Amazon vs. Macmillan: ebook armageddon!

Paul Raven @ 01-02-2010

Unless you’ve been sleeping under a large rock that blocks wi-fi and cellphone signals for the last three days, you’re probably already aware of the Amazon/Macmillan ebook pricing spat that kicked off late last week. We’re hearing a lot about it in the sf-nal blogosphere, what with Tor Books being a Macmillan subsidiary as well as one of the biggest genre fiction publishers around. [image by tvol]

But just to bring you up to speed, here’s a few bits of commentary from the author’s side. First, Cory Doctorow points out that the war between these two businesses will end up harming writers and readers most of all:

If true, Macmillan demanding a $15 pricetag for its ebooks is just plain farcical. Although there are sunk costs in book production, including the considerable cost of talented editors, copy-editors, typesetters, PR people, marketers, and designers, the incremental cost of selling an ebook is zero. And audiences have noticed this. $15 is comparable to the discounted price for a new hardcover in a chain bookstore, and it costs more than zero to sell that book. Demanding parity pricing suggests that paper, logistics, warehousing, printing, returns and inventory control cost nothing. This is untrue on its face, and readers are aware of this fact.

If true, Amazon draping itself in the consumer-rights flag in demanding a fair price is even more farcical. Though Amazon’s physical-goods sales business is the best in the world when it comes to giving buyers a fair shake, this is materially untrue when it comes to electronic book sales, a sector that it dominates. As mentioned above, Amazon’s DRM and license terms on its Kindle (as well as on its Audible audiobooks division, which controls the major share of the world’s audiobook sales) are markedly unfair to readers. Amazon’s ebooks are locked (by contract and by DRM) to the Kindle (this is even true of the “DRM-free” Kindle books, which still have license terms that prohibit moving the books). This is not due to rightsholder-demands, either: as I discovered when I approached Amazon about selling my books without DRM and without a bad license agreement for Kindle and Audible, they will not allow copyright owners to modify their terms, nor to include text in the body of the work releasing readers from those terms.

Next up, a pretty good economic deconstruction of the situation from Charlie Stross:

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 here’s Tobias Buckell trying to explain the situation to people who think authors are being greedy by having ebook versions of their books available at high price points (as if they had the choice). It’s a lengthy post that goes into considerable detail about the costs of publishing ebooks, and takes on the perspective of both readers and writers in a down-to-earth way, so do go and read the whole thing.

… price fixing is not the answer to the eBook dilemma. Letting volume grow from the single digit percentages it is, while giving publishers the flexibility to experiment and play is not the end of the world some claim it to be.

So Amazon has the right to pull the list. It’s part of the negotiating game. They did this to Hachette UK earlier this year in the same manner to force Hachette to play the game according to Amazon’s rules, as it set them up when Amazon first started selling Kindle books. Hachette folded, Amazon views this as a way to get publishers to do what they want.

The reason Macmillan is asking for a change in the way things are done, is because Apple has released an new program, and it offers publishers a program more in line with what they think will work: including some flexibility in early release prices. This now means Kindle is not the big kid anymore, as many are assuming Apple will pull a repeat iTunes store.

Whether or not that happens, I don’t know. But Amazon seems to find the nuclear option okay, and after years of working to send them a lot of business, this is a reverse blow. Because of my online presence, over half of all my print and eBooks are sold via them. Just as they have the right to do this, I have the right to be pretty friggin’ pissed that they think this is the way to negotiate, or build good will in any way.

And here’s some high-snark disparagement from John Scalzi, who points out that – regardless of economics, fairness or anything else – Amazon’s poor handling of the whole fracas is a public relations SNAFU of massive proportions that may well end up doing exactly what they didn’t want it to:

Amazon apparently forgot that when it moved against Macmillan, it also moved against Macmillan’s authors. Macmillan may be a faceless, soulless baby-consuming corporate entity with no feelings or emotions, but authors have both of those, and are also twitchy neurotic messes who obsess about their sales, a fact which Amazon should be well aware of because we check our Amazon numbers four hundred times a day, and a one-star Amazon review causes us to crush up six Zoloft and snort them into our nasal cavities, because waiting for the pills to digest would just take too long.

