publisher’s net would increase the author’s royalty, wouldn’t it? Correct me if I’m wrong…
@library addict: Neither Amazon nor Macmillan is acting in the interest or consciousness of the consumer, IMO. But I benefit way more from Amazon’s pricing than Macmillan’s, and given the inherent limitations in ebooks, I believe Amazon’s pricing approach is much fairer than Macmillan’s. But I think they’ve both been behaving badly here.
@Tim Spalding
Although I do believe that Macmillan’s pricing scheme is going to catalyze both ebook sharing and book piracy (note that I do not categorize them as the same thing), those of us who object to Macmillan’s pricing will simply go back to buying used *print* books. Which will benefit neither authors or publishers. Although it may benefit retailers like Amazon that deal in both used and new books. And since I don’t even own a Kindle (I read Kindle books on my iPhone), I’m not sacrificing on that front, either.
@samantha: Exactly. Although I will be purchasing an iPad, as long as I can read Stanza and other book apps on it. I don’t know what the ratio of hardcovers/trade to MMPB I read these days is. But I do know there are several epublishers that release DRM-free books in multi-format, and I’ll be patronizing them more often, I expect.
As someone who used to buy for a chain. How is this an abuse of power? I got into it with a publisher because I found their terms unsatisfactory and decided not to carry their product.
Great. They should have not carried Macmillan ebooks. Instead, to force ebook prices they delisted Macmillan books everywhere on the site. You never had that kind of power as a chain buyer, and even if you did, your chain was not of comparable size. The equivalent situation is if Apple didn’t like the deal it was getting from labels on iTunes, so it used it ownership of Best Buy and Walmart to force labels into line.
If you, as a consumer, do not like it, you can purchase books elsewhere.
Not for your Kindle you can’t-’not without an unsupportable and generally illegal amount of wiggling. So, cherish your freedom to buy elsewhere while you can-’because it’s going away.
note that I do not categorize them as the same thing
Legally, of course, they are exactly the same thing. Read your EULA. You gave up the right to make fine moral distinctions when you clicked “I agree.”
@Tim Spalding: No, they are not the same thing, legally OR morally.
Amazon doesn’t even recognize them as the same thing, because Kindle TOS allows people who are not in the same household to download the same book *as long as they share an account*. And the Nook allows for 14 day sharing, no shared account or device necessary.
Ebook sharing is not per se illegal, and if the rights holder (whoever that is in the chain) allows it, it’s fully legal. And I know of authors who have *encouraged* readers to share their electronic books.
1. Yes, but a Kindle can only connect to one account, so yes, in theory, you can two kindles, one of them shared by a friend across the country whom you trust with your credit card. And you’d better be sure you stay friends. This is possible on iTunes too. Do you do it? Have you ever met anyone who did?
2. The Nook allows you to share a book once for 14 days, during which time you don’t have it, and after which it’s never shareable again. That better than nothing, but also close to it.
3. Paper books are sold under the ancient doctrine of first sale. If I buy a book I own it. I can sell it. I can lend it. I can share it. I can give it away. A library can lend it. It’s mine. That’s a very different idea.
It’s not going to increase author’s royalty checks when sales go down. Humor me a moment. I come from a bookish family. I’m a techie, so I like eBooks, but the rest of the family, not so much. I polled family members, who each read in excess of 4-10 books a month. Their consensus? One thought $10 for a new bestseller eBook was a bit excessive. The other thought it reasonable. Both thought anything over $10 was insane. It might not be a scientific poll, but they are both heavy readers and I’m sure Jobs and Bezos would like me to gift either one of them with their eReader. As of right now all I can advise is keep reading on your smartphone.
In reading one of the many many many threads on this at Amazon someone went through the math and found that authors made MORE per ebook sale under the old model and will make less now, and Amazon, who was previously taking a loss with titles actually makes more per sale under this new model.
They broke it down that authors would be paid based on the market price of the book (the one printed on the book), regardless of actual retail price. Amazon then typically took a loss of one to two dollars from the wholesale price.
