Amazon, Macmillan, Apple, and what it says about publishing

[orrenm]

So, buy any good Macmillan books off Amazon this week?

 

For those who haven't kept up, the short of it is:

1) After the announcement of the iPad, Macmillan demanded a similar "agency" pricing model for their Kindle eBooks as they're going to get from Apple from the iBooks store.

 

2) Amazon balked; Macmillan said that's okay, but they'll have to wait a month or so for hit releases, while those who follow the agency pricing model will get them immediately.

 

3) Amazon had a temper tantrum, and yanked all Macmillan books off their virtual shelves. They did this on a Friday afternoon, in the hopes it wouldn't make much news.

 

4) Amazon apparently didn't realize that Macmillan owns Tor, a successful science fiction and fantasy label. Sci-fi and fantasty fans as well as authors are some of the most tech-forward, wired people around. When their books (or their favorite author's books) vanished from Amazon, the Interwebs exploded with their rage and hurt—two corporate giants were slap fighting, but the authors were getting screwed.

 

5) Amazon didn't respond; the CEO of Macmillan explained it from his perspective. This meant that Macmillian and the sci-fi authors/fans were defining the issue; Amazon looked like a petulant child.

 

6) Sunday, Amazon announced they'd have to give into Macmillian, and yet they didn't reinstate them for a week. This made them look like spoiled brats.

 

 

Okay, so that's that, things are back to normal now. But the real question is, what does this say about publishing? Are they losing their grip, and getting scared? Are they clueless? Or just the opposite—are they clued in, realize that they need to own the relationship with the consumer, which is why they rushed to Apple's offer, and used that as leverage to reject Amazon?

 

BTW--I should add that I work for a major publisher that is mostly a textbook publisher; Amazon never sold our Kindle books at $9.99, they all sell for full retail (as will our iBooks Store books). So this is really just an issue that affected "mass market" publishers, not all larger publishers. But this issue of the health of the publishing industry is one that is near and dear to me, being in it.

 

Orren

[Steve E]

Well, I don't know about "petulant" but Amazon did seem like a company trying to defend its pricing model. They understood that giving in to Macmillan would ultimately mean giving in to all publishers, and there goes the model. How will they adjust? Currently Amazon offers a lot of value, including insurance (i.e., they'll let you download more copies of your books into a new Kindle should you lose your old Kindle, for free). Will Amazon be cutting back on the bells and whistles? Not being in the biz, I don't know.

 

But it was good to see that the powers-that-be listen to the SF/Fantasy community.

- Thoth.

[orrenm]

Well, I don't know about "petulant" but Amazon did seem like a company trying to defend its pricing model.

 

Very petulant. Amazon is one of the most tech savvy companies out there--it's amazing how they through that all out the window and forgot all the PR/marketing lessons they'd learned. They didn't threaten this first, they didn't put out a press release saying they had no choice, they didn't say they were sticking up for the consumer, hell they didn't even TELL consumers what was going on, nothing. They let robbed authors, angry fans, and Macmillan's CEO define the issue totally (or think that it was some sort of Amazon technical glitch), thereby guaranteeing that they'd look terrible. It's as if someone at Amazon saw the spectre of Steve Jobs laughing over their slain pricing model and simply freaked out.

 

I think Sci-Fi columnist/author/science consultant John Scalzi summed it up very nicely here:

http://whatever.scalzi.com/2010/02/01/all-...ed-the-weekend/

 

I think a more interesting philosophical issue is that in a sense, Macmillan was fighting for the right to price books higher, not exactly a defensible moral high ground. Not totally, of course—they want the eBook price to match the physical books, so that when a mass market book is hardcover, it's Kindle price would be maybe $15, but then when that book goes paperback, Macmillan wants to drop it to $8 or so. Not be forced into the $10 that Amazon dictates for mass market books. From a consumer point of view, "cheaper is better" but if the only result is an Amazon strangle-hold on the eBook market, does that really help consumers? What publishers were most afraid of is that once Amazon became the only game in town, they'd change the deal so that publishers would end up getting $4 instead of $14, (Amazon currently sells at a loss), and that change would end up ripping the industry apart.

