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Amazon, Macmillan: an outsider's guide to the fight

(Apologies for the formatting; I'm typing this on a netbook with a tiny keyboard.)

Last Friday, Amazon.com unilaterally pulled most or all of Macmillan's books (edit: including all paper editions, not just electronic) from their online store. (You can still find them via afilliates or second-hand stores, but Amazon themselves won't sell them to you. Note that this only affects me via my Merchant Princes books — published by Tor, a Macmillan subsidiary — in the US Amazon store. My Ace titles are safe ... for now.)

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.

(Note that Amazon have been trying to grab a larger share of the cake by dipping into the publishers -- and the authors -- share of what meagre profits there are (book publishing is notoriously, uniquely unprofitable, within the media world), even though they've already got the wholesale and retail supply chains stitched up. Their buy wholesale/sell retail model screws publishers' ability to manage their cash flow and tends to induce price wars on the supply side, which is okay if we're talking widgets with a range of competing suppliers, but books are individually unique products and the industry already runs on alarmingly narrow margins: this isn't the music or movie biz.)

Now, as to pricing and DRM -- those issues are entirely irrelevant -- at least at this stage of affairs. They're different battles. For what it's worth, the ePub format Apple, Sony, Baen, and everybody except Amazon are going with doesn't mandate DRM (although it provides an optional vendor-specified DRM layer). The DRM push comes from the board level of the corporations who own both the book publishers and the music vendors, and individual editors and publishers know it's crap. This is a battle that'll be lost or won within the publishers.

Pricing ... we sell books by reverse auction, most expensive editions first, then cheaper editions, then mass market, until we get to the remainder shelves. What any sane publisher would like to do is to get away from the current crude fixed-price points -- a system they can't do anything about right now because it's locked in via the wholesale/retail distribution model -- and get round to flexible pricing on books: start selling high, then drop the price incrementally with much higher granularity than is currently possible. Such a system would allow them to get a lock on the price elasticity of demand, and thus work out the price point at which they can maximize book sales. A fixed-percentage agency model (distributor takes a flat 30 or 35%, whatever the price, while the price is set by the publisher) lets them do that.

It's interesting to note that unlike the music industry who had to be pushed, the big publishers seem to be willing to grab a passing lifeline.

Final note: to customers, Amazon would like to be a monopoly (i.e. the only store in town). To suppliers, Amazon would like to be a monopsony (i.e. the only customer in town). Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everyubody's nuts -- the authors, the customers, everyone. They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily. And if you think things would be different if I, Charlie Stross, went into self-publishing and sold my wares directly without any icky publisher to 'help' me ... do you really think I'd get better terms out of Amazon than a huge publishing conglomerate?

Whether this means Macmillan is any better placed to adapt to the post-internet order is an entirely separate issue which I can't begin to address here.

But Amazon, in declaring war on Macmillan in this underhand way, have screwed me, and I tend to take that personally, because they didn't need to do that.

[Edit]: Just before Apple announced the iPad and the agency deal for ebooks, Amazon pre-empted by announcing an option for publishing ebooks in which they would graciously reduce their cut from 70% to 30%, "same as Apple". From a distance this looks competitive, but the devil is in the small print; 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). It shouldn't surprise anyone that the major publishers don't think very highly of this offer ...[/Edit]

And more: Here's Tobias Buckell's take on the situation, for a different angle.

182 Comments

1:

Wondering if the 'Net Book Agreement' would be seen as such a bad thing if it was reintroduced now.

2:

Thank you for laying this out so clearly. I was an Amazon Prime frequent shopper until I read your post. No more. (I think my Great American "Windows for Blockheads" book brought me about fifty cents per hour. It's a tough trade.)

3:

The claim that Amazon are taking all the wholesale and retail profits doesn't entirely hold water. It would if they were selling their books at retail, but they, for the most part, aren't. The reason consumers like Amazon is that they've taken the wholesale+retail part and split those profits with the consumers in the form of discounts.

Particularly as Amazon moves (via their recommendations and other publicity services) to doing more of the heavy lifting formerly done by publishers, expecting them to sit quietly in a corner and have prices dictated to them is unreasonable. What they should do is offer all MacMillan titles for sale but remove all discounts, discoverability, review, recommendations and other stuff Amazon actually uses to sell publisher's books. I forsee a world of hard lessons for the publisher at that point.

B>

4:

Just another data point in the continuing saga of re-imagining the broken book industry. I feel a need for a detailed examination of every part of the process from original thought to the act of reading in the same style as the (r)evolution in the music process from thought to listening. We need better tools at every stage but especially one's that democratise and de-centralise thus reducing our dependence on the industry elephants. In particular, on the voyage from Charles' VIM to my eyeballs, why do Tor, Macmillan, Amazon dominate the process? Can't we do an end run around all of them?

The comments about Amazon being both Wholesaler and Retailer and disintermediating the supply chain bother me. When retailers get big enough they inevitably buy direct. Think Tesco, Walmart. This isn't dis-intermediation it's re-intermediation. As well as disintermediating Amazon (Tesco-Walmart), we also need to disintermediate the big publishing houses that roll up the efforts of the small publishers. Why does Tor have to abide by Macmillan's political manouevering? First can't Tor sell direct into Amazon, and second, why can't Tor sell direct? And because the second one is hard, where's the cloud computing service that handles sales and delivery for a fixed fee? At which point, I expect Google to extend Google checkout at some stage in the future and go into direct competition with Amazon but in a way that democratises the process so anyone, no matter how small, can play.

Meanwhile, as Macmillan and Amazon have their spat, who actually suffers? A publisher that keeps books off the market by refusing to deal with a retailer is no different from one that won't do a print run and keeps books in the "out-of-print" state. Which is not a lot different from a book that is kept off the market due to censorship.

5:

Julian: these are all good questions that demand consideration.

I will add, however, that right now ebooks amount to less than 5% of my income stream -- and I can't sensibly afford to go 100%-electronic direct-sales-to-reader on my own until I can sell enough ebooks to survive. I reckon that point won't even be within eyeball distance until ebooks are selling 5-10 times as much by volume as they are today. Meaning, at current growth rates, circa 2013-2014 at the earliest.

6:

Isn't it the "Fixed Price" bit that Amazon is objecting to? If the price is fixed by the publisher then that leaves them no room to maneuver, and basically takes away all of their market power.

I have no objection to MacMillan raising the prices they sell to their wholesalers, but they have no business setting the prices that the books are sold on at.

7:

is Amazon overrating their own market dominance? I've been considering buying a Kindle for a little while (although given I'd partially use it for reading Charlie's work it seems a little inappropriate now) mainly on the purely technical grounds that it's been the most readable reader I've tried, particularly with Sony's premature dabbling in touch-screens. But with the plethora of similar readers coming out soon (not to mention the iPad) I'd be more than happy buying from a competitor. I'm just struggling to see where the natural monopoly lies.

8:

I dont' know much about this wholesaler thing; in smaller markets they don't exist at all as far as I know, so there already an existing model without a wholesaler. The thing to remember is that the Kindle is not just a publishing platform - it's also a physical piece of hardware you have to buy. Amazon doesn't haggle over the price so they can take a bigger cut of the book sales, they need e-books to be priced more competitively so they can convince more readers to buy a Kindle - for which they rake in 100% of the profits (argument nicked from Scalzi).

9:

Charlie - I'd question whether book publishing is actually that different from the recorded music industry. (In both cases, the vast majority of titles, numerically, and unprofitable). Although the music industry can evidently sustain a bigger independent sector than publishing.

>(via their recommendations and other publicity services)
> to doing more of the heavy lifting formerly done by publishers

What heavy lifting? I'm presuming that to get on the 'front page' of a lot of Amazon sections or emails is pretty much the same as getting shelf placement in supermarkets - i.e. Amazon will be getting publishers to complete for limited marketing space, most likely through discount.

And the recommendation system isn't that great - you end up trapped in a circle, that is hard to break into and out of - i.e. it never suggests that someone buying Joanna Newsom's 'Ys' might enjoy the Family Elan - even though musically, this is quite likely - instead, it recommends other Newsom albums, and Florence and The Machine,- i.e. musically unlike, but probably with the highest number of common buyers.

The same generally applies with books. I just played a game of 'How do I get from Alistair Reynolds to Charles Stross' - and it took 6 pages before I finally got a match ('House of Suns') - the only Reynolds book to recommend anything OTHER than other Reynolds books.

10:

John Scalzi has sonm useful observations here:

http://whatever.scalzi.com/2010/01/30/a-quick-note-on-ebook-pricing/

The bottom line is: Amazon have Kindles to sell, and if you, the publisher, don't make your books available on Amazon's eBook reader, on terms and prices that Amazon dictate, then Amazon will exclude everything you publish from the The world's dominant online bookstore.

This is exactly the behaviour that the EC's Monopoloies Comission and America's Anti-Trust legislation exists to prevent.

In the meantime, please post a link to a rival online bookstore that works: Barnes & Noble are quite difficult to find and use from the United Kingdom - it's often easier to just give up and suck up the delivery costs from their US operation.

11:

Thing is, I do not want to pay the same for a DRM encumbered electronic copy as I do for a dead tree edition. MacMillan wanted to price their precious eBooks like they were dead tree. Amazon sells regular books at a discount - they bought the stock, they can do that. They are a retailer, they pay for warehouse space, stockers, pickers, and inventory management.

So the suppliers don't get to tell retailers what price they have to sell their goods for - that's called "price fixing". What MacMillan is trying to do is engage in price fixing with Amazon and Apple. Amazon said no, and refused to do business with a company that tried to blackmail it into price fixing.

Yes, eBooks are a weird bird - they aren't physical inventory, they are licensed content. However, this could be solved by selling "units" (licenses) like many site licenses of software is sold. Then a retailer could either burn the "unit" to media and sell it that way, sell it to a given user for their library (unlimited download of their copy), or whatever.

12:

@7, there's no natural monopoly here. All the big players are trying to create a synthetic monopoly, by whatever means necessary. We can only hope they fail.

My own prediction is that in a year or three when the technology has settled a bit more, we're going to see something like lulu (or even lulu itself) emerge as a player here - authors push their content in some reasonably generic format, and a bunch of automation drops it into a web store at whatever price they set, with very little margin because no people were involved. It will obviously take a long time for existing contracts to run out so that established authors can switch to a service like that, but there doesn't seem to be any reason why it won't happen.

13:

I'm sorry but I'm not sure I get all of this. Apple comes along with grand stories of how publishers and authors can make more money and people buy this? Ask the music industry how that worked out with iTunes and the iPod. When the record labels wanted a more flexible model for pricing Apple told them to pack sand. So what's so difference in this case? Its because Apple does not have the stranglehold on the E-Book market that they have with the music industry.

Once they get it though you can believe that the flexible model that authors and publishers are looking for won't be so so flexible anymore.

Good Luck

14:

Heh, at least all this kaboodle lead me to discovering http://www.bookdepository.co.uk/ . If I can buy a paperback for 5 quid with free worldwide delivery, why would I buy a 10 quid e-book that often I cann't even download in my neck of the woods (Latvia, Eastern EU).

The e-books are crippled by the distributors - if anyone anywhere in the would would be able to buy an e-book at any time and download it instantly for the same price as a paperback (with an option to re-download it later and without DRM) and pay for that with all possible payment options (including credit cards, PayPal, Google Checkout, WebMoney, whatever is popular in China and India, ...), then e-books can really take off in real and actual sales.

Currently it is much simpler, cheaper and faster to find a torrent of a book or to buy a paperback. And that is the fault of the distribution chains being too long and too complex for the new Internet.

P.S. I do hope you get a fair share from the BookDepository sales.

15:

Now the days of proprietary selling are gone. New things are coming up and if there is any substance in the literary works, ther outlets are there. The writers will get their share and credentials by all means.

16:

Thank you for this post which clarifies everything.

Initially I thought that both corporations were acting like dicks - but now I can see that they are both acting as rational profit maximisers given that there is no certain information as to which business model will succeed.

As described here the two models are indeed radically incompatible and the victory of one side requires nothing less than the subjugation of the other - if Macmillan wins Amazon ends up as a passive retail agent with no real control over its marketing and pricing, if Amazon wins Macmillan (and by extension other publishers) become mere content providers.

I really can't see any good coming from this battle of multinational corporations over who ends up with monopoly/sony control over e-publishing.

17:

Why are publishers not being more aggressive about selling ebooks direct to consumers? I understand how the current distribution model for real books developed, and why it continues to exist, but with little or no physical inventory to store or ship, it becomes a very different issue. Some publishers did have company stores in the past; these could return.

Also, it would be in the publisher's best interest, I think, to support a single, open standard for format, such as epub or pdf, rather than allow hardware makers, whether they be Apple or Amazon, to have a lock on a proprietary format.

And large retailers buying direct from publishers isn't new or unique to Amazon.

18:

So let's see, I think commenters have debunked the monopoly claim pretty well. There's actually a good deal of competition in the space. Further, based on the timing of things, it seems that while Amazon is no angel, neither is MacMillan.

MacMillan tried to use their contract with Apple (and the iPad) to compel Amazon to fix prices. Unlike others, I think that is entirely fine for MacMillan to do. Just as I see no issue with Amazon deciding to take their toys and go home.

MacMillan has products and they want them sold a certain way. Ok, it is a free market, so they are trying to dictate exactly how they sell the "stuff" they have to sell. If a buyer has a problem with it -- too bad, that's how they choose to sell.

Amazon, as the buyer, doesn't have to like what the seller is doing and is not compelled to buy.

This all seems very fair to me. Seller controls their piece, buyer controls theirs. From where I stand, this is a simple effective demonstration of market forces.

Of course, it is not so simple. Both parties work as something of agents for others as well as being buyers and seller.

In the end, this all leads me to join the conclusion others have reached. The issue isn't about any inherent unfairness from Amazon or MacMillan. They're both working within a market context (ce la vie, ce la guerre). This drama is playing out in a way that supports market forces. To me, the issue has nothing to do with claims of broken economies. Rather, the need here is to shift who is selling, and who is buying.

With the pixelization of books, cost of entry in publishing has dropped. It is becoming more feasible to self publish. I respect on face value from Charlie that this currently has not proven to work as an effective business model. However, it seems inevitable it will work. As markets shift, economies transition. Many businesses on the Internet today (think Facebook for one) would have been epic failures a decade ago. Such may be the case for more independent digital book publishing in 2010.

I understand the hand wringing (feeding the family, and all), and the frustration -- however I think you are misguided in directing it at one of the actors in this transaction. Markets transition, buying models shift, and either you can wait for it to happen passively (which appears to be Charlie's current approach), or you can help take control and guide the change. That worked out pretty well for Larry Page, Sergey Brin, Mark Zuckerberg, Steve Jobs, as well as, Jeff Bezos. Though individual gain need not be so front and center in a successful transition, just ask Jimmy Wales about that.

19:

I became an Amazon.de customer in 1999 because they had english language titles on offer at prices that were direct DM conversions of their discounted amazon.com prices. When they changed this practice in about 2005 (not sure about the year here) I notified them per e-mail about my disappointment in them and switched the bulk of my book purchases uver the the B&N partner bol.de, who is on average between 10-25% cheaper than amazon, albeit with longer shipping times. I only bought on Amazon from then on in the rare cases both prices were identical or I couldn't nowadays as a search engine for books I acquire at other internet stores. As for e-books I do very much like my PRS-505 (I'm in the "backlit LCD hurts my head" camp that prefers e-ink) but the only for-pay e-books I feed it with are webscription books and those multiformat DRM free titles on offer on fictionwise et.al. that are likewise on offer at about 60-80% of paperback price. I also do enjoy the various free, copyright expired, titles available from a plethora of sites very much.
I used to spend between 75-150€ a month on books at amazon.de, the entire past holiday season and this year it's less than 7€ IIRC.
As to e-book pricing, e-books will sell at the price the customer is willing to pay. I don't see a large enough number of customers willing to pay more for an e-book, provided it's DRM free, than 80% (and that's already high range) of the cheapest price the the book sells at that moment in haptic form, which especially includes discounted titles. Come on, who is willing to pay 90% of hardcover list price for a DRM'ed format locked e-book when the actual hardcover is available with a 25-30% discount on list price in most chain-bookstores and internet stores from the moment of publication?

20:

"And if you think things would be different if I, Charlie Stross, went into self-publishing and sold my wares directly without any icky publisher to 'help' me ... do you really think I'd get better terms out of Amazon than a huge publishing conglomerate?"

Where does the new 70-30 split Amazon announced (in emulation of Apple's announced plans) fit into the above? It sounds to me that potentially publishers would earn as much from a $10 e-book as they would from a $28 hardcover with this particular split. It's hard to see how, in the short term, that's a bad deal for anyone. Now, the long term fear, I suppose, is that once Amazon establishes a monopoly, they'll drive prices further and further down.

