[publishing] Amazon vs Macmillan, the $9.99 price point, and market forces

The chemo fog is mostly clearing from my brain. Some things happened in Amazon vs Macmillan while I was checked out, most notably that the buy buttons were restored on Amazon’s site for Macmillan print and Kindle titles.

I’m not convinced this is over. Amazon has still not made any sort of public statement other than the original, laughably incompetent unsigned “capitulation” note on the Kindle boards over a week ago. This compared to two formal public statements from Macmillan USA CEO John Sargent. I am very disappointed that the popular and business news cycle has focused almost exclusively on this as a “price increase” narrative, apparently single-sourcing from the Amazon note. I guess that makes better copy, but it ignores the much larger underlying story about a potentially seismic shift in the business models of publishing forced by the growth in ebooks. A shift which has benefits to consumers, as well as the exciting narrative of overturning Amazon’s $9.99 pricing model.

As for my own part, I’m finally coming around to thinking Macmillan has the right of this. ‘s explanation of the “agency model”, combined with earlier squibs from Charlie Stross, have largely convinced me. I will lay out my own thoughts on this in the next day or two as the chemo fog continues to clear my brain, but I want to make one point here.

The $9.99 ebook price point was not set by market forces. It was a fiat promise from Amazon to Kindle buyers as a driver to promote the Kindle platform. There’s nothing magical about the number (beyond the obvious buying psychology of $9.99), and it had nothing to do with either publisher costs or publisher business models. For the media to be treating this as all about a price increase from $9.99 ignores both the history of the price point and the current business reality of publishing. It may well be that $9.99 is an eventual ‘market making’ price point, but that’s not yet been proven. And for all that Amazon lost the boardroom PR war by not even showing up to the fight they picked, they’ve sure won the popular PR war so far, given the prevalence of the “price increase” narrative.

That’s probably enough out of me this morning, but I’m curious. What’s your take on the “agency model”? Am I right about the $9.99 price point? Am I right about the strong pro-Amazon bias in media coverage?

41 thoughts on “[publishing] Amazon vs Macmillan, the $9.99 price point, and market forces

  1. Blue Tyson says:

    A common take on this is that we trust media barons about as far as we can kick an aircraft carrier.

    Note the iTunes thing, which apparently when asking for price ‘flexibility’ resulted in 30% price increases on most songs, and almost no lowering of price on all the songs that weren’t selling at all. From what I read, anyway, I don’t use iTunes, but from all the people saying it, and past music industry behaviour see no reason to think it would not happen.

    Give how faecal Macmillan have been with pricing in the past, they are the least believable on this matter, and the worst possible choice to try and sell it.

    A really smart move by Sargent would have been to have his minions fix a bunch of prices that are stupid now, and press release that. Maybe throw in a 5% or 10% discount for a week type deal. That would get you an instant bunch of goodwill and credibility, and some of the lost sales back.

    Lack of any such evidence would still suggest disinterest in the reader, and a missed opportunity. As well as solidifying the ‘not much chance they are serious’ opinion in most minds.

    1. Jay says:

      I take your point, but I also think it’s a mistake to conflate the publishing industry with the music industry. The music industry has a very well documented, decades-long history of deeply exploitative behavior toward both their own talent and their end customers. The RIAA’s approach to piracy is bizarre, to say the least.

      To assume the same corporate greed and incompetence out of the publishing sector may be emotionally satisfying, but it ignores three significant factors. One, the publishing industry doesn’t share that same history of greed and exploitation, certainly not on the epic, even criminal, scale of the music industry. Two, the possibility that the people who run the publishing industry have actually learned something from observing the failures in the music industry. Three, the possibility that the people who run the publishing industry (specifically including John Sargent with his long-noted aversion to ebooks) are trying to change their outlook and strategy in the face of the undeniable growth in ebooks. It may in fact be the case that they’re trying to avoid the iceberg. I’m not going to be a total pollyanna here, but I’m willing to give Macmillan et alia the benefit of the doubt on this one, given that the “agency model” represents a sufficiently innovative change in direction that it might get them out of the trap they’ve been sliding into for the past ten years.

  2. Kelly says:

    I think you may be missing the biggest price point issue for consumers — the price of the mass market paperback. Publishers need to give readers a reason to pay more for an e-book. Amazon wouldn’t have fought the agency agreement tooth and nail if they didn’t think it was bad for them (which is, of course, a totally different animal from being bad for the consumer). If Macmillan was talking to their customers (instead of agents and authors), I’d feel I could trust they were on the right path. As it is, I fear they’re just grabbing at straws in desperation.

    1. Jay says:

      Kelly —

      Bear in mind that most print books don’t start out at mass market paperback prices. They start out at hardback prices. That’s where the book makes most of its money. To sell an ebook at day one at mass market prices undercuts the business model of making your profit lead off the hardback. That’s the whole point of dynamic pricing – to have ebook prices fall in parallel with print book prices over time, as demand softens and widens. That kind of dynamic pricing has been successfully in play on the print side for decades. Publishers understand it, booksellers understand it, book buyers understand it.

      There’s a perfectly good argument to be made about not using dynamic pricing, but simply “lower prices” isn’t enough, unless there’s something in a revised model that ensures publishers sufficient profit for books to earn out. Otherwise we get what’s already been happening — fewer titles, more low-performing authors dropped, increasing focus on bestsellers without the midlist to back them up. Where do future bestsellers come from? Often as not, the midlist, which serves as a ‘farm team’ for the book line.

