[publishing] More on the Amazon vs Macmillan problem

First of all, here is Macmillan’s statement on Amazon’s withdrawal of all Macmillan print and ebook titles from sale. This is a letter from John Sargent, CEO of Macmillan’s US operations. (And to be clear where my own business interests lie, the upstream executive management of Tor Books, my own trade publisher.)

Sargent states that Macmillan offered Amazon a revised business model for ebook pricing. Amazon declined the offer, and removed Macmillan ebooks from sale on the Amazon site. I’m very dubious about the value of this as a business practice or a negotiating tool, but that at least has context.

Shortly afterward, Amazon also removed all Macmillan print titles from sale on the Amazon site. This is what made me very angry and frustrated, for reasons I explained in detail yesterday [ jlake.com | Livejournal ], to much discussion in comments on both sides of the blig, as well as on my Twitter feed. (If you want to go Twittering, look for the #Amazonfail tag.)

One question many people raised in discussion yesterday was why I was so aggressive in blaming Amazon for pulling the titles from sale, when it might have been Macmillan that had done so. As I said at the time, I was prepared to be wrong, but I found it far more likely that Amazon would stop selling Macmillan’s products in a trade dispute than that Macmillan would stop selling their own products.

Unsurprisingly, that turns out to be the case.

Now we have not yet heard from Amazon. We may be told Monday that this was a “database error” that is being corrected. That would be what is casually known as a “lie”, but corporate PR departments do it all the time to get themselves out of corners where the paint has gotten too sticky. This assumes, of course, that Amazon considers themselves to be in a corner. Frankly, I can’t imagine that they care what me and a few hundred other Macmillan authors thinks. Nor even our readers and fans in their many thousands. In business terms, we aren’t a force to be reckoned with, not outside our noisy little piece of the Internet.

Whatever Amazon officially pretends on Monday, nailed it on the head when she said, “This isn’t about pricing, it’s about control.” That’s pretty clear from the Macmillan letter, too. Macmillan is looking for dynamic pricing on ebooks, based on the perceive value of a title as related to its print release status. Is that smart? I don’t know. It might be. Is it innovative? Seems like a step in the right direction. Is Amazon trying to stop this direction in its tracks to defend the Kindle business? Absolutely.

I don’t know that I’d do anything different, at the strategic layer, if I were in charge of things at Amazon. For better or worse, in the American system, any corporation’s highest loyalty is to its stockholders. If you don’t believe that, do some research on “breach of fiduciary duty.” Stockholders. Not customers. Not suppliers. Not employees. Not even themselves. Stockholders. For Amazon to simply let go of their Kindle strategy and revenue stream because Macmillan said so could lead to shareholder lawsuits, investigations, and even charges under some circumstances.

But at the tactical layer, their response blows chunks. As I explained yesterday. I don’t think it’s wrong in a legal or moral sense — Amazon is free to run their business as they choose. But pulling the print titles is akin to me beating up your kid brother because you owe me money. It’s bullying, pure and simple, punishing readers and writers of print books because they can, to try to force Macmillan to back down on ebooks.

Amazon is using their marketplace power to advance their shareholder interests at my expense as both a customer, and as (ultimately) a supplier of their core product. That’s why I cancelled my Amazon accounts yesterday, pulled all the Amazon links off my Web site, and deleted my Kindle reader and Amazon purchasing applications from my iPhone. I don’t care what they say tomorrow, or in the future, or how they apologize should they bother to do so. This isn’t “just business”, and it isn’t a reasonable commercial dispute. It’s the big kid using his fists to intimidate another big kid by pounding on the rest of us.

As for the question of ebook pricing, several people yesterday seemed to believe that I was either in favor of higher ebook pricing, or dissing the issue of ebook pricing because of my own personal reaction to Amazon’s behavior. I submit that’s a meaningful misreading of my statements. I have been very careful not to comment directly on the business and contractual aspects of this, largely because my own lack of expertise leaves me unconfident that I can provide constructive additions to the discussion.

However, in thinking about this yesterday and overnight, I want to offer two observations on this, despite my lack of expertise.