 

So it's interesting that the Internets (and the stock market, interestingly) punished Amazon, siding with the publisher, when in one sense there is an argument that it was in the consumer's best interest to risk the monopoly of Amazon in the long term for cheaper prices in the short term.

 

It's also interesting to note that, as I mentioned, other Kindle books (such as those from Cengage, the company I work for, O'Reilly, etc) are not $9.99, so they're only forcing this on mass market publishers. That sort of "targeted anti-competitive practice" (selling for less than you buy) may not be illegal, but it certainly doesn't lend itself to the argument that Amazon is trying to create a user experience through a uniform pricing model, because at no point has Kindle pricing been uniform. That was Apple's argument with iTunes, initially—everything had the same price point, no exceptions, for the sake of user experience. When the companies balked, Apple dropped that requirement, but in Apple's case, it was clear they were being fair, unlike Amazon in which some major publishers (we are a $2 billion/year company, not a small publisher!) got the deal they wanted, and others didn't.

 

And as ever, it is the authors who are powerless pawns in all of this. Although one modestly good thing might come of this for authors. The Author's Guild has been trying to renegotiate it's eBook royalty deal with Macmillan for a year now. The AG wants 50% royalty on eBooks; Macmillan currently gives 20% (superstar deals excepted, of course). Macmillan, as part of riding the goodwill they've earned over this one, they're ready to raise the royalty rate to at least 25% (unlike Amazon, Macmillan realizes that if they want to keep the consumers/authors on their side, they have to actually put their money where their corporate mouth is, even if it's just a token).

 

Another philosophical question is do we (putting on my novelist hat) need the publishing industry? With the cost of P.O.D. and eBooks down to the point that self-publication is a viable option for anyone, have the major publishers finally become obsolete? This is an important question to me, both as a writer (do I need to get a publisher for my novels?) and as an acquisitions editor (I love my job! Don't take my industry away!). But all of these things—the role of eBooks in the marketplace, up-and-coming self-publishing distributors/retailers like Smashwords (www.smashwords.com) who can get books into B&N, Amazon/Kindle, Sony, and I'm sure Apple's eBook store as well as their own, the health of the major publishers, etc—are of deep import to us as authors, looking to find a readership (even if a free readership for ego purposes only).

 

Take care,

Orren

[Steve E]

Whew! Well, nobody can say you don't have an opinion. In any event, I enjoyed John Scalzi article and its 375 (so far) responses. I direct you to comment #372 (by stevie) and add, no one really knows what's going on in other person's mind (except for telepaths) and none of us were in the room to observe the strategy sessions (which might have been cool and collected rather than childishly sulky or bad-tempered). We just don't know that Amazon pulled all those books in a fit of petulance. All those adjectives in your post and John Scalzi's article are entertaining but they are merely supposition.

 

That said, yes, I'm on the authors' side but I'm also on the readers' side. I don't want authors to starve nor do I want to pay an arm and a leg to support my nasty reading habit. As for Amazon versus Macmillan: if Amazon can still turn huge profits selling at a loss then God Bless Them. If Macmillan wants to charge more elsewhere, More Power To Them. Macmillan might have embraced Amazon pulling one-sixth of their inventory, creating a monopoly at the higher price, but they didn't. They want the Amazon venue.

 

All's well that ends well?

- Thoth.

[orrenm]

Whew! Well, nobody can say you don't have an opinion.

 

I don't think anyone ever has. But I think even the least opinionated people generally get an opinion when (potentially) their livelihood is on the line.

 

I don't want authors to starve nor do I want to pay an arm and a leg to support my nasty reading habit.

 

I think most people feel that way. Even the people who steal music and video off the internet rarely do it because in their hearts, the image of musicians and filmmakers and writers (and their families) living in homeless shelters fills them with joy.

