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!