The other part of it is that it makes no sense to me to ever pay $15 for an e-book unless I get some genuine value for the price -- for example, if it were published a month before the street release date for the printed book, I could see that.

21:

It's certainly all interesting. Amazon's implicit message to customers has always been "You can get anything you want"-- at a good price, dependably, and with superior service. I'm impressed/surprised that they are willing to endanger that message, and if I was an Amazon competitor I'd make sure that everyone understands that Amazon isn't always the disinterested disintermediator that they appear to be.

22:

My take on the situation here. Bottom-line: ebooks are not the same as physical books, and charging the same prices for them is not tenable, and will just train an entire generation of readers to look on the DarkNet for books rather than pay for them. (This was what happened when Napster got killed --- it wasn't a good thing for the music industry)

Seriously, the publishing industry should be trying to get the next generation of readers hooked on $5 ebooks the way the current generation of readers got hooked on cheap pulp magazines. Otherwise, it's just going watch the number of readers shrink --- we have other entertainment options.

23:

Ello@19:Amazon's new 70-30 split is not an emulation of Apple's announced plans. You only get the favorable split if Kindle Digital Text Platform publishes your ebook. i.e., not only does Amazon want to be the wholesaler and bookstore, it also wants to be the publisher.

(I haven't read all the terms and conditions. I get the impression though that they can change them whenever they want, and authors are free to take them or leave them. This doesn't make me think that anyone involved is paying much attention to authors' interest.)

Shane@13: But record publishers got their flexible pricing.

Raven_A@11: If what is happening is "price fixing," then how have Apple and the music producers gotten away with it for so long? What Macmillan is suggesting is a fundamental change in the way Amazon works for ebooks. (i.e., treat them like AACs at the iTMS.) I'm not surprised that Amazon doesn't want to do that, but what Macmillan is proposing isn't illegal any more than setting the "Buy It Now" price at ebay is illegal. (But to reiterate, it does turn Amazon into something different from what it is now.)

24:

I hope I'm not abusing our Esteemed Host's hospitality, but I posted this comment at the tail end of the last entry, just before this entry was posted.

I'm sure our Esteemed Host would also be in the pox==bothhouses camp, but for the fact he is, at present and for the foreseeable future, a tenant in one of those houses, though he's well cognizant of the future, and is planning accordingly.

The single driving factor in the book biz has always been friction, whether it's between the author and the printing press (editing), the printing press and the bookstore (manufacture and distribution), or the bookstore and publisher, and the customer (advertising and promotion).

This has allowed a number of business models to grow, which are completely unsupportable in a frictionless environment.

The first against the wall are the general audience bookstores, and not because of ebooks, or Amazon, or at least not directly because of Amazon. They're dead because sustaining a few thousand feet of inventory on a bewildering variety of subjects is a losing proposition, especially in the internet age, though not directly because of it. The internet and Amazon only magnify the insanity.

The next up against the wall are the infinite fungibles of copyrights. At some point, all concerned are going to have to sort through what exactly constitutes a legitimate demarcation of copyright, and what constitutes rent seeking business model protectionism. In the latter category, expect to see regionalization going up against the wall (note that regionalization is distinct from translation), as there is absolutely no need for regionilization in an ebook economy.

We're going to be stuck with editorial services, and that's no bad thing, and promotion and marketing, which will be the same but different.

25:

Ravan_A @11

From what I read from John Sargent of Macmillan, they don't want to sell ebooks at the same price as dead tree, just at a higher price than Amazon's $9.99 ceiling for best-sellers.

As someone who uses ebooks to replace mass-market paperbacks, I'm not so concerned about whether hardcover bestsellers are $9.99 or $15. Either is lower than hardcover list, and satisfies the "get it while it's hot" craving. I can live with that. What is of concern to me is the pricing of books currently in mass-market paperback; I don't want to pay more than $6-8 for those books.

If the Macmillan system lowers my cost for "paperbacks" I'll be fine with it.

As for Amazon's dead tree pricing, John Sargent's statement implied they won't be trying to change that, so new hardcovers will still be available at discounted prices.

For those interested, here's the link.

http://shelf-life.ew.com/2010/01/30/amazon-macmillan-pulls-books/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+entertainmentweekly%2Fshelf-life+%28Entertainment+Weekly%27s+Shelf+Life%29

26:

Amazon are the good guys here.

Macmillan want Amazon to pay the same wholesale price for an ebook as for a hardback book. The wholesale price of a hardback book includes all Macmillan's costs in printing, storing, distributing, tallying and remaindering. Costs that don't exist for ebooks.

Macmillan prefer the Apple model of monopoly control - one format, price fixed, no flexibility on either point. They want to lock that all in place now. They want to treat an ebook as just an 'edition', like the hardback or paperback edition. Amazon are more interested in developing the market, seeing the *differences* in how people use or would want to use ebooks.

Macmillan think that they will be in control if ebooks get an iTunes model, price fixed, online store. They're wrong. Apple have demonstrated time and again that they will only give record companies a tiny percentage of revenue, out of all proportion to their costs. The record companies, in turn, barely pay artists for songs sold on iTunes. No one can do anything to redress the balance, because not being on iTunes is seen as suicide, unless you're the Beatles, anyway.

The Amazon model places too much power in the hands of the retailer to aggressively price, but basically the wholesale price is the same to Amazon as any other big retailer. If Amazon sell a book at a loss, it's *their* loss, not Macmillan's. The Apple model gives complete control to Apple, and locks that into the actual *hardware*. Customers pay more, publishers receive less.

Amazon, in defending a retailer's right to set prices, is working for the customer, the retailer, the author and ultimately it's better for the publisher, too.

27:

Wouldn't something like Buchpreisbindung, http://en.wikipedia.org/wiki/Fixed_Book_Price_Agreement Fixed Book Price Agreement - as a regulatory framework - help?

28:

Interested in your opinion on being an author and Amazon's new royalty scheme.

Why not view the future chain as
Author -> Electronic Distributor -> Customer

You the Author receives 70% of whatever price you decide to list adjusted on a daily basis as demand goes up or down vs time after publish. Start low, raise prices as demand goes up, re-lowering as demand tails off.

Editing and marketing and other traditional publisher value adds are handled as (optional) author expenses.

Isn't that what Amazon is really after here. Becoming the sole required intermediary between the Reader and the Writer?


29:

Steve @26: wrong. Macmillan have a dilemma, namely that they don't want to cannibalize sales of paper books by selling ebook editions for a lot less money. Note that a $15 ebook isn't "the same price as a hardcover"; the hardcover is nominally $24, and Amazon prices it at $16 by agressively passing on a chunk of the wholesale discount to their customers. They can stop doing that whenever they feel like it -- either by selectively offering different prices to different customers, or globally, when they've driven B&N and Borders into bankruptcy. Nor is Macmillan planning on selling all ebooks at $15; that's a starting point, from which the price will progressively drop ... the reverse auction model, in other words.

30:

Til: such regulatory frameworks were found to be illegal restraint of trade in the UK and the USA some years ago. I'm surprised they're still legal in Germany.

Ray @28: the fundamental problem is that I'm a writer; I don't want to be a publisher. See Tobias Buckell's explanation of what goes into making a book -- it's not just about owning a printing press, and the author's input isn't the only input. To produce a decent product then, by Toby's figures, I'd need to front $7000-10,000 before handing the finished artefact to the electronic distributor to sell.

Amazon's T&Cs for letting authors publish via Kindle are onerous -- they agree to pay you 70% of net receipts (not SRP, as is usual in the business), but they decide how much to sell your book for and furthermore, the price is capped at $9.99. As ebook sales numbers are an order of magnitude lower than paper book sales -- at least, hitherto and for the next few years -- this would make it rather hard to make any money. Worse, the Amazon agreement bars you from selling ebooks for less elsewhere: it's effectively a no-compete clause, while ramming Amazon's DRM (or an EULA that amounts to the same) down the readers' throats. Worst case, you sign the agreement ... and Amazon can shovel out your book as a promotional freebie, paying you nothing, in order to make the platform attractive to their customers.

This is the fourth or fifth shitty move Amazon has pulled in the past 18 months and I'm finally out of patience. See also: Amazonfail (LGBT derating), Orwellfail (deleting purchased ebooks from owners' Kindles), and HachetteFail (identical to the current Macmillan business, only happened in the UK and was hushed up when the publisher caved).

31:

A factor that may contribute to the publisher's lack of enthusiasm for the electronic distribution of books might be simply the fact that their authors may have a stronger web presence than they do. If we take Alexa rankings as an indicator, this site (rank 63k) is in the same ballpark as Baen (48) and Macmillan's (15) websites, and I gather Charlie hasn't actually dedicated much if any effort into making this a commercial venture.

(What I mean is, unlike say Baen or this site, Macmillan does not seem to have much actual content, so I imagine their privileged traffic position is bought rather than a function of genuine visitor interest)

32:

They are hardline on the 30/70 split for anyone seeking to go individually with them as you suggest, as well as for new publishing ventures. This has been portrayed as about the $14.99 price point but I don't think that's the main thrust of it. They also removed Sherilynn Kenyon's Macmillan books from her Kindle. I don't have any, having just got my Kindle at Christmas, so can't say whether mine would have been digitally removed.

33:

In the US at least, Amazon is going to come under pressure from places like Walmart.com. It's been happening for some time, but Walmart will treat popular books as loss leaders and aggressively underprice everyone. They don't bother keeping a back catalog, only new releases and best sellers. This puts stores like Amazon and B&N in a tough spot, where they basically have to give away the most popular titles to keep customers loyal.

Which increases the need to get profits in other areas, such as ebooks. Amazon grabbed market share early on by basically copying Apple's music model. Now that Apple and B&N are doing the same thing, they're worried.

IMO, B&N is in trouble -- they have a nice ereader but can't match the aggressiveness of Amazon. They're like Target to Amazon's Walmart.

Apple though, they could cause some damage. And this time they're doing what Amazon did with .mp3s (using a non-proprietary format). Apple has the advantage of a superior customer experience, with music, video, books, and applications all available right from the device. If the iBooks store works for the iPhone and Touch then Amazon could really be in trouble.

34:

As a customer, it's hard to feel like I have a pony in this race. I feel for you, Charlie, with what you lose from Amazon. But as a buyer, it's hard for me to feel much warmth towards Macmillan. They want me to pay 50% of hardcover price for (1) a book that has essentially no per-unit cost --- no trees to grind up, ink to smear, or trucks to drive; (2) a book that shifts their production costs to me (I have to buy the Kindle/iPad/Reader, etc.); and (3) a book that I don't even own --- all I get is a license. I can't loan it to my friends, I can't sell it when I'm done, etc.

From the standpoint of the customer, isn't it Amazon that's providing the value, anyway? If one moves to ebooks, it's Amazon that provides the servers, the indexing, the bandwidth, etc. Macmillan provides an advance to the author and some editing, and in publishing it seems like the latter is rapidly eroding. I suppose it provides some advertising, too, but that's not really a service to me.

That said, I confess to feeling unhappy about the monopolization, and I should also confess that my remarks about Amazon providing the value don't apply to me. Those three downsides to ebooks seem so strong to me that I'll be sticking to paper for a while yet --- and so I'd like to see the current publishers survive.

35:

@Charlie: there was some legal debate about Buchpreisbindung, but in the end what was done was to replace a mutual agreement between publishers with a formal bill (the same happend in Austria and possibly in other EU member states). As far as the wikipedia article I linked to is still true, a good number of EU countries have similar rules. In the end, it seems to work ... (and is now mandatory for German e-books also).

36:

Re: #32
I'm fairly certain they are not removing previously purchased books from Kindle devices, only the links to buy new ones from their store.

As to the more general pricing issue, I think pricing actually is key to this discussion. Amazon wants a $9.99 ceiling because it sells Kindles, and I suspect it will fight any model, regardless of potential profit incentives on the ebooks themselves, that will enable or encourage publishers to price new releases higher.

37:

I agree that Amazon isn't "the good guy here." I disagree that Macmillan is "the good guy here."

They're both being wankers.

Macmillan got terms that allow them to dictate retail prices, in a way that no large book publisher has had for years. From their perspective, the control means more money. From your perspective, you're seeing more money.

Amazon is looking at the death of their ebook market. Everyone believes that ebooks are the future, and that physical books will mater less and less. That means that Amazon is looking at their death.

You can call it a "reverse auction" all you want; what it means is higher prices than consumers currently have. So from my perspective, it means: I simply won't be buying as much ebooks. And based on what happened with iTMS, I don't think that's something that will change much over time. (Prices got raised from US$0.99 to US$1.29, and I've bought a grand total of six songs in that time. Oh, yeah, the labels also promised they'd be lowering prices on songs over time -- and didn't do so.)

Macmillan is, as you note, attempting to completely change the market. They may succeed, they may fail. The fallout won't be known for at least a year, probably two.

But I don't believe anyone other than Apple can make money this way. And that means that it will end up as both a monopoly and a monopsony. But somehow it's okay when Apple does that, but not when Amazon tries for that? (Hm. Sony could potentially do it. Google could try. Basically you have to be in the business of selling cheap hardware that meets user and publisher requirements. Among other things, I'm betting that means DRM, and that means vendor-specific. Hence, monopoly and monopsony.)

When iTMS raised the price of music from US$0.99 to US$1.29, they gave customers a benefit: no DRM. This will stick in my craw a lot less if that happens here... but I don't think it will. That means higher prices for fewer benefits.

This will all be muddied by a very strong spike when the iPad comes out. No matter what happens with the current kerfuffle, Macmillan will say, "See? Lots of sales, lots of money, we were right!" But I don't think that will last.

Lastly, my perspective as a consumer: higher prices -- dictated by people who seem to think that there's no real difference between a hardcover and a paperback. Fewer buying options (assuming DRM). The price of an ebook costing pretty much what a hardcover does, but without the ability to hold a physical object, or sell/give/donate it to someone when I'm done with it. A promise that, sure, the price will go down, for the exact same object with no changes, over time.

(Lastly lastly, after a significant time writing this and reading the links: "Price fixing" seems to be thrown around. I find it very interesting that this keeps being thrown at Amazon, when Macmillan is the one who's dictating the prices I see. Under their model, the price will be the same everywhere. Until/unless they want to punish/reward a particular agent.)

38:

rpg: your 'essentially no' production cost estimate is way wrong. Check Toby Buckell's essay; pre-printing production costs for a book -- editing, copy editing, commissioning book design and cover artwork, and typesetting/layout/DTP -- costs on the order of $7000-20,000 (depending on the book).

Ebook sales are shitty; a good one sells 1000-5000 copies. Picking the low end of the pre-print production costs, and the high end of the current ebook sales curve, you're looking at a production cost element of around $1.25 per book. (Flip the error bars the other way and you're selling 1000 copies of a book that takes $20,000 to produce.)

We can trim costs by ditching high-end cover artwork and streamling the editorial/design/layout process. But we can't reduce them to zero. Ever read an unedited manuscript? Believe me, you'd complain if you bought one that hadn't been processed by a publisher ...

I have a working hypothesis. Even if ebooks were to kill dead tree publishing entirely (vanishingly unlikely) we'd still have publishers -- they'd be today's literary agencies, many of which are run by agents who used to be editors or other publishing industry folk, and they'd employ in-house editors to get the author inputs up to snuff before throwing them at the iBook store or equivalent. That's because publishers provide services other than merely owning a printing press. (In fact, almost none of them own printing presses these days -- they all outsourced that side of the business decades ago.)

39:

Your post is the first one I've seen that really addresses the core issue. It's not pricing, not really. Nor is it DRM, hateful as that practice is. No, it's that Macmillan offered Amazon a choice of two options: sell as an agent rather than a retailer, or remain a retailer but not sell e-books until 7 months after the hardcover is published. And although I haven't seen it explicitly stated anywhere, it seems implicit that Macmillan will not allow Amazon to continue paying hardcover wholesale to sell the e-books right away.

Those are both terrible options for Amazon. If they're just one of many agents, all selling the exact same product for the exact same price, how do they beat their competition? Smoother payment and delivery systems help, but they're not enough. And if e-books are delayed for 7 months, they'll just plain fail as a product.

Amazon's retaliatory move is awfully extreme and is hurting a lot of bystanders. I don't support it, but I do support their position that Macmillan's offer (demand?) is unacceptable. Publisher-fixed pricing or 7 month delays would be bad for Amazon, bad for customers, and (I believe) bad for authors. It might even be bad for the publishers; businesses aren't always great judges of how future market changes will affect them.

