This is a bit out my usual blogging style, as it concerns technical aspects of the publishing biz. Feel free to ignore it and look at Stormwalkers made of Legos. But as an author, I have to keep up with these things, and occasionally make my opinion known.
This weekend, Amazon more or less “de-friended” one of the six big US publishers, Macmillan. They removed the buy buttons from all Macmillan books as part of an ongoing conflict about electronic book pricing. Many people are quite annoyed with Amazon, and a few are also blaming Macmillan, in a “pox on both your houses” kind of way. But I think a lot of people are uttering total yackum on the subject.
So let me attempt to set the record straight, as best I know how.
Stage 1: Amazon prices ALL its Kindle e-books at $9.99 or less. This becomes a selling point for Kindle, as new hardback books can cost up to $27. In some cases, Amazon is actually paying the publisher MORE than $9.99 per copy sold, and losing money. But, hey, Amazon has stacks of cash, and it’s a way to sell more Kindles. “Loss-leading,” as it’s called, is a fairly common practice. It’s a way to get people into the store, to leverage other products, etc. Plus, books are commonly discounted well below suggested price.
My Verdict: I don’t hate anyone yet, but I’m kind of sad. Losing money on every book sold is a very aggressive form of pricing, which indie bookstores will never be able to match. This is not going to be great for my bookseller allies in the physical world, where many of my readers (especially the youngest) like to get their books.
Stage 2: Macmillan (and many other publishers, to be sure, but let’s stick with Macmillan for simplicity of narrative) suggests to Amazon that they raise their Kindle-edition prices. Macmillan is worried that e-books are being devalued, and that customers will always expect this discount forever, when it’s currently being propped up by Amazon’s crazy-internet-bubble stacks of cash. Macmillan is also worried that normal bookstores, made of bricks and mortar, will take a hit as sales are lost to much cheaper electronic editions. These are difficult times for bookstores, and we (authors, readers, and publishers) all want a diverse bookselling ecology that includes chains and indies, as well as online and physical bookstores.
Macmillan also suggest something called the “agency model” to calculate what cut Amazon gets. I will not bore you with details, but it does change the way profits are divided between Amazon and Macmillan.
My Verdict: I still don’t hate anyone. It’s far-sighted of Macmillan (etc.) to take the needs of their smaller allies into account, rather than just saying, “Hey, Amazon’s selling at a loss, and we get to keep out usual profit! FTW!” (By the way, I know this is merely self-interest on Macmillan’s part, but at least it’s enlightened self interest, which is what I mean by “far-sighted”.) As for the agency model, Macmillan is certainly allowed to suggest new business arrangements to Amazon. As a bonus, it’s all fairly polite so far, or at least it hasn’t affected those of us on the outside world.
Stage 3: Amazon says, “Nope. We set out own prices. And we like the cut we’re getting now.”
My Verdict: Okay, I still don’t hate anyone. Amazon has the right to set prices (even if the pricing seems predatory to, say, an indie bookstore going through tough times) and to negotiate for the cut they’re taking. If they want to burn their own money to make electronic books cheaper, I may shake my head for the future, but I can’t stop them.
Stage 4: Macmillan says, “Fine, if you’re going to do that, we’re going to ‘deeply window’ our electronic editions.” In other words, Macmillan will delay the release date of electronic editions (Kindle editions in particular) so that they don’t cannibalize the more profitable hardcover sales.
My Verdict: This is cool with me. Publishers have always delayed lower-priced editions, like paperbacks, until the people who will pay $27 for a shiny new book have coughed up their money. This is not an evil strategy. It’s common with many products—clothing, music, gadgets, prescription medicine—early adopters pay more. Why? Because they’re the ones paying to defray the creation costs. (Which is ME!) Once that’s been done, later adopters can pay less by buying last year’s stuff (and cheap knock-offs). We’ve been lucky in publishing, because we have a physical distinction between what we sell early and late adopters (hardcovers and paperbacks). But this is not a given. In fact, in many industries, the reverse is true. (A later generation iPhone is both cheaper and better. A later, cheaper DVD release often has more extras on it.)
Many Kindle owners will get angry at this point, because they want to read new books NOW, not when the paperback comes out. But should they really be mad at Macmillan? As I said, publishers get to stage their pricing, starting high and gradually lowering it, to cover the costs of acquisition, editing, marketing, etc. And Macmillan would love to release its Kindle editions right away, but not at the risk of undercutting its hardcover sales and its physical bookstore allies. By insisting on low prices, Amazon has forcibly turned its Kindle customers into people who haunt the bargain basement and wear last year’s jeans. These customers simply didn’t realize this was happening, because Amazon’s industry muscle and huge stacks of cash were subsidizing them all along.
Stage 5: Amazon de-lists Macmillan, removing all buy buttons from both electronic and physical books from the publisher. This is done unilaterally, without warning or explanation (and on a Friday afternoon, when, supposedly, fewer people will notice). This deprives not only Macmillan but also their authors of both income and the accessibility of their works to readers.
My Verdict: I call SHENANIGANS!
Some have likened this de-listing as a “shock and awe” campaign, a stunning display of muscle power from an industry leader (or proto-monopoly). But I think it’s a bit more pathetic than that. It reminds me more of an educational film from an old Simpsons episode, the one with the tagline, “Sorry, Jimmy, but you said you wanted to live in a world without zinc!”
It’s like Macmillan woke up on an otherwise fine Saturday morning, and there was no more Amazon! Wow, that‘ll teach you to negotiate, rather than just caving.
Of course, in this case, zinc blinked. Amazon has admitted that they will re-list Macmillan, because an online bookstore that sells only five-sixths of all books is somewhat useless.
So to the “a pox on both your houses, Macmillan and Amazon” crowd, I must say that I think your analysis is lazy. This is not a case of two corporations pissing down on us mere mortals with equal disdain; it’s a case of complex negotiations in an ancient industry with many arcane traditions that’s in a state of technological flux, being conducted at a level which the overwhelming majority of readers do not understand (nor should they have to), and which were going along in a way that made, frankly, perfect sense to those of us who understand this industry a little, when suddenly, out of the blue, one of the sides in this negotiation spat their pacifier across the room in a very public and embarrassing display of petulance. And that corporation was Amazon.
Yes, Amazon gets to set whatever prices it wants. (Free market!) But guess what, Macmillan also gets to release its electronic editions later if it feels simultaneous release is not in its best interests and those of its allies. (Free market again, sir!) And yes, Amazon gets to de-list an entire publisher if it wants to, even on a whim. But that’s a massive free market fail, because authors, customers, and publishers start to hate them, and they have to back down two days later. And that’s really the end of it: their strategy failed, because the rest of us can call shenanigans and take our business elsewhere.
Oh, wait, except Kindle owners . . .
________
A quick note: All discussions of this event will draw commenters who think they magically know how books should be priced, and who say there is no reason for electronic editions to be more than $9.99. A quick note to them: You don’t know what you’re talking about. Seriously, your back-of-the-envelope calculations are crap. The printing costs of a book are generally between 3% and 10% of list price. So in most cases, 10% should be your “first-printing” e-book discount, not 50%. That may seem weird to you, but that’s because all the cheap stuff on the internet is backlist (like Baen Books), subsidized/coerced (like Amazon), self-published (no editing or marketing costs), or promotional (like when I gave Uglies away for free). Yes, the “long tail” of backlist books may become very cheap, or free, but not the new stuff, which is what this discussion is all about. (UPDATE: Also, see comments 1 and 9.)
And full disclosure: Most of my books, and the vast majority of my sales, are with publishers other than Macmillan. But two, The Risen Empire and The Killing of Worlds, are Tor books, a Macmillan imprint. They are, however, still available on Amazon due to their bargain bin status. *sobs*
Update: Regarding the last line of the post proper, I have been reminded that Kindle owners can put non-Amazon books on their readers. But much of the utility of the Kindle comes from the instant, wireless purchases, which are only through Amazon. So the point stands, but only partly.
Update 2:
According to commenters, certain Kindle books are priced higher than $9.99. Those aren’t the books this issue is about, really, but for the sake of completeness, it is duly noted.
Tobias Buckell is wicked smart about this kerfuffle. Read his take here. Also, go buy his books.
Charles Stross is smart about, um, everything. Here’s his take.
PS
Hey, Amazon. When cutting off publishers, don’t start with the one that has the most science fiction writers. We will blog you dead!
Great analysis.
I’ve been thinking about this over the weekend, and I think this is a very nice synthesis of the myriad issues going on here.
One question: Shouldn’t distribution costs (such as warehousing, shipping, transport damage, etc.) go into your back of the envelope calculations? I’d have to believe that’s going to knock off another 5-10% at least.
Nice write-up! What a mess this has all been. If you’d like to see a humorous video on the fracas, check out this author’s website:
http://www.jacksonpearce.com/
I found it quite amusing.