      If you want to pay paperback pricing for ebooks, waiting for paperback availability isn’t unreasonable. The market’s worked that way since before I was born. Amazon has skewed consumer perceptions with the $9.99 promise, but that’s my underlying point. $9.99 makes it much harder for publishers to sell hardbacks against ebooks priced there, which undercuts their margins, which is slowly strangling the supply side of the book industry.

      1. Ashavan Doyon says:

        Jay –

        I understand and even to some degree agree with you that ebooks should probably be priced higher to start and gradually lower over time. I believe in paying a premium to get something when it first comes out…

        My problem is that I’ve looked for older books, long in paperback, online. The ebook prices for many, if not most, are, frankly, highway robbery.

        I want the authors to make money. But I also want reasonable consumer prices as a reader of books. For instance… The Great Hunt (book 2 of the wheel of time, published by Tor) – paperback $7.99. Ebook – $9.99 WHY??? This book was published what? 15-20 years ago? This isn’t unusual at all… the ebook price, even when the book long since came out in mass market paperback, is often (if not usually, though I haven’t checked enough examples to feel comfortable with that) MORE than the paperback. WHY??? Of course, in many instances the ebook isn’t available at all, which is a separate problem.

        You work with the publishers… they’ve been outreaching to you, as an author. But, curiously, they haven’t been to readers. I don’t even think we register on their radar screens. They are pursuing a course that will ultimately likely result in two things: either having to pay more for the ebook, or having to wait and (possibly) pay less. We have no reason to trust that they will actually lower the price other than that they’ve told YOU (authors generally) that they will.

        Their track record on pricing older publications for ebook format doesn’t give me much reason to trust them.

        And their agency model is STILL at its heart anti-competitive.

        1. Jay says:

          Hi, Ashavan. I’m not even remotely prepared to defend current ebook pricing practices. I think the whole point of the agency model is to rationalize that, and lower backlist prices toward the $5.99 price point. Can I prove that? No, not at all. But it just doesn’t pass the smell test to make this much fuss, then not deliver.

          And yes, the agency model may be anti-competitive, but if you look at Amazon’s model from a publisher’s perspective, it is far more anti-competitive. Check out the link to the discussion of this on Making Light for a far more intelligent analysis than I can offer. My opinion is once Amazon’s lock is broken, the models will continue to shift under market pressure, and the competitiveness issue will come into play.

          1. Ashavan Doyon says:

            The Making Light post made some good points, but it failed to address the fact that the agency model is anti-competitive.

            I want publishers to be able to support odd books and first time authors. I aspire to be one of those authors one day. But I also want to be able to buy books and I want a model that allows that. Traditionally we’ve done that in the US through competitive models and considered a single source setting the prices as a BAD THING.

            Publishers as a rule don’t sell books to readers. They don’t have a sense of what readers consider a value. They’re frequently pretty good at selecting good books to offer… that’s not surprising, that is, after all, their expertise. But Amazon’s expertise is in figuring out what prices will make consumers buy more product than they really want to. I believe that their price point for ebooks is aimed towards the fact that ease of purchase on the kindle tends to make kindle owners buy more books than they would otherwise IF those books are safely below a comfort threshold. Amazon guessed at $9.99 for that threshold… it’s a nice number (mine is actually lower for an impulse kindle purchase, but I’m a secretary, so money is a concern for me).

            Of course, publishers being able to put out quality books is also a concern. I just wish the publishers and Amazon would come up with a solution that didn’t have me scared that in a year the prices will jump, everyone will be locked in contracts and then I’ll be screwed and unable to buy books. I’m a reader… that idea does scare me.

            1. Jay says:

              I will point out that the Amazon model is also anti-competitive, given that they control 75% of the ebook market today, and are absolutely a single source setting the prices. Your argument against the agency model runs precisely both ways.

              1. Ashavan Doyon says:

                I can agree with that. I love my kindle, but I won’t deny that Amazon holds too large a share of the ebook market.

                I’m not sure, however, that this is their fault. B&N is trying to build market share (they will do better once they iron out some of nook’s current idiosyncrasies) and Sony… well, sony is trying to find market share by being everywhere (you can readily buy their e-reader at Best Buy, Borders and BJs… and I don’t doubt some other places too).

                Those three e-readers: kindle, nook, and sony are so similar in capability and function to the point where personal preference is really the main factor in choosing one. This was really a case where Amazon built market share because, in my opinion, no one else was trying very hard to do it, and there was a demand.

                Barnes and Noble clearly has been focused on getting their e-reader out the door so they can begin that process, but Sony is the one that seriously dropped the ball. They had viable e-readers on the market and still haven’t successfully marketed themselves.

      2. Kelly says:

        Jay, this is not true of most genre novels. All 12 of mine were paperback, 8 mmp and 4 trade (which had a higher price point). My books all list for the same price as when they were initially released (with various discounted, and used books going for whatever, of course). Genre novels, except for the expected bestsellers, are usually released only in paperback. The best selling genre is romance, which is predominantly paperback. I can’t find figures on the hardcover/paperback % split. But I can attest that the farm team at the moment is coming out in trade paper first, if not mmp. Obviously, non-fiction is a whole ‘nother animal.

        1. Jay says:

          Fair enough. Remember, I live in fantasy and science fiction, where hard/soft release is still a norm (though not universal even in my genre). Romance also has much larger numbers than sf/f – I recall a romance writer friend of mine complaining that her latest mmpb release ‘only’ sold 80,000 copies, and wasn’t going back for a second printing. In my field, an 80,000 unit run would have us shooting corks off champagne bottles with golden bullets.