I'm sure Amazon would like to remain a retailer but get e-books right away at a low enough price to sell them at $9.99 and still make a profit. But I bet they'd accept being a retailer at higher wholesale prices without retaliation. They'd probably just end up selling those books at a higher price. They already did this with a lot of Tor books. There's one that came out in November I want to read, but it was priced between $14 and $15, so I skipped it. As a consumer, that's my choice, too.

Finally, on reverse auctions. You don't need the agency model for that. Since e-books don't require having an inventory the publisher can just drop the wholesale price whenever it wants, and let retailers decide how to respond with retail price changes. If an e-book's wholesale price started out the same as the hardcover price, then dropped by $2, then $2 more, the retail price would probably start out a bit below hardcover (it's cheaper for the retailer to fulfill an e-book order) then drop commensurately. That might or might not be good business for the publisher and author, but the market would eventually sort it out.

40:

blog.engelke.com: . That might or might not be good business for the publisher and author, but the market would eventually sort it out.

Your faith in the invisible hand is ... touching.

(That's my living you're talking about. Please excuse me for being upset. OK?)

41:

I tried following the link to Tobias Buckell's take but all I got was this: http://milwaukee.snhdns.com/suspended.page/ ("This account has been suspended")!

My take, as a consumer, is that eBooks have to offer some significant value over paperbacks if anyone thinks consumers will pay approximately the same price for each; right now, the lack of lending or reselling *removes* significant value. Don't make the same mistake the recording industry is making; they think they can remove things they never liked about selling physical media (e.g. lending and reselling) in the Brave New World of digital media.

42:

Unfortunately Tobias' site seems to have broken under the load and I could not find a cached copy (yet) on the Google. Anyone find a cached copy on a (err...) more robust host?

43:

DDA: you're substantially correct.

Toby makes a useful point (not on the page I linked to) that ebooks with DRM are a service, not a product -- that is, you don't own them, you're renting them. As such, I'd have to say that a DRM'd product must be a whole lot cheaper than a DRM-free one, and the cost of the paper product puts a logical cap on the price of a DRM-free ebook (cost of paper book, minus cost element of printing and distributing the physical substrate).

45:

Publishers SHOULD be relegated to being vestigial editing and marketing duties. The reason the publishing industry came about was to help with distribution, and the same is true of the wholesalers and retail booksellers. Distribution can be solved in a different way with the Internet. Distribution is, essentially, worthless now. There are of course multi-billion-dollar industries that are trying to pull all sorts of legal and bureaucratic tricks to defeat this fact, but it will always remain. Buggy whip manufacturers made good money before the automobile was invented, too. It is time for everyone whose value to their customers was based upon distribution to close up shop.

Right now, with distribution worthless, the biggest benefit that a middleman can offer is aggregation. The fact that you can go to Amazon and find books from tons of authors is the only thing that matters to the book-buying public. The book "A Drunkard's Walk" details quite effectively that the role of publishers in providing editing and content screening is also worthless. 9 publishers passed on the Harry Potter books, proving that there is not an objective standard which is, or even can be, applied as far as content filtering goes. Content filtering is another service that Amazon provides, through allowing readers to submit reviews and rating scores for books.

The future market of books, whether these intermediary companies want this to happen or not, is going to be the author publishing the work themselves (possibly with the assistance of editing agencies and online marketers, but that would be completely separate) directly with online outlets that provide aggregation and content filtering services. There will be no publishing industry. Not because Amazon is serving the role that publishers previously did, but because publishing has become a worthless endeavor. Printing a book provides value, delivering a book provides value, authoring a book provides value, promoting a book provides value, etc, but the mainstay of publishing has been distribution. I cannot stress it enough that the Internet makes distribution worthless. If authors wished, they could have books printed and then ship them directly to fans. Delivery is still a valuable service. There is probably even enough value in retail outlets for them to sustain themselves, but it will not be a booming business. Right now, publishers are trying everything they can to preserve themselves, and in doing so they are not serving the interests of authors or book readers.

One of the most important things that needs to happen, however, is that it needs to be established very, very firmly that Amazon does not become the exclusive aggregation/filtering service. Authors, when the time comes to deal directly with them and not through a publisher, have to make certain they retain the right to offer their work through any other channel they please. This is, actually, in the best interests of Amazon as well. If they were allowed to gain exclusivity over books, it would hurt their business in the long run. Demands from Goldman Sachs and other major shareholders would force them to charge unreasonable prices and engage in other very harmful business tactics. The result would be a dying off of the book-buying market. DRM serves to suppress the market in the same way. If people aren't getting, giving, buying, selling, books on a regular basis and books become a "big deal" purchase, the market as a whole will dry up and people will no longer tend collections of books or bother with following authors.

46:

Charlie@40: Your faith in the invisible hand is ... touching.

I thought you were the one in favor of a reverse auction. I'm just suggesting that the same reverse auction can happen without an agency model. Personally, I don't think that a reverse auction would actually improve revenues for sellers.

Or are you saying that you're skeptical that retailers would lower their prices in response to the wholesale price dropping? If that's the issue, well, I do have a fair amount of confidence in market forces making that happen, so long as there are actual retailers. Amazon is in a position to charge a slightly higher price than others, but not a lot higher.

As for your being upset about this... Hell, yes! Anyone in your position would be. Authors are being trampled underfoot here. Readers are hurt, too, but we have much less to lose.

47:

After reading the first weekend vent post, then the longer iteration of Charlie's argument, I am tending to agree with his analysis of Amazon's position; namely to be both the monopoly vendor to end users and monopsony buyer to all providers (regardless of whether they are publishers, wholesalers, or original producers). In Charlie's view, this position tends to be crushed by the disintermediation power of the net. If that is the case, doesn't that imply the rise of an "open source" indexing agent, that will replace Amazon's role, and instead of seizing a lion's share of the supply chain's income stream, take only a pennies on the dollar fee to ensure stability over time? Anybody thinking: "business opportunity" here? Here is the perfect situation to show why the "too big to fail" economy is a house of cards. If we move to an elastic pricing model from any vendor source, sold directly to consumers via a not-so-greedy, good-for-all indexing agent, there would also be a good argument for implementing Richard Stallman's view on dealing with DRM. Namely, instead of mandating restrictive DRM technology, simply scrape pennies off the dollar of mega-sales items (think Stephen King) and redistribute them as a log scale percentage to the producers at the very end of the long tail. The point is that even the most obscure poet would benefit in a tiny way from Danielle Steele books, and the middle tier authors would never have to choose between write+starve or day job+eat. Just another 2 cents worth for the mill...

48:

It's interesting that Apple is often accused as being a proprietary dictatorship, but look at their recent record:

AAC format for their iTunes music offerings (AAC = neither owned nor controlled by Apple). Compare and contrast with the nearest (but distant) competitor, Microsoft's Zune Marketplace, which uses the WMA format (WMA = owned and controlled by Microsoft).

ePub format for their iBooks offerings (ePub = neither owned nor controlled by Apple). Compare and contrast with Amazon's approach.

Apple is also trying to stick it to Adobe Flash, another proprietary (read: controlled by a single corporation) technology that currently has a stranglehold on the Web (the last place on Earth proprietary technology should be allowed such control).

Apple, pushing interoperable standards that are not beholden to any single vendor? Interesting times indeed.

49:

Charlie @ 43

Yes and no. Ebooks with DRM have some attributes inferior to the physical product, and some that are superior: I can pack hundreds of them in my device at no extra weight or bulk, and I can get them from the seller in seconds from my device, for example. So the relative value really depends on how the user values those attributes.

50:

Thank you for the clear explanation of the playing field here. I think I shall quit using Amazon as my online book source. This is getting too ridiculous, their apparent policies geared toward global monopoly.

By the way, I emailed Amazon regarding the drop of Macmillan imprints and here's the response I received:

"We are working with the publisher to make their titles available as soon as possible and at the lowest possible prices for our customers. We will e-mail you when these titles are available, which we hope will be soon."

51:

This is a case where my short-term and long-term interests conflict.

Short-term, I benefit from having cheap books and cheap e-books. Long-term, as a reader, I benefit from having a healthy publishing industry being able to pay decent salaries to their staff and decent advances / royalties to the writers.

Now, we know publishing is notoriously low-profit; and the people in the industry are relatively low-paid. Hence Macmillan fighting for higher profit margins on e-books looks like basic survival here.

Note the difference with the music and movie industry: the studios and music companies are profitable, pay their permanent staff well, but are notorious for sticking it to the lesser-known artists.

I have been a good customer of Amazon. The previous flaps involving them unnerved me but didn't change my mind. This one does, though; it's time for me to start paying higher prices in different stores (local bookstores, Powell's, book depository, publisher's own stores) so the publishing environment as a whole can survive and continue to create more works that I like.

52:

Thanks for the great write up and discussion - it's been an interesting read.

I just wanted to note that DRM is a vehicle for controlling access to content. As such it can be as flexible or as restrictive as required.

There's no technical reason that you couldn't have flexible drm'd content along the licensing/service model that was cross-appliance (kindle, iPad, PC).

The key point that's already been pointed out is pricing which needs to be done in a consumer friendly way. Unfortunately most approaches tend to target the "milk the consumer", "hump the author" model.

Personally I'd have no problem paying an initial fee to purchase a DRM eBook to fill my eShelf - and then delta costs to load the content onto a reader - be it an iPhone, iPad, Kindle, gPhone.

Ultimately, again as has already been noted, Amazon & Apple are in the market of selling devices - where the content is mere window-dressing and as such, subject to what-ever whims they decide will better benefit selling those devices.

I guess at the end of the day, the old adage holds true; If you ask a car salesman advice on a problem - the solution will, inevitably involve buying a new car.


53:

This is precisely why consolidation is so dangerous. When you have thousands of independent book sellers, and many distribution portals, these kinds of problems are virtually self-regulating. Increases of efficiency, better marketing become paradigms of local improvement - but when everything is consolidated into one giant living and breathing entity called "Amazon"....well, here we are...

Apple worked things out reasonably well in the music industry, but not without casualties and lot of yelling and screaming....It will be VERY interesting to follow this....

Whatever Amazon is trying to save, financially, it has lost at least as much already in the public's eye...

54:

"Ebook sales are shitty; a good one sells 1000-5000 copies"

One thing I'm having trouble wrapping my head around is if ebook sales are so weak, why are publishers so interested in raising ebook prices? Is there evidence that these 1000-5000 ebooks sold are siphoning off a much larger number of hardcopy sales? Hard to picture how that would work. Is there evidence that higher ebook prices would cause *more* people to buy ebooks? Hard to picture that one, too.

All I can say with certainty is that I used to buy a lot of hardcover and paperback books. Since the Kindle came out, my total purchases have gone up, but I'm basically all on the Kindle now. Publishers are unlikely to get more money out of me by raising their prices, so who is it that they feel they can tap for more?

55:

@ 30

I have not seen the full new T&C offered by Amazon directly

What I have read on the TechCrunch site is as follows:
- The author or publisher-supplied list price must be between $2.99 and $9.99
- This list price must be at least 20 percent below the lowest price for the physical book
- The title is made available for sale in all regions for which the author or publisher has rights
- The title will be included in a set of features in the Kindle Store, such as text-to-speech
- Under this royalty option, books must be offered at or below price parity with competition, including physical book prices

The author receives 70% of list NET delivery cost estimated to be 6 cents per book. You the author sets the price and the 70% NET to you is after a almost token delivery cost.

Take each of the various steps necessary to bring a book to fruition. I'm not disagreeing with the itemized cost break downs being presented by those who really know. They are however a priori assuming the traditional model cost.

I'm suggesting those costs are begging the question, "what will these costs become in the new model?"

You are a writer, and not a publisher.

I expect good, high quality editors will start offering their services directly at a flat per page rate or percentage via the internet.

E-book artwork should cost no more than basic web site design does today where a plethora of quality designers are available from independents to large shops.

Due to the limitations of e-books only so much layout is possible. Like a web browser the e-reader actually "flows" the layout as the book's content is "tagged". EPub and Amazon's current format are essentially variants of HTML. Hobbiests have achieved solid (as well as crappy) results with out of copyright works.

As for marketing, I'm curious, how do you weight these things currently? i.e., your blog, facebook page, Amazon reader feedback and comments, LibraryThing buzz etc vs. the traditional marketing of getting prominent display of the hardback edition artwork in a bookstore window or end cap aisle?

Will future e-book marketing be best done as social marketing on the internet with you the author the best spokesman of your work? You could send the first two chapters of your next book directly to everyone of your fans e-readers in a morning for essentially zero cost. What better advertisement for your book than the book itself?

A first time author could undertake all these roles themselves with reasonable cash outlays, acting as their own "general contractor" as it were.

An established author, focused on the writing would most likely retain a reputable general contractor to bring the work to publish ready for them.
sales or not.

I have no dog in the showdown of all those that stand between me the reader and you the writer. I'd feel far better knowing that whatever price I deemed worth paying for a work the bulk of it was going directly to the author.

56:

Otakucode @45: not only is there no objective standard for evaluating quality of literature, crowdsourcing via, say, amazon reader reviews is crap, too. Let me give you some examples.

But if you think you'll be better off without publishers, you've never seen (or probably heard of) a slushpile.

DRM suppresses the market, yes indeed. But DRM is also a response (albeit a stupid, broken one) to the logic of disintermediation that the internet has made so prevalent.

lex @47: I don't take Richard Stallman very seriously these days. He may not have achieved escape velocity from reality, but he's certainly nudging geosynchronous orbit. "simply scrape pennies off the dollar of mega-sales items" ... you try to explain that to a US senate where the Republicans hold a filibuster veto! (As proposals go it has some merits, but realism and achievability are not two of them.)

57:

Quix @ 48:

"It's interesting that Apple is often accused as being a proprietary dictatorship, but look at their recent record"

Hm...

AAC: yep, they used it...with a proprietary DRM wrapper, for years. Which still exists, since they CHARGE people to convert over to MP3 files that they had previously bought DRM'd. I know a guy who'd have to cough up $800+ to "free" his collection. So most of his music his still DRM'd, and he buys new stuff from Amazon mostly now.

ePub: yep, they use it...with a proprietary DRM wrapper that is (from reports) different from the "standard" ePub DRM already established (by Adobe: http://blogs.adobe.com/digitaleditions/2010/01/epub_ipad_and_content_interope.html). So your ePub purchases from iTunes are hardly "open and transfeable".

Flash: one word...QuickTime. Apple would have loved to make QT the dominant AV wrapper, so they never saw any point in encouraging Flash. And with the audio/video support built into HTML5, they can (eventually) do an end run around it completely.


So while this whole hullabaloo is certainly complicated, no company here comes out smelling like a rose. Certainly not Apple; the most closed hardware manufacturer around.

58:

Bob: publishers aren't "interested in raising ebook prices". From their point of view, they're interested in averting a collapse in book prices (where "book" means any edition of the published work, be it paper or electronic).

NB: another post coming up, with links to what other folks are saying.

59:

I was under the impression that even though publishers make more from ebooks (they don't have to pay to physically print them on dead trees and transport those dead trees) the authors are actually getting less per book.

I don't think public opinion is really turning against Amazon. I think most people are wondering why we still need to pay as much for a book when it costs infinitely less to produce the physical product.

Now that Amazon is willing to give independent authors %70 of the list price of the book im pretty sure that authors can make waaaay more money by going independent. Publishers stopped doing a lot of "editing" years back so their only job is marketing. And Amazon does a lot of that with it's recommendation engine. so what's the point of even having a publisher?

60:

Just a few points to add to the list.

1. This was started by Macmillan. In the post made by their CEO yesterday, he explained how he went to Amazon and tried to re-negotiate the contract (to a deal that would let the Publisher control the price (I’m sorry but having the Publisher set the price in the industry is NOT a good idea)), and when Amazon said no, Macmillan basically said than there would be huge wait periods (aka the thing that has really gotten me fired up lately, is books being withheld from the kindle for several months after the hard cover release). So Macmillan threw the first punch IMO, and Amazon had no choice but to take a strong stand, and they did, probably a bit strong, but it was done on the weekend, which is most likely the lower volume days for sales.