Laura Hartness
The Calico Critic
I’ve learned a lot more about the costs of even getting a book ready for the printing (or e-book formatting stage) since become a book blogger. My sympathies are with the publisher – perhaps they are looking out for their own profits too, but at least their goals will line up with what I want, which is the continued availability of printed copies of books, the continued existence of both independent and chain brick-and-mortar bookstores where I can spend my time browsing and go to author events. And as a paper-book-only reader I am not pleased with a company that built itself up as the online bookseller where you can order any US-published book in print and get it delivered to your door, suddenly not selling every single book by a major publisher.
I visted the Kindle forum and found it rather confusing. There are so many people that think paper books will be gone soon and seem to be considering any publisher useless and standing between the author and the reader. First off, since obviously there are posting on a board where 99% of people own a Kindle, they are gonna find a lot of e-book only readers. But I really don’t see that so much in my community of blogging friends – who either read paper books only, or who read e-books for traveling convenience but like to keep a collecting of printed books – or in the real world, where most people I know consistantly read a handful of books a year and aren’t going to spend $300 on an electronic device that would take them years to save any money on those 5-10 books they raid a year.
So yeah, maybe someday paper books will be gone completely. I personally don’t see it happening in my lifetime, because of schools, libraries, casual readers, childrens books, people who want a physical copy they can do what they want with, etc. But I’m truly terrified by these people’s idea of a world without publishers. Do they think an author turns in their book to a publisher and poof, it’s done and all the publisher does is print and distribute it? It’s a lot more than that, and I’ve become even more aware of that since becoming a blogger. Do I think it’s unfortunate that there are probably some great books out there that were turned down soley because they weren’t in a popular genre? Sure. But the publishers do a very good job of weeding out truly terrible stuff, as well as taking the good stuff and polishing it into the finished book we get. I wish more readers were aware of what goes on in the publishing process and how much work the people at the publisher (editors, publicists, designers, proofreaders, etc) put into turning that manuscript into a published book. And that’s where the bulk of the book costs come from. Not from printing the book, or formatting the e-book. But for all the steps before that.
sorry, that was read a year, obviously not raid.
Andrew Mayer – I believe I have read that the bulk of distribution costs are covered by retailers and not the publishers.
You’re a cool dude, Scott. I was hoping to hear some input from an author’s perspective, so this has enlightened quite a bit for me.
I thought both Macmillan and Amazon were rash in their decisions, and I do feel that said decisions were made to provoke. These are two very big companies and a feud between them would cause chaos, so I’m glad they came to some kind of consensus.
And Amazon just caved: http://news.yahoo.com/s/ap/20100201/ap_on_hi_te/us_amazon_macmillan_20
Great post – it takes a great look at everything going on. I tend to dislike how Amazon has handled this situation…mostly because none of the other distributors are having this issue. The publisher says that the book is at a 25% discount, they sell it at a 25% discount of the hard copy…except for Amazon.
This is the problem you get when the same place that makes the Reader sells the books too. They make a lot of money on the reader, so if they don’t make as much on the book they don’t really care. I hope more of the “big six” try to settle this in the year ahead. If they don’t soon it will just get worse. Set standards and keep them…unless the actual consumer thinks it is to much aka they DON’T buy books over $9.99. (oh wait, they do on other readers).
This is the most insightful post about the Amazon/Macmillan conflict I’ve read. Thanks for posting, I’ll be passing it on to friends.
Shyla
One question: Shouldn’t distribution costs (such as warehousing, shipping, transport damage, etc.) go into your back of the envelope calculations? I’d have to believe that’s going to knock off another 5-10% at least.
At the moment, Amazon is claiming all those percentages as its own profits, because it does all that stuff for physical books. Which is why Macmillan wants to move to an agency model, where Amazon would take a lower cut.
So yeah, eventually you may see steeper discounts, but only if Amazon accepts the agency model. (We all leaving my zone of expertise, however.)
Scott, as always, you are a voice of reason. My own personal thoughts on how Amazon reacted are more strong, partly because of what I did for over a decade, and I know how that kind of power can lead one to believe they have the right to negotiate via a Mexican Standoff. But I instead call it a form of censorship, and petty, and of course a desperate grab for continued dominate market share.
Publishers and retailers are never adversaries, but partners, always partners.
Great job of writing this up.
@Catie F (#7) I don’t think Amazon is making money on the Kindle yet. And if they are, it’s not scalable money. They only get to sell one per customer, really. What they want to do is sell one to EVERY customer (even at a loss) in order to be selling eBooks too those customers forever.
If they have to sell some of those eBooks at a loss, well, that’s just one cost of doing business. Ultimately, though, the Kindle is about creating customer loyalty through a sort of lock-in.
Oh, and Scott? Great post. Best summary I’ve yet seen. Duly tweeted.
You know, last week I was thinking about buying something from Amazon, even though I’ve purchased pretty much nothing from them in months, (since before their last epic failure in communication/strange weekend decision, even) and then this happened. It just seems like, for a giant that dominates the market, Amazon should be less tragically *bad* at operating. But lately, with that badly-handled homophobia “glitch” on Easter Sunday, the tragically ironic recalling of already-purchased GEORGE ORWELL ebooks, this whole corporate blackmail / practically TELLING customers that maybe it would be a better idea to look elsewhere… It’s like they don’t even *have* a public relations department. Or they just don’t care. I’ve never bought a single ebook, and honestly, don’t care about the negotiations in any way except for how they affect brick-and-mortar (and, you know, the future of the industry at large, so I suppose I do care quite a bit) but the complete and utter failure of this corporate giant at well, doing pretty much *anything* really doesn’t make me want to shop with them, umm, ever.
Not all Kindle books are priced at $9.99 – my New New Media is $35.44, and check out the prices of some of the other Kindle books on this page http://www.amazon.com/dp/B002RWKSHO/ref=nosim/?tag=dexter2a-20
Great post! I’m merely a reader, and as you say know nothing about how the industry actually works.
Note: not all of Baen’s WebScriptions catalog is backlist. They release (some? many? all? – I don’t know) new books in ebook format concurrent with the print editions.
Thanks for putting so much time into your blog. I read the original letter, but your post explains things even better. I’ll pass on the link.
You do know that the world without zinc is a direct ripoff of Kentucky Fried Movie’s Zinc Oxide and You skit, right?
*sigh* Kids these days.
Scott, I’ve brought this up elsewhere, but any analysis of this situation that only includes Amazon and Macmillan is missing an 800 lb gorilla in the room. Apple. Supposedly this negotiation has been going on for some time, close to a year I believe somebody has said. The reason it became “nuclear option” time for Amazon is almost certainly that they see their window of having leverage closing rapidly as Apple backs up the iPad truck to the ebook market and starts scooping out their market share by the shovel full (WOW I’m mixing metaphors left and right here, but somehow I still think they’re working? maybe?).
The way I see it isn’t that both corporations are pissing on “us” (us being consumer or content creator), but that basically Macmillan probably tried to use the iPad leverage they had just gained against Amazon and Amazon realized that they were, to a degree, right, and used their nuclear “un-friending” option.
I don’t think anybody really expects Amazon to never carry Macmillan books again (hell, they even told their customer’s in Kindle forum land that they would probably give in to Macmillan demands at some point), but to say Amazon is the “wrong” party here is ignoring that Amazon has the same responsibility to its employees to not get muscled out of profitable business as Macmillan does to theirs… I’m not saying Amazon didn’t use the jerk move tactic here, they did, but let’s not fool ourselves into saying this is them being a bratty baby… this is them being self aware of how fickle the consumer is and how much they stand to lose if Apple chews up their market share. I don’t think it was the RIGHT negotiating tactic (frankly I think an open letter to their consumers posted on front-page would have been a MUCH smarter move), but it’s one I can understand.
Very nice piece. But the zinc oxide gag comes from Kentucky Fried Movie. The Simpsons didn’t do quite everything first!
Good analysis: and I have bought your Tor books. 🙂
I’m one of the very few people on the MobileRead E-book forums who is vocally supporting Macmillan on this. I do write, and I have managed a bookstore, but it’s not my industry experience that put me on Macmillan’s side, but rather Amazon’s unilateral employment of the nuclear option instead of good faith negotiation.
Amazon does not price ALL ebooks at $9.99 or below. They try to have a lot of them at that price point, but not all, by any means. For example, the new Connie Willis book is $26 MSRP, $17.16 discounted hardback at Amazon.com, and $14.30 for Kindle. They are currently listing the trade paper edition, $15 MSRP, for pre-order at $10.20. I expect that the Kindle book price will come down closer to the trade paper release in September. Amazon only discounts some books far enough to be real loss-leaders, in the same tradition as grocery stores, department stores, and other big retailers.
I totally agree that Amazon took things too far Friday night, and it doesn’t surprise me at all that they blinked. You’re right, I think, that negotiating this is all part of business; as many of us know, readers are not the real customers for publishers — retailers are. But readers are Amazon’s customers, and although they’ve tried their best to cast this as a customer advocacy move, in the end Amazon couldn’t risk customers deciding that buying books elsewhere is a better idea.
