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Amazon versus publishing: One week later

Here it is, one week after Amazon yanked the buy buttons from Macmillan print and e-book titles. So what’s new?

First, Macmillan took out a full-page NYT ad for one of its new hardcover releases…and let the reading public know that the book is available everywhere except Amazon: Macmillan NYT Ad: “Available at booksellers everywhere except Amazon”. For the record, I think this is utterly brilliant. I am now crushing on the Macmillan marketing folks who dreamed this up.

Second, Hachette Book Group USA is following in Macmillan’s footsteps regarding e-book pricing: Hachette Book Group to Transition to Agency Model. In this article, there is a link to Macmillan CEO John Sargent’s definition of an agency model:

“Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our 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.”

Everyone clear on this? In the agency model, instead of most e-books getting capped at $9.99, the price would have a range over time, from a high of $14.99 to a low of $5.99. When the new content is first available, it will cost more — same as in pretty much any retail store for a new product. E-books would also be released around the same day as their hardcover print counterparts, instead of waiting days, weeks, months after the hardcover releases before releasing the e-book version.

Now, many folks have been commenting about the pricing structure, as well as the situation overall. I’ve previously referred you to folks like John Scalzi and Tobias Buckell and Jay Lake. I’ve commented too. What I initially said, when Amazon first pulled the plug one week ago, was: “Now, I donâ€™t like that Macmillan is demanding that Amazon raise its ebook prices. I think itâ€™s ridiculous for an ebook to cost the same as a print-version trade paperback.”

But now I’ve had time to look at the so-called agency model of pricing…and I think it makes sense. Why? Well, I’ll answer a question with a question: Why is it OK for Amazon to charge almost $500 for the Kindle initially and drop the price over time to under $300, but it’s not OK for Macmillan to charge almost $15 for books initially and drop the price over time to under $6?

Really — why? Please explain it to me.

Yes, of course I’ve heard the arguments that e-books don’t have paper/distribution costs and therefore should not cost the same as their print versions. And I agree: if you’re paying $24 for a hardcover, part of what you’re paying for is the actual hard-backed cover…and you don’t get that on an e-book version. As far as I know, no one is suggesting that an e-book should be the same price as a hardcover copy, or even the same price as a mass-market paperback. What Macmillan and Hachette and HarperCollins are saying is that the $9.99 “loss leader” Kindle model is not tenable — either for the publishers or for Amazon. (Indeed, Amazon stands to make more money from the agency model; right now, it loses money on e-book sales, which it makes up for in Kindle sales.)

Why doesn’t the $9.99 e-book model work for publishers? Author Susan Piver has a phenomenal article that everyone should read: The Macmillan vs. Amazon Throwdown. For another look at the $9.99, check out Amazon losing money on $9.99 e-books. And look:

Even though e-books do not have the printing and shipping costs associated with a book, publishers insist that these are only a fraction of the cost that goes into a book: â€œThe pricing in publishing has very little to do with manufacturing costs and most to do with the cost of author talent. That does not go away when you sell an e-book,â€ the head of one house asserted.

Oh, right. Gotta pay the **authors.** (To say nothing of the editors who work with the authors.) When you buy an e-book, you’re not buying the format. You’re buying the **content.** I don’t know about you, but I have a handful of authors who are on my Gotta Buy It Now list. And yeah, I pony up the money for hardcovers for those authors, because I am a huge fan of their work and **I don’t want to wait the better part of a year for the mass-market paperback reissue.** I pay more, and I get the book sooner. Why shouldn’t the same rule apply to e-books?

So what if we don’t move to an agency model? If I understand this correctly, the other option is called “windowing,” and we saw a prominent example of this late last year, with the release of Stephen King’s Under the Dome. Basically, in the windowing model (again, if I’m understanding this correctly), the e-book versions, priced significantly cheaper than their print versions, would not be available until weeks, maybe even months, after the print versions have hit the shelves.

You know. Sort of like how a hardcover comes out first, and then you have to wait months, maybe even years, for an alternate format. Hey, I had that with my Hell books from Kensington: 17 months to two years after the trade paperback version of the books, the mass-market editions became available. So it would be the same thing for the e-book versions. In the windowing model, e-books are the mass-market paperbacks of the digital age.

Frankly, I think the agency model is better than the windowing model, by a long shot. With the agency model, you get the ebooks available around when the print versions first release. And at the end of the day, it’s all about readers getting to read the stories they want when they want…and how they want.

As for poor Amazon, the tiny e-tailer who’s in the middle of all this? According to Macmillan’s Sargent:

â€œThe agency model would allow Amazon to make more money selling our books, not less.”

Ah. Yup, okay, I see why Amazon is upset.

Wait, no I don’t.

Oh, wait, yes I do! This isn’t about the content at all. It’s not about the authors, or the readers. It’s about Amazon sweating over the Kindle not being the only e-kid on the block. B&N’s got its Nook. Sony has its e-Reader. And gamechanger Apple will have its iPad. So Amazon, with its monopoly on its Kindles, suddenly won’t be making a killing on its e-reader hardware. Oh noes! What’s Amazon to do? I’ve got it! Amazon should make a big, fat stink about the publishers demanding that Amazon raise its e-book prices! Consumers won’t stand for that, no sir! Consumers will demand that their e-books are no more than $9.99! And if other e-tailers (like Apple) are going with the agency model, then Amazon will still make a boatload of money from its Kindle, all thanks to consumer outrage! It’s a brilliant plan!