These are the people Amazon pissed off. Which was not a smart thing, because as we all know, the salient feature of writers is that they write. And they did, about this, all weekend long. And not just Macmillan’s authors, but other authors as well, who reasonably feared that their corporate parent might be the next victim of Amazon’s foot-stompery.

[…]

And all of this is why a final, ironic bit of Amazon fail will come to pass:

7. Because Of the Idiotic Events of This Weekend, People Will Just Want an iPad Even More.

Again, Amazon: Well played. Well played indeed.

I’ve no idea how soon this matter will be settled, but the economics behind the situation aren’t going to go away, and ripples from this particular rock-in-the-lake will be washing ashore for some time to come. Personally, I want a fair deal for the authors first and foremost… and as much as I’ve long been an advocate of the free-to-read and freemium business models for publishing, I find myself worrying for the first time as to whether or not there’s enough expendable money in the system to support the literary ecosystem as it exists today. Here’s hoping.

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3 Responses to “Amazon vs. Macmillan: ebook armageddon!”

  1. Mercedes Lackey says:

    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.)

  2. Jonathan M says:

    In other words “get yours hands off our decaying business models”

  3. Mercedes Lackey says:

    I’m a Tor author…and a Baen author and a Daw author and a Harlequin/Luna author. And right now I am thanking my own foresight for not having my eggs in one basket, and the Scheduling Gods for not having a new Tor release out.

    But people who do are getting hosed. WORSE, the folks with paperbacks, whether new releases or not, because to get that free shipping, people often add a PB to the HOT! NEW! HC they are buying.

    I hear a lot of calls for authors to do something else and somehow magically produce and publish, or at least sell, their own books. I do not, however, see a lot of calls for that from writers.

    Anyone wonder why that is? I can tell you, because I may be one of the few people commenting that actually HAS some small business experience. Having had, and failed, in a small business, there are a thousand things you must do that are invisible to the customer to keep a small business going.

    Here is why authors don’t go into the self (e- or real-book) publishing business.

    In order to HAVE a small business you MUST have the following:

    Clearance from where you live to run a small business on your premises. If you do not have this, buy or rent space from which to operate same. ($ to $$$) If the authorities find out you are operating a small business from your home (and they will) without this clearance, Very Bad Things can happen. Like fines ($$$$$)

    Small business insurance. ($$ to $$$$) If you do not have this and someone injuries himself or you have a flood or a fire, your homeowners will NOT cover you ($$$$$$$$$$$$$$$).

    Business licenses. Sometimes three, from city, county and state. ($)

    Business tax number.

    The ability to process credit card payments ($$. Yes, Virginia, they charge you). You can use PayPal, but that comes with its own set of fees and problems.

    Someone to separate your business accounting from your personal accounting. And someone to handle the business tax reporting. If this is you, this is time you won’t be using to write.

    A website ($ to $$$$). If you are setting up and maintaining, this is time you won’t be using to write.

    Someone to handle orders ($ to $$) After all you don’t want to ship product until you find out if the credit card/PayPal account is good. If this is you….yada.

    Someone to think of good ways to promote your books. If this is you….

    The sure and certain knowledge that 4 out of 5 small businesses fail in the first 4 years.

    A day job, because at the end of 4 years, chances are you will need it.

    To sum up, here, to run a small business selling my own books, whether in e- or paper format, I would have to take the odds of 80% failure and the loss of at least 50% of my writing time.

    For the record, when our small (scrapbooking, brick and mortar) business failed, our end result was a loss of over $200k.

    Start a book business myself? That’s the sound of hysterical laughter you hear. Thanks, I think I’ll stab myself in the eye with a fork a few times instead.