Now under the plan where Amazon acts merely as the agent and the publiser sets the price, Amazon gets to keep 30% of the price and the author gets a cut from the publisher’s 70%.
For a typical hardcover, this means the author is now earning less.
Can anyone more in the know run through the math? Because it would be very very ironic if this actually screws over the authors more.
ETA: I should read more carefully XP
Given this then, I really wonder why a lot of authors were up in arms? Because uh, nobody likes to make less money?
I am a reader and I am with McMillan on this. I think the price of ebooks are ridiculous, but then again I am free to buy them or not. But the publisher/producer has the right to price what it sells. Buyers can buy it or not. What amazon did was intolerable, what do print books have to do with the pricing of ebooks for amazon to threaten stop selling them? If I was on amazon premium, I would pissed of. If it´s too expensive, let the consumer decide, if they buy it or not.
And make no mistake amazon are interested in cheap ebooks because they want cheap kindle-e books to sell lots of kindles and maybe corner that ebook reader market.
@Janet W: “As for Macmillan, what's the matter with let the marketplace decide? If I don't like the prices, I'll get the books at the library or used.”
I think that is part of the problem, Amazon wasn’t really letting the market decide, they had decided on a 9.99 point and didn’t allow room for anything else.
Mind you I think both companies are dodgy boogers
@library addict: DITTO I have also wondered exactly how long the 9.99 price point would hold, since I didn’t think pubs were going to drop price.
ETA Thought I should clarify that I don’t really have a dog in this fight, as I am locked out by geo restrictions, so I’m just an interested bystander. – And considering 15.99 is about the average price for a MMP in Australia, I am sitting here wishing I had your problems. ;)
The publishers also created monopolies by buying up the smaller publishing houses. B&N and Borders held a strangled hold over independent booksellers who couldn’t compete. Now the discount stores and grocery stores are competing with B&N & Borders. Used Book stores are also in the mix.
The real competition is with the internet itself. People are not buying & reading enough to keep the publishing houses in business. With the introduction of ereaders, reading is on the rise. Have the publishing houses incorporated ebooks into their business models? They still rely on the hard covers to keep the doors open. They still allow remainders on the same hard covers. I read somewhere ~ 50% of hard covers are remaindered. They still allow returns on mmppbs. Their marketing efforts are geared to the hard covers with the emphasis on the big stars (I’m still astonished over Palin’s private jet tour).
I have a limited amount of income devoted to discretionary spending. While I support as many authors as I can, I am not willing to spend double the price of mass market paper backs on the ebooks. And that has been MacMillan’s ebook pricing model. I really don’t see that changing. The CEO has publicly indicated I should be getting off my ass and buying the print published books. I did for years. When the bookstores held new releases for a couple of weeks to sell the books already in stock, I turned to online ordering at, wait for it… Amazon. Both B&N & Borders were guilty of this at the same time. I have often wondered if the publishers were in on that idea, as they would rather not have to pay for the remainders and returns. This is precisely why I bought the ereader.
All the Macmillan paper titles were there on Amazon – customers had access to every single one; but buying from small business people instead of a very large one. From the POV of the customer, no interruption of service. And you could choose from whom you purchased. Customers had access to the titles for which they were searching.
Authors, please don’t forget the nexus that Amazon created to find you in the first place. Before Amazon and web, Baker & Taylor/Ingram microfiches were an unwieldy source of browsing. Most readers had no access to Publishers Weekly. Amazon created a space for geographically dispersed readers to discover authors that weren’t carried locally. Customer has choice where to purchase newly discovered book — but first they had to find you.
@Tim Spalding: Yeah, I’m well aware of what the First Sale Doctrine says and stands for. And I know that the current assumption is that readers cannot share them outside permission from the rights holder. And the vast majority of us readers respect those limitations, even if they violate one of the most important principles in copyright law. But in any case, digital sharing is not *per se* illegal, as many seem to believe.