One, Macmillan wasn’t simply proposing to raise ebook prices. Macmillan was proposing a staged pricing model to run in parallel with the staged pricing model of print fiction which has existed for decades. Specifically: Hardcover releases first, at a higher price point when demand is strong enough to be willing to pay that price, followed later on by mass market paperbacks at a lower price point to meet wider, softer demand. The ultimate pricing of the ebook, per Sargent’s letter, could be rather lower than Amazon’s magical $9.99.

Two, people keep getting distracted by the cost of ebooks, as opposed to the price. I myself have spent a fair amount of time down this rabbithole. Ignoring the question of whether price should be based on cost, which is a never-ending issue in business economics, the simple fact of the matter is ebooks aren’t free for the publisher to provide. Cory Doctorow argues that incremental pricing on ebooks is zero. In a narrow sense, he’s right. Much as the incremental pricing on a telephone call is zero. Yet you don’t expect to get your cell service for free, do you?

Smarter people than I, with better information than I, have observed that the production cost of a print book is a tiny percentage of the cover price. I’ve seen various numbers thrown around, so I won’t try to quote one, but well less than 10% on the high side seems to be consensus. Everything else embedded in the cover price is cost of acquisition (ie, paying the author), editing costs, preproduction costs (copy editing, layout, art direction, etc.). None of that changes with an ebook. Just like the phone company has to recover all the sunk costs for switches, engineers, lines (or cell towers), billing systems, customer service etc., and so they charge you for the “free” phone call that bears no incremental costs, so the publisher has to recover their sunk costs in the ebook.

And here’s the insight I had this morning. I can’t possibly be the first person to think of this, but I suspect it’s important enough to bear repetition and discussion.

Books are a product. Ebooks are a service.

People resist ebook pricing because they have been told ebooks are a product, they perceive ebooks as a product, and the value of buying what amounts to electrons is difficult to perceive.

If you pay $26.95 for a hardback of Green, you acquire an object with heft and permanence. You can read it. You can re-read it. You can loan it out, take it to a used bookstore, give it your grandchildren, throw it in the trash, donate it to the school library, use it for kindling. It’s yours.

If you pay $9.99, or any price, for an ebook of Green, you acquire a license to download and view a specific software offering. The license can be revoked under some circumstances, cannot be freely transferred by you to others, and has no other value. You don’t own it, you’re renting it on terms dictated by someone else. It’s not yours.

The metaproduct here is of course the story I have to tell. You can listen to it on an Audible.com recording. You can read it in print and ebook editions. Soon you’ll be able to read it in Hebrew. But the editions aren’t just priced differently, they have profound functional and legal distinctions.

I’m not sure yet what this insight means. But if we can ourselves as writers, publishers and industry professionals, and more to the point, our readers and fans, to consider ebooks as a product rather than a service, much of this debate might shift in a more constructive direction.

Meanwhile, I also ponder, as I did yesterday, that to many readers with no need to be familiar with publishing industry issues, the outrage and frustration of us writers looks like so much greed. No writer published in the trade press controls our pricing or distribution terms. Most of us don’t even make a full time living at it, at least not in speculative fiction. And downward price pressure on ebooks means we ultimately get paid less, which means it’s harder for us to make the living we do, which means both our ability and our financial incentives to write the stories readers want to see are compromised.

Because to most readers we are the most visible public face of publishing, Amazon and Macmillan are making writers look like the bad guys here. And that is perhaps the most frustrating thing of all.

ETA: I retitled this post because the original title was misleading with respect to the content.

30 thoughts on “[publishing] More on the Amazon vs Macmillan problem

  1. For the record, I *do* get almost all my phone-calls for free these days, thanks to the Internet. In 1998, I was helping to manage $1,000,000/month worth of ISDN circuits to manage weekly nationwide videoconferences for a distance ed program that met for a few hours each week. Today, my 2-year-old (in London, UK) spent 2h on a Skype videoconference with her grandparents (in Toronto) — for nothing.

    I’m not saying that all ebooks should be free. But phone calls are in fact one of those things that the Internet has rendered free in large part, to the detriment of phone companies, and the benefit of everyone else, and you’d be hard-pressed to find someone outside of a telcom boardroom who believed that this was a net social harm.