Ah, Scott. You remain my literary crush. (Except for the eating soap thing.) I feel so “in the know” now! Thanks! 🙂
Fantastic analysis of both sides. Best one I’ve seen yet. Thanks.
You, Buckell, and Stross have done the best job summing up this entire fiasco. Yours is the one my mother will be able to understand, and that means consumers in general instead of other publishing nerds (who by and large already know and understand what’s going on.) I will be passing this URL around. Thank you!
Well put, Scott. Had Amazon removed the buy buttons only on Macmillan Kindle editions, this would be a very different situation. But Amazon went way too far by removing not just the e-book editions and the print editions but also removing Macmillan titles from customers’ wish lists and from their previously downloaded content.
(Amazon has also said tonight that it’s going to cave…citing Macmillan as having a “monopoly” on “Macmillan content.” And you know what? I can’t take anything else Amazon says seriously. Really. Full stop right there.)
Thanks for all your kind words, and I’ll try to update about the other prices on certain Kindle books. And yes, as Puss in Boots says @25, Charlie Stross and Tobias Buckell are both smart as heck about this stuff. Here are those links:
http://www.tobiasbuckell.com/2010/01/31/why-my-books-are-no-longer-for-sale-via-amazon/
http://www.antipope.org/charlie/blog-static/2010/01/amazon-macmillan-an-outsiders.html
Great post, Scott, thanks! Instinct suggested that Amazon’s dummy-spit was illogical and unhelpful, but until now I wasn’t entirely sure I could justify that instinct. Now I can.
Thanks for this post. Prior to reading yours the ones I understood the best were the Buckell and Stross. Appreciate your grouping them together … just for me!
Thanks for the thoughtful posting. It helped me to get the gist of what the heck is going on. I will also be heading over to the other posts you’ve linked. Here’s hoping this all gets straightened out decently…
…and for the record, I too bought The Risen Empire & The Killing of Worlds… at brick and mortar stores, no less. 🙂
Publishers appear to be going down the same road that the RIAA did 10+ years ago. They are clinging to the old model, and refusing to adapt to the new.
There have been many, many, MANY musicians who have embraced the digital era, and are now making a comfortable living without the help of the recording industry. We are starting to see authors do likewise. With the continued success of the Kindle we’ll see even more. Sure we’ll see a lot of self-published garbage, but there will also be hidden gems; and in the digital age, good stuff will rise to the top. Thing Back Street Boys vs. Johnathon Coulton.
When you look at this from the single author perspective, any move toward the proliferation of digital formats should be welcomed with open arms.
Scott, I’ve read several of your books (BTW, hurry up with the sequel to Leviathan) but this is the first time reading your blog. Great post! As an avid reader and Hardcover book buyer, I personally don’t understand the popularity of the e-readers. I do think that all of the e-books are overpriced for what you get, but to price them lower would not benefit the authors in any way.
I would like to see Hardcover books come with an e-book copy (similar to the digital copy coming with some DVD’s and Blu-ray’s now). If you want the e-book on release day, you have to buy a Hardcover and get it with the book. The publishers could then release standalone e-book a month or so later or at the same time as the softcover.
I know that Germany and France have laws for fixed pricing. The publishers can set a minimum retail price for their books and any retailer has to sell at or above this fixed price. I am not sure if the US has this same type of law, but I do know that Amazon.de is currently being sued by a German book retailer for breaking this law. If the US does not have this law, perhaps the publishers should work on getting this in the US. The Amazon/Walmart $9 new release hardcover war just a couple months ago was ridiculous and did some damage to the non-chain bookstores, and even some of the chain bookstores.
Let’s not forget also, that when a Baen book is first released, it’s $15.
It comes down fast, but those first copies are expensive. Of course, they come out BEFORE the paper does. But that’s cool and Baen’s decision.
As a Kindle owner, I really enjoyed the $9.99 feature, but even at that price I usually wait for it to go down to “paperback price”. People never want to pay full price for things when they know it’ll come cheaper. That’s why I think it would be fine to raise the prices on the Kindle books. It would ultimately hurt me, as a consumer, because I’d have to pay more money… but the books are worth that much. Discounting them like crazy doesn’t help the market.
The biggest thing about the Kindle is it’s portability, not the discounted prices. Those were always a nice added bonus, but honestly it’s just an extra feature. The Kindle isn’t supposed to give away books dirt cheap, that’s not the point.
I hope this issue gets resolved… I would hate to have my selection of Kindle books limited because of this dispute. There are so many good books that might not get read due to this.
“By insisting on low prices, Amazon has forcibly turned its Kindle customers into people who haunt the bargain basement and wear last year’s jeans.”
Hilarious! 🙂
I have a Barnes & Noble nook (it was an unexpected Christmas present) and I can still buy Macmillan books. Those ebooks are also $9.99. I wonder if B&N is just trying to lay low. 😀
Just FYI, Baen publishes all their e-books for $6. (Except their pre-release hardcovers, which get published for three months as a $15 E-ARC, which then go down to $6 (or less, when bundled with all the other books Baen releases that money for $15) for their new release.
And Eric Flint has said that Baen is able to make a profit specifically on the e-book side of things, not just in terms of boosting print sales, and pay authors very decent royalty rates compared to other e-book vendors.
How are they able to do that when everybody else is not?
Chris,
Perhaps partly because they (and Night Shade who also sell new similarly, and the ebooks have come out *before* print books in some case) are smart enough to sell to everyone in the world, whereas your Macmillans can’t manage that.
Well said, Scott.
This is the first indepth dissection of the faux pas I’ve read.
Firstly, to be a bit of a devil’s advocate, I think Kindle has partly caved in to consumers (there was a concerted campaign last year) to bring eBooks under the $9.99. So while we’re talking about Amazon, Mac and as another commenter pointed out, there is also the added dimension of the consumer.
The new royalty arrangments for Kindle (effective 1st July) caps the top sale price at $9.99 if you want to get your 70% royalty. The big publishing companies have said ‘no’ – they can’t make any money that way.
I’m proud to say I’ve never bought from Amazon (as I’m in Australia – the shipping is a killer). I can’t understand how Kindle/Amazon has been able to only offer 35% royalties to authors listing with Kindle… and thus I’m glad to see someone is willing to stand up to Amazon.
You point out Scott – it is a free market, it would be good to see large corporations behave with grace and morals. What I’d like to see is Amazon have a competitor who will make them pull their heads in… one can hope that will be Apple.
As an aside – the two largest media outlets/families here in Australia declined Amazon’s invitation to be part of their online news syndication when they released the Kindle here in Oct last year. If Australia’s two largest (and richest) media families don’t want a bar of Amazon/Kindle – us little guys better take note too I think.
That should read – ‘Apple’ as the other commenter pointed out. Ick!
Jodi Cleghorn: actually, it’s apparently even worse than that. Not only is the top sale price capped at $9.99, but it’s Amazon that gets to decide what the books sell at. See Charles Stross’ take on all this.
That’s a really interesting blog post. I didn’t know about the whole debate, and now I’ll have to go look up what others are saying on it too 🙂 It’s quite interesting to look at people’s arguments about these things!
Anyway, I agree that it’s kind of pathetic for Amazon to just take Macmillan off though… it reminds me of the little kids who say, “If you don’t do this for me, I’m not inviting you to my birthday party!” 😀
Sorry Scott, but Publishers need to realize that it’s “Change or Die” time. Ebook purchasers don’t ‘own’ digital books like we do physical books, we’re buying a license. We can’t lend or resell them and that needs to take part in your calculation of value. Publishers also need to realize that Ebook readers are some of their best customers. We love books so much that we paid hundreds of dollars for a device to read them on. I can honestly tell you (really, I’ll show you my invoices) that I’ve read more books since I’ve had my Kindle, than I’ve read in the past 10 years. Some of them your books, Scott. So while you might not be making the same percentage off of each of my purchases, you’re getting more of my money in the long run. Because I’m reading more of your books, and I’m telling people about them. And then they’re buying your books.
A cautionary tale: The publisher withheld Stephen King’s “Under the Dome” from the Ebook market for a few months. A week after the hardcover went on sale, a digital version was available all over the internet for free, ready to use on any Ebook reader. Publishing companies could easily go the way of Record Labels.
I need to stop being a bury-head-in-sand-and-hope-the-e-future-goes-away kind of author. Thanks for dragging me, a bit, into the 21st century.
Excellent post.
I agree with everything you said. However, I do think you left out one very important component: Apple. As one of the earlier comments stated, this was all pretty much brought to a head last week, I think, because of the response to Apple’s iPad. Yes, Sony and B&N have e-readers, but they don’t have the brand recognition and associated power that Apple does. Apple is the real threat to Amazon and the reason, I think, for Amazon’s knee-jerk (take my toy and leave) reaction.