In fact, just a few months ago a federal court held that even software licenses don’t automatically disable the buyers’ First Sale rights: http://www.eff.org/deeplinks/2009/10/it-s-still-duck-court-re-affirms-first-sale-doctri.
Also, promotional CD’s bearing the “not for resale” label have been deemed not to disable the recipients’ First Sale rights: http://www.eff.org/deeplinks/2008/06/liberation-day-promo-cds-victory-umg-v-augusto (case is currently on appeal to the Ninth Circuit)
First Sale rights on digital books have not yet been adjudicated, but recent court rulings make it really interesting, definitely open question.
@Tim Spalding: I share an Amazon account with a good friend. We also share an iTunes account and access to both our Audible accounts.
What is so unusual about that? In fact we both have our credit cards listed on the Amazon account.
There’s state laws about how much damage an unauthorized user can do your credit card account even if one person decides to order a bunch of diamond jewelry and head to Rio. Usually a max of $50.00– which is a majority of the time waived by the credit card company if you are a good customer.
In reading one of the many many many threads on this at Amazon someone went through the math and found that authors made MORE per ebook sale under the old model and will make less now, and Amazon, who was previously taking a loss with titles actually makes more per sale under this new model.
I’m not sure I get this. 20% of net is 20% of net, and that’s been in Macmillan’s boilerplate since October, if I’m not mistaken. Correct my math if I’m wrong:
Under the old system, if a book was listed at $14 (and sold for $9.99), the publisher’s net was 50% of list ($7), and the author earned $1.40 per copy. If the book is now listed at $14 (and sold at $14) with the publisher’s net upped to 70% ($9.80), the author will earn $1.96.
Under the new system, if Macmillan reduced that $14 book to $9.99, the author will earn…$1.40 per copy. Exactly what they were earning on a $14 book before.
The real news I think everyone is missing is that a 30% commission rather than a 50% discount for Amazon means Macmillan (and their authors) will be earning more on books priced under $9.99. Isn’t that what we all want to see?
So many sites I read are posting about this subject, but I rarely see the $15 price tag qualified.
$15 is the price tag for new release ebooks, not for all ebooks, ever. When the physical book moves to paperback, the ebook price drops. When the book moves to ‘back catalogue’, the ebook price drops.
It’s just like (back when we used) video stores. New releases cost big bucks and you could only rent them overnight. Recent releases you could get for a week for something reasonable. Old stuff you could for $1 a pop.
Ebooks should be at least a couple of dollars lower than the current physical release cost. But expecting paperback or lower prices when it’s a new release hardback? Isn’t that like demanding the brand new video for a $1 for a week?
So long as the publisher continues to drop the price (and Macmillan apparently _has_ had some problems remembering to do that in the past) I don’t have any problem paying more than $10 for stuff I want _now_ as opposed to stuff I’m willing to sit around waiting for the price to drop, just like I wait for paperback versions for most books because I only buy hardback for the things I really love.
This stunt of Amazon has shifted me to bookdepository.
@kurzon This is because Macmillan has been notorious about not dropping prices in the past and the CEO has expressed significant distaste for ebooks. The goal of Macmillan in its ebook pricing is to encourage physical retail sales. Thus there is nothing to indicate that the pricing will drop for any significant period of time, particularly for high demand authors. Those authors’ backlists are valuable and I suspect Macmillan will price those books high.
@kirsten saell: Your math is correct using the numbers that in your example. But I was talking more about the typical new hardcover release (which are the only ebooks that Amazon has consistently provided at $9.99 despite the common misconception that there’s some guarantee of that price point from Amazon).
In that case, the list price of the book is more typically $25 for a new hardcover. Amazon paid Macmillan 50% of that, so they paid $12.50 for it. Amazon loses $2.50 to sell it at their price of 10 bucks.
In this new system, Macmillan sells Digital Copy for $14.99, now Amazon gets 30% of the sale price (so they make a $4.50 PROFIT), Macmillan get’s $10.49.