    [/stupid picky pendantic thing]

    Brandon Sanderson and I have had an interesting and fruitful go-round in email about this. I’ve concluded that:

    * Amazon is betting on demand-elasticity: lower prices opening up new markets (the great majority of people are not regular book readers, which means that there’s a lot of room for growth)

    * Macmillan is worried about price-discrimination: $270 Kindles are (almost by definition) bought by people who are price-insensitive. These are the same people whom the publishers rely upon to reliably purchase full-price early release hardcovers, and whose largesse is a subsidy to the lower-margin market segments.

    However:

    * Price-insensitive gadget hounds (the almighty 18-34-year-old man-child, mostly) are a MUCH larger group than price-insensitive hardcover buyers. If Amazon can convert those people to regular readers, they have a lot of money to throw around.

    * As P&G famously discovered, no one is price-insensitive or price-sensitive forever. We start as kids with pocket money, then part-time jobs, then poor college students, then rich, single grads, then poor parents, then rich empty-nesters, then poor retirees. Capturing someone at a certain swing of the cycle and keeping them through several more can be very profitable indeed.

    I’m working up a follow-up essay on this. Obviously, Macmillan believes in elasticity (Tor’s Tom Doherty is positively luminous on the subject of market contraction and what to do about it). And Amazon isn’t adverse to price-discrimination (famously so: this is the company that got caught pricing goods differently depending on your purchase history!).

    And Amazon wants to use DRM and terms-of-service and predatory pricing to lock people into Kindles forever.

    And Macmillan is having an oh-shit moment as they realize that they no longer control pricing and distribution in one of their key channels and is trying to wrestle away power.

    But for all that, there’s a certain old-economy/new-economy split in discrimination v elasticity.

  2. Christine Flora says:

    Hi Jake.
    I disagree with your view that ebooks are services, with limited rights, etc. I look on the ebooks that I buy as full books. They are no different than the physical books that I buy. Just like I view cds the same as the mp3s that I buy. I own them. Period. Just like I own the software that I buy. Digital is simply a distribution method, the actual “product” is the same. The story. The song. The program.

    And I think this is a fundamental difference of opinion. If publishers/authors are viewing the ebook (and audio books for that matter) this way, then it is no wonder that this issue for pricing has come up.

    I am very concerned both by MacMillan’s and Amazon’s actions. No one should be able to “fix” a price.

    Thanks for your discussions/viewpoints. It’s is an interesting concept, even though I don’t agree.

    Chrisine
    twitter: @velvetdagger

    1. Jay says:

      Thank you, Christine.

  3. One other note: the demand-elasticity hypothesis holds that lower prices *don’t* mean that “downward price pressure on ebooks means we ultimately get paid less.”

    I suspect you agree with this at least in part. If books costs $10,000 each, everyone understands that you would actually earn *less* than you do at the current price-range.

    And if books cost $0.01, you’d earn less, too.

    Demand-elasticity is why there is a number between $0.01 and $10,000 at which your income is maximized. You may think that $10 isn’t that number (and you may be right), but that isn’t a necessary conclusion that can be drawn from the fact that $10 is less than $22.

    One of the iTunes competitors, I think it was Pressplay, started out selling tracks for $0.50, taking a loss on each track (the labels wholesale digital music at $0.70/track). After the introductory period, they raised the price to the standard $0.99/track.

    They discovered that sales fell by two thirds — IOW, at $0.50/track, they sold 300% more music than they did at $1/track. The cost of selling any given track is $0, so $0.50 was clearly a better price than $1 (artists, labels and the service made more money at that price).

    But the labels wouldn’t change their wholesale price, and so the cost stayed at $1, and everyone lost — music fans (who had to pay more for their music), as well artists-labels-Pressplay, who earned less.

  4. Meran says:

    Hm. I’ve “bought” a few books for my touch thru howmanytimesremoved vendors off iTunes. These get deleted and new ones added, ~whenever I update my apps. If I’ve “paid” for them, then why don’t they stay on my touch?
    I think the digital control of these files (because that’s all they are) does NOT reside with me, and is at the least, reviseable under any possible future rule changes by TPTB. (the powers that be)… Well, at least for as long as the Internet is connected to all devices automatically.
    At least my own hard copy bookshelves are under my control in my own house.