2. The deal as it is today according to Macmillan is Amazon pays them 50% of the list price, and than they sell it for $9.99 (so assuming the book is $25, Amazon pays $12.50 for it than sells it for $9.99 at a $2.51 loss). So today the publisher gets $12.50 for the book in this model. In the new model that Macmillan offered to Amazon, they would set the price (say at $15.00) and Amazon would get 30% of the sale. So what the CEO said is true, Amazon would make more money (they would make $4.50 instead of a $2.51 loss), but now the publisher is only making $10.50 on the sale. So all those authors out there talking about how Amazon is trying to hurt you, the reality is if Macmillan got their way, you would actually make less. Amazon is NOT dictating a price here, they're simply trying to keep control to price the item at whatever price they feel like (even if it’s at a loss)

So the question is who is really the bad guy? From my perspective it’s Macmillan. They are trying to remove competition in it’s rawest form, which is allowing the seller to sell the item for whatever they want. How can there be true competition when everyone is being FORCED to sell the item for the same price (Apple is the only company that does this successfully, as they don’t allow their resellers to discount their items, and well I don’t know how any Apple reseller stay in business, as I just go to Apple direct, there’s no incentive to go elsewhere)

I’ve had my kindle for a year now, and I’m not about to pay more than $9.99 for a new release, as the amount of limitations put on the format already are discouraging, and a lot of the time, the Hard Cover version from Amazon on release date is the same price or even lower (on very popular books where there is extreme competition from the B&M stores) I’ll happily go back to buying the print format if this continues, no matter how much I like my Kindle. I bought it to reduce the amount of space books in my house we’re taking up, but I’ll find more room.

61:

Zaphon: I'm glad you're happy with your Kindle.

But you missed the point: Amazon don't need to delist books to argue with Macmillan. They did this two years ago to Hachette, in the UK. It's a bullying tactic, illegal in most countries (but not the US), and they're doing it because they can.

You might want to go up-thread and read the breakdown of book production costs that Toby Buckell points to.

62:

You have an interesting take, but I think you are missing the POINT. The parts of the supply chain that Apple eventually wants to remove are the distributor AND the publisher. Why do you need a publisher now? You can control your OWN WORKS, top to bottom, because you dont need access to presses and paper supplies and trucks and pallets and skids - you can put the book into the fixed-price bookstore YOURSELF.

Much like the record labels in the music biz, the publishers are nothing but leeches and parasites, adding no real value and controlling YOUR work and YOUR payment.

Yes, the Amazon model sucks. But the traditional publishing model sucks just as much. This changes BOTH parts of the game.

Publishers? Good riddance.

63:

Interesting points, Charlie. This is a great thread on it as well. That being said, I think the portion of your subject line describing this as "an outsider's guide to the fight" is a bit disingenuous. You're an author, you make your money from book sales. You're hardly an outsider. (Feel the love, though! *grin*)

For example...the notion that "publishers aren't interested in raising ebook prices", and this assertion that reverse auctions will solve all problems. I dunno. It appears to me that the first salvo in this is an attempt by publishers to er...raise ebook prices. And past evidence (from music) shows...absolutely no tendency for pricing to go down. I'm wanting to believe in your premise, seriously...but I see little evidence.

And as for the complaint about the new Amazon T&C, I think I've read it the same way as Ray @55...I haven't read anywhere that they get to set your book price at their whim, using you as a "loss leader" without any royalties. In fact, the minimum they let you set price at appears to be $2.99.

Note: I could be wrong here; I'd like to confirm this one way or the other. It is pretty important. I do realize that there are a lot of authors with free books on there...usually the first one in a series, as a teaser, I suppose. I've gotten several people interested in Novik's Temeraire series via the first volume being a free download, for example...they also went on to buy the later novels. So if it's a deliberate decision by the publisher/author to make the giveaway, I see no problem with that. If Amazon is solely making that call, and distributing no money based on those downloads, I can certainly see an issue.

Great discussion all the way round, though!

64:

Charlie: I understand the costs involved, but as someone who would wait either until the book came out in paperback or check it out from the library, versus now buy it on the Kindle on release date, how does this really change anything? I think the thing that most people (clearly the publishers) don't understand is the whole e-book market. I don't think it's really cannibalized hard cover book sales like some say, but rather has created a whole new segment of buyers (as honestly, it's way easier to buy something on my kindle than it is to wait for a new release to become available at the library, but before I got my kindle, I rarely bought a hard cover book, as the costs we're just to high, I'd wait for paperback or check it out, or as some others have suggested, you can buy the books used on Amazon for really cheap (sometimes as low as $0.01)).

65:

I think that neither side is "good" or "bad". However I do think that Amazon's approach to applying pressure by removing titles from the lists is another unacceptable practice, much like the removal of the Orwell eBook title last year. If a large grocery store chain removed all the items from a large food company, it would make national headlines.

Since Amazon is not a monopoly (yet), I'm not clear what has our host so "up in arms" apart from the annoyance of Amazon's actions. Amazon customers can buy his books through other online/bricks and mortar retailers. He can switch book links at the drop of a hat to other online retailers. AFAICS, the loss is purely for those titles that might have been sold to a more casual buyer who will now buy an available item on Amazon instead. No evidence is offered as to how damaging that is.

Here's another (evil) thought. We know that used books are bought and sold about 7x new per title. Now after the dot com bust, Sun Microsystems were buying up liquidation auctioned Sun servers to keep them off the market. What if publishers did the same for books? I buy the book at retail and the publisher offers me a high price to return it for removal from the market, instead of selling it to the local used book store? A sort of leaky DRM for physical copies. Has anyone looked at the economics of such a practice, or even tried it at least for selected titles?

66:

Geekboy: Why do you need a publisher now?

See Tobias Buckell's essay. (Linked to in the next blog post.) Making books is a team sport, not a solo activity.

(On free downloads: I was hoping to have something to announce in the next few weeks -- ironically, with Tor, aka part of Macmillan -- but now I've got no idea what's going to happen.)

67:

First - some of us DON'T WANT, and WON'T BUY e-books. Or, at least, until the model is considerably improved. They are SHIT to read and handle - dead tree is SO much better.
Second, Charlie @ 30 - you mentioned "Orwellfail" - surely that is illegal in the EU: it is THEFT???
Thirdly (Rhona speaking here) - the whole point about dead trees, is that it gets you out of the office and away from the computer screen at lunchtime, down to the local bookshop, you glance at 20-30 titles and come home with 2 or 3 you never knew existed - while having a healthy walk. You can then read them on bus, train, under duvet while being slept on by the VERY FLUFFY CAT and give your eyes a rest from the screen!

68:

"Bob: publishers aren't "interested in raising ebook prices". From their point of view, they're interested in averting a collapse in book prices (where "book" means any edition of the published work, be it paper or electronic)."

Even as rephrased, the explanation of why charging $14 instead of $10 for an ebook on Amazon will rescue the publishing industry still eludes me.

69:

I find this very interesting.

I notice in these discussions we have a tendency to confuse price, cost, and value, which I suppose it is in the price-minimizing, value maximizing consumers' interest to do, but we know how suppliers will drive and succeed at keeping them separated anyhow. (By the way, elasticity applies to demand and it is unlikely that there would be "elastic pricing" if demand was not much influenced by changes in prices, for example short-term changes in gasoline prices in the US, since substitutions are not quickly -- or willingly -- made).

One other thing. The illegality of price fixing, as the term is used in the US, is mainly about producers conspiring to agree on prices to reduce the risks of competition. The abuse of monopoly power is a different matter, as is a producer's effort to control prices through the distribution channel.

There used to be what were called "fair trade" laws that prevented producers from setting retail prices. I'm not sure what happened with those. Producers still attempt to segregate markets and to control the pricing at retail, as far as I can tell, just as there is every effort to work around the first-sale doctrine in the case of print.

As Charlie portrays things, it seems there is a classic war of complements here, except there is a weird intermediary situation. It is easier to understand how software producers would like hardware to be free, hardware producers would like software to be free, each operating on the more-for-me theory. Then there is the appeal of vertical integration, its claimed efficiencies, and the squeeze that provides at both ends, provided there are barriers to entry and substitution, as might be the case for creators and their audiences.

I wonder where there are externality costs being put onto society or others as part of the fueling of the business model? We see what it is with pollutants, emissions, wastes (including non-recyclable/non-recycled packaging) and diversion/corruption/exhaustion of natural resources in many cases. Is there such a (non-sustainable) feature around publishing, even e-publishing, or is the business pretty clean in that respect? (Might we tell by the apparent value of extensive investment in lobbying and other efforts to influence government and trade/regulatory policies, obtain subsidies and protections, etc?)

Hmm, bottom line, can we really claim that there is institutionalized corruption (disfunction, not criminality) at play in publishing and the behavior of its dominant actors? Or are we seeing the noise, instability, and uncertainty that arrives with a major disruption in an industry?

70:

Bob, what you're seeing as a $10 ebook on Amazon is actually a ($24 - 20%) ebook on the publisher's balance sheet, discounted heavily to a notional discount price of $16, then sold at a $6 loss. A lot of those $10 ebooks are, bizarre though this might sound to you, losing both the publishers and Amazon money!

Accountancy is weird.

71:

charlie@56. Your ref to your earlier post on Amazon reviews falls into 2 traps.

1. That a few cherry-picked reviews indicate anything. A spot check of the titles in that post all show high overall scores, so Amazon reviews as crowd sourcing work well. A more interesting case is "The Stones of Summer", the subject of the controversial documentary. Here the reviews are highly polarized, indicating that just maybe the NY Times book reviewer who gave it such a good review was wrong. This is not inconsistent with the view that publishers are not that good at selecting/rejecting books either. Maybe better than nothing, but better than the crowd at large?

2. That there is such as thing as a universally accepted "good" piece of art. There is more than enough evidence to show that anything that is subjective can be perceived differently by positioning. Books can become classics simply because of self reinforcement, that has nothing to do with some indefinable concept of quality.

72:

Actually, I shouldn't have paraphrased Richard Stallman...I'm sure he would jump on me as misrepresenting him from the point of view of "free software." Nonetheless, my main point is that Amazon has become a giant in the books-online sales sector, but is by no means invulnerable. If enough buyers got pissed off at their behavior there is plenty of opportunity for Amazon to fade away. Whether or not some new payment mechanism can be invented to blunt the necessity for DRM "locked" products, there does seem to be plenty of room for new players to move into the online book sales sector with a more equitable cash flow to authors & publishers. At Arisia earlier this month, Cecelia Tan related the story of her company's (Circlet Press) transition from deadtree product to e-book product, and the amazing net profit difference there is when overhead for print production, warehousing, distribution, returns, etc is eliminated. What is needed is a reasonable agent in the >wholesaler>retailer part of the chain to knock Amazon or any wannabe Amazons on their ass when they try to dictate pricing in both directions. Well, here's hoping!

73:

@Quix 4
can I be uncouth enough to quote myself quoting Adobe (http://www.h-online.com/open/features/Flash-set-free-833291.html) - Flash isn't completely open but it's not as locked down as some competitors like to say it is and to paint the argument between Apple and Adobe as being about openness misses the point (it's as much about allowing interpreted code that can bypass the App Store and really it's all about different levels of control and who has them)

Charlie: I think the really interesting thing about those ebook profit figures at http://jakonrath.blogspot.com/2009/10/kindle-numbers-traditional-publishing.html is the increasingly widespread assumption that the publisher is not adding value to the author (or the reader) - if that's the common view, I predict a giant Internet slush pile that will make the pile of awfully bad ebooks you can already buy on Borders.co.uk (hmmm - did that survive) look good... (when I was looking for ebooks to test on the Elonex reader, I found some truly dreadful tomes that equal the worst of self-publishing - for many reasons, I'm a fan of gatekeeping in entertainment)

74:

While I agree with you that accountancy is weird, Charlie, at the end of the day, a dollar paid is a dollar paid, and a dollar that makes it to the author is a dollar that makes it the author. The accounting in between can get as weird as it wants, but that just giants in the sky making up stuff, basically.

I want a decent price for the book, and I want you to make enough money to keep writing them, and Macmillan and Amazon are welcome to the remainder of the money, in whatever arrangement they can come up with, and hopefully they can figure out a way to keep their companies profitable while doing so.

A $15 ebook is simply a different price point that an $10 one...I'll buy fewer.

75:

Amazon = Wal Mart.

Loss leaders kill the smaller companies but help the consumer. Once they kill the small guy, they inch their pricing back up.

76:

Wanted to read Tobias Buckell's article, but looks like the server is down.
I agree with you as an author. Any company that wants to create a monopoly is not only unethical, but is also a destroyer of our economy. Just because the internet has made it possible for consumers to procure media more directly, doesn't mean that all media and literature should be piped directly into our butts via the first conglomerate a-holes who plant their flags.

77:

I think Amazon crossed the line:

It's not the argument with Macmillan; it's not even that they removed Macmillan books from the Kindle store.

They crossed the line when they delisted all Macmillan books - including dead tree editions - as a negotiating tactic. If they just removed ebooks because Amazon and Macmillan couldn't agree on price, it wouldn't really bother me.

Amazon's escalation made the difference.

78:

From the WSJ article @ http://bit.ly/dnSVIz

"By setting their own prices, publishers would be able to eliminate discounting on Amazon and elsewhere that they believe threatens the long-term business model of publishing."

I've heard this tune before, methinks. Yep, long term business models are changing, folks. Get used to it.

79:

@75, TweetDeckTV: Charlie found the Bing cache of Tobias' article, like @44.

80:

The question in my mind is... how long until we can drop the supply chain down to just Author -> Reader?

Additionally, I don't really think that "fixed price" is necessarily good for authors / publishers, or the public. Who says that all books are worth the same amount?

81:

"Bob, what you're seeing as a $10 ebook on Amazon is actually a ($24 - 20%) ebook on the publisher's balance sheet, discounted heavily to a notional discount price of $16, then sold at a $6 loss. A lot of those $10 ebooks are, bizarre though this might sound to you, losing both the publishers and Amazon money!

Accountancy is weird."

I understand the part about Amazon losing money on some sales - they do this to try to get customers excited about the Kindle and buy some more stuff that Amazon will make money on. I can see how this makes sense to Amazon.

The part about the publisher losing money on the same(?) sale isn't so clear. The publisher, IIUC, gets the same amount per ebook sold to Amazon as it does per hardcover. Now, either the publisher is losing money on *all* sales, which I seriously doubt, or it somehow has figured its unit cost to be higher on ebooks than on hardcovers and this goes beyond weird into the realm of seriously screwed up. If they used 21st (or even 20th) century technology, their ebooks would flow naturally out of their production runs for print with nearly zero incremental cost. If they are trying to get me to pay more for ebooks because these books are so difficult to produce, they will get nearly zero credence and zero sympathy from me.

82:

Macmillan does NOT want to fix all ebook prices at $14.99. They want to price different titles at different prices, from $14.99 down to 5.99.

Here's more detail from Macmillan:
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. [....] Pricing will be dynamic over time.
http://www.publishersmarketplace.com/lunch/free/

83:

Ken:

"AAC: yep, they used it...with a proprietary DRM wrapper, for years."

Of course - there was no "open" DRM per se. Each vendor had to have his own DRM scheme (Apple had FairPlay). Fortunately those days are behind us - for music anyway.

"Which still exists, since they CHARGE people to convert over to MP3 files that they had previously bought DRM'd. I know a guy who'd have to cough up $800+ to "free" his collection. So most of his music his still DRM'd, and he buys new stuff from Amazon mostly now."

Huh??? The Apple DRM issue is easy to resolve. Burn the music to CD and reimport it (tedious, yes) or use a DRM-stripper app (they exist). The $800 your friend spent was unnecessary. Personally I don't know why Apple doesn't just "turn off" the DRM in iTunes for all AAC files that were previously purchased. It only seems fair.

"ePub: yep, they use it...with a proprietary DRM wrapper that is (from reports) different from the "standard" ePub DRM already established (by Adobe: http://blogs.adobe.com/digitaleditions/2010/01/epub_ipad_and_content_interope.html). So your ePub purchases from iTunes are hardly "open and transfeable"."

This is impossible to say until we actually start buying and testing these books. That said, I doubt Apple wants to be beholden to Adobe (or anyone else), and every vendor will have their own DRM scheme again (*sigh*). I'm sure there will be simple workarounds to "free" your purchases for your own use on other devices if you wish. At least Apple isn't using WindowsMediaBookFormat or such for their eBooks.

"Flash: one word...QuickTime. Apple would have loved to make QT the dominant AV wrapper, so they never saw any point in encouraging Flash."

Sure, but QuickTime did not come to dominate the Web, Flash did. I'm not hoping for a QuickTime-dominated Web, I'm hoping for a non-Flash-dominated Web. As I said, no single vendor should have so much power over Web content. Apple's motivations may be suspect, but the end goal is respectable: a Web that isn't locked into Flash (or anything specific to Apple, Adobe, Microsoft, et al).

84:

What Macmillan claims to want is the ability to do flexible pricing: $15 when it first comes out, then dropping the price as the book gets older.

The thing is, they've had the ability to do this for several years now, by dropping the wholesale rate they charge smaller e-book vendors such as Fictionwise.