          So perhaps I should be more precise in my comments about genres. I will observe that at volumes of 80K+, the narrower margins of mmpbs (and even tbps) more than makeup for the lack of hardcover margins, so I don’t think the underlying math changes so much.

          1. Kelly says:

            That’s the part I don’t have figures for. Everything seems to imply that e-sales are small. However, if we compare the 80,000 mmp figures for a romance that stays on the shelf probably 3-6 months with the e-books that can stay longer, and thus make money for years (something mmp are less able to do because brick and mortar bookstores can’t shelve them, though they are available to online buyers). One thing I haven’t seen discussed is the fact that publishers have to estimate a print run for paper books, and if they make a mistake, they eat it immediately (lots of returns, remainders, etc.) E-books solve this problem (while admittedly adding new ones). Publishers have gotten used to a model whereby they need to recoup their money very quickly. Switching to a more long term model (which used to exist way back when) — say taking a year to consider a book’s sales as meaningful.
            One of the things I’ve enjoyed, being in the farm-team leagues, is that my books are available for order on Amazon (and B&N, too). But I have not yet figured out what I could do to push sales (or whether it was a worthwhile effort).
            Maybe e-margins are — or should be — a different animal.

            1. Jay says:

              You are just going to make me keep rethinking this, aren’t you? Them’s as some excellent points. My thanks.

  3. You’re right about the media bias, Jay. I’ve been bookmarking everything I can hunt down about the subject, and while there are a few gentle jabs or the occasional “WTF?!?!?” response, Amazon’s media exposure has ranged from enthusiatic thumbs-up to uncritical. Most reporters DO just mimic the price increase issue without fleshing out the larger context.

    Regarding the agency model and the magical price point: someone on TNH’s blog pointed out that, essentially, Amazon and Macmillan are having two separate conversations and may not actually be talking TO each other, but AT each other. Amazon is riled because they want to set the retail price (and apparently continue to take a big-ass loss), which traditionally is what retailers do. My boss at the bookstore, while not fully informed, supports Amazon because as the retailer he wants to control what his customers pay for things. He wants to be able to discount books, sell remainders for whatever cost gets them moving, etc. Macmillan wants e-books to be sold differently than paper books using essentially a consignment model (please correct me if my analogy is flawed). Amazon wants control, dead stop, while Macmillan wants to figure out a way to sell ebooks that does not cripple them.

    So, I think it’s true that they are doing different things, thus the huge amount of conflict, both between the companies and between folks talking about this issue.

  4. Blue Tyson says:

    Maybe – but some of these publishing outfits are part of large concerns that do include the music clowns, and movies, etc. so as a stretch, it is one of mere millimetres in some cases.

    As the ex-music industry woman noted in an article (and me) Macmillan are now sounding identical to her old mob. Fingers in ears, higher prices are good for you, really, DRM is great, no, we won’t sell it to you, but you are evil downloaders anyway, maybe we’ll sue some grandmas and little girls, etc. etc.

    I agree that they aren’t the same mob of coke snorting whorebag bastiches running the book part.

    However, Rupert Murdoch and ‘not exploitative’ aren’t overly credible in the same sentence, for example.

    Neither are organisations that Random Housely say ‘all your old ebaserights belong to us’.

    There’s also a killer waiting – if you only sell in region, and the ‘can’t expand market’ part is right. What happens if 50% of readers switch to electronic reading? All that percentage of sales to other countries vanishes just like Keyser Soze.

    1. Jay says:

      Yep, it’s a bitchy thicket at best. The point I keep coming back to is that Amazon’s current model is flawed, probably fatally so, from the publisher’s perspective. (And obviously, therefore mine, since I am invested in the current system.) Any movement is better than no movement, because once the process of ebook pricing and rights allocation is unfrozen, there can be room for competing models. Right now, with Amazon controlling 75% of the ebook market, it is frozen.

      However, re “selling in region”, that problem has always existed in print books. I think it may be lateral to the underlying issue here right now.

  5. Blue Tyson says:

    No it hasn’t. Not recently, anyway. We can buy books from anywhere, as individual customers. So can you.

    Australian retailers also can, if no-one local provides an edition after a month.

    My local library will sometimes have both the US edition and UK edition of a book next to each other on the shelf.

    So what happens now flies in the face of the Copyright Act, at least from a common sense point of view.

    Refusal to spread sales around – e.g. Macmillan being dumb enough to only sell some books at Amazon helps to build Amazon’s market share. So some of that 75% is completely their own fault. Selling directly would have chopped it down even further. Even little kids know the all the eggs in one basket line, after all. Amazon now being the only place that will actually sell the occasional book to an international customer, likewise makes that 75% bigger, thanks to them cutting off the rest.

    Charles Stross said that all these publishers have around a 70% share. A six-headed oligopoly with nearly the same share ain’t that much more pleasant, really, particularly with Murdochs and music industry involved and the whiff of cartel about it.

    1. Jay says:

      Actually, I was specifically referring to regional and language-specific rights as specified in publishing contracts, not distribution and sales practices. My bad for lack of clarity, as I don’t disagree with your points about the sales practices.

      1. Cora says:

        The language issue is not going away, even if print books vanish completely (which I doubt they will in our lifetimes). Because books no more translate themselves than they write themselves (regardless of what some of the more rabid Kindle supporters seem to believe). Of course, literary translators are paid a pittance, but someone still has to pay them. So a given book will never be available in every possible language unless enough people are willing to pay for it.

  6. Blue Tyson says:

    Oh yeah, sure, that is still the same.