I think you missed a step between #4 and #5, when Macmillan said to Amazon, we’re taking all our e-books and moving them to ibook and aren’t going to sell them on Amazon anymore. To which Amazon responded with step 5, ‘fine, we’ll not sell your print books either if that’s how you’re going to play.” So, painting Macmillan as a fine and upright negotiator with Amazon as a pouty child I think is a little lopsided. They’re both pouty little children.
Also, I’m not certain I agree with basing the price of an electronic book on the cost of making a book. It should be based on the cost of making the electronic version of the book.
When you start your post with a blatant error, it makes one wonder. “Amazon prices ALL its Kindle e-books at $9.99 or less” is just not true. They have always said they would price NYTimes best sellers (and some new releases) at $9.99. You can find dozens of ebooks priced way above that:
Examples: -Louis D. Brandeis: A Life the Kindle book is $23.76 (It had originally been priced HIGHER) than the paperback)
All you have to do is go to Kindle books and do a sort by high-low price. Some fiction is as high as $340 delivered wirelessly.
I buy about $4000 worth of books a year. Now I buy ONLY in digital format (unless unavailable and then I buy a used copy) simply because it’s so much easier to read on my Kindle or Nook or iTouch than holding a physical book which requires two hands.
If I really want to read a price, the price isn’t usually a deal-breaker, although I start to look at title alternatives over $15 for an ebook.
This battle is a result of the Supreme Court’s 2007 decision in Leegin Creative Products v PSKS. [There is an excellent article about the evolution of MSRP at http://www.aterwynne.com/files/Dr%20%20Miles%20Resale%20Price%20-%20Bauman%20PBJ%209-07.pdf%5D It is no longer illegal under the Sherman Anti-trust Act to require a minimum price. Publishers are very upset with discounters and this is an attempt to break their ability to discount.
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The issue isn’t Amazon’s eBook pricing. The issue is that publisher’s have razor-thin margins that can’t be improved upon until they shed the costs and infrastructure associated with physical book production. Until they do so, they’ll continue to see eBooks as a cannibalizing threat, rather than the HUGE opportunity that they are.
If you’re to actually look at a publisher’s net cost for publishing a physical book (this includes prepub expense, printing, capital contribution, warehousing, freight, and returns), the profit margin is much less (3-7%) than those of an exclusive eBook (25-35%). But instead of embracing a format that allows them to improve their margins, publisher’s are clinging to a dying business model. For book lover’s, the anger should be directed at the publishers, not Amazon.
I think one reason more authors and agent types aren’t seeing this is because they signed away their works’ electronic rights and thus are losing money in this transition from physical to digital because their royalty rates aren’t reflective of the production costs of an eBook.
Scott,
A wonderfully accessible summary of the situation, imo. but your tagline PS is a masterpiece!
Not only are Baen’s Webscriptions $6 on release (E-arcs are somewhat different, see below), they’re unencrypted and don’t require a reader. They’re popular also with people who travel extensively and don’t want to take physical volumes with them.
Genre fiction has an advantage over mainstream in that readers re-read their favorite books. They’ll willingly cough up for a printed edition, and a few bucks for an electronic edition, but if you try to tell them it costs as much to produce an electronic version, they’ll call BS and not buy. As noted above, illegal editions will be out in short order. It’s in the publisher’s (and author’s) interest to beat that with a competitively priced download.
Just as iTunes has set a typical song price at .99, a typical book price is under $10. No argument from industry, with any number of figures, will change that. The negotiation is, “Will I buy your electronic edition at $10, or will I not buy it at all?”
The market sets the price, not the industry.
And since I get 50% of that electronic download price, in addition to the usual advances, royalties, reprints, paperbacks and limited editions, I see no downside as author.
*Baen’s E-arcs are a marketing trick. The moment I finish a rough draft, the hard core fans may pay $15 to see it, warts and all. This generates a bit more income, and actually improves production–in volume, they find errors that even skilled copy editors miss. That price drops the next month, and again, and then goes to the normal $6 price a month before the books hit stands.
As every book I’ve written has continued to sell more print copies than the previous, and as this is pretty much standard for ALL Baen books, the model works. People who complain the model doesn’t work aren’t using the same model, so it’s an apples and rutabagas comparison.
Thank you, Scott! This is so helpful!
Good analysis
As others have said, Kindle owners (which I am one) can buy books elsewhere. The free wireless transfer is nice, but I personally find it most useful for subscription purchases (my daily newspaper, my monthly Asimov’s.) Book purchases elsewhere aren’t a big deal. Already have downloaded and transferred many free books (e.g. Classics from Project Gutenberg).
It seems that Barnes and Noble’s ebookstore only works with the Nook software. Apple’s Ibookstore from what I’ve read will be accessible only from the iPad. And Amazon is Kindle-only. I wonder which will be the first to realize that if they allow users of the other devices to buy their ebooks, they’ll earn more money.
Finally…higher priced ebooks, with deep windowing of discounted versions…may inspire an increase of bootleg editions. How that will fit into the dialectic remains unseen.
Here in Russia, the cost of a newly printed hardback mass-market book is somewhere between 300-600 rubles ($10-20), whereas ebooks (that are released on the same week or a little bit later) are cost 30-60 rubles (10x cheaper!) and our publishers are happy with that!
Sure, our electronic market is young and inexperienced (we only have 1 or 2 “major” ebook stores), but that says something about production costs. They are much lower for ebooks after you’ve got a hardcopy published.
Maybe “shock and awe” is more international-friendly (it’s been years since I went overseas, and I was much younger then), but the meaning of “nuclear option” in recent years seems more apropos here — even down to the point where Amazon, just like multiple US Senates of different composition in that time, will flinch from really using it because they know it’s a losing strategy in the long run. Just saying. 🙂
This article was awesome! I am checking out your books immediately! BTW, I linked to this thru Yasmine Galenorn’s Twitter. I love authors helping authors! Now if only the rest of the human race could be so supportive…
With regards to the Apple strand of the debate, I’ll be very interested to see if Apple apply their standard business model to the bookstore – with iTunes and the App store, Apple take about 25-30%, with the rest of the revenue going to the content creator. If this is the case, as a writer, It might make more sense to hire a good editor to assist with the polishing of a manuscript, and publish to the iBook store to get the lion’s share of the profits into the AUTHORS pocket, not a publisher, not an online leviathan like amazon. Fair enough, Apple get a slice, but then they have a habit of revolutionising the markets they enter, so they probably deserve their slice. If you look at how they’ve changed the face of the music industry with their entire highly engineered ecosystem approach (The content, the store, the software, the hardware), then they have a real opportunity to bury the kindle (unattractive hardware), and change the face of the publishing industry. Certainly interesting times ahead, and as a budding author, in the throes of editing my first couple of novels into something readable, I’ll be very interested in how things develop. If Apple can shift over three billion products in a few years with iTunes, then it might be worthwhile getting a slice of the iBook pie. 🙂
Ya see Scott-la, this is why I like you, as an author. I mean, there are plenty of people who’s books I will read and enjoy, but non many who I think are actually interesting people I will bother to ‘follow’ and support- apart from buying their books legally.
You always seem to engage with your fans, and you always take a stand when there’s an issue that needs to be discussed. (in fact, since I’ve opened my eyes to the online presence of SF writers- including Justine :D- i’ve noticed a lot of you guys do that as well. Must be because you are superior writers, haha!)
Like you said, a lot of Average Joes and Joannas aren’t involved in the publishing industry. Being a UKian, I wasn’t even aware of this drama- us boring Britons being more concerned than our snowy weather than global news, bless our moaning hearts. But by getting the issue out of there, bloggers and authors have encouraged us to fight our ignorance and apathy, and to take and actual stand. Stuff like this makes us get off our **** and do things that need doing.
Like mentioned, I wasn’t aware of the big sheriff’s shotgun fight until all of 2 minutes ago, and I certainly won’t pretend to have an opinion superior to anyone else’s. In fact, I’d much rather listen than yak on about ‘yackum’, thanks.
But I personally take my hat off to all of you guys in the SF/author/blogo/IRLsphere. Especially you Scott, for all of the random and silly reasons I’ve stated >.<
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Just my 20000000 cents |D
P.S Loved the Simpsons reference! XD
Excellent post about the weirdest weekend I can remember in a long time! Just two points…
First, some retailers, like Fictionwise, have caught on to the wireless phenomenon that made the kindle so popular. Fictionwise offers a “Send to my Kindle” button on the download page, after you buy a “multiformat” ebook. You have to whitelist their address on the Amazon end, give them your Kindle’s email address, and be willing to pay 15 cents per MB extra, but you can have your Fictionwise books and short stories for straight to your Kindle.
Second, while I agree Amazon was definitely stupid (how could you not realize cutting off a publisher meant cutting off those authors from their livelihood?), I don’t really have much sympathy for Macmillan in that I think they are really in a bad place as far as planning for the future. I don’t think they’re just trying to hold Amazon at bay, I think they’re trying to hold ebooks at bay. They tend not to lower the price of their ebooks even after the paperback is out. Why should an ebook cost MORE than a mass market paperback? I don’t think they have a clue, and that’s bad news for them and their authors.