But I've seen a number of examples of Macmillan e-books that are still at hardcover prices, months or years after the printed versions went paperback.

Even leaving aside the price-fixing issues, how are we to believe that the leopard has suddenly changed its spots now?

85:

Tobias Bucknell's argument is that the current way to publish a book involves paying reasonably large sums of money to lots of people who aren't the author.

I would say that book design and cover art are absolutely immaterial for ebooks; people are demonstrably happy to read .txt files, let alone HTML. People enthusiastic enough to buy ebooks are the people enthusiastic enough to buy ARCs, with the cover comprising the author's name centred in courier 14-point.

And it's hard to argue that the publisher needs to spend multiple thousands of dollars on things like copy-editing when there are US publishers whose books don't even seem to have been spell checked; yes, it won't catch everything, but if the expensive process leaves in things that Word spell-check would have caught, it's not clear it's provided value for money.

In particular, in a world in which authors are prepared to have dozens of beta readers who will read for typos, because they can't help reading for typos, and think the chance to read new Stross before it hits the press is more than payment enough, the additional value added by the pro copy-editor seems likely to be much less than her charge.

(this has of course been the case for decades in academic publishing; the author provides camera-ready copy, and it's getting really very unclear what the Cambridge Tracts in Mathematics offer that lulu.com doesn't)

86:

BROADCAST MODERATION ALERT:

Please keep the discussion of the pros and cons of DRM and proprietary file formats out of this topic. Further diversions will be policed, with prejudice.

(This should not be taken as an endorsement of DRM -- which sucks -- and proprietary file formats -- which also suck; it's an attempt to keep the signal from being drowned out in the noise of yet another standard internet holy war.)

Thomas Womack: the ability of crowdsourcing to spot errata has been somewhat exaggerated. In particular, please bear in mind that the other side of the coin (using lots of eyeballs to voluntarily but lossily proof an ARC of my next book) is the opportunity cost incurred in lost commercial sales.

(Hint: I already use a web-based focus group to check my novels, before they go anywhere. It's very far from perfect, and this is with high-double-digit numbers of participants.)

87:

'I cannot stress it enough that the Internet makes distribution worthless.'

I suggest that you wander over to the watercooler at Absolute Write and spend a few weeks reading the never ending Publish America threads.

And if you still believe that the Internet makes distribution worthless then you are beyond salvage...

88:

What's interesting about this situation is the way everyone's ox has been gored because of an extreme market failure.

It's clear that there is a lot of trade being left on the table because of the abandonment of the mass-market paperback. Trade-paper and hardcover have high margins at high volume, unlike mass-market, which had to pay the same distribution costs as trade-paper and hardcover, or piggy back on periodical distribution channels.

Book sales are flattish. E-books are the new mass market paperback. Clearly Amazon is making the bet that a lower price point will lead to greater volume - combined with such ease of purchase.

89:

The biggest advantages of ebooks are size and speed of delivery. They basically have a size of zero, since you are limited only by the storage media on your display devices. Delivery can be achieved a few seconds after purchase, on the day of release. You can charge a premium for these things, but.....

If people aren't concerned about getting it right away, they can wait a handful of days for it to show up in the post. So ebooks can't cost more than the price of a book plus delivery minus resale value -- people who are price sensitive will just wait, and then sell the book used to free up space and recover cost.

Then at the bottom there is pressure from libraries, loans, and the used market. People who don't mind waiting a couple months can get the book free from a library or friend. Or at the very least for a few dollars from a used book dealer.

In light of this, Amazon's pricing demands seem very fair. If that doesn't provide enough money to publishers and authors, then it seems the real problem is with ebooks themselves. Perhaps ebooks and mass-published physical books cannot occupy the same market.

90:
Meanwhile: fewer supply chain links mean lower overheads and, ultimately, cheaper books without cutting into the authors or publishers profits.

While I agree that amazon seems to be playing dirty pool, I do not believe that what ever happens between these big boys is going to have much influence on what readers pay to read books. As you said earlier, amazon charges customers whatever they can get which is what I expect any book selling entity to do, whether it be a local bookstore or the author himself.

Rather than expecting the outcome of this to be a change in the price of books, what I hope for is a change in the publishing model to support a wider range of authors and literary tastes.

91:

Neil Gaiman just tweeted a link to Amazon declaring they will allow Macmillan to use the prices they want to use: http://bit.ly/d1w5qn

92:

"Ebook sales are shitty; a good one sells 1000-5000 copies."

Has anyone commissioned a study as to why this should be so? I can tell you why I have never bought one of these things --- they are CRAPPY CRAPPY CRAPPY value for money. When I buy a book I get something I can use anytime I want, that I can annotate, that, if it has an interesting few pages I can xerox, that has high quality typography and illustrations.

If I were to buy an ebook, I would give up all of that. The ebook might be a dollar less than the paper book --- but I could sell the paper book second hand and get more than that dollar for it.

The closest I've come to buying an eBook is a technical book on the foundations of mathematical analysis, bought on CD-ROM about ten years ago. I fired it up a few months ago, wanting to check something from it --- and found it was useless. The PDFs had been encoded by a complete and utter moron, so they did not embed the relevant fonts. I've no idea where they were pulling the mathematical glyphs from under MacOS 9, but in the unicode world of OS X those glyphs certainly don't live at the same places in the same fonts. A graduate level textbook that contains random glyphs in the place of the mathematical glyphs is ABSOLUTELY WORTHLESS.

In other words, to conclude that the present ebook world is not an interesting market tells us NOTHING about user's desires; what it tells us is that what publishers offer us is useless along pretty much every possible dimension. It's low low quality, doesn't allow for a variety of interactions we expect from our books, and the items are highly likely to be unreadable in ten years, possibly through deliberate malice on the part of the publishers, more likely through their technical incompetence. If Apple are able to offer a technical solution that does not suffer from these multiple levels of crap, AND that has a price commensurate with the reduced functionality being offered, who know, maybe I'd be interested.

94:

I think it should also be pointed out that argument about the value-add of the publisher strike me as GROSSLY overblown.

We already have a working model of self-publishing, namely the arxiv.org site for math and physics papers. These are the hardest type of publishing --- technical language, vast amounts of technical notation, often two columns, plenty of graphs; and there are no publishers involved. The documents are put together by the authors, used open source tools and formats (basically TeX and PDF), and the system works just fine. What was required to make this work was simply an agreement on the right way to do things.

If authors insist on submitting documents scrawled in cursive on paper napkins and with spelling errors in every third sentence, THEY should eat the cost of converting this mess into an electronic format.
Meanwhile, those authors living in the 21st century and using non-crappy writing tools should be able to do exactly what their physicist counterparts do --- press the equivalent of the "Print to PDF" button, and get a document ready for the web. Given that ePub is a variant of HTML, this seems like a not-especially demanding requirement. Hire an editor if you feel that is valuable, but I cannot see what value the publisher is providing.

95:

As a Kindle owner, what I want to know is why do publishers insist on trying to maintain trade paperback-level prices on products that have no physical manifestation. No paper is used and, there are no production, warehousing, or transportion costs.

E-books are simply data, and guess what, the data isn't even properly marked up with the tools that Amazon provides. Very little effort is put into e-books by even the major publishers. Things like the chapter mark-up that allows the 5-way to navigation between chapters are missing. Blockquotes are rarely properly marked up. Italics and boldface disappear.

E-books seem to fall into two categories: OCR'd books that are chock full of typos, and DTP conversions that are chock full of glitches like discretionary hyphens showing or turning into spaces in the middle of words.

And what's with the generic covers?

I guess the budget is shot in the physical book, and there's no money to pay mark-up people and proofreaders. So e-books are a shoddy, crappy product, even taking into account their lower costs, and publishers shouldn't expect to get full freight for them.

Maybe publishers feel that they have never gotten a fair price all along and now is the time to rectify that, because maybe nobody will notice that e-books are fundamentally different from regular books? If that's the strategy, then at least proofread the crap you put out!

96:

Given the speed with which Amazon caved I'm beginning to wonder if Amazon and MacMillan hadn't cooked this all up. We know that Amazon was losing money on ebooks priced at 9.99 and yet paying the publishers the same royalty as the hard cover books (publishers would get less under the Apple model). This way they can still pay the publishers the same amount but collect more for themselves. Hmmmm.

97:

How many of you editor-schmeditor types have actually prepared a document for publication? It's hard. The academic papers you're all holding up as examples of self-publication are really pretty short, you know: generally only a few thousand words. It still takes several passes of highly-motivated proof-reading and editing to get them ready, generally by several sets of highly-trained and highly-paid eyeballs (academics get paid to write papers, just not directly). Then they go to review, and I've never reviewed a paper that didn't have typos in it.

What's more, you don't want to actually read a manuscript as submitted for publication. Making them look purty (and sorry, the default output of the LaTeX article class isn't purty, I've made LaTeX documents purty and it takes quite a while) is the responsibility of a paid full-time body; these folks are the only full-time staff that some smaller journals employ.

A full-length novel is at least ten times as long as the average paper. I don't fancy your chances of getting that to look and read well without a lot of hard graft by somebody. Who should get paid, because otherwise it'll be the author doing it, who's physically and psychologically incapable of proofreading their own word to the necessary standard...

98:

'I think it should also be pointed out that argument about the value-add of the publisher strike me as GROSSLY overblown.'

I can see you feel strongly on this one, hence the shouting, but for the avoidance of doubt you should bear in mind that, in general, the people with expert experience of writing books, otherwise known as authors, flatly disagree with you.

I'm not a professional writer, nor even a professional reader, but I at least try and familiarise myself with the reasons why professional writers have come to the conclusions they have; this is enlightened self-interest on my part since I want them to keep writing books which I want to be able to read.

The Thoughts of Chairman Mao, sorry, Maynard Handley, are unlikely to shift my opinions based on the evidence...

99:

"The academic papers you're all holding up as examples of self-publication are really pretty short, you know: generally only a few thousand words. "

Not true not true not true. Go LOOK at the stuff on arxiv.org.
Along with the short results papers (a few pages) there are plenty of review papers of a hundred or more pages. Not to mention not a few books like Warren Siegel's Quantum Field Theory book which is, what, 800 pages or so, or Carlo Ravelli's Quantum Gravity book which is certainly a few hundred pages.

If you don't like the look of default LaTeX, well, you know, all it takes is to switch to a different class file --- takes two minutes --- and it's not like there aren't thousands of these things. If you want to go further, use a book class like memoir which allows you to set all manner of weird options.

If you still INSIST on dicking around with minor details of the look, well that is your prerogative, but don't be surprised that the rest of the world is not interested in your aesthetic compulsions and doesn't feel a need to reward you for them.

100:

Just my 2 cents:

DRM is always relevant. I won't buy anything with DRM at any price, not even "for free".

FWIW, I generally don't consider Amazon to be "good guys", but I think them so in comparison to Barnes & Noble. OTOH, I don't have and don't expect to ever have a Kindle. An "e-book reader" that can erase a work after you've purchased it is just a total abomination.

101:

Your formatting looks fine... I just posted to my blog from a mac and things got ugly fast...

This Amazon thing reminds me of the battles between beta and VHS... the consumer is usually the loser in such squabbles.

102:

To all the armchair revolutionaries, publishers are not going anywhere. At least not any time soon. Some writers (like, say, Steven King or Dan Brown) could forgo them, but only by replicating everything they do. And why should they? They do just fine with the status quo.

But the publishing industry is going to get turned on it's head. eBooks will cannibalize dead tree sales. Not this year, and not next, but soon. Definitely before 2020, and probably a lot sooner.

Very few people will pay $15 a pop for them. If the traditional reverse auction model is imposed on the eBook market, people won't wait for the paperback price. They'll take it from the library of yar har har. Not everyone, but a lot of people.

Probably too many to fund author kibble, let alone a comfortable middle class life. If publishers are allowed to pursue that model, they will be hoist their own petard, and take the authors with them.

Amazon is hardly a saint, but they are at least facing the future head on. Macmillan is trying to sell saddles to automobile drivers.

103:

"The question in my mind is... how long until we can drop the supply chain down to just Author -> Reader?"

Are you sure you want this? I *know* I don't. Every author I can think of that got 'too big to edit' declined in quality when they hit that point. I can't think of a single counterexample off the top of my head.

In addition, while I'm not an author myself, I very much take Charlie's comments about not wanting to be a publisher to heart; I want authors I like to be in there banging out words on the new novel, not negotiating with third-party editors or doing self-promotional gimmicks. Even in a world with universal electronic distribution, I still see a very strong role for an entity (call it a publisher or not, as you choose) that exists to a) take care of all the extraneous work and let the writer *write*, and b) keeps the reader from having to navigate the slush pile.

104:

MH: I've looked at arxiv.org. It's full of peer-reviewed articles. Things that have been proof-read by the aforementioned multiple people, then peer-reviewed, then had the mistakes fixed, then been formatted to suit a journal. The books almost certainly went through the traditional editorial process. They also aren't default LaTeX formatted, by any means. Who do you think wrote all those class and style files, the type-setting pixies? No, it was people who needed something different in how the final document looked. I've done that. It takes ages.

105:

Charlie, re 38, I didn't mean to say that there are no production costs for ebooks, what I meant to say was that there is no per-copy cost --- it's all fixed cost. Once the ebook is prepared, you're pretty much done. And most of the remaining costs, like bandwidth, are down to Amazon, not the publisher, right?

Maybe the problem is partly that the ownership of the means of production haven't been lined up in a way that works for the publishers. After all, if the publishers want a bigger slice of the pie, shouldn't they start owning (probably through outsourcing) servers and stuff like that? Of course, that presupposes an open framework for ebook delivery.

FWIW, I'm on your side, and I do try to get your books in hardback when I can. A pox on both their houses!

106:

Brilliant post.

Another way to think about this is to consider Apple/Amazon tactics and how they'll play out in the long term.

Apple may be happy to play the role of fixed-price-distributor in order to keep partners happy in a battle for market segment share. To win/preserve the monopoly.

Over time, if they have that, it's not hard to imagine where they'd turn for their next meal.

107:
For what it's worth, the ePub format Apple, Sony, Baen, and everybody except Amazon are going with doesn't mandate DRM (although it provides an optional vendor-specified DRM layer).

For what it's worth, the MOBI format Amazon is going with also doesn't mandate DRM (although it provides an optional vendor-specified DRM layer). There is an abundance of DRM-free reading for the Kindle from places like Project Gutenberg, and there are apps like Calibre which handily convert text from a number of formats including ePub to MOBI.

108:

Maynard @94: you're wrong. For a very simple reason: what is the average number of authors involved in publishing a paper on Arxiv, and what is the length of the paper?

(90% or more of novels have one author, and their textual length is around thirty to fifty times that of a paper. Torvald's law applies: many eyes make bugs (or typos) transparent. In the absence of many eyes ...)

rpg @103: yes. Baen is doing ebooks Right because Arnold Bailey's one man show, Webscriptions (I believe part-owned by Baen) is effectively a retail gateway. So Baen's ebooks don't go through someone else's distribution channel.

Alas, you need to at least have sufficient brain cells to know how to download a file and install it on your reader of choice in order to use Webscriptions. And the not-there-yet mature ebook market is presumed to consist of couch potatoes for whom this would be an insuperable technical challenge.

109:

They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily.

That would be nice. But it looks to me more as if they're a particularly good example of the kind of monop[ol|son]y that the Internet tends to produce.

110:

Charlie @ 109:

So Baen's ebooks don't go through someone else's distribution channel.

Exactly. Baen has embraced the "correct" model for ebook publishing, which essentially does away with the need of a long distribution chain.


The whole discussions should now be clear in everyone's mind: there are two jobs that sit between the author and it's reader: the publishing part (editing, typesetting, art, etc) and the distribution part (marketing and making copies available). The internet & ebook thing makes the second part as short as it can be. Baen knows that, and takes advantage of that.

111:

Amazon is a business and as a business they have a right to choose the products they want to sell, and they have a right to sell those products for the prices they want unless they have a contract to do otherwise. The publishers have a right to choose who they want to do business with. The people who get caught in the middle are the authors and the customers. Many authors have been vocal against having their books as e-books for various reasons, some have been vocal about having their books as e-books. Neither side is given particular merit as the publisher chooses what to issue as an e-book and what not to issue. I know because I know some authors. The customer gets caught in the middle because books are getting so expensive and many people, particularly in today's economy, cannot continue to pay increasingly high prices for books -- even paperbooks, whose prices are rising to $25 in some instances.

If publishers want to wait until a certain period of time before they allow e-books to be issued, that is up to them. Just as it is the right of the customer to wait to purchase the books until they become paperbacks or e-books. If publishers think e-books are going away, they are naive. The American public increasingly wants them for many reasons.