  7. AzureSky says:

    Personally I do not feel that a digital copy is worth as much as a physical copy, 9.99 was ok, but if Im going to be paying close to or the same price for a digital copy as I would for a physical “dead tree” version that I can hold in my hand, loan out or trade/sell, a digital copy is NOT WORTH AS MUCH AS A PHYSICAL COPY.

    You fail to note that the ebook copy has a far higher profit ratio, no publishing cost, no shipping cost(most ebooks are so small it would take thousands of downloads for the cost to be worth even talking about)

    so the publisher wants hard cover or near hardcover prices, for a product that in effect is all gravy for them, they already did the work to get the book edited and formated and proof read(for the dead tree version), effectively they want the same $ for a less valuable product.

    If they all keep this up, I see the us govt getting involved due to price fixing.

    Oh and note, I have posted news about this on my own site, as well as a few others, and its pretty much unanimous, people do not feel a digital copys value is even close to that of a physical book, and as I said above, the savings on publishing and shipping should be passed on to the consumer.

    Now one thing I personally wouldnt have a problem with is if the price went up a bit and that extra went to the author, but that is not how these things work, this will endup being just like itunes/mp3 sales, authors/artists wont see any real bennifit from it, but the publishers will see a boost in per sales profit……and a loss in overall sales.

    Also if you check around, One reasion ebooks are growing is that they offer a greater value to geeks/techheads, when you take the value away by jacking up the price…well you can follow the logical path im sure……

    1. Jay says:

      Hi, thank you for commenting

      Actually, I’ve written extensively on the cost of ebook production. It’s not “all gravy” to the publisher. There’s less than a 10% cost difference between ebooks and print books, given that hard costs for print editions account for about 10% of the cost of those, and ebooks have some offsetting costs. That doesn’t sound very intuitive, but it’s true, and well documented on my site and elsewhere.

      It’s hardly “price fixing” to set the prices on your product to ensure cost recovery. Passing the savings in publishing and shipping on to the customer would result in a 5-8% discount, if that were the sole determinant for pricing.

  8. Murphy Jacobs says:

    This whole conflagration has changed my thinking about eBooks. I’ve been an eBook reader since the days of the eBookman came out in the 90s. I used to think that eBooks should automatically be cheaper because they don’t “really exist” in the physical world.

    Then I learned more about how they are made, and I started thinking about all that “no distribution/no storage” in light of my expanding online experience. Sure, it takes a lot of downloads to make a blip on the graph, but in the mean time, the books still have to be housed on someone’s server, made a part of their website, monitored, and protected.

    We pay premium for intangibles all the time — things we can’t hold in our hands or trade away to someone else or loan to family members. We pay for professional advice, we pay for services, we pay for entertainment. So that idea that a customer should pay LESS for an ebook because it can’t be held in the hands lost ground in my mind.

    I’m also a collector of physical books, but even if I can throw a physical book around, loan it, sell it, etc., I am dealing only with the PHYSICAL OBJECT. I do not own the content. I am controlling the medium, yes, but not the essence. I have purchased particular RIGHTS to that physical book, and it is those rights that I purchase — or rent, as the case may be interpreted — with an eBook. It is those RIGHTS that are always the abstract thing being exchanged for money.

    Yes, I entirely understand and really agree that if there is no physical medium being purchased, I should not pay for that physical medium (even though it does, indeed, take money to have electronic content available. Consumers are spoiled because so much of what is offered as “free” is paid for by advertising — and can be taken away instantly when the money vanishes. Consumers do not realize that free means “You don’t own it, and it is not yours”.)

    However, the pricing for the rights to the content does not change and that must be set and I think that’s what publishers and authors are trying to defend.

    I spend my money for access to content created by others. Only under very particular circumstances (and usually a price premium) do I pay to OWN THAT CONTENT. That’s the idea I see glossed over so extensively in most media reporting, and that’s what I see even more average folks like me who are on the consumer side simply not giving a rat’s ass about. We think we are buying one thing when we are really buying another, and we just don’t understand the difference.

  9. CharlesP says:

    I guess I should preface this with a summary of my position on the latest AmazonFail. I think Amazon made a stupid (and jerky) move with their pull of the titles, but I understand that they’re trying to use their leverage now before the iPad comes out in a couple months and their leverage is potentially much less. I don’t think it was the way they should have handled it (on an ethical or tactical level), but I can see what their reasoning was as much as I dislike the results.

    Also, pardon me for coming in late in the discussion here (I’ve done most of my 6000+ words on the subject over at Tobias Buckell and Jamie Ford’s blogs)… but I’m curious as to what your take is on how it seems we’re going from one fixed price structure (Amazon setting new/best sellers at $9.99) to another (the publishers setting the price for all retailers). We’ve gone from no market competition in pricing (because Amazon owns so much of the market) to no market competition in pricing (because the publishers are setting the price no matter where the consumer goes). One could argue that Amazon’s market dominance was a result of the market making a choice about their pricing structure, but I think it was really more that they were already the place to go for books, AND that they were the first to really put out a viable product in the field (Sony e-Reader was nice gadget, but didn’t have the whole package of distribution and device that Amazon had… kind of like the best of the pre-iPod MP3 players).

    I’ve got a lot of other questions regarding what the publishers are thinking with this push. I understand Amazon’s position/motivation, and I understand what Apple is hoping to accomplish by encouraging the publishers to adopt this sort of Agency Model vs the one Amazon advocated before this all started. I have trouble understanding what the publishers are hoping to accomplish by making sure everybody is paying them the same amount, which happens to be less per book than they were currently getting from Amazon. The only semi-plausible explanation I’ve thought of is that they’re hoping to (or at least OK with) hurting eBook penetration to protect hardcover sales.