In the second case, Macmillian’s cut is smaller which means that the author’s cut is also going to be smaller.
I am using the $14.99 price mark because that is what Macmillian and Apple have decided on. In the past, Macmillian has not moved below this price for whatever reason (to push more print books, because they had no incentive to, I don’t know). Assuming that they keep using this price, if the list price of a book is over $21 dollars, the author will make less money and if it is under the author will make more.
I am all for authors getting more of the money since they are the ones that are IMO the most important part of the entire process. But running through the math, for a typical hardcover book, they are going to take a loss. So that Macmillian can try and stop the inevitable.
That’s why I can’t side with Macmillian.
@kirsten saell No. Under the old system, Macmillan was listing the price for $26.99 and receiving 50% of that. The author then received 20% off of that. Macmillan was not listing hardcovers for $14.00. Under the new system, Macmillan gets 70% of whatever price it determines will be the selling price and authors receive only 20% off of that. (Depending on what net means to Macmillan). If you go and read Seargant’s letter, he explicitly states that this means less money for Macmillan than under the old system, but for Macmillan, controlling the price is more important than the margin on the ebook.
Assuming that they keep using this price, if the list price of a book is over $21 dollars, the author will make less money and if it is under the author will make more.
Haven’t we all been arguing that the list price of an ebook should almost always be under $21? Are you willing to pay exhorbitant prices just so you can feel you’re supporting an author? Hell, if that’s what you want, you can have one of my author copies for the one-time special price of $100–any format you want, and no DRM!
And wouldn’t a publisher (not saying Macmillan in particular, but any publisher) be more willing to lower list prices to something more sane if 1) customers refused to buy those books because Amazon wasn’t discounting them? and 2) dropping the list price didn’t penalize them and benefit Amazon?
One thing I do know: as long as Amazon was discounting those hb-priced ebooks, the market indicators as far as whether ebooks cannibalize hardcover sales were skewed. I’d predict that an ebook release simultaneous with hardback, even at $14.99, might actually prove to Macmillan that they won’t move many ebooks at that price, and that despite hardly selling any ebooks, they won’t sell any more hardbacks than they did before. Ebook readers will refuse to pay $26.99 for an ebook (most will refuse to pay $14.99 for one), and they won’t be forced to buy hardback instead.
In other words, the market will sort it out. Macmillan may end up the big loser, but if so, they’ll adapt or die. The authors may end up earning less in the short term, but who knows? Maybe they’ll sell more copies if Macmillan has some flexibility with price and actually follows their stated plan to drop ebook prices to $5.99 over time? Because that’s what it would take for me to buy one, no matter how badly I wanted the book.
Tell me again, how is it a bad thing to let the market decide?
@kirsten saell A vertical price restraint is not allowing the market to decide. Macmillan is charging more for ebooks in an attempt to preserve physical retail sales.
@Jane: If you go and read Seargant's letter, he explicitly states that this means less money for Macmillan than under the old system, but for Macmillan, controlling the price is more important than the margin on the ebook.
This is unquestionably true, but I still think the net result could be lower overall prices on ebooks. I don’t know what the average price on a MacMillan mmpb is, but assuming it’s around $8, if MacMillan stuck with Amazon’s model of receiving half the hard copy price for ebook sales, it was only going to get $4 per copy on those titles. As a result, it was in MacMillan’s interest to artificially inflate the prices of all ebooks in order to squeeze more profit out of the lower price end of the scale. The new model allows MacMillan to price an ebook for a mmpb at, say, $7.50, and receive about $5 a copy. That may not be a huge increase per copy, but on volume, it could be significant.
It’s possible that this model, if widely adopted, would cause an overall drop in the price of ebooks because the publisher no longer needs to set the price at $10 to get $5. If a publisher can additionally sell more copies at the lower price while receiving a greater profit, the end result might be better for consumers than what Amazon was offering.
Of course, given Sargent’s apparent dislike of ebooks, it’s also possible that he’d rather keep ebook prices high just to discourage people from buying them. But at this point, I think it’s impossible to say for certain one way or the other.