I do use Kindle, but even if I didn't, I would feel the same way. I debated all of this before I got one, which was a present. I for one can list many reasons why I prefer e-books am I have always been a bookworm. I debated which company to get the e-book reader from and I investigated all of them. If someone doesn't want an e-book reader, that is up to them. People can choose other stores to purchase the publishers' books from that won't play nice with Amazon. Books-a-million sells their books at often ridiculously low prices, even on new issues, but you don't hear people complaining about that, except maybe the authors.

112:

Thank you for the ground-level explanation for the rest of us book-consumers. I appreciate your time and patience.

113:

Time for you to take back your rights from your "publisher". This days you can replace him with your computer and keep all the profit yourself. This situation smacks of the RIAA and MPAA fiascoes.

Take a look at the cwf +rtb writings at www.techdirt.com

114:

You might be right that without publishers the book world looks like a giant slushpile. But the slushpile is coming to get you, Charlie, whether you like it or not.

The major publishers' ultimate goal is probably to close the Kindle and iPad platforms off from small press and independent publishers. They've already gotten Apple to agree to set a minimum price requirement to sell books for the iPad, in order to protect themselves from price competition from authors selling books directly. They'll probably move on from there to try to build on that "success". Because if they don't, just by accretion the ratio of independent content to "traditional" publisher content will eventually grow so large that the publishers will drown in slush.

By the way, there are a number of authors on the Kindle DTP platform who are selling 1000-10000 copies of their titles A MONTH. [I get a good look at them as they kick my ass up and down the street in the Kindle Store sales rankings.] And that's for individual titles; heaven only knows what sales numbers are being put up by authors with broad backlists. If your publisher is telling you that the most copies of any ebook they've ever sold is 5000, that should just be more evidence to you that they are screwing up the ebook channel.

115:

Amazon is 1)evil 2)greedy and 3)without any principles other than profit.

116:

DaveB @113: you are either a troll or a person of limited reading comprehension. Hint: I am not a publisher. There are good reasons I do business with publishers.

(Can't be bothered arguing with know-nothings and trolls. Kindly piss off.)

117:

Yes, there are minimal per-copy costs for an ebook, but the pre-print costs of the title itself are amortized across it and the initial treeware edition. From an accounting standpoint, why should the latter bear these costs alone?

In addition, there are costs applicable to the ebook alone: conversion to mobi, epub, pdf, etc., plus quality control, that is, another run past a copyeditor make sure the ebook has the correct words and formatting, for example. These costs can run to a few thousand dollars and are built into the price of the ebook.

Yes, after a time ebook sales would have paid for these costs, and after a year they are essentially written off, but the ugly fact is most ebooks will never pay for what it cost to create them, just as half of hardcovers never earn out their advances.

118:

The reverse auction method seems to work well for Steam: new titles start at a $50 (and occasionally $60) premium, but rapidly adjust downward to maintain sales, so if you're willing to wait a few months for a new title, you can catch it at $40 or less. Periodically they have aggressive sales on newish titles and popular older games, which seem to do well.

Does anyone know how involved Valve is on setting prices? Are the developers/publishers able to micromanage the pricing, as they can on the iTunes App Store?

Back to books, it seems to me that letting the publishers set the price means that you could occasionally get shafted by overpricing, but I would guess that a publisher is more likely to damn you with a lack of marketing, rather that pricing your work too high. But if the publishers really kept their fingers on the pulse of sales, they could frequently adjust pricing to min/max, rather than something as laggy as a quarterly review.

119:

Steve Jeffers:

"Amazon, in defending a retailer's right to set prices, is working for the customer, the retailer, the author and ultimately it's better for the publisher, too."

I'm sorry, but nothing could be further from the truth. What Amazon is "defending" has nothing to do with anything which benefits the consumer. Instead, they are "defending" their right to sell ebooks at below cost, in order to establish Kindle's AZW format as the de facto "standard" for DRM'd ebooks.

Few booksellers could compete with $9.99, given the wholesale prices of ebooks. Could B&N, for example, afford to lose $6 on every sale, in a market which is growing? Of course not - it would be forced to price its books in line with wholesales prices, which means more expensive than Amazon, which in a flat market basically means "you lose".

The end game would be that if you wanted a DRM'd book, you'd have to buy it from Amazon - consumers would have little choice. What's more, publishers would have to deal with a single retailer, who could then dictate terms.

Let's put it another way: Do you think that, if it was the only game in town, Amazon would be charging you $9.99 and losing money on every sale? Of course not.

120:

Not sure where I stand on all this after reading the article and then the comments, Charlie.

I do wonder what you'll be signing at the Cons when the "dead tree" model is, er, dead. I know I'm a dinosaur, but for me a book is not just a bunch of words, it's a package, with evocative artwork, heft, tactile and olfactory elements, and nothing except a modicum of ambient light needed to allow me to access the contents (and no-one is going to make me buy a new sun in five years, except maybe Gene Wolfe).

But then, I also miss album artwork you could actually see and music transcription units that looked like someone chrome-plated a Rowland Emett sculpture.

121:

Macmillan claims that this is about flexible pricing, that the $15 price point is only for bestsellers with prices dropping over time, are lies. This is the same tale the music publishers spun in the iTMS price war, that hits may be $1.29, but catalog releases could be as low as $0.69. Yeah, right. Now everything is $1.29, just like every Macmillan ebook will be $14.99 for eternity.

122:

Publishers will use flexible/declining pricing for the same reason that they currently do -- because they can make more money that way. (There's a big enough market of people who will buy books at MMPB prices but not above that MMPBs exist; this is the discovery of Allen Lang and the lesson will not be lost because of a change in formats). Currently e-books are, at best, an overrun business, but if/when they become a principal source of revenue, and especially if they replace part of the dead-tree market, they will be actively managed to improve profitability.

123:

Is there a grassroots movement in the Book industry... specifically the authors, to move to a direct-to-consumer model?
It's fantastically easy to convert your book into pdf/epub/whatever format now. Authors could sell their good directly to the public, and keep 100% of the profits. They may have to hire a couple people to proofread/edit, but still.... Why give the damn "industry" any more of YOUR money?

124:

Argh. Allen Lane.

125:

I think we are just entering the Post-Gutenberg Area.

126:

Really interesting discussion.

However I think most commentators are looking at Apple and Amazon as direct rivals for e-books. WRONG! Apple is much more interested in multimedia and is thinking way beyond plain vanilla, text only books. Apple wants authors and publishers to take greater advantage of its hardware so that 'books' become a much more immersive experience. Think textbooks for example that incorporate hot links, video, music, pop quizes, all within the 'book'. Apple can do this today. Amazon cannot.

Amazon does not have the capability to follow Apple in this direction. Plain vanilla is 'so last century'... Amazon has already lost. They just don't know it yet.

127:

Chris Clark: Why give the damn "industry" any more of YOUR money?

Answer: Because, as I am becoming sick and tired of repeating, I am not a publisher. Publishers do a hell of a lot of work that is largely invisible to the reading public (except when it goes wrong). I don't want to take on their workload along with my own. It's called division of labour.

Put it another way, if I wanted to do that I would already have done so.

128:

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.)

129:

"Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everyubody's nuts -- the authors, the customers, everyone."

I'm sorry Charlie, but this argument is complete shit. Amazon cannot maintain a monopoly on one end, a monopsony on the other end, price gouge, and keep both intact. The barriers to entry on either side of this market are low enough that, if they did start price gouging, a competetor would crop up immediatlly to drive the prices back down again. Their distribution network is value addative, so they deserve to be paid for that value when a consumer uses it, but it's not unique or hard to replicate. Apple's iPad is a perfect example, if the deal amazon is offering is so god awful it's only a matter of time before publishers, authors, and consumers jump ship for a better deal.

130:

Publishers do a hell of a lot of work that is largely invisible to the reading public (except when it goes wrong). I don't want to take on their workload along with my own. It's called division of labour.

Amen, Brother Stross. Amen!

Not only does the publisher perform or coordinate all these tasks, which there is no way in heck I have time for, they also front all the initial cash investment, which can be prohibitive. Hey, you got $20k lying around? $15k? $7?

This allows me, the author who has to hold down another fulltime job and barely has enough dough to pay my mortgage and barely enough time to write my books by deadline, to actually enter the market via the main distribution chain.

If I wanted to go commando, outside the main distribution lines, and sell directly, I MUST have some platform to succeed, some way of getting buyers to notice me and come to my door. And then buy.

But platform doesn't just happen. It's dang hard to create. How many blogs are out there? How many generate more than a few hundred visits per week?
Publishers also provide platform. It may not be MONSTER, Simon Cowell platform, but it's much more than 97% of us authors could create on our own.

You don't think their platform matters? Try to self publish and then get your book into Barnes & Noble. How about Kroger Food in the US with it's 2500+ outlets? Try to get it reviewed by Library School Journal and Booklist: the sources libraries use in their purchasing decisions: http://johndbrown.com/2009/09/how-libraries-select-books/ Printing the book and shipping it around is the EASY part. But even that would take time from me creating the product.

I'm not saying the current state of affairs is the best. I am saying that publishers do many things that allow new authors to even enter the market. We are able to plug into an existing franchise instead of having to deal with the time and $$ involved with starting up a brand new business from scratch, all while working the other fulltime job to make ends meet.

131:

As both a songwriter and an author, I learned a lot from your post. I am intrigued by the number of people that have commented. I for one, am very glad that people care, and seek to be educated. Thanks

132:

Take a step back. What Apple is really offering is that the publisher gets to be the retailer too. Apple handles the storefront and the delivery, but the financial relationship (pricing, product, advertising, etc) is directly from the publisher to the customer. For the publisher, that's attractive. "You mean our product gets to stand or fall on its own merits, not its merits plus the merits of the half-dozen or so other people between us and the customer, each of whom want a cut for not stuffing it up?".

For Amazon, that's terrifying. Apple's happy to run a storefront at close to cost because what they're fundamentally about is ensuring there's content to put on their hardware. Apple sells hardware, everyone else gets content / money, all happy.

Except for guys like Amazon who make money moving content. Amazon places a financial buffer between the consumer and the publisher. If the consumer can get content directly from the publisher, less a 30% tax to pay for "shipping and handling", Amazon's business model is gone. That's why Amazon wants lock-in, and wants to control the pricing models.

What's really going on here is that Apple is threatening to render Amazon's business model (at least the online part) obsolete. Amazon doesn't want to compete; it wants to get the publishers to agree not to play with Apple. And it's trying to use the physical books business to twist Macmillan's arm.

133:

I disagree that Amazon is the biggest villain here. Maybe for you as you get caught in the cross fire.

Andrew Wheeler has a more extensive take on some of the issues involved. MacMillan is offering a particularly dumb and crude pricing model to Amazon that they would be a fool to take. They aren't fools and are applying their own pressure back.

http://antickmusings.blogspot.com/2010/01/more-on-amazon-macmillan.html

134:

John Brown, it seems to me you are arguing that what publishers do hinders, rather than helps, both authors and readers. You can't bypass them at present because they're still the gatekeepers - but what others are saying is that the gatekeeper no longer adds value.

It seems to me publishers have four value-adding roles - financial (ie advances to authors), editing, marketing and distribution.

1) Finance - well I'm not sure that there are many good books that wouldn't be writen anyway even without advances.

2) Editing - something that could easily be farmed out to small contractors by authors or their agents (aint no economies of scale there).

3) Marketing - its loss would certainly be a Bad Thing from the POV of any currently successful author, but it is essentially a zero sum game. There's no reason why the total number of books written profitably would fall in its absence - they would just be from a wider range of authors. Not a great loss from society's POV.

4) Distribution has just disappeared as a profitable function, despite frenzied attempts by MacMillan and co to delay the inevitable.

135:

Hit and run comments accumulated over a couple of days, because I'm on the road. At random:

Over in the romance genre, there are several thriving small press publishers doing nicely by small press standards on being ebook publishers first and treeware publishers second if at all. There is a significant online romance fandom which likes ebooks and discusses, often loudly, what they do and do not like about buying them. I write for that market, and so I have some real, hard reader feedback on ebook purchasing.

Let me assure you that cover art *does* matter for ebooks. It matters very much indeed. I can point you at reader reviews of my books that start "I was browsing through Loose Id's catalogue looking for something to try, and my attention was grabbed by the cover of..." There are a number of reasons for this, but one of them is that bad cover art signals to readers that the publisher is unprofessional, and if they're unprofessional about covers, they're probably unprofessional about selecting good manuscripts and editing those manuscripts.

Editing matters. Readers *notice* when they try a new press and the editing isn't up to snuff, or standards at an established epub slip. Editing fiction is more than typos and correcting the grammar -- it's about story structure.

Gatekeeping matters. There are working models for crowdsourcing it -- but when I'm reading fanfic, I'm pretty picky about whose recs I follow, and I pretty much don't read fanfic without a rec unless it's an author I'm familiar with. Go read a random sample of fanfiction.net if you want to understand why gatekeeping matters.

Some readers will buy direct from publishers, and some even prefer to do so. Some readers refuse point blank to go trailing round the different publishers every week to see what's on offer, and go straight to Fictionwise instead. With my author hat on, I'd really rather they bought my books direct from my publisher, because I and my publisher get a lot more money that way. With my reader hat on, yes, I understand perfectly well why people would rather go to Fictionwise.

Back to editing -- I have seen examples of Charlie's manuscripts at draft-for-crit stage, after he's revised it courtesy of focus group feedback, and the final published version. Charlie is a damned good writer and even a first draft is extremely readable, and he has a competent crit group, but there is a noticable polish put on by the publisher's editor. crowdsourcing your editing only gets you so far.

There are already systems in place to allow public libraries to lend ebooks. I can't give the details, because I have no personal experience.

Pricing on ebooks from the small press epublishers is around the same as a US mass market paperback, even though they're small press with the lack of economies of scale. This is because they are not paying DRM licence fees, and are typically selling a large chunk of turnover direct from their own website rather than handing half or more of the cover price to a distributor. Yes, the distributors *do* want half or more of cover even on ebooks. And want contracts that allow them to do "buy one get one free" where the one free is paid for by the publisher rather than the distributor.

Treeware isn't going away any time soon, and there will always be paper editions for those who want something signed by the author.

And if you still don't get why Charlie, and a lot more of us, don't want to be our own publishers, read Scalzi's post on the costs involved in self-publishing, which sets out clearly the advantages and disadvantages of going it alone.

(Sorry Charlie, I seem to have run on at length.)

136:

[ TROLL DELETED BY MODERATOR ]

137:

Please do note that in some countries fixed book prices are the norm. Sucks for consumers, of course, as you can't really get book discounts, but the logic is that publishers and authors need protection. (Go figure.) http://en.wikipedia.org/wiki/Fixed_Book_Price_Agreement

138:

tetracycloid @129: actually, the barrier to entry is huge, because Amazon already have the first-mover advantage -- it took them fifteen years to get where they are today. Google had the huge benefit of having a Better Mousetrap (anyone else remember AltaVista? Or how great it seemed in 1994?) and surfacing in 1998, during the great bubble when it was easy to get funding and grow, baby, GROW.

Trying to unseat an incumbent like Amazon today ... well, Barnes and Noble would love to do so, and have financial muscle to put behind the project, but have they done so? Have they hell!

Building a dot-com startup to market dominance and near monopoly status is hard. And the Invisible Hand tends to suffer from motor neurone disease once a monopoly or monopsony takes root.

John Brown @130: this blog gets 11-13,000 visitors daily, spiking to 35,000 visitors on a hot news day (like Sunday 31st just past), 130-160,000 unique visits a month. I'm taking on moderators this week, and doing some re-structuring. It is the proverbial internet launchpad. Nevertheless, if I tried to sell my books direct to readers and could get even a 2.5% conversion rate ... my sales would crash.

That's what most of the peanut gallery doesn't seem to understand -- the biggest enemy of any author is not some moustache-twirling villain in a publisher's office: it's obscurity.

139:

For Amazon, that's terrifying. Apple's happy to run a storefront at close to cost because what they're fundamentally about is ensuring there's content to put on their hardware. Apple sells hardware, everyone else gets content / money, all happy.

I'm certainly no expert on Apple's business plan, but iPod/iPad seemed to me to be just the opposite: low hardware prices to bring people into the store where Apple can make money for a long time.

140:

Moopheus asks why publishers don't sell e-books direct.

It's not the book format that makes this difficult but the monopoly over the delivery mechanism.

If you, a Kindle user, want to buy an e-book to read on Kindle, even though the basic format is html, you have to download it from Amazon or one of its approved channels.

That means it has to be "republished" or "subpublished" by Amazon/Kindle.