    The future with an enforced “everybody selling at our selected price” future means Amazon and B&N sell less Kindles and Nooks because the book lovers are going to see the discounted HC at $18 and compare that to an eBook at $15 (plus cost of device) and deem it not worth buying a Kindle or Nook edition with its limitations. The people who will then have eBook readers are the iPad users who bought it because it serves more functions, and they’re less likely to buy the number of books that book loving kindle/nook readers are. In a couple years I’d imagine that unless Amazon & Apple make a deal you’ll have most eBook readers being iPads and then the publishing industry’s eBook future is beholden to Apple like they are to Amazon right now… and it won’t have helped anybody but Apple really.

    To me, it would have seemed smarter from a business move for the publishers to have let the iPad come out and then let the market decide if a multi-function device with slightly more expensive books was a better way to go than a single-function device with slightly cheaper books. And THEN they should adjust agreements with both parties accordingly.

    1. Jay says:

      Charles —

      Thanks for the comments. My attempt at replies below, given that I don’t speak for the publishers in an official or unofficial capacity. I have common interests, as a Macmillan author, and a view of the industry from that side, which is frankly pretty opaque even from within the sausage factory, and in many ways deeply counterintuitive to outside observers.

      but I’m curious as to what your take is on how it seems we’re going from one fixed price structure (Amazon setting new/best sellers at $9.99) to another (the publishers setting the price for all retailers).

      I’m not convinced that’s an improvement in and of itself, but it’s definitely a step in the right direction. Right now we have a single player (Amazon) at 75+% marketshare setting terms for the entire ebook industry. Under the new model we have six players (the big six publishers) setting terms to at least two outlets (Amazon and Apple iBooks). That produces a lot more opportunity for flexibility and innovation in models when no single player is holding all the reins. Amazon has no trouble remaining in lockstep with itself as a single-source chokepoint, but you won’t see consistent solidarity from the big six over time as they have different ideas or entertain different proposals. Likewise Apple, which, for example, has changed business models within iTunes several times. So I see this move as not a final fix, or even much of an interim improvement, but as a breaking of a logjam which will now allow multiple players and market factors to participate in setting price points and retail terms, instead of leaving everything in Amazon’s hands. By definition that is more competitive. (For a pretty good explication of why this is critical to publishers from their point of view, I refer you to the piece on Making Light, if you’re not already familiar with it.)

      I have trouble understanding what the publishers are hoping to accomplish by making sure everybody is paying them the same amount, which happens to be less per book than they were currently getting from Amazon. The only semi-plausible explanation I’ve thought of is that they’re hoping to (or at least OK with) hurting eBook penetration to protect hardcover sales.

      You’re on the right track here, but you’re putting a very different spin on it than the publishers would. Consider how critical dynamic pricing is to their business model, that is to say, $28 print hardcover -> $8 mass market paperback. “Hurting ebook penetration” isn’t the issue. It’s preserving the business model, which enables profitability and continued operations. Whether that business model should be preserved is a different issue, but it’s how they work today. What they’re after is maintaining the value perception of initial high-demand releases, which the $9.99 price point is threatening to destroy, especially with the ongoing growth of ebook market share. Publishers don’t “hate ebooks”, they’re desperate to understand them, but they’re even more desperate not to lose money on ebooks.

      The future with an enforced “everybody selling at our selected price” future

      I don’t actually buy this. The pricing war is far from over. What we’re doing right now is moving from “Amazon sets all terms” to “multiple players set terms”, which is far more competitive than the current model as it exists today. The big six will jockey for position over time, Amazon and Apple will jockey for position over time, Sony will get their head out of their collective heiney and become a player… Lots of options once a single player is no longer in control of the vast majority of the market terms.

    2. Ashavan Doyon says:

      While I disagree that Sony’s e-reader wasn’t a viable player in the field (wireless downloads are nice, but not crucial, and sony has folder organization which Kindle still lacks), I think your analysis here is otherwise spot on.

  10. CharlesP says:

    Thanks Jay.

    First off, I think you’re dead on in the “preserve the business model” statement. And to that end I think them making business decisions with the goal of preserving hardback sales is going to de facto limit eBook adoption. Now I don’t know if they’ve got a better end-game plan, or if they’re just hoping to slow the migration to eBook vs HB in an effort to come up with a plan for that future. Your point about this just being a step along the way to what the market looks like eventually is also well taken.

    I don’t think the $9.99 eBook was set to destroy that profitability model just yet for a couple of reasons.
    A) most best sellers (which is what Amazon was generally doing the $9.99 thing with) are deeply discounted in retail outlets… Wal-Mart, Target, B&N all have 40-50% discounts on best sellers… so paying $9.99 vs $9-17 for a HB didn’t seem to be likely to kill that HB profitability (not to mention Amazon was paying 50% of the HB retail price to the publishers). From a consumer (in the US) it wasn’t going to be $9.99 vs $28. It was always $9.99 (plus cost of device) vs $15ish with the same bottom line going to the publishers.
    B) Generally if a consumer has sunk $200+ in a device to consume something (e-reader:books, blu-ray player: movies, etc) they’re more likely to buy more of those items than they otherwise would in an effort to be able to tell themselves that initial investment was a good one. So publishers would likely be selling more of those items than they otherwise would.