@kirsten saell: You misunderstand me. I am sorry if my math was not clear. The price point of $21 is for the PRINT book, on which the previous wholesale price of the ebook was based.
I’d LOVE for hardcover list prices on print books to be lower than $21. But currently they generally are not.
Again all this is dependant on what Macmillian decides to set their ebook prices at.
However, given what I have to work with at the moment, in the short term, the author is going to lose money. The reader pays a higher price.
A vertical price restraint is not allowing the market to decide. Macmillan is charging more for ebooks in an attempt to preserve physical retail sales.
And now that the market (rather than Amazon) is going to indicate what consumers are going to pay (or not) for ebooks, then yes, the market will decide. I ask again, what incentive did Macmillan have to drop list prices when it penalized them and benefitted Amazon?
And I’d argue that Amazon was price fixing, since Sony and some other retailers fairly quickly adopted a $9.99 ceiling on their ebooks in order to compete with the undisputed big-boys. They whined about it enough, too.
Never thought I’d hear you arguing in favor of a $26.99 ebook, Jane.
Yes, some authors will suffer losses in the short term (on ebooks priced at $21 or more, remember, which is insane but apparently desirable for some, I guess), but if ebook prices trend downward on the whole (which they’d be more likely to do if the 30% commission agency model was embraced by other publishers) most authors (who earn on net) will earn more under this scheme than the old one. And ebook lovers will be able to buy more books.
It’s unfortunate that Macmillan seems to hate ebooks. Maybe having some control over the price of their product (the control needed to make mistakes and learn from them?) will turn them around. But if other publishers who don’t hate ebooks push for a similar arrangement, Amazon is now in a worse position to refuse them. And their authors will earn more almost across the board.
@AB: However, given what I have to work with at the moment, in the short term, the author is going to lose money. The reader pays a higher price.
The reader pays a higher price, OR THEY DON’T. Who’s forcing anyone to pay $14.99 for an ebook? Nobody’s holding a gun to my head.
@kirsten saell: The economic history of a vertical price constraint always leads to higher prices. Even the Supreme Court didn’t rebut that in Leegin, instead it argued that in some cases, freeloading disincentivized quality service to consumers (noting that price isn’t the only thing in measuring whether anticompetitive behavior has a pro consumer result).
In books, however, as opposed to luxury goods or technology, there is no specialized training that a seller needs to sell a particular novel. Further, I don’t think any publisher could show that they engage in any kind of specialized service or training that the Leegin court talked about in overturning the 97 year old decision against RPM.
So, no, I would never be in favor of RPMs because they are decidedly anti competitive, create artificial pricing floors.
When all publishers go to the agency model wherein the publisher sets the price (and they will all move to that model now), and the retailer is not allowed to discount, there will be no trending downward of prices. It’s very possible that if all publishers move to the agency model (unless they can prove that it is, in truth, real agency relationships), I have some doubts whether the big 6 won’t face some action of violation the Sherman Act.
Further, price fixing CANNOT OCCUR WITHOUT COLLUSION. I can’t say that enough. The pricing at $9.99 might be anticompetitive but it is not price fixing. Price fixing is a distinct legal concept that requires two or more parties to engage in collusion. One cannot collude with oneself.
It’s possible that Macmillan won’t drop their prices. But their behaviour when ebooks were a minor factor and their behaviour when ebooks start to become a significant portion of their sales is. No matter how much their CEO dislikes ebooks, he’s having to face the reality of them, and the competition involved in the prices other publishers set for their books.
My own position on ebooks is that they should always be a little cheaper than whatever is available in hard copy, because there’s _slightly less_ cost involved in distribution. And I will tend to wait for the cheaper prices to buy ebooks.
I am not, however, in the least bit supportive of Amazon’s pretence of “we’re fighting for reader’s right to read cheap books and not because we want to make the Kindle more attractive and we would like to become the predominant method of reading ebooks”. They’re not fighting for any kind of reader justice, they’re trying to corner a market so that they’re in a position of power to dictate terms in the future.