 

The real question is, how much is "an arm and a leg?" Does it differ depending on the specific work ("I'll pay $15 to see Avatar in 3D but only $1 DVD rental to see Moon") or is it absolute ("Any more than $5 to see a movie is robbery! No way ever!")

 

And the ancillary question is (and what this whole fuss is about): who should get to decide? The producer? The retailer? Or ultimately, the consumer?

 

Interesting questions, interesting times!

 

Orren

[Steve E]

The real question is, how much is "an arm and a leg?" Does it differ depending on the specific work ("I'll pay $15 to see Avatar in 3D but only $1 DVD rental to see "Moon") or is it absolute ("Any more than $5 to see a movie is robbery! No way ever!")

I've always felt that how much is too much, and for what, is a very subjective question.

 

...who should get to decide? The producer? The retailer? Or ultimately, the consumer?

Ultimately, "the market" will decide, unless we (the producers/retailers/consumers) permit a monopoly. Of course "the market" doesn't produce the best (for any one individual) price, just one that can endure. It's a lot like evolution that way; Not the best, just what works for the long term. (I always felt, in the grimmer corners of my mind, that creative intelligence is a godlike quality that is likely to prove to be an evolutionary dead end.)

 

Fun Fact: "Moon" director Duncan Jones is the son of musician David Bowie (David Jones).

It's a small, small world.

- Thoth.

[hase]

(I always felt, in the grimmer corners of my mind, that creative intelligence is a godlike quality that is likely to prove to be an evolutionary dead end.)

 

Funny thought, there. My wife is currently (well, she's still at it, really...takes some time) busy researching a long article (maybe short book) currently titled "Intelligence is the wrong way", where any form of intelligence turns out to be a dead end, evolutionary.

[Steve E]

Funny thought, there. My wife is currently (well, she's still at it, really...takes some time) busy researching a long article (maybe short book) currently titled "Intelligence is the wrong way", where any form of intelligence turns out to be a dead end, evolutionary.

Ah. Great (dark) minds think alike.

 

She might want to look in the late Carl Sagan's commentary on the Drake Equation (which estimates the number of civilizations in our galaxy with which communication might be possible). He felt that the equation should be adjusted for the ability of technological civilizations to avoid self-destruction. Intelligence inevitably destroying itself has also been suggested as a possible solution to the Fermi paradox.

 

Why intelligence might be an evolutionary dead end is another matter. I've heard only two reasonable arguments. (1) Our intelligence allows us to develop weapons capable of damaging the world to the point where we can't exist in it. (2) Our intelligence allows us to consume ourselves to death, taking from the Earth so much that she can no longer sustain human life. I don't consider space invasion (to snuff out those uppity earthlings) or the Grey Goo scenario (molecular nanotechnology devouring the world) nearly as likely.

 

Please let me know if/when and where the article/book gets published. I'd like to read it. (Gotta feed the Dark Side, don'cha know.)

- Thoth.

[orrenm]

Why intelligence might be an evolutionary dead end is another matter. I've heard only two reasonable arguments. (1) Our intelligence allows us to develop weapons capable of damaging the world to the point where we can't exist in it. (2) Our intelligence allows us to consume ourselves to death, taking from the Earth so much that she can no longer sustain human life.

 

But because that is true for humanity, or for intelligence on earth, is not to say that it absolutely must be the same everywhere. Imagine a world that is far more hostile to living than earth is. A world in which the majority of life forms go extinct not from competition for limited resources, but from an environment so harsh it wipes them out after only a few million years, hardly an evolutionary blink of an eye. It is conceivable, in such an environment, that evolution might favor those species that develop a massive collective intelligence, an ability to pool their resources and survive their harsh conditions together—and the more intelligent they are, the more they work together, the more they can reproduce and thrive. Such an environment would reward "altruistic socialism" in a way that our relatively pleasant environment does not. And such a species might not have the competitive drive we do, because they do not compete with each other.