This weekend reminded me a lot of the Bay of Pigs standoff, except I couldn’t find anyone to play the part of JFK. Mostly it was shoe-pounding Russians. You are probably too young to know what that means, but some of us Kindle owners need the large fonts setting for a reason.
Great comments! Thanks Scott for your support for the “little guys”. I work in an Indie store. I get so fed up with the comments “I’ll just get it on Amazon”. Independent stores give SOOOOO much more than handing you a book to buy! We know our customers first and last names, their and their kids, or (relatives in some cases) preferences. We do stuff for kids, craft projects, or book signings. My comment is next time we do a Harry Potter Party or Twilight Party, ask Amazon what time their doors open for the festivities!!!!!!
I think this whole issue is very interesting, and thankyou Scott for posting this on your website. I want to be an author and I think this situation will bring attention to all who are, or want to be, authors. Because, if you think about it, this issue may become worse. If Kindles get more and more popular and regular books (real paper and binding, etc) get less popular. (Just as ipods and CDs are like today) Then authors (or authors to be) will have trouble getting the money they need. This economy is already bad, and authors (unless they’re very famous and talented like: you, Scott Westerfeld, J.K. Rowling, Stephanie Meyers, etc) already don’t get paid much. So this predicament will arise many problems for authors and publishers.
The thing that Macmillan misses in all of this is the actual purchasing habits of the largest customers. Most years I probably purchase and read 150-200 books. I’d be willing to bet that folks like me who buy 50 or more books a year are both the biggest customers percentage-wise, and by far the biggest purchasers or ebooks.
So how do I pick the books I read? Well, I’m always reading _something_. I have a handful of authors, probably 15-20, who I buy and read everything they publish. So that’s probably 20 books a year, some guys don’t get something published every year, but most do. After that, I’ve got a pile of books I bought, because something made me notice them. A blog review, a newspaper article, a recommendation from a friend. What happens is I go check them out, and if they’re reasonably priced, IE somewhere around the paperback price, they get bought. I bought probably 30-40 books at the $10 price point on amazon last year that way. They go into the list, and every time I finish something I pull something from that pile. If that pile is empty, then I go read something from one of the Baen webscriptions. Typically when I buy one of the webscriptions, I was only really interested in 2 or so of the 6 books. The other 4 go into a pile that I may, or may not, eventually get around to reading. So right now I’ve got a backlog of about 100 books from the webscriptions that I can always pull something from.
So for me, Macmillan’s move means that basically none of those books will ever end up in pile #2, so I’m not likely to ever move any of their authors up to ones that would go in pile #1. Is my situation common? No, probably not. But is the reaction that I have when looking at a book someone linked to me and going ‘ooh, too expensive, maybe later’ and then never, ever, thinking about it again? Yah, I’d say that’s pretty common. So Macmillan just lost all those sales. And managed to get authors to cheer them on doing so.
I don’t have a problem with either model…
As Amazon said in their concession post:
“Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book.”
And so we will… hey it’s still a sort of new field, and the waters are still finding their own level.
I’ve only been on ebooks for about 9 months.. bought a used Sony, started in on Gutenberg, then discovered Baen, then discovered the library.
(I don’t know about ANY of the other readers, but with the Sony, I can check ebooks out of the library, for free, and they automatically lock after 3 weeks. ) COOL!
I’ve never cared for hardbacks, just because of the mass. I’m one of those people who packs for a trip with the next 5 volumes of a series, so I don’t run out while I’m gone.
THAT’s what the Reader frees me from.
As a non-Kindle ebook lover, what I find amazing is that searching for a non-Kindle version of Leviathan, the prices range from $16.99-$19.99.
Hardback price from Amazon, $13.49
So… I can get a crippled datafile that I can’t lend to a friend, give to a nephew sometime down the road, or move to the latest shiny new whizbang reader that comes out in 5 years; for only 30% MORE than the hardback? Wow, sign me up.
Scott, I own everything you’ve written, with the exception of Leviathan… and for that, I’ll wait. I look forward to reading it, and probably re-reading it, for years to come.
There are too many issues here to delve into all of them, but it confuses me that anyone would think it logical to delay ebook releases, as if people who enjoy their devices, and prefer them will just shrug and buy the hardcover. With hard covers vs paperbacks, you’re still talking about print books, and it makes sense that hardcovers come out first and are more expensive, but ebooks are for a different group of consumers and ARE prices more initially when they’re offered simultaneously with the hardcover.
My admittedly anecdotal experience is that people with eBooks are more likely to buy more than one copy — ebook for personal use and print as a gift. Delaying the ebook release, I believe hampers that tendency. If I’m buying someone in my household a print copy and have to wait 7 months or my format, pubs light mistakenly put that in the win column, when in truth a sale is lost as I will might reluctantly share their copy rather than wait a couple seasons to have a book discussion with that person.
Just like a print book reader, I get paying more to read it first, but if I’m not offered the book that can’t happen.
By the way, The Uglies series was one of my first experiences with my Kindle and every time a writer I discovered that way doesn’t support the format, I have to say it makes me sad.
According to this financial analyst, the big winner in this whole thing is Amazon. Clearly, once they did the math and realized how much better a deal it is for them, “caving” was clearly the best option.
http://finance.yahoo.com/news/In-Amazon-vs-Macmillan-Amazon-paidcontent-3683130300.html?x=0&sec=topStories&pos=7&asset=&ccode=
the losers? authors.
Wow. I had no idea this was going on. I come here to check a NaNo WriMo tip and I get all THIS. Don’t have time to read it all but will ASAP 😀
hey anyone there???who read uglies i luv the series!!!!!!!! 🙂
I started reading it, but I saw it was sooooooooooooooooooooooooooooooooooooooooooooooooooo long so………… I didnt read it haha sry
Wow I didn’t even KNOW about his whole problem till you posted!
I’m NOT an e-book reader.
There’s just something special about holding the actual book in your hands and seeing it with all your other books on you bookshelves that’s satisfying…
I mean If I grow up to live in a cramped space, I’ll probably get e-books instead cause I’d be saving a ton of space!!!
But hey.
And wow! So many people commented! Most leavin full names instead of wa and la but meh.
Oh and I saw that simpsons episode!!!
ROFLMAO.
thanks for this! i’m partially interested in becoming an author, so it’s good to have this bit of insight. i see how it works really, and even if it makes sense, i still don’t get Amazon’s choice. shouldn’t they have seen it coming, that people would go buy stuff elsewhere if they blocked that publisher? i sure did. it was extremely obvious to me, one of the first things i thought of. in my opinion, it both makes sense, and yet it doesn’t. the point of cutting Maximilan, they would have lost more money in loss of customers, in the numbers that would make the cut not worth it. but either way, thanks for teh insight! i really apprectiate it.
Very well put. Hear, hear!
I STILL don’t see what right Macmillan had exactly to start this kerfluffle in the first place. Amazon is paying them the list price they want and then doing their own discount, taking a loss on the costs, right? Doesn’t this mean that Macmillan is still getting all they money they would anyway, whether the book is sold in print or by ebook, because Amazon is paying out of their own pocket? So if Macmillan is getting all their money, what right do they have to tell Amazon they will not be providing them with timely ebook editions?
The way you explained it, it’s like some normal physical bookstore was receiving a shipment from Macmillan, paying the same price that other bookstores pay for the books, but then for whatever reason selling them all at $5 a pop. Macmillan is still getting the same amount of $ for every book sold from that bookstore as any other bookstore, but suddenly they decide that because the bookstore is running a permanent sale, they aren’t going to send them their next shipment until all the other bookstores have sold their books? WTF? Aren’t their profits still the same? Doesn’t that bookstore pay them the same amount for their wares that other bookstores do?!
Anti-trust regulation prevents this sort of thing to happen on a broader scale, but many businesses use this model–grocery stores for example have products they call “loss leaders” they price very low to bring in customers. Those products then sell other products.
Now if Amazon starts to take over the entire eBook industry, anti-trust will kick in. This may be the beginning of that, but I would imagine Amazon’s lawyers are watching and toeing the line.
Furthermore, a company like this is subject to both the US AND the European Commission on anti-trust regulation.
Very well-researched and well-written post. Thank you!
Michele
SouthernCityMysteries
Amazon’s tactical strike and backdown is far cleverer than many people are giving them credit for. Sure it looks like a giant FAIL on some levels but it was also a warning to any other publisher who wants to renegotiate the terms.
What other publisher is going to enter negotiations when they know Amazon might release the nuclear strike? Better to just accept the deal.
I think the future model will be author + someone who is editor/marketer with a bit of book design skills mixed together, both working on royalty, selling through Amazon and other e-book retailers.
Even a 30% royalty is more than what any traditional publisher pays a writer. The traditional royalties are still locked up in the old model of returns and pulping and holding back royalties for six months or more.
