Talk about a quick news cycle. Since our last issue Friday morning, Amazon stopped selling all titles by Macmillan, the book world reacted with astonishment, mostly siding with Macmillan, and many customers sided with Amazon. What might have been a protracted fight that could have drawn in more publishers was then resolved--in part--late yesterday when Amazon reversed its position.
The announcement came in classic Amazon style: via a letter to customers posted on its Kindle Community page. Amazon said that "ultimately" it had to capitulate "because Macmillan has a monopoly over their own titles," forcing Amazon to sell its titles "even at prices we believe are needlessly high for e-books." Amazon concluded, "We don't believe that all of the major publishers will take the same route as Macmillan" and called it likely that "many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative."
"Ultimately" may be a key word in the statement. As of this morning, the famous "buy button" had not been restored for any Macmillan titles Shelf Awareness checked. This also explains Macmillan CEO John Sargent's cautious statement last night made on Publishers Lunch: "We are in discussions with Amazon on how best to resolve our differences. They are now, have been, and I suspect always will be one of our most valued customers."
Shock and Awe
The battle over e-book pricing reached a new, very public level last Friday when negotiations over the issue between Amazon and Macmillan broke down and Amazon stopped selling all e-books and printed books published by Macmillan companies, which include Farrar, Straus & Giroux, Holt, St. Martin's, Tor, Metropolitan, Times Books, Palgrave Macmillan, Feiwel & Friends, Kingfisher and others. The ban did not include distributed lines such as Rodale, Graywolf and Bloomsbury, and third-party sellers on Amazon were still selling Macmillan titles. The ban also didn't apply abroad to Macmillan or other companies owned by its parent company, Georg von Holtzbrinck Publishing Group.
Among current major titles that were affected: Wolf Hall by Hilary Mantel, Sarah's Key by Tatiana de Rosnay, The Politician by Andrew Young, The Checklist Manifesto by Atul Gawande and Priceless by William Poundstone.
The Macmillan ban went beyond Amazon's website: reportedly without notice to Kindle owners, Amazon went into the devices and removed Macmillan titles from wish lists and removed sample chapters of Macmillan titles. This move was reminiscent of the retailer's quiet pulling last year of some e-titles whose copyrights were in question (Shelf Awareness, July 19, 2009).
Many in the book world were supportive of Macmillan, and some independent booksellers quickly seized the opportunity posed by the Amazon move. McLean & Eakin Booksellers, Petoskey, Mich., had a table display in its store (see photo left), a prominent post on its website and was "talking up all Macmillan titles in our store." Bunch of Grapes, Vineyard Haven, Mass., had a display centered on a New York Times article highlighted with notes telling customers they can purchase Macmillan titles in store (photo right). WORD, Brooklyn, N.Y., highlighted some of its favorite Macmillan titles on its website.
E-Pricing Issues
Amazon has consistently priced new e-book titles at $9.99, below its cost, taking a loss of at least $4 or $5 on each sale of those titles. Publishers and others in the industry have been concerned that the Amazon approach will create in customers an unsustainably low expectation about what constitutes a fair price for e-books and are concerned in general that such pricing taints the prices of all books. Amazon argues that consumers want and deserve lower prices--it's also a classic way for a leader in a new market to maintain its dominant position, especially as competitors enter the market. (Hello, iPad.) Certainly Amazon has a lot of power: its Kindle represents an estimated 75% of the e-reader market, which does not count smartphone and computer readers. And Amazon continues to be a major outlet for printed trade titles, as much as 20% on average for many publishers. It recently offered its own "agency plan," under which authors and publishers would retain 70% of the revenue on e-books if they licensed the titles to Kindle and agreed to various limitations, including Amazon setting the price (at a high of $9.99) and a cap at that level on the price of the same e-book sold by others.