 

Not to say that I'm designing such a species for a sci-fi novel I'm working on...

 

Orren

[codemer]

Interesting questions, interesting times!

 

See what happens when I don't read the forums for a couple days? I miss the juicy stuff.

 

As a reader, eBooks are a rip off. Pure and simple. I already had to pay through the nose for a device to read the books on, and now the greedy publishers have gone and cut out the production and distribution costs almost completely, and they won't give me a price break. Greed! Well, I'll show them! We have several lovely *used* book stores in town. Bwahahahaha!

 

I compare the ebook pricing situation to digital music downloads. The CEO of Warner -- commenting on the slower growth of their digital music distribution last year -- said something like, "Maybe it wasn't a good idea to raise music prices 30% during a recession." No friggin' duh! I'm so glad to see the well read book publishers wouldn't make the same mistake... oh. In related news, I've read that other publishers are not as keen on the agent model. The fact that stores *can* sell books at a loss means that the publisher didn't have to discount the book. That's good for the publisher, right?

 

As an amateur writer, I look at the self publishing option as a viable alternative, but what's my market size? Sure, it's a heck of a lot easier to get published. Sure, someone may read my stuff. If a publisher is going to get my book into Borders and Barnes&Noble, though, I thing my odds of picking up readers are a lot higher. That's how I shop for books. I sit in the store and start reading chapter 1. Even if some of these self publishing options will get you in some book stores and on Amazon, are there any numbers to back up the success rate of their distribution? Just because your book is marketed to a book store doesn't mean the book store carries it.

 

IF

[codemer]

But because that is true for humanity, or for intelligence on earth, is not to say that it absolutely must be the same everywhere. Imagine a world that is far more hostile to living than earth is. A world in which the majority of life forms go extinct not from competition for limited resources, but from an environment so harsh it wipes them out after only a few million years, hardly an evolutionary blink of an eye. It is conceivable, in such an environment, that evolution might favor those species that develop a massive collective intelligence, an ability to pool their resources and survive their harsh conditions together—and the more intelligent they are, the more they work together, the more they can reproduce and thrive. Such an environment would reward "altruistic socialism" in a way that our relatively pleasant environment does not. And such a species might not have the competitive drive we do, because they do not compete with each other.

 

They sound like they'd make great slaves for us? Where can we find them?

 

IF

[orrenm]

As a reader, eBooks are a rip off. Pure and simple. I already had to pay through the nose for a device to read the books on, and now the greedy publishers have gone and cut out the production and distribution costs almost completely, and they won't give me a price break.

 

You'd be shocked at how little of the final price production and distribution costs. Most of the money is spent on paying for professionals—editors, layout designers, proofreaders, cover artists, and if non-fiction you can add technical editors, indexers, and other professionals. Those professionals don't come cheap, and cost more every year (standard of living increases, etc). You can reduce your costs to some degree (we, for example, outsource much of our layouts that don't need a custom layout to India) but not by much. Production and distribution are very minor in the grand scheme, and big publishers usually get bulk discounts from printers and shippers.

 

The CEO of Macmillan said that production/distribution accounts for about $1.60 of the wholesale price of a hardback book they produce, and that sounds like it's definitely in the right ball park to me.

 

Now, if you figure wholesale at 50% of retail (our deal is actually worse than that, B&N demands a steeper discount...), that means that a publisher (say Macmillan) would get paid about $15 for a hardback book. That price covers the costs of the professionals, production/distribution, operating expenses, and profit. Take out the production and distribution, and they could charge $13.40 and not cut into the costs + profit they make.

