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Amazon, Macmillan and the struggle for control of e-book pricing

February 1, 2010

Tags: e-books, book publishing, Kindle, iPad

Publishers Lunch Deluxe reported to its subscribers Friday (Jan. 29) that Amazon had removed all buy buttons from Macmillan titles, including titles on customers' personal wish lists, in a power struggle with Macmillan over who could set the prices on Macmillan e-books. This was the "first shot across the
purchasing bow in big publishers' efforts to reset ebook pricing above the loss-leader $9.99 price point and retake control over that pricing by moving from the wholesale selling model to an agency selling model," reported Publishers Lunch, "at least for ebooks published simultaneously with new hardcover releases."

Under the agency model, Macmillan would set the price for the e-book and Amazon or any other online retailer would serve as agent, taking a 30% commission.

It's unclear to me how this will affect the authors' income on sales of e-books--that's ANOTHER battle being fought on another front.

On titles for which Macmillan set prices of $12.95 to $14.95, Amazon.com was selling e-books at $9.99. "The $9.99 best seller that helped Amazon.com Inc. build a dominant position in the now-thriving e-book market was at risk of extinction Sunday after Amazon capitulated in a battle sparked by the launch of Apple Inc.'s new iPad," reported Jeffrey A. Trachtenberg and Geoffrey A. Fowler in E-Book Pricing Put Into Turmoil (the Wall Street Journal).

On Amazon's Kindle Community discussion page, you can find Kindle's announcement that it would probably be forced to capitulate to Macmillan, but it's the hundreds of comments posted I found interesting. Here's the message they were responding to:

"Dear Customers:

Macmillan, one of the "big six" publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it's reasonable to pay $14.99 for a bestselling e-book. We don't believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer."

For authors whose books were pulled from Amazon shelves, this was an alarming demonstration of the power Amazon has in the market (and a somewhat puzzling dig at the publisher's "monopoly"). For Amazon, as the WSJ story makes clear, this is about publishers struggling to maintain control over pricing on their own e-books. WSJ quotes literary agent and e-book publisher Richard Curtis as saying "The future of e-books, the future of publishers' control over their own destiny, and the future of retail pricing, is being forged right before our eyes."

The other major player in this story, the Apple iPad, is a threat to Kindle's domination of the e-reader market. Amazon's heavy-handed tactics in the struggle for control of the e-book market has made authors and customers consider alternatives to Amazon's Kindle. On the Kindle discussion list, C. Sutt wrote: ":but frankly if you hadn't decided to pull all of my Tor books as a strong-armed business tactic, I would never have found out about Baen's WebScriptions service and taken my business elsewhere. Will I be continuing to purchase books through Amazon for my Kindle? Probably.
Have you gotten me into the habit of checking elsewhere because I can't trust you to be accurate about what's 'in stock' or not?
Yes, you have.
Sincerely, a very annoyed customer--one perfectly willing to pay $15 for an ebook, particularly one that (like the Baen books) comes out *before* the hardcovers."

Here's Mike Shatzkin's analysis and account of the wild weekend of Amazon and Macmillan.

And here's the Monday morning report from Motoko Rich and Brad Stone: Publisher Wins Fight With Amazon Over E-Books (NY Times 1-31-10).

The e-book you read on the Kindle is software you license, not a book you own--as readers learned when Kindle pulled George Orwell's 1984 from their Kindle readers earlier this year (read Ars Technica's account of that incident.

Macmillan is a group of U.S. publishing companies, held by Verlagsgruppe Georg von Holtzbrinck, based in Stuttgart, Germany. Among Macmillan's many companies are St. Martin's Press, Tor, Henry Holt & Company, and Farrar Straus and Giroux (see entry for Macmillan on DailyLit). At a time when book publishers are struggling to survive and brick-and-mortar bookstores are in mortal competition with Amazon, this power struggle is of vital interest to book lovers and producers.

There's a round-up of links to stories on e-book markets, rights, and audiences under
Publishing and e-publishing on Writers and Editors