Pricing starts from the cost of manufacture, then wholesaler, retail, etc. Amazon (taking on the wholesaler and retailer role) is trying to tell the manufacturer that their price should be less than what the manufacturer wants to sell it to either wholesaler OR retailer.
Neither of these corporations is doing anything but the best for itself, but a fixed, set price for ‘new releases’, and a belief that a new release book is somehow worth massively less merely because it is in electronic instead of hardcopy format, regardless of publishing costs, does as I said in the previous post sound to me like someone going in to that video store and demanding they get new releases for the prices of the old, out of fashion stock.
And I am unanimous in this!
RIP Molly Sugden.
My own position on ebooks is that they should always be a little cheaper than whatever is available in hard copy, because there's _slightly less_ cost involved in distribution. And I will tend to wait for the cheaper prices to buy ebooks.
My position is that ebooks should always be a little cheaper than the cheapest available hard copy because the consumer is limited in how they’re allowed to use them. The lower costs of production and distribution (and much lower cost of returns), only allows them to be priced cheaper.
Yeah, yeah, Jane, price fixing requires collusion. But sometimes an economic entity is so huge that it can unilaterally impose the same outcome on the market. Does anyone here realize that Amazon’s $9.99 ceiling didn’t just keep ebooks priced at less than $10–it effectively kept most of them priced at more than $9.98 by disincentivizing publishers from lowering prices?
The whole issue is being clouded by Macmillan’s hatred of ebooks. Let’s pretend they love ebooks and want them to succeed.
If that were the case, where was the incentive under the old system to reduce ebook prices to match mass market versions? Reducing the price from $20 to $7 only reduced the effective sale price by three bucks but cost them $6.50 per copy in profit. Does anyone think they’d make sufficient additional sales over a $3 difference in effective sale price to offset the $6.50 they’d lose per sale?
As long as Amazon (and other retailers) had that ceiling and were willing to swallow the loss, publishers were raking in profits they earned at the expense of retailers, and consumers were destined to never pay less than $9.99 for those books.
The agency model may be problematic. But as long as it comes with a reduction in the cut Amazon takes on ebooks priced lower than $9.99, I’m not going to be upset. The system should benefit publishers who list their ebooks at sane prices, and not artifically benefit those who list them at insane ones.
And when other publishers adopt it, and then they get bitchslapped by the courts, maybe 30% will be the new baseline number for negotiating new contracts with retailers.
What irritates me over this whole publisher controlled pricing thing is the thought of publishers taking away a retailer’s ability to discount below a set price. The hardback pricing vs. delayed release doesn’t really affect me as I rarely buy hardbacks. But if publisher controlled pricing means no discounts or piddling little discounts, that will affect me.
I use sales & rebates like the one fictionwise is currently having to try out new-to-me authors. I’ve also used those sales & rebates to justify buying more ebooks from more authors than I otherwise would have. If other publishers follow Macmillan’s lead, I wonder what will happen to those sales & rebates. If they disappear, I’ll probably go back to my old (pre-ebook) buying pattern of only buying my favorite authors’ books. For other authors and new-to-me authors, I’ll either borrow their ebooks from the library or I just won’t read them.
@kirsten saell what is the “outcome”? Because price fixing has many different outcomes and goals.
Further, I’m not being clouded by Macmillan’s hatred of ebooks, I’m referring to my antipathy toward a RPM agreement adopted by the book industry. Further, there’s nothing to suggest that 30% would be a new baseline number should publishers not be allowed to maintain RPM.
Additionally, only those with market power would ever be allowed by Amazon or other retailers to engage in RPM.
what is the “outcome� Because price fixing has many different outcomes and goals.
They may not have colluded with Sony, but Sony sure toed the line quick, as did some others. Basically that’s what I’m getting at–even without collusion, in no time everyone was selling $9.99 ebooks.