    It has always puzzled me, in the book world and the art world, that the author/artist generates the work, initially sells it and gets their bucketsfull, nay, semitrailer trucksfull, of cash, but for all future sales, whoever owns the works (in hand) gets the full profits. After all, they didn’t generate those works. (Musicians continue to get their royalties for songs after the initial release.) And yet, the perception is that authors/artists are “rich”, not the publishers/galleries, or auctionhouses, etc.
    Meh. If authors and artists weren’t driven to “do our thing”, this world would be a dull, sad place.
    Now, we wait till Monday, for this latest Amazon drama.

    1. Christine Flora says:

      Hi Meran.

      The idea that you don’t own your books or that they “disappear” when you upgrade your software is crazy. I use another sofware/device and this does not happen. I’ve been able to use my ebooks through upgrades, moving computers, and even resetting my device. (Sony Reader). I would check with iTunes tech support. I suspect some kind of DRM issue, but I don’t know. I don’t like iTunes, have gone out of my way to avoid it (including not buying an iPhone,which I would dearly love to have) because of their Draconian viewpoint with MY music, MY video, etc. The operative word here is *MY*. It is my content.

      Jay (sorry for the “ke, got the fat fingering going), thanks for the post. Thinking about more of the product vs service model… ebooks CAN be a service if say Netflix started offing them or Pandora/yahoo, etc started lettin you read as part of your monthly subscription. They are a service when you download the ebook from the library as part of your “subscription” to check the book out. In these cases, I know I’m only “renting” it. But if I buy it, as you do on Amazon or Sony or B&N or even Google and Apple now, it is a product.

      Great discussion, very thought provoking.

      Christine
      twitter: @velvetdagger

  5. John Chu says:

    I think people disagree with “Ebooks are a service” because they don’t want it to be a service. In the ideal, the ebook ought to be a product. And a DRM-free ebook with no EULA, I think, is one. You own it, and you can do what you want with it provided you don’t violate copyright.

    It’s only a service because DRM and the EULA restricts where and when you can use it. In that case, they sell it as if it were a product but treat it as if it were a service. I don’t think it has to be this way.

    To Christine: iTunes does not have a Draconian viewpoint with your music. It has always supported DRM-free music files. (e.g., it never slapped DRM on the music you ripped from CD.) The iTunes Music Store has offered DRM-free music since 2007. Your music is your music. (No, I’m not thrilled that they continue to have DRM on videos, but credit where credit is due….)

    1. Ditto. Ebooks with DRM are a service; ebooks without DRM are a product.

  6. I think that ebooks are services inasmuch as most popular ebooks can be had, gratis, with a little knowledge by using darknets, P2P, and other “opt-out” methods.

    Ebook vendors are thus not in the business of supplying the book itself — audiences can supply the book for themselves for free — but in the business of supplying the superior ease-of-use, quality, and other ancillary values around the book.

    Note that DRM is antithetical to this. A DRM-crippled book has fewer capabilities than its pirate cousin (though as Apple has shown, it may be conveniently enough packaged to overcome this handicap). DRM may not be a deal-breaker for some customers, but it’s hard to imagine that it’s a deal-sweetener: who among our readers woke up this morning thinking, “I wish my books were crippled! Maybe Amazon’s got something in that line”?

  7. Also, on the incremental price. If 10% of the book is materials, that still doesn’t account for the potential difference in price between print and electronic books. Consider:

    * Staff and associated costs for someone who deals with the printer, teamsters, warehousing, etc

    * Opportunity costs of print over- and under-runs (publishing’s notorious inaccuracies here should speak for themselves, but just think for a minute of all those stripped and remaindered book, and every sale lost to an out-of-print or late-to-reprint title)

    * Distribution costs — Macmillan’s offering Amazon a 30% discount, while a wholesaler would take 50% (if your 10% figure is correct, then you can already triple it)

    * The uncertainty cost due to the variable nature of physical goods production and logistics: the price of producing an ebook is relatively static against commodity spikes, while the cost of a barrel of sweet crude directly drives the cost of getting a book to a store

    * Etc

    Some of this is sunk cost, some is ongoing, but unless you believe (as I do) that for now the best way to sell ebooks is to give them away in order to increase print-book sales, then there’s no good reason to charge these costs to the ebook’s balance sheet.