Amazon’s ranking tables and most-read, highest rated, will take care of any marketing and promotion that may be required. If you look at any community driven website (like Reddit for example), good stuff rises and bad stuff falls.
I can’t actually see what value publisher will have in the future. What? You’ll take 88% of the earnings so you can provide me with an editor (who I could make a profit-sharing deal with myself), a book designer (who could be the editor), a marketer (editor again or not required) and access to a distribution network that I don’t require? Wow, what a deal!
Paper world may still be around for a while yet but MacMillan and the like need to realise that having expertise in a distribution system means next to nothing when that distribution system is replaced.
Wow, thats harsh XD. I’m still good with getting hard copies… because I’m silly and I like to collect books. A pretty exspensive hobby my mom says XD. But I have to looks back and read them again of course! My cousin in law showed me his Kindle, they are cool devices. But it would be nice for the nice quick read and if I have to buy the book later so be it lol.
Do so many people truly believe buyers can’t find other places to purchase their books from online? I can’t see Amazon being essentially “out of stock” on a book preventing me from finding a website to buy from and probably at the same/cheaper price. The only loss I see is not being able to abuse Amazon Prime for fast shipping.
>heartlessgamer – The dispute was over Kindle edition pricing. I don’t think there are too many other places you can get a Kindle edition of a book.
I and alot of other Kindle readers would not have bought the hard cover in the first place so saying that delaying the Kindle release will boost sales of hardcovers in not entirely accurate.
There is spin from all sides on this but I can say that having the Kindle has led me to spend more money across a broader range of genres in the last 5 months than the last 5 years. Between what I have on the reader and what is archived is over 300 titles. Some are freebies(public-domain), most are the $5-$7 range and few are $9 and up.
I read too much and too fast for books in the higher range, with the amount of books that are available for ALL e-readers I will just have to check out the deeper cuts and not the bestsellers and see what hidden gems there are to find.
I am glad I and my husband read your “Uglies” series before this meshugas because I find your attitude kind of hostile. I know everyone wants to make money and us consumers want to save money but I would think you would want to reach more people with a little lower price than less people with a little higher price.
Take care.
Mathew Ferguson – ugh, I hope your vision doesn’t come to pass in my lifetime. I love physical copies of books, dislike ebooks, and still feel the publishers add something of value. Sure, there are probably a few books I would enjoy, that are well written, that aren’t published because of low demand for the subject/genre and nothing else. But at the same time, the publishers filter out a lot of bad stuff that most people wouldn’t enjoy reading due to the quality. I’d guess a large number of rejected books aren’t very good. Sure, an indepdent writer can hire an editor, but it doesn’t mean they will listen to the editor – there was a self-published writer who visited my Borders a few years back. Hired an editor, but since the writer was working for herself, could ignore the editor’s advice, and ended up publishing a rather bad book – and I mean, *BAD*. I’m not a professional and I still could have fixed it up a bit with some editing, that was how bad it was. Sorry but I’m always going to trust a publisher and their editors over someone the author can hire or fire at will. I can always tell when a bestselling author has gotten enough power to demand editorial control from the publisher – the quality suffers horribly as a result.
I know that the blog pubrants has been talking about e-book pricing/royalties/other publishing stuff over the past few months, sounds like the publishing industry is going through a similar phase that the music industry did a few years back when people decided that music downloads should cost less than hard CDs because of manufacturing costs. Interesting to see where this will lead, but since I am not someone with an e-reader I’m glad I have nothing to lose here.
As one of the ‘brick & mortar” stores so commonly mentioned (DreamHaven Books), I don’t always follow things in cyberspace. There are so many things I could say about the e-book revolution and Scott’s wonderful comments on Macmillan and Amazon but he’s covered most of the salient points. One thing I will add is that Amazon does not and, likely will not, ever make money selling books. They don’t have to. They sell everything else for profits including your buying habit data. They can continue selling books, and e-books, at a loss to get rid of the competition (i.e.ME). I used to rant and rail a great deal about the situation but I’m coming to terms with the loss of independent bookselling as I get closer to retiring. I’m tired. But I’m glad to see there are others still value the variety of options in purchasing books. Great work Scott.
One quick point regarding the back-of-the-envelope calculations…
Any calculation of “% of cover price” for any particular cost needs to be nearly doubled.
Let’s say, for ease of calculation, that a $10 book has a $1 cost to print. Gee, that’s 10% of the cost right?
WRONG.
Lets say I’m a publisher. We’ll say that on any given book the costs on the book are in the following categories:
1. Printing (which we have already set at $1 per copy)
2. editing
3. marketing
4. profit margin
5. damages/returns (spoilage)
6. payment to the creator (without whom there would be nothing to edit, market, print, et al)
I know, there are a few other cost centers we could throw in there, but for simplicity’s sake, we’ll leave it at that.
Lets say (again for ease of calculation) that each category is $1 per book, just like the printing cost. Even the spoilage, so we can ease your mind about other cost centers not listed.
So total cost, including profit margin, to the publisher, is $6. At a 60/40 split (which is close to what Amazon was offering for e-book distro before things fell apart) you have a $10 book.
“Gee, the printing is still 10% of the cost of the book.”
No so. If you remove the cost of printing, the cost of the book to the publisher is $5. At a 60/40 split, the cover price of the book is now $8.33.
Your printing cost is actually 17% of the cost of the book.
And that is with keeping the profit “margin” on a per copy basis the same dollar value, which *increases the profit margin for the publisher*!!!!
Instead of making $1 out of $6 (20% margin), the publisher is now making 25% margin on each copy. (Yes I know the numbers aren’t accurate, but the concept is.)
So if you kept the MARGIN the same, the book’s price becomes $4.80 to the publisher, and $8 retail. The printing cost is now 20% of the book’s cost.
Granted, I pulled the “dollar per copy” profit margin out of, um, thin air, and may not reflect actual profit margins and that last 3% could be larger or smaller.
But (and there is the key) remove 10% of a $10 book’s cost, at a 60/40 split, you reduce the cost of the book by 17%. And if you keep the publisher’s margin cut the same, the price goes down even further (when all other costs are kept the same).
Excellent summary of a really strange situation.
My feeling is that Amazon deservedly got a black eye for this, but Macmillan didn’t come out smelling too wonderful, either. (I say that as a Tor author whose book got yanked. Still is yanked.) While Amazon’s behavior made me want to smack someone hard, I have to say I agree on the point that lower-priced ebooks are probably better for everyone: customer, publisher, and author. (I say that as an author squinting at his ebook sales figures.) The Baen example is probably the best. Fictionwise isn’t bad, either, at least in their multiformat shop. Low price, DRM-free, multiformat is far and away the best deal for the reading customer, and the one that makes them want to come back for more.
That’s if they get your book into ebook at all. I’m still waiting for the ebook to my Tor novel, more than a year after it was promised to me. In the meantime, I’m offering it for free from my website.
The whole thing has made me a little dizzy. And we haven’t even seen what Apple is going to do yet.
great post
i’d always wondered why the softcover issued so much later than the hardcover (personally hardcovers rock)
very situation similar to movies becoming dvd’s. used to be a long time in between the movie premiere and the dvd release now it’s only a few months.
they’re selling information. not a tangible physical thing that requires storage and transport and production in a traditional sense.
it seems that with digital books the publisher’s and vendor’s are entering boggy new ground not unlike the way the ipod changed the way music is sold/shared/presented.
i’m afraid that indie book stores are going the way indie record stores went.
if the focus could be on quality, workmanship and service versus quick&cheap the amazon’s of the world wouldn’t be quite so powerful to pull a hissy fit like that.
Loved your analysis. Great overivew. And lovely site. 🙂
Reading it all… didn’t work out to hot. Short summary anyone? 😀
I REALLY don’t understand how some publishers handle ebooks.
I was just looking for Allen Steels’s 4th Coyote book, Coyote Horizon”, which is out in paperback now.
Paperback, $7.99
Kindle, $7.19
ebooks
Fictionwise, $25.95
ereader.com, $25.95
ebookmall, $31.14
Barnes&Noble, hey guess what? $7.19
So the two book sellers that have their own reader have it for $7.19, and everyone else has it for $26+
How… coincidential…
Scott, I agree that the lower price of Kindle editions of new releases IS a nice incentive for people to try out the burgeoning new e-book industry, but I don’t think it’s threatening new release market-share as much as Macmillan is making it out to be. The fact is, every time a new method of distribution crops up for intellectual property, be it music (CDs, mp3s, etc), video (DVDs, blu-ray, online streaming, etc), or books, the old format IS going to suffer some natural losses.
Especially when the new format is electronic and DOES cost less to create/replicate and distribute. The music industry freaked out over mp3s, saying that selling music via mp3 would drive down the price of CDs, etc, and it has—but was that wrong? Personally, I think the industry had been making excessive use of their exclusive distribution channels of the past—consumers had absolutely no other way to obtain music, so they had to pay whatever price the music industry felt like setting.