Whether Amazon was really trying to pressure publishers to bring prices down to $9.99, or just playing for consumer kudos while selling more Kindles, they sure made $9.99 “the price” for ebooks.
I don’t understand how they figured it would make any publisher reduce list price, though. As I said, the likelihood that any book would be reduced from hardback to mass market price was less as long as Amazon was willing to pay publishers out of their own pocket so they could sell those books for less than list.
And frankly, as long as the old system is in place, too many books will be priced at $9.99 and never a penny less, because no publisher wants to cut their profit by upwards of 8 or 9 dollars for an effective $2 reduction in the price consumers pay. Which is a shame, because I’d buy an $8 ebook, but I ain’t buying a $10.
Jane, I do have a question for you. Two, in fact:
1) Since when do retailers get to dictate terms to wholesalers? That’s essentially what Amazon was attempting to do to MacMillan. MacMillan offered them a choice; continue acting as an agent rather than a retailer and sell at the prices they require, or act as a retailer and get treated the same way other retailers get treated. How is that not an appropriate corporate decision for MacMillan?
2) Every time there’s an issue vis-a-vis authors getting paid, especially regarding content piracy, you suggest that authors should all self-publish and/or get paid “what readers think the content is worth.” That is pretty indistinguishable from “busk on the street for whatever people want to throw into your hat.” Last I checked, that wasn’t very viable, as any gutterpunk can tell you. Why do you take that position?
@ExiledV2 Selling at wholesale essentially means the mfger sells at a discount to the reseller and the reseller sets the price of goods. Traditionally because the reseller has the closer relationship with the consumer, the reseller is more sensitive to consumer demand, whether it be higher prices for better service or lower prices for no service.
I don’t know if that is so much wholesalers dictating to manufacturers.
For your second question, I don’t think you’ve read what I’ve written here very carefully if that is your assertion. I’ve said time and again that traditional publishing, right now, is probably the best option that authors have. But there are other options. No advance digital first publishing model. Subsidy publishing model wherein you buy a set of publishing services in exchange for some portion of your royalty and up front fees (I think that this will be a huge market in the future). And self publishing for the true DIYer (this might be the least common option chosen in the future). And probably any number of permutations in between that I cannot even fathom right now because I lack the vision/insight/foresight.
But with the changing market and the declining barriers to distribution, that there are other publishing models that can provide equal to or in excess of what authors, particularly the low to midlist authors, who will be getting squeezed out in the future.
Seth Godin had a great post today that said in a revolution, the middle is ravaged. That’s actually my biggest concern. Big name authors will easily survive this tumultuous change. Debut authors will more easily adapt. The midlist authors are getting squeezed out right now because publishers can’t take the risk on them, their buy numbers are down pushing the advances lower and lower. Rather than have those authors leave the market, I hope that they look at alternative methods of publishing and earning money from their work. I believe that there is great opportunity with the oncoming rise of the digital market.
@kirsten saell Are we still on the price fixing thing?
@Jane:
In my other (real) life, I have a hobby business that at once manufactures and wholesales, then resells other items (accessories to my original goods).
Let me say this from a reseller POV. When I was new, I was discounting the stuff I was reselling, and promptly got my head handed to me on a plate by about four other resellers who said, “You price twice wholesale and don’t undercut us. Do you not know how this works?”
So I looked around and lo and behold, yes indeedie, every site, every B&M store that sold what I sold had all these things AT THE SAME RETAIL PRICE.
I pretty much stopped selling other people’s stuff unless it went into a kit I put together. I didn’t want to be dictated to by my competition. I would’ve gone ahead and simply discounted it anyway, but it wasn’t worth the hassle.
It wasn’t the wholesalers pressuring me; it was the other retailers.
I honestly do not know how this applies to this publishing mess because really, NOTHING about wholesale/retail applies to publishing. In the real world, a retailer buys its inventory outright. It if sells, it sells; if it doesn’t, it goes in the sale bin. Return it to the manufacturer for credit? Ha! But technically, the wholesaler cannot and SHOULD NOT dictate prices to the reseller.