  8. Christine Flora says:

    To John: Sure iTunes supports DRM-Free content, but it takes over (or tries to take over) the management of ALL of my content, whether I want it to or not and whether I downloaded it from iTunes, ripped it from a CD that I own or downloaded from another music service. I just dont want a software program take over my content, period, unless I tell it I want it to. I’m funny that way.

    Christine

    1. green_knight says:

      Christine,

      iTunes only manages things you tell it to – by renaming the files/folders in the iTunes content folder. You can move, back up, and delete the files at will. (iPhoto, on the other hand, is trickier).

  9. Fiduciary duty: I think this is a red-herring. “Duty to shareholders” can be twisted to justify practically any course of action:

    * We decided we’d make more profit by not incurring a shitstorm of bad publicity, so we’re not going to do this

    * We balanced the profit to be gained by maintaining control over pricing on low-margin Kindle books against the profit lost by pulling high-margin print books and decided not to do this

    And so on.

    Corporations can use duty to shareholders to justify making charitable donations (PR value), withholding charitable donations (damage to bottom line), keeping bad employees (avoiding litigation risk), firing bad employees (avoiding employee error risk), focusing on long-term gains (building sustainable profits), focusing on short-term gains (returning the best quarter than can be had), selling spyware to the Chinese politburo (profits), withholding spyware from the Chines politburo (avoiding regulatory intervention), and so on.

    I don’t think that there’s much risk that Amazon’s shareholders would have demanded the Board fire Jeff Bezos if he didn’t do this.

    1. Jay says:

      Hi, Cory. Actually, I agree with your views on fiduciary duty as an on-the-ground reality. Nobody gives a shit as long as the company’s profitable and share prices are moving in the right direction. (In a prior life I worked in a publicly traded company where the visible-to-the-grunts shenanigans should have been worth jail time, let alone whatever was actually going on the big meetings rooms on the top floor — but it was during the bubble, and so long as share prices were rising no one cared.)

      But the underlying point of optimizing shareholder value (or however you want to frame it) is one to which a lot of ordinary people don’t pay attention. Neither Amazon nor any other for-profit company in the Western capitalist system is in business to benefit customers, employees or suppliers. I’m not arguing for or against this, just observing that it strongly colors underlying business strategies and decision making. Including this whole piece of work, which as many folks including you have observed, is about far deeper, longer range issues than tomorrow’s ebook price points.

      You’ve said a lot of other great things I need to respond to, but first I must spend an hour or two committing fiction. I really appreciate the thoughtful erudition, as I always do with you.

      1. green_knight says:

        Jay,
        I think there’s another layer in this. Increasingly, investors seem to believe that the value of a business lies in its potential sale price, and will buy and sell, split and merge at will.

        In a different business model, people invest in a business in order to produce something which in turn generates the profit. In _that_ model, you can’t afford to piss off your staff, customers, and suppliers forever, because eventually you won’t have a business any longer. If you’re only in it to increase the value of the business and sell out before reaping the problems you’ve sown…

  10. Catherine Shaffer says:

    I think Cory is spot on, here, and I wrote something similar over at my livejournal (cathshaffer.livejournal.com for anyone interested). The two things I take issue with above are the assumption that paper is only 10% of the cost of a book–that’s a big assumption and I am not at all sure you’re correct, there. Without some hard facts on the costs of paper, we should probably not assume anything. My understanding is that the paper and printing costs are pretty huge, and anyone who has ever had to order a batch of wedding invitations can probably corroborate that. Paper is also the source of a lot of the risk in publishing, and the reason for the whole crazy remaindering and ripping-covers-off system. Cory has a good point also about the warehouses and cost of fuel for shipping.