    I also see what you’re saying about the big six not being in lock step, though a problem there is that you’re going to have a slower price change mobility, I would imagine, as generally a buyer wants a specific book or author. So if Hachette is charging $14.99 for the newest release, and Scholastic is selling their newest for $12.99 then are you seeing better sales at $12.99 because it’s JK Rowling vs Stephanie Meyer, or is it because the price structure is better? And if Stephanie thinks she’s getting screwed on the deal and wants to switch to a different publisher she’s got to work out the existing contract… so pricing changes in the market are going to be slowed down drastically because of how the talent is distributed, and the nature of contracts.

    All that said, I think your logjam comment is also dead-on… alas I think we went from one logjam of Amazon control, to a lesser logjam of various Publishers control on any given author/book… and I think a better clearing of the logjam would have happened in two months when the iPad comes out and the consumers are making the decisions on which pricing structure/device worked better for them. Not that the customer is the only, or most valuable, player here… but nobody is selling books if the customers aren’t buying them. I can’t tell if Macmillan thought now was the time to negotiate because they thought Amazon was weak now that Apple was heading to the table, or if they thought now was the time to negotiate because they were worried Apple wouldn’t be as big a player as everyone thinks and they’d not have a chance later on.

    Nobody in publishing wants pricing to be a race to the bottom, but the finances of the consumer are going to play into how it all plays out. If Apple’s rise has taught us anything it is that the consumer will pay some premium for something which has extra perceived value.

    I’ve said this several times on Tobias’s blog… I have a sneaking suspicion this whole thing was Steve Jobs’s idea and he’s sitting somewhere stroking a white cat laughing maniacally as he gets the publishers to do his bidding and Amazon falls for his trap and alienates authors. Did I say sneaking suspicion? I meant wildly speculative fantasy that makes me laugh. In this whole thing I think Amazon is afraid that Apple will eat its eBook lunch, and the publishers are afraid that Amazon will eat their lunch… and Apple is really in a no lose situation as the book thing isn’t their primary business anyway. Oh, and authors just want to still be able to afford some lunch.

  11. Stevie says:

    Jay

    I am not convinced that this is directly iPad related; Amazon pulled a similar stunt in Germany in 2004, and in Britain in 2008. It’s certainly relevant but it doesn’t amount to causality; I think Amazon would have done it anyway.

    I live in England; Amazon.co.uk sells no e-books of any kind. It will sell me an e-reader -iRiver Story eBook Reader-, but it won’t sell me anything to read on it. It is difficult to see why a company allegedly with a mission to provide consumers with e-publications should think that not selling any e-publications is a good way of doing this.

    It won’t sell me a Kindle either; I would have to buy it from Amazon.com, thus losing my rights under the law of England and Wales, and take my chances on whether Amazon.com actually owns the British rights on e-books that I would like to buy.

    For example, Amazon.com has a kindle edition of ‘Green’, but it’s not available to people living in the UK. This does not help you, and it doesn’t help me…

  12. Andrys says:

    This is becoming more and more of:

    “How I came to love the Price Fixers” – with their sweet talking about a bigger cut for all while the largest cut is in availability and attractiveness of the e-book and dreams of hardcover sales rising from the dust.

    The key motivator for Macmillan’s Sargent and other large publishers (but not Random House):
    To keep the hardcover margins they’re used to…
    and the notion (which will be proved false) that if people can’t buy e-books at a good price they’ll come back to hardcovers.

    They have quite a wake-up call coming. Smart companies adjust to the current realities. Not Macmillan. What’s wonderful is the way they have convinced people (but not Amazon customers) that they are the David against Amazon’s Goliath.

    For more of what has been going on behind the scenes (as reported by WSJ and others), please see what it is I think (since you asked) at
    http://bit.ly/kwmacm2

    Thanks for asking.

    1. Jay says:

      Andrys —

      Thank you for the comments. (And I read your blog post.) I don’t agree with a lot of what you’ve said, but it’s interesting. The vitriol toward Jobs tends to make your point feel a bit slanted.

      I also don’t know if you’ve been following my point about a single source controlling pricing now (Amazon) vs six publishers and two major retailers interacting (the big six plus Apple and Amazon), but I can’t help believing that leaving the entire process of ebook pricing and market setting in the hands of single source is less desirable than allowing all the market players to interact. Which is to say, I don’t actually think the agency model proposed by Macmillan is the other end of this, just a breaking of an existing monopolistic log jam.

      Best,

      Jay

    2. AzureSky says:

      I agree with what Andreys saying, and I do feel the big publishers who are pushing for this are working togather to try and wring more profits out of ebook sales and/or push people back to buying more dead tree copies.

      just a fact that every time a new medium comes out, those people/entities/companies who are heavily invested in the old way of doing things endup trying to fight change.

      Jay, I respect your point of view, but I think your a bit naive if you really think that ebooks cost only 10% less then physical books to produce and distribute, but thats your opinion, I am assuming its due to information your publisher gave you to prove how bad they are being screwed by lower ebook prices.

      Publishers are saying they wont be making any extra money on this that they may even make a little less…….

      thats clearly BS, no business is going to do something to cut their profits, its not logical.

      little exorcise in logic

      raise prices from 9.99 to 25.99(or even 14.99)on ebooks that already require a pricey reader.

      Higher prices=less sales, especially in a weak economy like the one we are living in today.

      so less sales at higher price COULD cover the loss in sales, But if people cant afford to buy more books due to higher prices your effectively killing the chicken for the eggs.

      conversely, you may make less per ebooks sale by having lower prices, but you will sell alot more books, I think the fact that amazon and other ebook sites are selling books as well as they are kinda proves that point, eReaders arent cheap, people need to see the value in buying an ereader AND ebooks.