As a reseller, I would NEVER accept an “agency” agreement like that.
I honestly do not know how this applies to this publishing mess because really, NOTHING about wholesale/retail applies to publishing. In the real world, a retailer buys its inventory outright. It if sells, it sells; if it doesn't, it goes in the sale bin. Return it to the manufacturer for credit? Ha!
The entire argument that this somehow changes Macmillan’s relationship with Amazon from a retail model to something else is false. It’s not a retail model, it’s a consignment model (and under any normal consignment model, the seller sets the price, I might add).
The system is already wonky and puts the seller at a tremendous advantage. Part of the reason retailers should be allowed to set their own price is because they own the merchandise and if they can’t move it at one price, they can then reduce the price and liquidate the stock.
Booksellers don’t own the merchandise–not in the sense that if they can’t move it, they’re stuck with it. Why should they have all the benefits of the retail model (the ability to set sale prices), while also enjoying the benefits of an agency or consignment model (that is, when the product doesn’t move, they hand it back–or pulp it–and walk away not a penny poorer)?
The entire concept of returns makes the “book retail” model look a lot like an agency/consignment model to me–if a realtor can’t sell the house, he walks away. If I put my car on consignment at a dealership, it’s still my car, and if it doesn’t sell at the price I want, I’m the one who’s stuck with it. And the dealer or realtor doesn’t get to force the seller to lower the asking price just to move the item, either, does he?
But he does, apparently, if he’s selling books. Which makes me wonder how returns will be handled under this arrangement…
Jane, Have you seen the summary of the two models as described here: http://pajamasmedia.com/blog/kindle-ipad-macmillan-and-the-death-of-a-business-model/? I was surprised to actually see a cost estimate of ebooks (for publishers who sell both print and ebook versions of each book) as if it were based on fact: “one one-millionth of the cost” of print. I thought no actual data has been released to the public on that? Is he just guessing? Do you have knowledge of any actual numbers (from your sources)? I’ve been curious about this for awhile. Even though I believe the cost must be less, I have no idea what the difference (on average) may be for publishers that sell both.
@kirsten saell an agency model is a different model. It is a different legal and business model. I linked to the fourth circuit opinion in the previous post about RPM which explains the difference. Agency model is different than the consignment model, both legally and in business model.
@kirsten saell:
I would liken it to a brokerage arrangement, whereby the broker only facilitates the sale between publisher and consumer.
Ebay, Paypal are decent internet examples. In the real world, a shipping broker who matches an independent trucker with a load to haul.
Amazon’s value is in its database and its easy purchasing, so it seems like an ideal broker. Usually, though, a broker never touches the stock. It only matches the purchaser with the supplier.
IMO, the difference here is who’s got physical custody of the stock and who’s responsible for shipping it to the end purchaser.
an agency model is a different model. It is a different legal and business model. I linked to the fourth circuit opinion in the previous post about RPM which explains the difference. Agency model is different than the consignment model, both legally and in business model.
I wasn’t saying the agency and consignment models were the same, just pointing out the similarities between them. The most basic being that the seller sets the price. Bookselling is already a hopelessly fucked up combination of consignment and retail, a combination that leaves publishers absorbing all the risks of consignment and retailers all the benefits of retail.
Semantics aside, the old model is a consignment model. In any standard consignment model, the seller is supposed to set the price and the middle man is simply supposed to put the goods in the hands of consumers. If I put my favorite boots for sale in a consignment store, and ask half what they’re worth, the store owner has to sell them to the first person who offers it. If I ask for ten times what they’re worth, the store owner may end up returning my boots to me when they don’t sell, but they won’t sell them for less than what I’ve demanded.
So why is it that only in bookselling does the middle man enjoy the lower risk of a consignment broker (who cares if we overordered–just ship them back for credit!), and all the freedoms of a retailer (set whatever price you like–sale sale sale!).
Booksellers have been having their cake and eating it too for a long time.
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