    Second is the assumption that if the books cost less, the authors earn less. Again, Cory explained why that is not automatically true. I can testify that I am one live human being that just won’t spend $20 or $30 on a hardcover. Instead, I’ll wait 8 weeks for a library copy. I suspect at some price point there will be a lot of readers like me who will suddenly be willing to spend money on new ebooks who were never in the calculation before. What’s funny is I see a lot of authors who are struggling along on one small advance per year, unable to quit day jobs–and these people are the ones digging their feet in hardest against these disruptive changes in the market. In reality, those people should be leading the charge, because things could hardly get worse for them. Maintaining the status quo is NOT going to get anyone out of their day job.

    1. Jay says:

      FWIW, I’m not digging my heels in against anything except Amazon’s overreach in pulling print editions. Where ebook pricing goes, well…

      And the info about paper costs being fractional to book production comes from several trade press sources, though I don’t have the links to hand, so please treat it as anecdotal.

      I will note that wedding invitations don’t include author advances, editorial costs, copy editing, art direction, production editing, warehousing, etc… 🙂 Not really a comparable example, I don’t believe.

      1. Catherine Shaffer says:

        No personal criticism intended. I was thinking more of the collective sentiment, which seems anxious and suspicious to me, rather than optimistic. 🙂

        With the wedding invitation example, I only meant to suggest that paper is damn expensive, not that all of the non-physical costs are irrelevant.

  11. C.E. Petit says:

    I’d like to correct an all-too-common misunderstanding of what fiduciary duty means in the context of corporate governance. Contrary to the way that the media tends to treat it, it does most emphatically not mean any or all of:
    * Immediate accounting profit is the only acceptable corporate goal
    * Any decision that might have a negative impact on short-term profitability is suspect as a potential breach
    * Directors and officers are obligated to only take actions that have discernable, immediate effects on corporate earnings.

    Instead, the fiduciary duty of corporate directors and officers is to the overall value of the corporation. Those who worship at the feet of Graham and Dodd will say “but that’s the same thing as you said in your first point!”… and they’d be wrong. Timescale matters; size of asset base matters; timing of recognition of investments matters; and Graham and Dodd were wrong anyway, as fifty years of securities research demonstrated pretty conclusively even before the 1987 market hiccups. And even so, it’s not a breach of fiduciary duty to be wrong about the ultimate effect of an action (or inaction) on a corporation’s value; it’s only a breach of fiduciary duty if you’re wrong and reckless or knowing in being wrong. Those are legal terms of art… and under Delaware law, they essentially mean “you’ve got to get caught holding the smoking gun, profit from a clear conflict of interest, or have the IQ of a rattle to be found reckless, let along knowing.”

    In this little morass, hiding behind the fiduciary duty of corporate officers and directors is not a strategic justification for Amazon’s course of action. Consider, for example, a different strategy: One that says “We’re not just going to say ‘Don’t Be Evil’ — we’re actually going to Do Good.” Under this strategy, Amazon decides that it will demand no more discount than offered to any other vendor, for any purpose*; it will do everything in its power to meet author and indendent publisher demands; and it will send a bouquet and basket of puppies to midlist authors who place their out-of-print books on Kindle, in addition to the royalties due (and a holiday bonus). Such an alternate strategy would not breach corporate fiduciary duties, because there are plausible business justifications concerning long-term value and expanding the asset base and growing goodwill (both the real kind and the accounting kind), and those justifications are good enough… even if they would eventually prove incorrect.

    So don’t hide behind corporate governance rules. Blame the banks and bond markets instead, and the vagaries of UCC Article 9; if there’s an “outside demand” at work here, it can be found there, not in fear of breaching duties to shareholders.

    * N.B. One of the best tests of whether a particular business strategy runs afoul of antitrust law is to determine whether that strategy can be imposed on the marketplace even if it is inconsistent with industry custom. That’s a tiny little hint about what was really going on in the Amazon UK/Hachette situation not so long ago… and in this one.

  12. Cora says:

    Hachette UK isn’t the only precedent. Six years ago, Amazon Germany went head to head with the Swiss publisher Diogenes over discounts, which resulted in Amazon removing all Diogenes books (including a couple of bestsellers) from sale.

    This is the only English language write-up I could find.

    And Cory, I wouldn’t say that Kindle users are price-insensitive, but rather that they’re selectively price-sensitive. Hence they see no problem paying 260 dollars for a Kindle, but balk at paying more than 9.99 for an ebook. In that respect, they’re similar to those people at the supermarket who buy groceries for 100 dollars, but will endlessly argue at the check-out over a 10 cent price difference on a jar of yoghurt.