So whilst you could put an e-book on your own website and sell it from there (assuming you have the marketing muscle to drive people to it) your customers would need some other reader to view it on.

Some may say that that other view is a computer screen and then you can have e-books in Flash or other formats with DRM you control.

In fact, if it were not for its new autocratic pricing model, Kindle would be an excellent platform for smaller publishers. Apple is making a play for the professional publications market, Kindle is making a play for the pulp fiction market.

The difficulty arises in the grey area in the middle.

141:

Bob @138: Apple has the highest profit margins on hardware of any company in the computer/consumer electronics business. It's truly astonishing.

142:

Charles,
Love your books. I understand your position on this and am sadden that it impacts you, but I can't help but support Amazon in this. Change is chaotic and the book-industry is just starting to go through a generational upheaval. Its difficult to see how this is going to play out, but ten years from now I expect things to be radically different. Who could have imagined just 10 years ago how much the IPod would change the music industry? Like Apple, Amazon has proven itself to be a change-leader and they have earned the right to shape the future as much as their business dominance allows them to. That's not a monopoly, that's not unfair....that's just normal business practice.

143:

Apple has the highest profit margins on hardware of any company in the computer/consumer electronics business. It's truly astonishing.

That has been the case, but I wonder if it applies to the iPad. Many pundits were predicting (based, I guess, on historical Apple margins) a higher price prior to the unveiling, and since the inevitable teardowns have yet to happen, who knows what the actual cost is? Since Apple stores look to be the major source of content for iPad, maybe Apple is shifting into the content business.

144:

Charlie @108: "Baen is doing ebooks Right because Arnold Bailey's one man show, Webscriptions (I believe part-owned by Baen) is effectively a retail gateway. So Baen's ebooks don't go through someone else's distribution channel."

Not sure how that fits into the argument. This means Baen distributes through WebWrights (Bailey's company), which I think I've heard does take something like the third of the sales price mentioned for Amazon.

Peter @137: "Please do note that in some countries fixed book prices are the norm. [...snip...] the logic is that publishers and authors need protection. (Go figure.) http://en.wikipedia.org/wiki/Fixed_Book_Price_Agreement"

That's not quite it, did you read your link? And - "go figure"? Yes, they do need protection. That's why countries mandate a monopoly (copyright) instead of preventing it. And why publishes subsidise new authors by buying their books for more than they expect to earn. Fixed pricing is just another example. And it regularly gets contentious just like copyright.

145:

I don't think you've got the facts right, here.

The way things are working, Amazon is publishing a lot of the popular books as loss leaders, actually paying the publishers the same as the publisher would receive for a paper book, often rather more than the $9.95. The agency model charges the customer more, but the publishers net less. And the ebooks don't threaten the publisher's margins — they aren't paying for a physical pulp brick when they sell an e-book, and that's most of the cost, especially in a big seller. After all the cost of copyediting and typesetting are basically fixed costs; there is essentially no incremental cost to the publisher when they sell an ebook, it's all margin.

I've got a piece on this a href="http://pajamasmedia.com/blog/kindle-ipad-macmillan-and-the-death-of-a-business-model/">Pajamas Media today.

(PS, I'd have logged in to post this except no log in mechanism worked. I didn't dig to see why, it might be because I'm using Chrome.)

146:

Charlie Martin: the ebooks don't threaten the publisher's margins -- they aren't paying for a physical pulp brick when they sell an e-book, and that's most of the cost

Nonsense. The cost of the physical book block is around 10% of the SRP -- we're literally talking about $2-3 to print a hardback, around $0.5-1.0 for a mass market paperback.

If the cost of the book block was a substantial chunk of the overall price, we wouldn't be witnessing this flame fest: it would be obvious to everyone that ebooks had to be cheaper than pbooks.

147:

The question you need to be asking is 'what value does each of the players bring to the table'?

Traditionally, the publisher brought risk capital: sufficient money to print a stock of books and warehouse it until all were sold. Sufficient money to do that with a range of varied books, in the knowledge that some would fail whilst others would succeed beyond expectation.

Digital texts are not like that. Where reproducing a book on paper is expensive, copying a file is free. So no stock of books has to be held, so no risk is taken.

Publishers also used to proof, edit and typeset books.

But with modern word processing and a simple template, most authors can now produce a finished customer-ready text, well formatted and presented. An author who can't, with the help of peers and contacts, edit their own book into customer-ready state really has no place in the market.

Finally, publishers used to select books and market books. The publishers' slush piles tended to mean that really poor texts were never offered to the public - but also meant that some undoubted gems were lost.

This too is no longer necessary. Readers' reviews on sites like - yes, Amazon - provide the customer with a good filter to distinguish the texts they're likely to enjoy from those they're not. It isn't foolproof, of course - but it's at least as foolproof as publishers ever were. Meanwhile, the web enables authors to market direct to the customer, and retail websites like - yes, Amazon - can help.

So publishers actually bring nothing whatever to the table any longer. But it's worth noticing that Amazon doesn't actually bring much to the table, either, when texts are electric. Yes, there's the Kindle platform. But, as authors, why would we want to tie our work to one platform?

Effectively, all Amazon bring to the table is a search engine and a trading platform. You produce your text; you publish it yourself, on Amazon; you pay them a cut for providing the search engine and the retail platform; and all the rest of the money goes back to the author where it belongs.

But Amazon cannot demand too much of a cut, because if they do, you can simply move to a different retail platform. PayPal would be delighted to handle the transactions for you. So would Google. Search facilities? Google will provide them for free.

You're right that the Internet does disintermediate transactions. The Internet can connect authors and readers directly. Publishers, like bookshops and Caxton's printing press, are history. But Amazon's grip on the market is also fleeting and tenuous. The real power is in the hands of the authors.

148:

Simon @ 147, please read Mr. Charlie @ 138 again.

This blog draws HUGE numbers, numbers the vast majority of earnest authors would find incredibly difficult to draw on their own, YET even with those numbers Mr. Stross estimates his sales would crash if he cut out the "useless" publisher.

You suggest Amazon would fix all this. The reality is that posting your book on Amazon or Ebay is the equivalent to hanging out a shingle on your own blog. Reviews are nice, but only come into play AFTER someone finds your book. Recommendations can lead to sales, but the majority of sales on Amazon are not driven by them. Searching is no different than googling.

The biggest values Amazon provides are (1) ease of finding titles you already are interested in, (2) low prices (their own and used version), (3) long tail stock, and (4) endorsements, which only come into play after you find your book. These are all great things. But they do not replace the functions listed that publishers provide.

The fact is that the majority of books are NOT sold on-line. Amazon has no connections with B&N or Powells or Kroger Food etc. Amazon doesn't have relationships with libraries or the independent review agencies that drive a lot of library sales. Amazon doesn't get you notice with bloggers or win you spots on radio or TV. Amazon doesn't do anything but make it a snap for a buyer to type in the title of your book, find its listing, look it over, and buy it. All wonderful things (I've loved Amazon for years for this), but it's only the last step in the development to sales process.

Derrida @ 134, as for marketing, see above.

With regards to financing, please realize the advance is only part of the financing. Have you got the $$ thousands lying around required for all the other tasks?

As for the current distribution systems, let me suggest you grossly overstate its demise. Brick and Mortar bookstores still account for a huge % of sales. But they're not the only place. Do you know how many books Costco, Wal-Mart, and all the food stores sell? The vast majority of book buyers DO NOT get their books online. As with many products there are MULTIPLE distribution systems. Maybe in the future most books will be puchased on line (digital and hard copy), but maybe they won't.

The fact is that publisher do provide huge value. But even if someone were to develop a turnkey system for authors to get GREAT editing, design, art, printing, distribution, marketing, and financing, we'd still want some nasty old gatekeeper to take us on.

Why?

Because consumers do not want unlimited choice. Even if all the other functions find different providers, someting I seriously doubt will ever happen, we'll still want someone who we think is unbiased to say, hey, this is good, read it.

You can get some of that with massive user rating systems, which have their own problems: http://johndbrown.com/2008/12/is-product-popularity-totally-random/, and figures with platform (Oprah, Rush Limbaugh), and those methods of platform might proliferate. But we'll always want them. And in many instances those places will still have to sift through the gobs of material that will be thrown at them, just as Booklist and Library Journal do today. And authors will still hope they get picked up by them.

So you we can rail against publishers today, but there will always be some gatekeeper.

149:

[ TROLL DELETED BY MODERATOR -- cs. ]

150:

Charlie,

Up till March 2009 when my family bought me a Kindle, I bought probably about $400 of books a month, including all of yours. Then I stopped. Probably bought 4 paper books since. I LIKE reading on the Kindle. Easy to read and easy to buy.

It has some major disadvantages. For one, I am likely to buy the same book a number of times as devices change(the DRM problem.) I have Kindle copies of books, which I also have paper copies of in the garage. Another example is the quality of the formatting of ebooks from publishers in general. I find they generally provide useless graphical content, often don't have a copy of the cover art, have missing or useless TOCs, and generally skip one or two of the editing steps.

I think you mischaracterize yourself as an "outsider" - you are seeing the world from within McMilllan's paradigm.

I admit that I can't accurately judge the worth of the publisher's contribution. My belief is they employ a lot of expensive "slugs" with overly high assessments of their worth. McMillan strikes me as a publisher who is desparate to hold on to the old business model rather than adapt. They abandonded the TOR-Baen experiment as soon as Holtzbrinck bought them.

Amazon has sold the position that, you ought to pay less when you buy an ebook, and I buy it. McMillian wants to sell their poorly published ebooks for the same (or more) than their supply chain costs from the editorial process through the publishing distribution (an recovery of unsold) processes.

Amazon has some warts here and it must be tough on authors (not to mention us Kindle book buyers who can't get the available product on our gadget), but Apple has not done McMillan or anyone else a favor here in putting off the day of adaptation.

Noel


151:

I've posted a notice on my website - where I used to have a link with Amazon - asking my readers not to buy anything from Amazon until they stop this outrageous boycott, not just against electronic editions, but also the print editions of Macmillan books - which includes most of mine.

I am now doing all my web book buying at Barnes and Noble and Borders. Amazon thinks they can get away with this because they already have a monopoly - but they don't. What's funny is that three months ago, Amazon was courting me for special projects. But now they've banned my books from their new-book sales (only used copies of my books get sold via third parties, for which I'm paid nothing); guess how much attention I'll be paying to their Kindle-promotion efforts now!

- Orson Scott Card

152:

NPG: "expensive slugs" is not a description that matches anyone I've ever met in publishing. Compared to film/TV/games it's a low growth, low budget field where there's not a lot of surplus money to go round.

153:

One of the main issues that seems to get missed here is that there's a world of difference between the pricing structure for the printed book from the eBook.

For books that Amazon physically has to purchase and stock, pick and ship, they do act as wholesaler and retailer. The vendor (publisher) can dictate a purchase price for their customer (Amazon), and the retailer (Amazon) must then give a valid markup to the book to make a profit.

This model works well, and how the Publishers usually play the 'price-fix' game is to print a higher SRP on the book, usually $25-$30. Amazon offers them x% of the SRP, they can take or leave it or negotiate.

Usually nobody pays the SRP, it's cut by B&N book discounts, Amazon's standard discounts, etc. in the usual marketing price-wars.

But with the eBooks, the model breaks down. Amazon dictates the % of sale price, rather than a % of SRP, and then they dictate the actual price for which the eBook is sold.

This essentially means that Amazon tells the publisher, I'll give you $3 for the priviledge of selling your eBook online.

The publisher can decide that $3 won't pay for all the cost that went into the book. This will be true unless he sells a million copies of that eBook.

To the consumer, they wonder why they have to pay $10 for essentially a PDF of a book - no paper, no cover, no shipping, etc. The only warehousing necessary is 'data warehousing' and they only need to keep '1 copy'. Yes, even $10 seems an awful lot of money when I can pay $1.20 for a single on iTunes.

What the consumer (and Amazon) seems to miss is that the physical components of the book are a fraction of the real cost. The royalties paid to the author (usually by an advance), the Agenting, Editing, CopyEditing, Marketing, Typesetting, Proofing - all of those people still need to be paid, even without a physical 'book'.

I agree with others that publishers may need to set up their own retail storefronts. But does that give them a 'vertical monopoly' on their product? (i.e. a specific author's books)

154:

Scifi reader @ 153

I agree with others that publishers may need to set up their own retail storefronts. But does that give them a 'vertical monopoly' on their product?

Many of them do this already. But no publisher will ever want to try to sell exclusively via that one distribution outlet because consumers don't want to have to go to each freaking publisher to see what they have. There are thousands of publishers. And so there will ALWAYS be a distribution channel with middleman of some type between vendors and consumers even when they also have a direct channel.

Consumers LOVE middlemen (Wal-Marts, grocery stores, hobby shops ad infinitum) because they give us ONE stop shopping. Can you imagine having to go to farmer Bob to get milk, go 20 miles down the road to farmer Jane for corn, another 20 miles to farmer Gil for eggs? Middlemen save us gobs of time.

And you can bet that if publishers decided to pull everything back, which they won't ever do, a website would pop up that would allow the consumer to search ALL the publisher websites and conduct the transactions. Middlemen are one of the MOST EFFICIENT things around. And they are never going to go away.

155:

Charlie,

I think I just understood something about this that I didn't before. I was on the Codex forum with Buckell and others and this suddenly hit.

It's about price/volume/profit control. That's it.

Here's business as it is today. A retail bookseller (Amazon, B&N, etc.) pays a fixed wholesale price for the book to the publisher. The bookseller might negotiate wholesale price breaks at different quantity levels with the publisher, but that's a wholesale price/volume agreement that ensures certain profit levels for the publisher. As for the retailer, they maintain a different price/volume/profit control on their end with the consumers, fiddling with volume/price mixes that make sense to them. In this situation BOTH the publisher and the retailer maintain price/volume/profit control.

But this new percent-of-retail scheme decouples price from volume and forces the publisher or retailer to lose control of profit.

Amazon is actually asking the publisher to GIVE UP control of the wholesale price. Under Amazon's rules, it can set the retail price however it wants within the min and max ($5,99 and $9.99 right?), REGARDLESS of volume. But because wholesale price is pegged to retail price via the %, this means Amazon is dictating the wholesale price to the publisher without any regard to volume. This takes price/volume/profit control away from the publishers, putting them at the mercy of the retailer's whims.

That is not business as usual.

In fact, with most product suppliers your salesmen negotiate prices and volumes with different buyers. You negotiate a price/volume that's good for both parties. Sometimes these are flat prices. Sometimes you have large volume commitments. But in all cases it gives the supplier something to count on. If a customer wants a lot of product, great, we'll sell it to you for X price and make Z profit. If you want less, fine, we'll sell it for Y and make Q profit.

This tie between price, volume, and profit allows the supplier to forecast and manage production, capital allocation, the works. But in Amazon's scenario the publisher loses almost all that control. They would have to budget for the worst case scenario--70% of $5.99 because they'd never know when Amazon would drop etc. Now, I know returns throw a wrench in this, but the principle remains.

What it appears Macmillan wants to do is simply retain price/volume/profit control, something they currently control (or at least negotiate and agree upon). That's a perfectly normal thing to want to keep control of.

HOWEVER, if Macmillan gets its way, guess what? It takes that same control away from Amazon with its customers. I can see why Amazon wants to maintain its price/volume/profit control with its customers. To let Macmillan set the retail price puts Amazon's profits at the mercy of the publisher. Or, at least, cedes a lot of control to the publisher.

I don't know the resolution, but it's clear to me that this % tie to retail price as it stands is going to be a win-lose propostion regardless of who gets their way unless price is tied to volume. Either Amazon is forced to change the way it works for new books and becomes an Ebay (something it's already doing with used books). Or the publisher is forced to change the way it works and becomes what? The only thing I can think of that has so little control over price is a commodity supplier.

Thorny.

156:

Whoops. It appears I was mistaken on one significant point. In the initial proposed agreement Amazon actually did cede price control to Macmillan. Only through the set maxes and mins did it attempt to retain any influence on that price/volume/profit mix with consumers. Still, I think the underlying insight helps illuminate WHY this is such a big deal for both sides.

157:

One last thought. In the new agreement, one of them had to cede a large amount of control to the other. It was Amazon. But it didn't want to cede total control. And I can see why, but then again, maybe not.

It seems to me that if you're going to go to the Ebay model, then there's no point in setting maxes and mins. Your goal isn't to maximize profit with any given transaction. Your goal is to maximize the number of transactions you process. This is what Amazon does with used books. So why not do the same thing with new ones?