      Jay, dont you see, this will just drive people to piracy the way music prices and movie prices have been for years?

      iTunes many times costs you MORE then buying a physical cd now, or the cost is so close that you may as well buy the cd from amazon or another site, and rip it yourself(with the great benefit of no DRM and you being able to control the format and quality settings used for the encode)

      if you buy a cd from amazon you also get credit on amazon mp3 store so you can download music “free”

      Now what would possibly work is selling people the physical book AND including rights to download the ebook as well, contrary to what I am sure the publisher would tell you, Every download wouldnt be a lost sale or lost profit, because how many people are logically going to buy the hard cover and ebook as well?

      also note that my comments about piracy are from my many years as a computer tech and uber geek, I have sat and watched piracy grow and grow and companies try in vain to stop it, the fact is, If its out there in a physical(book) or digital form, people WILL find a way to copy and share it.

      The only way to combat this thats going to work is NOT legal, because , and lets be honest here, your never going to track down all the people who are downloading, and your never going to track down all the sites sharing, like the hydra of myth, each time you cut a head off(get a link removed or site taken down) more sprout up.

      The best way to combat this is to make the price attractive AND make the content available to anybody who can pay, as Stevie said, people in the UK cant even get ebooks from amazon, the UK and EU are prime markets that are from what i have been told, being ignored by most larger ebook services, and those that do sell to the EU/UK dont have alot of the larger titles.

      when this dosnt work out as a great thing for everybody involved, you will see why so many people are saying its dumb/stupid.

  13. Andrys says:

    Jay, thanks for the courtesy of reading the blog post.
    My ‘vitriol’ toward Jobs (an easy out for you) is in direct proportion to what he is obviously trying (successfully) to do but should not have said openly in a world that cares about the appearance of price-fixing — but a certain kind of hubris caused him to blurt out his foreknowledge of what the group of publishers would be doing — after he suggested they should.

    Add that it was the WSJ that reported he had asked the publishers to raise the prices and that he is interested in selling hardware and not so interested in the books relative to a bookstore.

    That you’re not bothered by what he’s doing does concern me, as I have seen the David vs Goliath silliness in much of the reporting (not yours). They’re all Goliathes. Every single one of them, and that includes Amazon.

    But the shortsightedness of publishers falling fast for the Agency plan is that they actually think that if they keep e-books away from the customers by either delays or pricing, that customers will go to hardcovers or pay the 50% higher price for a digital version.

    They are in for a surprise. That comes from even columnists that admire them for the plan but who themselves would not be paying that price for an e-book.

    The large publishers need to spend more time adjusting goals and methodologies to work in a more creative way with the current realities that include digital offerings.

    In the meantime, I have spent hundreds of dollars recently on non-fiction history and travel hardcovers with charts, diagrams and other illustrations needing more than e-book can offer for proper display, but I would not do that for novels in e-book form.

    In my wanderings of pro-con discussions on all this, I see that I’m not at all alone in that.

    1. Jay says:

      Hi, Andrys —

      Gave your post some link salad love this morning, to highlight a different view from mine. Hope you don’t mind.

      My ‘vitriol’ toward Jobs (an easy out for you)

      Why is that an easy out? Am I misreading your tone and intent toward him? Also, I think you extend Jobs too much credit for Machiavellianism in being able to influence the boards and C-level officers of six other companies. He’s certainly taken advantage of Amazon’s near-monopsony on purchasing, but that’s a fall they set themselves up for. Jobs just may have given the push.

      So far as price fixing goes, I don’t see how opening a market from a single player (Amazon) setting prices for all suppliers to two players (Amazon and Apple) interacting with all six major suppliers is price fixing. Quite the opposite. That’s a move from an anticompetitive environment to a competitive environment. Amazon’s been setting prices for years without consultation with the publishers. Further, when Macmillan came to Amazon with the agency model, their alternative was to keep the current Kindle contact with deep windowing. Hardly price fixing.

      I also see a lot of the Kindle community complaining about Macmillan’s ‘take-it-or-leave-it’ tactics. First of all, they weren’t take or leave it — two offers were extended, and in business it’s quite normal to expect counteroffers. Was the Kindle community outraged about Amazon’s take it or leave it negotiations with Hachette UK, Diogenes in Switzerland or the US POD community in recent years? One offer, no compromise hardball has been Amazon’s style for a long time, complete with nonnegotiable price setting. That they got a partial taste of it back is perhaps ironic justice, but hardly oppression.

      That you’re not bothered by what he’s doing does concern me, as I have seen the David vs Goliath silliness in much of the reporting (not yours). They’re all Goliathes. Every single one of them, and that includes Amazon.

      I honestly think you assign far too much importance to Steve Job’s role in upsetting what was an essentially untenable (for the publishers) market position. Catalyst? Yes. Master coup planner? No. On this I am certain we’ll have to agree to disagree. And per my comments above, I see a lot more nuance here than you do, apparently. Including Amazon’s own history in similar negotiations when they’ve been the power player.

      But the shortsightedness of publishers falling fast for the Agency plan is that they actually think that if they keep e-books away from the customers by either delays or pricing, that customers will go to hardcovers or pay the 50% higher price for a digital version.

      Again, we disagree here. I don’t think the agency model is the end of this. I think it’s the breaking of Amazon’s monopsonistic logjam which will allow eight (or nine, if Sony gets into the act) players — six on the supply side, two or three on the distribution side — to work out multiple market and pricing models without bending to the business model and dictates of a single key player. Ie, far more competitive, not less.