  13. OK folks, here is a response from a real book writer, and someone who was affected by this, since Macmillan/Tor is one of my publishers. (I’m Mercedes Lackey)

    Amazon’s response was posted on the Amazon Kindle Forum on Amazon’s site, apparently by someone who has absolutely no grasp of how publishing–or anything else–works. OF COURSE Macmillan “has a monopoly on its own titles,” you moron! And Nabisco “has a monopoly on Oreos” and Ford “has a monopoly on Mustangs and Shelby Cobras!”*

    The book business in general is tanking. How bad? Bad enough that almost everyone I know saw their royalty checks plummet to 50% last year, some going down to 10%. Well duh, you can’t buy books when you don’t have a job. (I am often forced to roll my eyes when I tell people that and they look at me bewildered and say “But I see tons of people in the bookstore when I go, how can that be?” I have to explain patiently that “Tons of people in the store does NOT equate to sales.”)

    Amazon has the publishers by the short and curlies. Unlike traditional bookstores, the One Ton Gorilla can demand a discount of 50% on the cover price and get it (as opposed to the chain-store’s 30% and the Indie’s discount of 20%). This is why a new HC, with a cover price of $25 is Amazon Priced at $15. And this is why the price of books has gone up, so publishers can keep their very slim profit margin. (And believe me, it is slim).

    Macmillan’s desired pricing model is not as draconian as it seems. They want $15 for the e-copy of a Hot New Bestseller–same as the heavily-discounted price of the dead tree copy, so that the e-copy does not compete with the same book in dead tree, and Macmillan can recoup their substantial investment in the book. This does NOT mean that MY new book in e-copy would be $15. Mine would likely be, oh, $12. And Joe Schmoe’s would be–you got it–$9.99. Plus, in Macmillan’s model, over time that $15 per e-copy would start going down. In 6 months, say, it would be $9.99. And in two years? Probably $4.99, same as a paperback.

    So if you JUST CAN’T WAIT–you pay a premium. Same as with any other product.

    * Now here is some irony. Amazon is claiming to be a publisher when it comes to obtaining exclusive rights to e-copies of books. Yet not that long ago I actually approached them to write Kindle-exclusive content. I wanted the same terms I would get from any of my other publishers; advance against royalties, half on signing, half on publication. I was told then, in exactly these words, “Amazon is not a publisher.” (But of course I “should feel free to write the content and publish it via the Kindle platform at their generous terms of 30% royalty”**).

    So…..three months ago, they WEREN’T a publisher. Now they suddenly are. Oh, except when it comes to treating an author like a professional.

    ** Lest you wonder why I didn’t take advantage of such GENEROUS TERMS, another author ran the numbers for a series of his that was abandoned and discovered rather quickly that he would be making less money than a first-time writer.

    (Oh, and one more thing. The “Advance against royalties”, often shortened to “Advance” is a essentially a no-interest loan, paid out over time to an author, so that he can write the damn book without worrying about where the mortgage payment is coming from. Most of us (especially now) absolutely require these advances to keep writing. It’s a gamble on the part of the publisher that your book will be profitable, because if it is not, YOU don’t have to pay it back.)

  14. Karawynn says:

    I’ve run a small press; that 10% guess for printing costs is in line. Obviously the per-unit cost is smaller for larger publishers due to economies of scale (set-up costs are significant, larger print runs incremental). And publishers have a *lot* of wiggle room in book production; there are a hundred little details (like paper weight and so forth) that can adjust the unit cost up or down. But if you go much over 10% it becomes unlikely your P&L (profit & loss) will balance out.

    What you leave out of your litany of costs, Jay, is that more than half of the cover price of the book goes to the middlemen — the distributor and/or retailer — *not* the publishers or editors or printers or authors.

    That cost is potentially unnecessary with ebooks. Amazon, for all its vaunted desire for low ebook prices, is still trying to take both the distributor *and* the retailer percentage, and then some … even though they don’t actually have to warehouse ebooks or ship them around anywhere.

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