 

So when Amazon sells a Kindle book for $9.99 and pays the publisher $14.50 (which is what the rumors say they are paying), the publisher isn't hurt by it, the consumer wins, etc. But how long do you think Amazon is going to keep losing $5 per book? What happens when Kindle books outsell hardbacks, Amazon starts losing so much money it affects their profits—and by establishing a complete monopoly on eBooks, they own the market? What happens is that they change the rules, and only pay the publisher $5 instead of $14.50, and that has massive repercussions in the industry:

 

* The first people to take it in the behind will be the authors. Royalties will be slashed to nothing. Advances will drop (they already have) to nothing. Most amateurs will not have any change at all to ever get professionally published. Those that do will not be able to make a living at writing anyway, unless they have 10 books, each selling well, because even hot sellers will only be paying authors $4000/year per book.

 

* Once the industry has screwed it's authors to the point that nobody is writing anymore, all but a very, very few editors will lose their jobs. You'll be able to find me standing on the street corners in Southern California with a sign saying "Will edit for food."

 

* Once there are no more editors to fire, executive managers will start firing middle managers. Of course, middle managers did far less for the company than the editors did, but managers never fire themselves when they have employees they can fire first.

 

* Readers are by now complaining that there are hardly any books being published, and they're all bad, and where did all the good books go? And so less reading is done overall.

 

Anyway, all this is to say that it's a misunderstanding to think that because a book is coming to you electronically, there were no costs associated with it, or that the major cost was printing/distribution. Those are costs, absolutely, but in the big picture it is the content creation that is the major expense. There's definitely a lot of ways to cut costs without reducing quality, and I'd love to see a streamlined publishing industry that doesn't screw over it's authors and professionals and allows for a price point that consumers can live with, resulting in a vibrant market for books. I'm one of those saps who believes that it is our art (books, music, movies, etc) that defines us, and the more we produce, the more "value" our culture has. So while want as close to a free lunch as I can get (trust me, editors are poorly paid!) I want those businesses that underwrite art to be viable as well.

 

Thoth, what was that you were saying about having an opinion?

 

Orren

[Steve E]

...

Thoth, what was that you were saying about having an opinion?

...

That no one can say you don't have one.

 

(Off-thread comment: "Massive collective intelligence" or "altruistic socialism" does exist on Earth...in insects. And they seem to be doing pretty well even without human-like creative intelligence. You know, the kind of creative intelligence that paints La Gioconda and deliberately infects blankets with smallpox. )

 

And now, back to our thread.

- Thoth.

[codemer]

Anyway, all this is to say that it's a misunderstanding to think that because a book is coming to you electronically, there were no costs associated with it, or that the major cost was printing/distribution. Those are costs, absolutely, but in the big picture it is the content creation that is the major expense. There's definitely a lot of ways to cut costs without reducing quality, and I'd love to see a streamlined publishing industry that doesn't screw over it's authors and professionals and allows for a price point that consumers can live with, resulting in a vibrant market for books. I'm one of those saps who believes that it is our art (books, music, movies, etc) that defines us, and the more we produce, the more "value" our culture has. So while want as close to a free lunch as I can get (trust me, editors are poorly paid!) I want those businesses that underwrite art to be viable as well.

 

While I think your argument has merit, I have to come back as a reader (and possibly a cheapskate). Perceived value vs. actual value. Which is more important to a consumer? I rarely buy hard cover books. To me, an e-reader is a convenience, and I might be willing to buy a real one instead of using my phone if book prices become more realistic. When I talk about production costs, I am referring to printing. Pre-production costs work similarly in books, video games, music, and movies. I want the packaging discount. Maybe it's only $1-2, but that shows that the publishers are paying attention.

 

Sure Amazon subsidizes ebook prices while they're making a killing on the Kindle. DRM doesn't add consumer value in my opinion. I want to own what I buy, and move it to what ever device I want, and not have any external force keeping me from reselling my book. Losing the ability to resell my book cuts its value.

 

Should I be willing to continue to spend more on Book A to cover the losses the publisher experienced when it couldn't sell Book B? This is E-conomy 2.0, right?