In the Ebay model you just make your money differently. So I'm not understanding why Amazon is only going part way with this unless it's to do what's been mentioned in many places and that's use book prices to subsidize or drive something else, i.e. the Kindle. Or is there a better explanation?

158:

My guess, when this started, was that the Agency model, which is used for the app store for their various apps, was suggested *by* Jobs. The 30% seems in line with the portion paid to software/app creators, who set their own prices and raise or lower them as the market seems to allow. At 30% (to Apple) Jobs has called the app store revenue neutral.

The reason the publishers are now starting this with -Amazon-, imho, is that they've been asked to guarantee that there will be price parity between the ibookstore and other ebook vendors, and there is *no other way* to do that, that I can see.

I think--and this is -all- opinion--that this is probably the reason the Random House negotiations haven't been concluded with Apple yet, or weren't in time for the iPad launch.

If this is true, all of the signatories are going to have to try this; Macmillan was simply the first. But if they were unwilling to commit to trying it, my guess is they would have had no presence in the ibookstore.

159:

Stevie | February 1, 2010 17:52 | Reply
120:
Not sure where I stand on all this after reading the article and then the comments, Charlie.

I do wonder what you'll be signing at the Cons when the "dead tree" model is, er, dead.

I suspect they can sign parts of our bodies just like rock stars! :)

160:

John Brown: "But no publisher will ever want to try to sell exclusively via that one distribution outlet because consumers don't want to have to go to each freaking publisher to see what they have."

Why not? That's what I do already to check prices for air travel; I open a browser tab for each airline, put in the dates and endpoints, and compare the results.

161:

A WashPost columnist, Steven Pearlstein, wrote about the Macmillan/Amazon issues.

Today, the AP says that Amazon and Macmillan are close to an agreement, including the possibility that author royalties on e-books will go back up to 25%.

162:

@158 - I'd have to agree that Jobs suggested it. But based on Walt Mossberg's question, it does seem that for it to work at the prices Apple announced, everyone would have to get on board. Otherwise, you'd just use Kindle for iPhone/iPad. So is that what precipitated Macmillan's actions?

(I tried to summarize the whole debacle - at least to present day - in one post here)

The reason the publishers are now starting this with -Amazon-, imho, is that they've been asked to guarantee that there will be price parity between the ibookstore and other ebook vendors, and there is *no other way* to do that, that I can see.

If you're suggesting collusion, in the US that is illegal.

163:

No, no suggestion of collusion.

Jobs probably suggested this business model individually because that's what works for the app store, and I expect the ease-of-use for the newer media will mirror the app store, which they already -have- accounting systems in place for. I'm certain that no mention of actual prices would have been discussed, because in the end, that's not his problem. His problem would be the very deep discounting done elsewhere, because if it is, why bother with the ibookstore at all?

And this is all only speculation on my part, of course -- but Hachette also made the same announcement as Macmillan vis a vis agency model, and Rupert Murdoch said something very similar as well. I think 5 of the big 6 companies will all announce this within the very near future, with Random House as the only holdout, as it was the only one missing from the iPad launch.

164:

My friend sells nice used paperbacks in her store for half of cover, often a week or so after they come out, and you can trade in other books toward that.

What will be the price of an ebook that's been read? Same as a brand new ebook, because no one can sell their read ebook.

165:

Be glad you're not a university press author, Charles. The royalty structure is different than it is in most trade publishers' contracts, particularly in the sense that royalties are based not on the retail price but on the wholesale price. Moreover, sales at lower-than-standard-trade-discount prices are subject to a reduced royalty percentage, so the publisher gets less and the authors get even less of it.
I earn more money each year selling autographed copies of my books via my Web site (and enjoying the retail mark-up) than I do from royalties, though that would not be true if I didn't have a coauthor to split royalties with. It's a good thing so many people like autographed copies and are willing to pay more for them, because despite the significant volume I do, I can't get my copies for sale at anything approaching Amazon's discount.

166:

Publishers make much more money off the sales of hardcover editions than they do from paperbacks, but there are increased costs for marketing, production and infrastructure, increased author royalties, and so forth. They generally only come out with hardcover editions when they have a reasonable expectation that they will sell enough copies to turn a profit. When they have pulled most of the profit they can out of the hardcover edition, they release the paperback edition. Production costs are much lower but so are the profit margins, so they rely on mass-market sales volumes.

The main problem with Amazon's Kindle pricing setup is that they are effectively following the paperback business model but there simply aren't enough readers in the market at this point for it to be mass-market and generate the sort of sales volume required for this to be attractive to publishers.

Basically, the publishers are being asked to give up the higher profit margin of the hardcover edition, but they aren't being given the sales volume of the paperback market in exchange. Things will eventually get better as there are more eBook readers in users hands.

Kindle has enjoyed quite reasonable adoption rates, but could it be faster? I think one thing that is slowing down adoption is the pricing model used for books that aren't versions of new hardcover releases. Kindle owners may have been getting good deals on those eBooks, but the opposite is true for the paperback side of the market. The Kindle version of a paperback release is typically the same price as the paperback version.

This is all on Amazon. The publisher is getting roughly the same 30% cut from a $7.99 Kindle paperback as they'd get for a physical one, but without the production costs, so they're happy, but Amazon's 70% is virtually all profit.

When Amazon eventually realizes how much they can increase sales volumes by dropping prices on paperback Kindle editions (while keeping the publisher's actual cut in dollars the same), they'll start selling a lot more Kindles, and we'll eventually get to the point where the sales volume for the hardcover Kindle editions will be high enough that the publishers will be more satisfied with a lower per-copy profit margin.

167:

[Chris @ 159]

Egad! Makes the whole "legacy" aspect of the thing a bit dodgy.

I, being of sound mind do hereby bequeath to my beloved daughter fifty-three strips of my flayed skin, indexed to the contents of my antique Kindle, bearing various authors' signatures and insincere wishes of goodwill. If she can get someone to replace the obsolete battery, and if anything survived the licensing crisis known as The Great Amazon Kindle-Stripping Of 2012 - in which some eight billion jillion terrawords of content were deleted from Kindles across the US during litigation of "Amazon Vs every Author In The World" - she may remember the times we stood on line to get this or that author's autograph "on" his latest work as she fondles what was my bicep (George R.R. Martin), buttock (Harlan Ellison) or perchance one of my thighs (Spider Robinson).

Now there's a fond memory in the making.

168:

Except that, under the terms Macmillan has decided upon, Amazon cannot drop the price. Only Macmillan can. And that price will (I'm assuming at this point, but with good reason) be the same on all ebook sites.

169:

Charlie,

Folks tend to have an inherent sense of fairness, as we have seen with the music industry, they will fight back if it appears to them that they are being ripped off.

When CD writers started hitting the market and the market appeared for blank CDs it became apparent that the cost to produce the physical product the music industry had been charging twenty dollars for was minuscule. Justified or not, consumers felt ripped off and when electronic music came around they fought back by not buying the physical product. CD sales are a fraction of what they were and now most folks don't even buy albums, just the two or three songs they have heard from an album. What do you suppose that has done to the bottom line of the record companies? The other way people fought back was to bypass the whole system and pirate music. Should that become prevalent in books what would that do to YOUR bottom line I wonder?

The perception is that ebook versions are extremely cheap to produce. The perception is there because, well, they are extremely cheap. You mention the cost of typesetting and cover design, etc.. This is a rather disingenuous argument because that cost will be born whether or not an ebook version is ever published. It's going to be done for the print version regardless so laying that cost at the foot of ebooks won't fly. I know you were talking mainly about publishing only in ebook form but this again goes to my point about how ebook readers look at pricing. We know this work is going to be done. We know that the only real cost associated with a Kindle version of one of your books is conversion which is inexpensive.

We Kindle owners are buying a book which does not have physical existence, cannot be loaned, cannot be displayed proudly on our living room bookshelves and has very little production costs. We are OK with this because of the ease and sheer pleasure of being able to carry thousands of books with us wherever we go, read these books on our iPhone apps and get new releases for a reasonable cost. But that's the thing, I, like virtually every Kindle owner I have spoken with , do not think fifteen dollars is reasonable when we have been purchasing them for ten.

What Macmillan is asking, actually insisting, Amazon to do is give up all competitive advantage with what is obviously going to be their primary competitor in this area. They are asking this, by all appearances, on the behest of Steve Jobs, the leader of said competitor. They are being asked to stop passing on savings to their customers so their competitors will be on a level playing field and said customers can like it or lump it.

Speaking for myself, I will not play this game. I won't pay fifteen bucks for any ebook unless the Amazon price for the hardback is substantially more. I will also remember the businessmen (Jobs), companies (Macmillan) and writers who supported this move.

You say that only about 5% of your sales are ebooks. There was a time when Bruce Springsteen could have said the same thing about his music sales. If you want to stifle the proliferation of the ebook industry, which like it or not IS the future, then make us ebook readers feel we are being ripped off.

170:

Thanks for putting across the other side of this argument is very interesting! Its certainly interesting times for the media and retail industries.

171:

Love the original post and many of the comments, but I am getting a little frustrated by the dominance of the discussion around politics, evil corporations and moral stance.

The publishing industry is entering a new paradigm, and things are shaking out as it does so. This will mean new roles and rewards for existing players. Rather than get caught up in who does what today, let's think about the potential future value chain in a way that is agnostic to the players, i.e., what are the tasks to be performed?

(1) Write the thing
(2) 1st pass quality filter
(3) Edit and make presentable
(4) Market
(5) Print/produce e-book
(6) Distribute
(7) Maximise sales through dynamic pricing

There are then 2 main questions:
(i) If the price of an e-book lands somewhere roughly $10-15, what is the appropriate division of $ for each task
(ii) In the new paradigm, which of these tasks make economic sense to perform in a bundle.

Looking at things this way, you could imagine quite different industry structures. You could have publishers playing the role of "A&R" people - finding talent and packaging it for large distributors to market. They would bring the benefits of agility and differentiation that a behemoth distributor would struggle with. You might get rid of all the printing presses, and all distributors, e.g., Amazon, would have their own print on demand machines like the Espresso book machine on a grand scale.

Until this structural shake-up happens, the focus will be on the distribution of $. I have no problem with Macmillan and Hachette fighting over it for now, but they are fiddling while Rome burns. The real game is to be in there shaping the new structure, not leaving that to Apple and Amazon to duke it out.

172:

" If they're just one of many agents, all selling the exact same product for the exact same price, how do they beat their competition?"

Economies of scale.

Every study I've ever seen places price somewhere between 5th-7th in factors influencing the decision to buy. Plenty of other ways to compete.

173:

Em, think about the author!
Years of dedication; Saturday nights-in researching and writing; the task of finding a publisher that ‘s prepared to take the initial punt; dozen of rejections; sleepless nights. Friends think you’ve lost the plot ‘he’ll never get published.’ And when one has been published, ‘Well done. Any chance of getting a mention in your new book.’
My golly. In times when book markets are drowned in fiction, rational tinkers and writers take the sharp end.
Is there not a case for moral markets -ones that inform empirically- to get the breaks (tax-wise, incentive-wise, purpose-wise).

I’m writing a new book (this is not a pitch), but I’m anxious. Ok, I gain the notoriety. But I do have a family, I need to make ends-meet.

Amazon, you have so much influence. Would you be prepared to consider this as an ethical issue, rather than the bottom/top-line.

I understand the strategic methodology. But you are so radically powerful.

Amazon. You’ll reach more people if you turn back on the Macmillan Tap. It’s case of feedback that will ultimately put the publishing game in a quagmire.

And think of this: 'Amazon' means?

Chrisharrisfutures.blogspot.com

174:

Amazon is a corporation. Like almost every other, their executives are required to make their decisions on one criterion: does the action in question increase shareholder return on investment? (If not, think hard -- they can go to jail for taking actions they can't justify purely by ROI.)

Blaming Amazon for acting this way is a bit like blaming the scorpion for stinging -- it's in its nature -- but only a bit. There's also such a thing as intangibles, and maintaining customer and supplier goodwill in the long term is something that even accountants nod at, grudgingly.

175:

If the stars align, and Amazon gets contracts with enough publishers to somehow form a monopoly, then they will not drive the price down for consumers. The monopolist has incentive to maximize profit (as does any rational firm), but their Supply curve lets them work a little differently. They will set a price rather than have market forces push the price towards equilibrium (which would be at or near the marginal cost of production in a traditionally competitive market). The equilibrium price would be lower than the monopolist's price. Consumers would lose if given the monopolist's price.

Herein lies an interesting question: What is the marginal cost of production for an e-book? Given certain economies of scale for, say, the next Harry Potter (if there were one), I don't imagine they are very high. Amazon could sell for (price paid to publisher + very low marginal cost of "doing business") and increase quantity demanded, as the price would be low enough to attract consumers for whom there was no consumer excess at $10. Really, it appears the pub houses are fighting over the money between MC and Price. Hmmmm.... If only there were a profitable way to let consumers of e-books keep that margin, the price would be lower for everyone. (I'm reminded of the days in my youth when HarperCollins had order forms in the back of their paperbacks).

Anyhoo

If, on the other hand (the traditional economist's opening), you meant that Amazon would set prices to publishers that were 'lower and lower', then I gently disagree. As a publisher, as the cost of doing business with Amazon increases (or my profits decrease), then so my incentive to find any other method of distribution (e-reader, software, some as-of-yet-undiscovered brain wave device) doth increase. I either find that or fold. If I do, Amazon no longer publishes my books; the consumer and amazon both lose.

"It sounds to me that potentially publishers would earn as much from a $10 e-book as they would from a $28 hardcover with this particular split. It's hard to see how, in the short term, that's a bad deal for anyone. Now, the long term fear, I suppose, is that once Amazon establishes a monopoly, they'll drive prices further and further down."

176:


I don't see Amazon winning the format battle with B&N, Google, and almost everyone else using Epub. I believe Amazon has already lost it's chance to be "the" controlling influence on the direction of digital publishing.

I see a tipping point for Ebooks. When the right reader comes out and, like the iphone, everyone has to have it the market will shake out and the winning format will have a huge impact on the structure of the relationship between buyer and content provider.

Price point may influence another area of this debate. Price the books too high and people will be more willing to turn to pirated copies. Estimates of the number of illegally downloaded copies of the most recent Dan Brown title? 200,000 It made the top ten for torrent downloads.

As a college bookstore employee I experience the whipsaw of competing with Amazon and publishers offering rentals to my students. I also see faculty moving towards open source textbooks for general subjects. Currently students are using an free,online Biology text at our school. I don't know how soon the textbook in paper form will be dead but it will probably come sooner than general trade titles.

177:

As long as the ebooks are tied to specific vendors and devices via DRM, the format doesn't matter. It only matters if there are other places from which to get content. webscription.net (which I recommend as a fine place) lets you download in multiple formats. Including Kindle, and ePub.

178:

Even if there's a hardcopy of the book, the text for the ebook has to be laid out again to fit the particular device. I suspect the cover art requires the same.

179:

I also think the pricing war has to do with precedence and timing. In 2003 when Apple began selling music, the music industry didn't know what to expect and so they let Apple call the shots in terms of pricing à la carte items and albums at $.99 and $9.99 respectively. When the success of the store surpassed the wildest expectations of everyone the music industry became anxious at the level of control they ceded to Apple.

Then when the second revolution rolled around- movies, this industry wasn't willing to play by Apple's rules. So the film/tv industry established a strawman- Amazon (and NetFlix) They gave Amazon better pricing on movie purchases and rentals than Apple. The music industry caught on and began offering music at a cheaper wholesale rate to Amazon too and to top things off didn't require Amazon to sell music with DRM.

Third revolution- Books. Apple decided to break the log jam. They went to publishers and offered to carry their books for a higher price than their current cartel- Amazon. This will give Apple a huge library, unlike AppleTV. Once iPad is a huge success, it wouldn't surprise me if Apple allows authors to circumvent the publishers more easily and do a direct publish.

180:

Doesn't this all sound familiar? Kind of like the transition from CD's to MP3's? Before you know it, we all will be downloading eBooks off Bittorrent. Who wants to pay $10-12 when you can get it for free?

181:

Robert Crowl: bittorrent isn't the best system for transporting ebooks; it's optimized for larger files. (An entire ebook is typically smaller than a lossy mp3 rip of a single album track.)

You want usenet -- down the hall, second door on the left.

182:

I have thousands of books. Most of them are related to my field of study. I also read a lot of fiction. Most of the fiction I read I buy from second-hand retailers. But I do now have a Kindle and a Sony eReader. When I buy books on these devices the authors are making money. I guess they aren't when I buy the books used. But as most consumers, I go for what is best on my wallet.

Specials

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This page contains a single entry by Charlie Stross published on January 31, 2010 9:39 AM.

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