These days, mp3 music distribution is booming, but it hasn’t killed CDs yet either. True, there are fewer produced and sold these days, but they ARE still sold in this age of iTunes ascendancy, which proves to me that there will always be connoisseur consumers who WILL pay the higher price for the pretty package and durable/non-electronic format. We’re just being more fair now about giving consumers a choice about whether they love this artist enough to buy the “premium†item or not.
It’s similar with e-books, though in all honesty, I don’t think the losses to the electronic version will be as bad. As you mentioned in the case of the later editions of the iPhone, which where cheaper AND better, electronic versions of music typically sound better (depending on your own hardware, of course) because it’s pure sound transmitted in max quality/no-fidelity-lost format electronically.
Not so with the e-book. True, every last pixel of every last black-and-white word is perfectly transmitted, but that doesn’t make the product better. Especially with so many e-readers (excepting the Kindle, notably, of course) using LED backlighting or other inferior technologies that strain the eyes more than reading a printed-on-paper book does, the electronic version, in this case, is an inferior product. Plus, they don’t come with the colorful, attractive covers that add so much to the book-reading/purchasing experience of us more viscerally-inclined readers. Also, while an e-copy of a single song is good for the iPod generation who likes listening to mixes rather than a single artist’s b-side-interspersed whole album, a book only has value as a whole, so the greater fluidity/mobility of an electronic version is not a boon like it is for mp3s. Plus, since books are better as whole/complete packages, they make great gifts—and you can’t really add a dedication or book plate to an e-book, now can you?
In short, I don’t think e-books are AS dangerous and threatening to the book-publishing industry as Macmillan believes—and that is the REAL reason they are trying to strangle this baby industry and bullying Amazon, its one defender. This fledgling e-book industry is only barely getting its foothold now BECAUSE Amazon is protecting it with its price sheltering. Personally, I think it’s incredibly greedy and mean-spirited of a huge publisher like Macmillan to try to kill a new/small industry that is going to diversify distribution channels and give us consumer more choices about whether we want to be a “premium†customers or just an average joe enjoying something at an “average†level (and a fairer price).
So conversely, I don’t think Macmillan’s actions in this whole mess are far-sighted at all—just a simple knee-jerk reaction of fear, the way the haves always fear change and loss of power/control to have-nots. But they really needn’t worry. As I said, the e-book is a totally different animal from the mp3, and even if they manage to survive, they’ll never get big enough to overtake real book publishing. Macmillan is just making themselves look silly (and desperate) trying to squeeze out a little guy. Rather than looking for an easy a scapegoat to blame for their dipping sales during a recession (which should be reason enough, you dumb execs!), they should scale back their prices temporarily to stay competitive in these hard times.
Very interesting. As I usually go to bookstores and don’t buy electronic books (you totally lose that book smell!) I wasn’t really aware of this issue. Thanks for writing this up! I’m now going to check on Amazon to see which of my favorite Scifis may have been removed.
Question: What ever happened to uglies being a movie???
@cy – I cannot believe that you are making Amazon out to be a ‘little guy’, and a ‘have not’. What Macmillan are doing, as far as I can see, is trying to protect the livelihood of the ‘little guy’, the ‘have not’, i.e. the independent bookstore. Indie profits have already been decimated by Amazon, before the eBook thing was even a glimmer in Bezo’s eye. To use your music analogy – I had an indie record store in my home town for decades. I used to go in there to listen to music, and hang out, and buy music. It managed to turn a profit in a small town. I was home the other day to find it is now a clothes shop. This is purely down to the rise of mp3 et all. Make no mistake, if Amazon get their way, there will be no more indie book stores. No more places to go grab a coffee and read a few pages in your lunch hour or whatever. That’ll be a sad day indeed, and that’s where the extra few bucks go for a decent paperback – they fund a roof, and an expresso machine, and buy the ingredients for that slice of rocky road. Yeah, I use my iPhone with stanza as an eReader, but I still like to browse the shelves of a bookshop. I still like to ask those peeps in the know who is up and coming in the skiffy world, or the horror world or whatever, cos those peeps really do know, and they put you onto some great authors. Amazon is NOT the little man, and their electronic ‘suggestions’ will never replace a good indie bookstore employee.
This was really well done, Scott. Thank you.
I’ve seen a lot of comments here about the cost of an ebook. Cost is just one factor to consider when setting prices. Honestly, why on earth would anyone bother to go into business if their only concern is to cover their costs?
So what prices for ebooks will the market bear? Who knows. What I am willing to pay for an ebook is different from what YOU are willing to pay. Companies are never going to make all consumers happy. We’ll get some prices thrown at us, some will pay, some won’t, and prices will continue to adjust.
I should confess – I’m no longer willing to pay 10 cents for an ebook. I was on the fence for awhile, and I started to look at ereaders. I decided on one just last week. But no more – not yet. Everyone says how little you are getting for an ebook – it’s not nearly worth as much as a paper book. Seems to me now the convenience, speed of delivery, and saving of storage space are not nearly worth the trade-offs. I’ll stick with paper until this stuff gets ironed out.
And if you want to argue that not enough people will pay $15 for an ebook, you can throw that out the window. I would have believed you before I saw droves and droves of people paying $4 for a cup of coffee. You never know what people will do. I’ve seen so many experts say “this won’t work”, and then it does — and then they analyze what happened and try to use that information to make better choices next time. But these “rules” are always evolving.
I can’t blame Macmillan for wanting to do what it thinks is best for itself. I can’t blame Amazon if it doesn’t share the same “vision” and wants to cease doing business with Macmillan. But I do blame Amazon for throwing a big, fat hissy fit. At Amazon’s age, it should know better.
As an author (yes, one of those insignificant people who actually write the books) I was dismayed when Amazon zapped my book, THE MYSTERY OF LEWIS CARROLL on its US launch date.
However, Amazon is still allowing third party sellers, i.e. people who buy in free review copies and sell them off as used books. That way Amazon makes its cut, Macmillans gets nothing and Macmillans authors get nothing.
Thank you for this breakdown. I appreciate your taking the time to let us all know.
Your post is informative and relatively unbiased. But this (like others) seems to be missing what I consider an important point. That this has nothing to do with consumers or “little guys” and all about control and business model.
I will point out that my understanding of the situation is based on an assumption, that is that author’s royalties are based on what the publisher makes on a book. Therefore the end selling price of a consumer does not directly enter into the calculation of royalties and what the publisher makes. I say directly because what the product can ultimately be sold for does affect what the publisher can charge for it.
From all discussions I have read it goes like this.
Publisher creates (with writer/author/printer) a book and set the MSRP. Just like any other manufacturer.
Book is sold to wholesaler for a percentage of the MSRP. Just like other products.
Wholesaler marks it up and sells to retailer.
Retailer marks it up and sells to public. But they don’t always sell for MSRP. Some discount it and take less profit. Some have temporary sales. Some may really discount it as a loss leader.
The point is that once it leaves the publisher, the publisher has his money (not accounting for returns). They have gotten the price they set for the book. So if a wholesaler discounts it for business purposes, that is the wholesalers issue. If the retailer discounts for whatever reason, hopefully it results in more books being sold. But it doesn’t matter, the publisher and author has their money.
In this case Amazon has been acting as wholesaler and retailer. They pay the wholesale price, same as any other wholesaler. Then they decide what to charge based on business reasons. Now, the publisher is satisfied getting the wholesale price from all other wholesalers, why not Amazon? Remember they get their requested price regardless of what Amazon sells the book for.
Amazon has a business model that calls for selling the book for $9.99. For whatever reason, they feel that is good for their business. Now if the wholesale price is greater than $9.99 then Amazon is losing money on that book. If it is less then they make money on that book. But that is Amazon’s business.
If you were the retailer would you want the wholesaler telling you how to run your business? Telling you what prices you could charge for items you got from them. I think you would say “Look I paid the price you wanted. It’s mine now and I will sell it for what I want.”
Loss leaders have a long history. As an example, if my business was to sell grills, I might sell charcoal at a loss to get people in to look at my grills. I may even give some away with a purchase. Should the charcoal manufactures come to me and say “No, you can’t sell it for $1. You have to charge a minumum of $3.” If they got their $1.50 from the wholesaler, then they shouldn’t have control of the product anymore.
That is why I think that pricing/cuts/percentages are just clouding the debate. It’s not about that and the companies know that.
The publisher says they are worried about the price “conditioning” buyers. If they are really worried about comsumers being conditioned to a cheaper price then why are they dealing with Walmart. Are they telling Walmart to raise prices? Or does Walmart say “We paid you your price, now leave us alone to sell it as we see fit.”
Obviously the publishers are within their right to window releases and maximum returns. If they are selling ebooks for a cheaper wholesale price than hardcover and feel they are cannibalizing sales, then that would be a good business decision.
