Zinc Blinked

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.

Hey, Amazon. When cutting off publishers, don’t start with the one that has the most science fiction writers. We will blog you dead!

118 thoughts on “Zinc Blinked

  1. 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.

  2. 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.

  3. 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. 🙂

  4. 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…

  5. 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. 🙂

  6. 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 >.<

    Just my 20000000 cents |D

  7. 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.

  8. 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!!!!!!

  9. 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.

  10. 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.

  11. 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.

  12. 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.

  13. I started reading it, but I saw it was sooooooooooooooooooooooooooooooooooooooooooooooooooo long so………… I didnt read it haha sry

  14. 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.

  15. 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.

  16. 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?!

  17. 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!


  18. 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.

  19. 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.

  20. 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.

  21. >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.

  22. 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.

  23. 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.

  24. 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.

  25. 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.

  26. 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?


    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).

  27. 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.

  28. 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.

  29. 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
    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…

  30. 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.

  31. 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.

  32. @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.

  33. 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.

  34. 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.

  35. 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.

  36. 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.

  37. 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.

  38. 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.

  39. 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.

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