Macmillan's Take
In an open letter to Macmillan authors and illustrators and to literary agents that ran in Publishers Lunch on Saturday, Macmillan's John Sargent explained the company's position, saying that he had met with Amazon at its Seattle headquarters last Thursday and "gave them our proposal for new terms of sale for e-books under the agency model which will become effective in early March." He also offered "old terms of sale," which, however, would include delayed e-book versions of major titles, another point of contention between Amazon and most of the major publishers.
Under Macmillan's agency model for e-books (which reportedly will be standard for Apple's iPad), he continued, "retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time."
Sargent pointed out that the agency model allows Amazon "to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market."
He added: "In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated."
This was the second time Amazon has taken such a scorched-earth approach: in 2008, it removed all titles by Hachette Livre U.K. on its U.K. website in a dispute over its demands for better terms. The Bookseller reported that Hachette had widespread support in the book business.
At the time, in an e-mail to his authors, Hachette CEO Tim Hely Hutchinson said that Amazon already received on average more than 50% of the list price of the company's books. "Despite these advantageous terms, Amazon seems each year to go from one publisher to another making increasing demands in order to achieve richer terms at our expense and sometimes at yours," he wrote. "We are politely but firmly saying that these encroachments need to stop now."
Besides coverage in New York Times and Wall Street Journal, Digital Book World had a roundup of authors' responses to the banishment by Amazon.
And science fiction author Charles Stross, who has one series published by Tor affected by the ban, wrote at length on his blog about the fracas:
"This whole mess is basically about duelling supply chain models.
"Publishing is made out of pipes. Traditionally the supply chain ran: author -> publisher -> wholesaler -> bookstore -> consumer.
"Then the Internet came along, a communications medium the main effect of which is to disintermediate indirect relationships, for example by collapsing supply chains with lots of middle-men.
"From the point of view of the public, to whom they sell, Amazon is a bookstore.
"From the point of view of the publishers, from whom they buy, Amazon is a wholesaler.
"From the point of view of Jeff Bezos' bank account, Amazon is the entire supply chain and should take that share of the cake that formerly went to both wholesalers and booksellers. They do this by buying wholesale and selling retail, taking up to a 70% discount from the publishers and selling for whatever they can get. Their stalking horse for this is the Kindle publishing platform; they're trying to in-source the publisher by asserting contractual terms that mean the publisher isn't merely selling them books wholesale, but is sublicencing the works to be republished via the Kindle publishing platform. Publishers sublicensing rights is SOP in the industry, but not normally handled this way--and it allows Amazon to grab another chunk of the supply chain if they get away with it, turning the traditional publishers into vestigial editing/marketing appendages.
"The agency model Apple proposed--and that publishers like Macmillan enthusiastically endorse--collapses the supply chain in a different direction, so it looks like: author -> publisher -> fixed-price distributor -> reader. In this model Amazon is shoved back into the box labelled 'fixed-price distributor' and get to take the retail cut only. Meanwhile: fewer supply chain links mean lower overheads and, ultimately, cheaper books without cutting into the authors or publishers profits.
"Amazon are going to fight this one ruthlessly because if the publishers win, it destroys the profitability of their business and pushes prices down."
And at the end of a long blog entry on the subject, author Caleb Crain wrote:
"What's perhaps most breathtaking about the Amazon-Macmillan dispute is how little, finally, is at stake: should the highest price of an e-book be $9.95 or $14.95? No one dreams any more that it's going to be $28. What's being fought over is control, and the reason control is being fought over so viciously is that the only way such massive cost savings are going to be achieved is by consolidation--by collapsing a few of the intermediary steps somewhere between the creation of a book and the reading of it. Will you some day download your e-books directly from Farrar, Straus & Giroux's website? Will Amazon some day be the publisher of Jonathan Franzen's novels? Some future between these two outcomes is more likely to happen, but precisely where the division will fall remains to be seen. Authors, in the meantime, had better ask their agents to negotiate their e-book royalties very carefully, seeing as how, while the titans rage, the financial analysts have already factored into their bottom lines the expectation that someone else will be eating our slice of the pie."