      The large publishers need to spend more time adjusting goals and methodologies to work in a more creative way with the current realities that include digital offerings.

      On this I couldn’t agree with you more. But they have to get there from here, and cutting off their revenue streams today to build new ones tomorrow would be just as much business suicide as doing nothing.

      Best,

      Jay

  14. Andrys says:

    Jay, thanks, and I’ll shut up after this one 🙂

    Don’t mind at all the link salad love though I’ll have to look for it. Very nice of you.

    Re the question about my “tone and intent” toward Jobs, what you’re reading did not come from a void.
    I’ll have a different take from his actions than you. As an owner of an iPod I am not anti-Apple, but I don’t like his actions in this case and am not alone in that. You imply that I just have vitriol toward him and that this influences me. They are strong words against a real problem area (as seen by others), and my words have been not nearly a strong as words against Amazon.

    The funny thing about worrying about Amazon’s near-monopoly is that people agonize over what Amazon will do when they have the power to, gasp, charge what they can, without competition.

    So, to prevent that, they’re forcing Amazon to charge what they can right now 🙂

    When Barnes & Noble and other places sell the same books and can choose a sell-price based on what works for them (they could also charge more for older books to allow the loss-leaders in new books), Amazon is not a strong near-monopoly.

    But publishers want more money than they are getting from the new world of declining hardcover sales and they are pushing the Agency plan rather than being creative, making special editions and charging more for those, in a win-win situation.

    Amazon didn’t “set” prices for other bookstores. The other bookstores chose to compete with them on price without apparently adjusting for that on other books as Amazon has.

    Comparisons of older-book pricing have shown tjat the other stores are often lower than Amazon on those. That’s one way to make up losses.
    I’ve no question that Amazon would eventually have raised the prices – that’s the way of the world. But the irony is that a lot of energy from publishers and authors is pushing them to do it right now. A good excuse to have high pricing for all customers of all bookstores.

    B&N has tremendous expenses as a bricks & mortar store but also advantages when it comes to selling the hardware. In Macmillan’s case they said that if they didn’t get their $15 vs $10, they’d delay the e-books 7 months while offering them to the other stores. Talk about monopoly manipulations.

    Authors won’t recognize this but when customers see that there is no price competition anymore and that they must pay the fixed amount at all stores, there’ll be resentment and a passive non-buying.

    Re moving from an anti-competitive environment to a competitive one, this concept is usually used for improving a situation so that the prices are lower and more reasonable for customers.

    This situation is the exact opposite. I think that as one who depends on Macmillan for obviously well-deserved revenues, you’ll have a bias to overcome and will somewhat rationalize what has happened with Macmillan, Jobs and the others as they work together to fix pricing at a cost 50% higher for customers.

    It would be hard for you to see that as wrong-headed. I read that Macmillan reduced percentage pay for many authors from 25% to 20% recently but don’t know if that’s true — but it would be added pressure on authors.

    As I’ve said, the irony is that Macmillan will sell far less books now — the many who’ve written often that they buy probably 10 times as many books now and are more adventurous when it comes to unknown authors will stop doing that.
    I’m one of them.

    Re “setting prices” — the use of the phrase in this situation has involved a crucial misundertanding, since other authors have said “Macmillan SHOULD set their own prices.”

    What most people don’t know is the publishers DO set the prices. They set the List price and the store owner pays Macmillan based on THAT list price.
    NOT on the $9.99 sell-price. The publisher receives the money based on the larger amount.

    If the bookstore chooses to use loss-leaders to get many buys, adjusting in other areas, that’s always been the storeowner’s prerogative.

    The worst misunderstanding of too many authors who depend on Macmillan is that they argue they get less money with a $9.99 book when, in Fact, Amazon pays the publisher based on the LIST price. I’m being redundant because this point has been missed in many other discussions and because a friend sent me another post decrying the loss of author money when books are sold for $10. No.

    The storeowner, knowing his audience’s buying habits, can decide what to sell at and the store lives or dies on that type of decision.

    If he prices it too high, the store doesn’t sell the books at all. The store doesn’t get much out of that, but the publisher and author HAVE already been protected with the traditional arrangement (rather than the ‘Agent’ route).

    That’s why we see store Sales advertised.
    Starting March, that won’t be possible. All stores will have the same pricing. Same fixed pricing. No store sales on those books.

    Re youre seeing a lot more nuance – my point of view is that I’m cutting the fat so you might see what is actually underneath all the verbiage.
    Nuance is a search for rationalizations in this case. But we’ll definitely disagree on that one 🙂

    To end, there has been no cutting off of Macmillan’s revenue streams by Amazon, as you’ll have seen. They got their money upfront. They did not lose money from the $10 book price.

    But Sargent, in his narrow way, cannot see that e-books are not eating away at hardcover prices because the bulk of us were not buying hardcover books and never intend to in today’s world.

    He has to stop blaming the e-book and face market realities and adjust and not by forcing higher prices.

    Anyway, thanks for the welcome atmosphere to explain our varying viewpoints. I really will try to let your responses to this one stand, as I’ve said plenty 🙂

  15. AzureSky says:

    I dont buy hardcovers anymore because, honestly they are just to big and bulky to carry around with you…..

    I will be laughing when its proven that this tactical move was the equivalent of running into a swarm of army ants nude……..

    cut off nose to spite face…..

  16. Hi I found this site by searching Google and just wanted to thank you for the tips on selling. I sell my unused books at Book Turtle but will have to check this out!

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