Ebooks are causing some changes and everyone is jockeying. Amazon is using the current model, publisher -> wholesaler -> retailer to its advantage. They act as wholesaler and retailer, and lose less money on each loss leader.
The publishers see that with ebooks they can get rid of someone in the chain. The retailers want to absorb the wholesaler spot and take that markup. The publishers want the same thing with this “agency model”. Everyone is fighting over the cut that wholesalers currently take in printed books.
It’s about control and model. Publishers could get a bigger cut now just by reducing the discount to wholesalers and keep the same MSRP. That would just move money from the retailer to themselves, leaving less room for consumer discounts.
I hate to interrupt this case of group think run amok but it’s funny what you and many publishing insiders have convinced yourselves is pricing flexibility versus “fixed” pricing, letting the market decide prices versus setting by decree and on and on.
The big six book publishers are wholesalers. In general, they do not get to set retail prices, a policy backed by sound economic and business theories although legally muddied by a 2007 Supreme Court decision. In any event, wholesalers colluding to set prices is both economically unwise and illegal. As long as they don’t collude, however, they have total control over the prices they charge retailers. And they have total flexibility to set the prices as they see fit and in the best interests of their financial and business needs.
Amazon has not set a “fixed” price of $9.99 for ebooks and if you look for more than 10 seconds, you’ll quickly see that ebook prices are all over the map and even change over time for the same book. Your statement, even with the absurd added update — those higher priced books aren’t the ones I’m talking about — is a flat-out lie.
Amazon and web retailers in general are engaged in the greatest ongoing experiment in real-time pricing theory and maximizing total revenue the world has ever seen. Far from driving down prices, as I and others were writing about a year ago, Kindle prices had been creeping upwards prior to the current wave of new competition. There is total pricing flexibility in this model and the market — the customers and their actions — are a key variable in setting prices. Another key input, no doubt, is the wholesale price (Amazon may be able to absorb some losses but it’s not an infinite capacity and hence many ebook versions of new books from ALL the major publishers start well above $9.99).
For some authors to say things like Amazon wants to sell my books for $9.99 and my publisher wants to sell them for $5.99 to $14.99 (or the flat out lie: “Amazon prices ALL its Kindle e-books at $9.99 or less.”) strikes many readers and book buying customers as kind of funny. Amazon prices flexibly and tries to maximize revenue over the long-term in part by building customer loyalty with discounts. Many new Kindle ebooks are priced above $9.99. Many older titles, already out in paperback, are priced well below $9.99.
Contrast that with what publishers have financially backed, supported and/or praised in the ebook space over the past few years. Sony’s 2006 rollout of an online ebook store where most prices equaled the hard cover list price or more! Scrollmotion’s failed iPhone app model that priced new ebooks at the hard cover list price. And on and on. Right now on Fictionwise, you can see vast numbers of Macmillan titles that are available in paperback priced at $14.99 for ebooks. And, as a related side note about “flexible” pricing, music publishers said they wanted to replace Apple’s decreed price of 99 cents/track with a range of 69 cents to $1.29. Consumers have seen how that ended up, with the vast, vast majority of tracks sold priced at $1.29 or 99 cents and almost none at 69 cents, even for really old music that has no doubt earned back upfront royalties decades ago.
That’s why we don’t buy it. The big six publishers don’t want more flexible pricing, they don’t want “fair” pricing and I doubt they give much of a darn about 90% of the authors and books published every year or the fans and readers of those works. They are pieces of large conglomerates fixated on maintaining high profit margins. And like many other old-line media, they appear hostile to the digital marketplace because ultimately the digital world does not require the kinds of capital-intensive infrastructure to produce, distribute and promote books and other kinds of content that is the raison d’être for the existence of those giant publishers.
p.s. It’s also funny that I don’t see authors and publishers up in arms about the deeply discounted hard cover books sold by big box retailers like Costco and Walmart (I have even seen cases where Kindle ebooks cost more than Costco’s hard cover price). Publishers cannot have much credibility on this issue when some of the largest sellers of print books are deeply undercutting the “value†of these works, crowding out demand for lesser-selling works and destroying independent book sellers far, far more than ebooks.
When it comes to pricing I admit that I find even $9.99 to be a bit high for an e-book. Primarily because almost all of my e-books were purchased directly from Baen.
The Baen pricing system seems to be as follows.
Webscription : $15.00 for all the books published in a particular month. This is usually 6-7 books. So that equates to around $2-$3 per book.(Including new hardback releases)
Individual Books : $4-$6 per book depending if it was just published or is an older book.
Premium : If a book has not yet been published they often offer e-ARCs if you simply must have it ASAP for $15.
I bought a Kindle about five months ago for all the e-books I have purchased from Baen over the last ten years. One of the first things I noticed is that almost all the e-books from Amazon cost $9.99. My first and most subsequent reactions to this was “What a ripoff.”
I’ll fully admit to not knowing all the ins and outs of the book publishing industry. Given Baens pricing system though I have to wonder why all these other publishers/authors can’t apparently make a profit off of e-books unless they charge over $10 per book.
Oh and for what its worth none of Baens e-books have any DRM.
I understand this is an Amazon bashing blog, but I do not care about Amazon (or publishing industry leaders). I don’t buy books. I follow tech news and that is the reason I tried to get an “insight” from a “real” author.
Instead, I got a very biased view of an individual. I am sorry how some people believe every word of the blog. That is their problem, but I digress.
It is interesting how powerful a blog can be! But as uncle Ben (Spiderman movie) said “With great power comes great responsibility”. It is so sad that people stoop down and outright lie.
And yes I do own a Kindle, on which I read free (as in free beer) from feedbooks.com and Project Gutenberg, and news formatted in my PC.
This was a nice analysis – it’s clear Amazon really over-reacted here. But now that the dust has settled, and the Macmillan books have returned to Amazon, what do we have? For many popular titles, Amazon now lists the ebook as more expensive than the mass market paperback!?!
By what possible stretch of the imagination can anyone argue that a DRM-laden ebook (usually full of typos, poor formatting, and often coverless) should cost MORE than a paperback?? If that’s Macmillan’s idea of rational pricing, they’re even crazier than Amazon.
Manas @99 — in what universe do you live where you can come to someone’s personal blog and NOT expect to read their personal opinion about the topics they’re posting on?
And it’s just simply insulting to put “real” in quotation marks that way. Mr. Westerfeld is undoubtedly a real author and a successful one. What, pray tell, are you?
Mr. Westerfeld: speaking as a librarian who keeps having to buy your books over and over, because the kids read them to death, I greatly appreciated your insights on this issue.
As someone who works in a physical bookstore, I am so on Macmillan’s side on this one.
Your early adopters comment is dead on the money. You can have it first, or you can have it cheap. You can’t have both, or I will be out of a job, and have no money to fund my own book-buying addiction.
As far as books are concerned, I personally am an early adopter. Screw the cost, I want it NOW. If it makes so much as a fortnight’s difference it’s not unheard of for me to import a hardcover from the US, rather than wait for the much cheaper domestic paperback. (Seriously – I could have saved $20 if I’d been prepared to wait a month for the Aussie paperback of Sarah Rees Brennan’s Demon’s Lexicon. Instead, I am the proud owner of a hardcover that due to cover art changes will never have a matching set.)
I love the books I read, and I adore the authors who write them. And I, unlike a certain portion of the reading public, acknowledge that for my books to exist, the publishing houses have to make money. Also, you know, the authors have to have money for food, and for the electricity to make their laptops run. So it really annoys me when I have to put up with an hour-long rant from some boorish idiot about how they shouldn’t have to pay $30 for the priviledge of owning a newly released hardcover, and how if they can get it for Kindle for $10, we should be selling the hardcover at that price.
If you can’t or won’t pay for the books you read, there is always the library. If you want to own a book, and own it fast, you should expect to pay for the priviledge.
So I can’t seem to get on any of the other sites that happen to be Scott Westerfeld related but this instantly made me think of Uglies:
http://www.msnbc.msn.com/id/35708587/ns/technology_and_science-innovation/from/ET?GT1=43001
It’s my son’s bday in the near future and I feel that the article has made my thoughts up regarding exactly what I’ll get him.
I know alot of people think this method is saturated but I very easily made money with this the first time that I tried it. It was a method that gave me that little bit of daily income to get me to realize money can be made. I also thought it was worthy of posting because I showed two of my friends and they both had success with it, so 2/2. Lastly there are always TV shows coming out, and all you gotta do is a little better then the last guy to start getting traffic. You may look at the stats and say its not worth it to you but when it came down to it I probably spent 1 hour to 2 hours total doing work, and totalled just under 100$ last month. I easily could have plugged away a lot harder at this method, but I digress. But enough of that lets start with it:
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Go to your Music library, select all of the songs and then click the File tab, click "Create Playlist from selection", once you have the playlist. You can drag it into the iPod icon or Sync it.
Ah, Scott. You remain my literary crush. (Except for the eating soap thing.) I feel so “in the know†now! Thanks!
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