And it also won’t work. Want to know why? Amazon overstepped. If it had dismantled the buy buttons only on Macmillan e-books, this would probably be a very different conversation. But it didn’t. It dismantled buy buttons on BOTH e-book and print formats for Macmillan books. Which, by the way, are STILL not back up, one week later.

After all is said and done, Amazon looks either like a bully or a tantruming toddler, and its **still** going to profit once all the publishers switch over to the agency model. So don’t you worry about poor Amazon. It’s going to be fine. (Amazon could stop selling books completely, and it would be fine.)

So enough with the drama already. Amazon, put back the buy buttons.

9 Responses to “Amazon versus publishing: One week later”

We’re also hindered because misinformation abounds. I read one otherwise reasonable argument which was, ironically, about misinformation junking up the place, that stated the new agency deal was flawed because readers didn’t want to pay $15 and above for ebooks. *blinks*

by Jody W. on February 5th, 2010 at 10:27 am
Excellent point, Jody. Readers have to be diligent and ensure they understand the situation.

by Jackie on February 5th, 2010 at 10:33 am
The costs of printing are pretty much replaced by the costs of all the various ebook file formats. It’s not a minor issue to create all the formats, and there are distribution costs involved, too. So yeah, ebooks priced same as a mass market paperback is completely reasonable. And also reasonable for the price to drop over time. The margins for profit in publishing are slim, and the publishers need to win this round because Amazon is not going to sell at loss-leader prices forever; once it’s established, think they won’t make publishers eat those costs? Which in the end is going to cost the authors, who are already not the highest paid profession going.

The change in pricing is a win for everybody, including readers who would rather pay $5.99 than $9.99, and I hope Amazon sucks it up and moves on soon. Not just because my St. Martin’s (Macmillan) titles are affected, but because this is a big industry-wide issue.

by Charlene Teglia on February 5th, 2010 at 10:40 am
I hadn’t thought about the cost of the ebook file formats, Charli. Thanks for bringing that up. I agree that the agency model is a win for everyone.

by Jackie on February 5th, 2010 at 10:50 am
I think it’s a smart thing to do, as an economist.

Some people will want a particular book Right Away. So charge them more for it. What’s wrong with that?

And it’s something you can do much more easily with ebooks than you can with print. How are you going to do it with print anyway? We even have a term for this: menu/shoeleather costs.

Charli is right. If publishers let Amazon get away with this, Amazon will gain that much more power in the industry, and eventually publishers will have to eat those costs too, which will be passed on to authors… There’s no good route out of this, and letting Amazon get away with this is definitely the worst possible thing that could happen.

by Emily Cardinal on February 5th, 2010 at 11:24 am
[...] Kessler gives us a one-week update and some thoughts on eBook [...]

by L’esprit d’escalier » Guess What I’m Still Blogging About on February 5th, 2010 at 1:18 pm
Amazon’s business model is: “Nice publishing house you have here. Too bad if it burned down one night….”

There’s no reason to think that allowing Amazon to corner the market in ebooks will be good for the consumer or authors, or anyone else.

by James D. Macdonald on February 5th, 2010 at 4:10 pm
This was a fantastic recap, not to mention human and funny. Thanks. And thanks for referencing my post and–my, my, my–for acknowledging that authors have a stake in this argument and it’s not just about which behemoth is going to drag the other away by its hair. We have hair in the game, too.

by Susan Piver on February 6th, 2010 at 11:10 am
It’s all about demand, baby.

Why, when a tollway is finished, does it cost $2.00 to pass a particular gate for the first five years, and $1.30 five years thereafter, and $0.75 from that point forward? It’s the same over time. The road hasn’t changed. The Dallas North Tollway has been here for twenty, thirty years. It’s paid itself over and over. And yet, we still pay for it. Why didn’t we choose to keep the payback to the state over a longer period of time and keep the tolls down?

Demand. High demand for the tollway. Now, not only did we pay ourselves back in record time, but we have generated tremendous income for the tollway over the years; far surpassing the cost to maintain and repair it.

So, it’s not just about breaking even on advances and overhead as quickly as possible; it’s about generating as much revenue as possible on the popularity of an author as possible.

Same thing that a hot celeb does. Work early and often as much as you can until you drop, because when you are done, you are done. That’s the biz.

You are the talent, they are the marketing team.

Even though I am an avid electronic medium reader using both the Kindle and the Sony e-Reader, I am a proponent of the phased cost approach. Make as much money as possible up front, then settle down to a leveled revenue stream long term.

Nature of the biz. And I didn’t know Amazone was doing that. Shame on them. Shame, shame on them.

by Cheldear on February 8th, 2010 at 7:59 pm

Amazon versus publishing: One week later

9 Responses to “Amazon versus publishing: One week later”

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