  1. February 2, 2010 10:54 AM EST
    More on this important power struggle: The Authors Guild, in The Right Battle at the Right Time, writes: "Macmillan's current fight with Amazon over e-book business models is a necessary one for the industry. The stakes are high, particularly for Macmillan authors. In a squabble over e-books, Amazon quickly and pre-emptively escalated matters by removing the buy buttons from all Macmillan titles (with some exceptions for scholarly and educational books), in all editions, including all physical book editions. Thousands of authors and titles are affected; hardest and most unfairly hit are authors with new books published by Macmillan that are in their prime sales period." And Amazon is tough on its own behalf, not on readers' behalf. The Authors Guild again: "Amazon has a well-deserved reputation for playing hardball. When it doesn't get its way with publishers, Amazon tends to start removing "buy buttons" from the publisher's titles. It's a harsh tactic, by which Amazon uses its dominance of online bookselling to punish publishers who fail to fall in line with Amazon's business plans. Collateral damage in these scuffles, of course, are authors and readers. Authors lose their access to millions of readers who shop at Amazon; readers find some of their favorite authors' works unavailable. Generally, the ending is not a good one for the publisher or its authors -- Amazon's hold on the industry, controlling an estimated 75% of online trade book print sales in the U.S., is too strong for a publisher to withstand. The publisher caves, and yet more industry revenues are diverted to Amazon. This isn't good for those who care about books. Without a healthy ecosystem in publishing, one in which authors and publishers are fairly compensated for their work, the quality and variety of books available to readers will inevitably suffer." AG links to a quick rundown on media reactions to the fight over control of e-book prices: Amazon Revealed: It Hates You, and It Hates Publishers (Kit Eaton, Fast Company, 2-1-10). Eaton adds: "It's clear the move was inspired by Apple's iPad and simultaneous iBooks launch event, which promises a fairer share, more favorable terms and conditions than Amazon, and higher price points." (Fast Company's pieces on the iPad include Peripherals: The Forgotten Killer Feature of the iPad and How the iPad Could Drive Up College Tuition .
    - PM
  2. February 2, 2010 11:49 AM EST
    Thriller writer JA Konrath has an interesting entry, Digital Perception, on his blog, A Newbie's Guide to Publishing. He makes a compelling case against publishers trying to raise the price of e-books: more e-book piracy (because it's easy). Elsewhere Konrath talks about the money he's making selling e-books of his old titles that NY book publishers didn't want. In June, his royalty rate went from 35% to 70%. Surely Amazon would have kept getting its 65% if it weren't under pressure to create more favorable terms--first from Sony and now, more effectively perhaps, from Apple.
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  3. February 14, 2010 11:07 AM EST
    Two blogs start their discussion by saying anyone who wants to be in the know about book publishing should pay $20 a month for a subscription to Michael Cader's Publishers Lunch Deluxe or at least subscribe to his free Publishers Lunch. They then relay his criticism of the NY Times piece on e-book pricing, E-Book Price Increase May Stir Readers’ Passions (Rich and Stone 2-10-10). In Notes from a lecture by Professor Cader(2-13-10), Mike Shatzkin quotes Cader as saying that Amazon (and Sony and Apple) are making their money from the sale of expensive e-readers (Kindle, $200) and Amazon is losing money on the $9.99 prices of bestsellers that that they are using as loss leaders to sell their reader. Moreover, they're not giving credit to the publishers who are making backlist titles of bestselling authors available free as e-books, in hopes of bringing new readership to those authors. Read Shatzkin on the subject, subscribe and read the original in Publishers Lunch, or check out Michael Cader's Masterclass (Dennis Loy Johnson's Moby Lives, a column about books and writers).
    - PM
  4. February 20, 2010 5:50 PM EST
    Digital Books and Your Rights: A Checklist for Readers (Electronic Frontier Foundation white paper)
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  5. March 1, 2010 11:40 AM EST
    **Math of Publishing Meets the E-Book (Motoko rich, NYTimes, 2-28-10, making the case for i-Pad e-book prices). Reading from the writer's viewpoint I am most aware of this para:" The author’s royalty — a subject of fierce debate between literary agents and publishing executives — is calculated among some of the large trade publishers as 25 percent of the gross revenue, while others are calculating it off the consumer price. So on a $12.99 e-book, the royalty could be anywhere from $2.27 to $3.25." and this: “If you want bookstores to stay alive, then you want to slow down this movement to e-books,” said Mike Shatzkin, chief executive of the Idea Logical Company, a consultant to publishers. “The simplest way to slow down e-books is not to make them too cheap.”' Also, check out Anne Rice's comment at the end of the story.
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  6. March 18, 2010 9:38 PM EDT
    Amazon Threatens Publishers as Apple Looms (Motoko Rich and Brad Stone, NYTimes, 3-17-10). Rumors swirl that Amazon could revoke the buy buttons for books by Simon & Schuster, HarperCollins, Penguin, or Hachette if the major publishers don't strike an eBook deal with the online bookseller. "The hardball approach comes less than two months after Amazon shocked the publishing world by removing the “buy” buttons from its site for thousands of printed books from Macmillan, one of the country’s six largest publishers, in a dispute over e-book pricing."
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  7. March 18, 2010 9:49 PM EDT
    Random House, HarperCollins Look to Lock In Low E-Book Royalty Rates: 5 Ways to Protect Yourself. Message to all authors from the Authors Guild. Be sure to read this one, if you have, or expect to have, any kind of book contract. Main points, in brief (but read the details): 1. Get the absolute right to renegotiate. 2. Negotiate for a royalty floor. 3. Double-check your reversion of rights clause. 4. Check your contract; you may control e-rights. 5. If you can't obtain adequate safeguards, you may want to bide your time.
    - PM
  8. April 3, 2010 12:48 PM EDT
    All major publishers but one raising e-book prices. Random House the last publisher sticking to traditional model for e-book sales; other major publishers switching to "agency model," which gives publishers right to charge price they want, with Amazon etc. taking a commission. Result: higher e-book prices. Christopher Null, tech writer for Yahoo News, 4-1-10)
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  9. May 4, 2010 11:49 AM EDT
    The iPad, the Kindle, and the future of the book business. . Can the iPad topple the Kindle, and save the book business? (Ken Auletta, Publish or Perish, The New Yorker, 4-26-10). Responses: Erik Sherman, The New Yorker's Ken Auletta Needs a Calculator, not an E-Book Reader, and Mike Shatzkin, Ruminations on Returns. From Auletta's story in the New Yorker, I quote: Jason Epstein believes that publishers have been handed a golden opportunity. The agency model, he says, is really another form of the consortium he proposed a decade ago: “Publishers will be selling digital books directly to the iPad. They are using the iPad as a kind of universal warehouse.” By doing so, they create opportunities to cut payroll and overhead costs. Epstein said that e-books could also restore editorial autonomy. “When I went to work for Random House, ten editors ran it,” he said. “We had a sales manager and sales reps. We had a bookkeeper and a publicist and a president. It was hugely successful. We didn’t need eighteen layers of executives. Digitization makes that possible again, and inevitable.”
    - Pat McNees