 

I don't want to see you out on a street corner. I just see change coming, and I don't think the executives running the show see the big picture. All it will take is for someone to come up with a way to present an online catalog that rivals the bookstore experience, and someone like Google will snatch it up. If Amazon wants a bigger cut, then cut they will be cut out. Once distribution moves to 70-80% digital, who needs Amazon or B&N anymore? Big publishers will go to direct digital distribution just like the little guys do today. I just need a good catalog, and the online book sellers will have to compete in that space instead.

 

IF

[marguerite]

On the whole, I agree with Isaac. As I understand it, what really happened here is that Apple needed publishers to sign on to its i-Bookstore to highlight the iPad as a reading device. That put Apple in a weaker negotiating position than Amazon.com and opened the door for the big publishing houses to demand higher prices, which they had wanted all along.

 

Orren is right: the publishers don't save as much on printing and distribution costs as the reading public would like to think (and although design costs for a Kindle book must be minimal, until all books are electronic, the designers, printers, truckers, etc., still need to be paid). But how much of the extra $5 will actually go to the authors? How much to spiffing up corporate headquarters and keeping upper management happy? If a book costs $2.99 on the Kindle Store but the author gets 70%, that author gets $2/copy. At $14.99 and 5%, the author gets 75¢.

 

And what the publishers are ignoring is the psychology of readers. I will buy a Kindle book for $9.99 rather than wait a year for it to be released in paperback so I can save $2. If the publisher holds the book for six months or charges $14.99, I will do what I have always done with print books: wait for the price to come down and/or get the book from the library. And I am not alone: see yesterday's New York Times. So the publisher doesn't make $5 more but $2 (or whatever) less.

 

I'd pay more for academic books, which often sell for $50-$100 a pop, but not for commercial books. I don't pay that now, so why would I pay it for an e-book? So to that extent I agree with Isaac. The market is changing, and if the publishers don't recognize that, they will lose out. And then the editors, authors, designers, and so on will lose too (or, more likely, change—because there will still be a need for someone to edit, design, and write e-books).

 

I would also like to see either the end of DRM or an intelligent DRM that made it possible to lend and permanently transfer books, as well as more devices like the iPad, which will read ePub but also run (I assume) the iPhone apps for the Kindle and the B&N e-reader, so that at least I'll be able to shop for the best prices and read all the books on one device.

To be continued,

Marguerite

[orrenm]

If a book costs $2.99 on the Kindle Store but the author gets 70%, that author gets $2/copy. At $14.99 and 5%, the author gets 75¢

 

That is true, but the devil is in the details. The fine print of Amazon's 70/30 split are pretty atrocious.

 

From: http://www.antipope.org/charlie/blog-stati...-outsiders.html

 

to get the 30% rate, you have to agree that Amazon is a publisher, license your rights to Amazon to publish through the Kindle platform, guarantee that you will not allow other ebook editions to sell for less than the Kindle price, and let Amazon set that price, with a ceiling of $9.99. In other words, Amazon choose how much to pay you, while using your books to undercut any possible rivals (including the paper editions you still sell).

 

Honestly, as a self-publisher, you're better off going with the deal they gave Smashwords, where you still own everything and get around 45%.

 

Orren

[marguerite]

That is true, but the devil is in the details. The fine print of Amazon's 70/30 split are pretty atrocious.

 

From: http://www.antipope.org/charlie/blog-stati...-outsiders.html

 

 

 

Honestly, as a self-publisher, you're better off going with the deal they gave Smashwords, where you still own everything and get around 45%.

 

Orren

All true, but the big point holds: 45% of $2 is still more than 5% of $15, as far as the author's concerned. There are other factors to consider: the prestige of publication by Macmillan vs. Smashwords, the delights of seeing your (or any) book in print and holding it in your hands, etc. And frankly, I don't want to find myself out of a job any more than you do. But I think that whether we (or Macmillan) like it or not, e-books will change the market, if not now then in the next decade as they become established. The change is likely to take forms we can't anticipate right now, although what has already happened in music and is happening in movies and TV act as indicators. And the people and companies who can't adapt will lose. C'est la vie—if only la vie capitaliste.

Best,

M