Amazon Surrenders To Macmillan On eBook Pricing

CuteSteveJobs writes with a followup to news we discussed on Saturday of a disagreement between Amazon and Macmillan Publishers over ebook pricing: "Amazon has thrown in the towel and announced it will now sell books at Macmillan's increased prices; up to $14.99 from $9.99. Said Amazon in a statement: '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.' Macmillan has sensed Apple's iBooks opens the way for higher prices. Perhaps the question should be: do we even need publishers like Macmillian? Publishers have long managed to keep their old business model chugging along nicely despite the Internet; Academics are still forced to give up copyright (PDF) of their work in exchange for publication. Textbook publishers have a history of unethical practices like frequent edition changes, unjustifiable price increases and bribing teachers. For that matter, why do the RIAA's members still control the music business? Why do these dinosaur publishing businesses still manage to thrive despite the Internet?"

Comments

There's a difference between books and music...

[Fished]

At least for me... I invest a lot more in the books I read than in the music I listen to, and I care very much about reading *one* *particular* book. This means that there's not a lot of competition. I think part of the reason is that, for all the categories of books, the purchase price is the smallest part of the investment I make in the book. My major investment in the book is the time and energy I spend reading it. Ideas are not really fungible when they're new--and even when they're old, there's a lot to be said for getting the ideas from the source instead of from the imitators. In fiction, I'd much rather read Heinlein than an imitator of Heinlein. And if it costs a couple of bukcs more? Oh well.

I certainly recognize that some might be just as passionate about one particular song or one particular album. But it still seems to me, intuitively, that the music market is a little bit more competitive and dynamic than the book market is.

It's a little more complicated

[BigSlowTarget]

Do we still need publishers? The question should really be 'what function that publishers perform do we still need and how should those functions be provided?' Perhaps also 'Can a startup provide these functions and replace the entrenched companies?' We still need someone to plan the path from manuscript to finished book including content editing, grammar editing, artwork (inside figures and on the cover), legal issues (in every country where it's released), promotion/advertising, marketing (advising when a release will be available, how it will be different from last edition, etc). Should the publishers profit from owning relationships with the distributors, bookshops and retailers even when they're selling electronically? No, they shouldn't be able to gain from a monopoly in what should be a competitive market, but we still need some functions.

When a internet enabled solution for those issues starts to take off the publishers will start to lose their grasp on the book market and we all will be better off for it.

Re:Ugh.

[SatanicPuppy]

They're greedy. Even more than with CDs, the bulk of the costs with books are primarily in the printing/distribution model. The writer doesn't get that kind of money per book, I promise you that.

I think it's only a very short matter of time before independent authors skip the traditional publishing approach altogether. Once a viable digital book format takes off, the only thing they have left is an editing staff, and I'd happily split some of my book profits with a quality editor (they really do help) as opposed to a bunch of worthless executives.

Surrenders?

[proxima]

While I certainly think that $15 is overpriced for an ebook, I say let Macmillan potentially shoot themselves in the foot with their pricing. Amazon should be focused on making everything possible available in ebook form and letting the consumer decide what's a good deal. Amazon can always go back to Macmillan with sales stats to show them what they're losing (or not...perhaps $15 really does maximize profit for them). With sample chapters and the possibility of very low prices from smaller publishers, ebooks provide a great way for lesser-known stuff to be widely available. The same thing happened in music; it's far easier to get fairly obscure stuff via the internet than in CD form at a store.

What's a little strange about the ebook market is the fixed breakdown for the retailer (seems to be moving to 70 publisher 30 retailer), while in the hardcover world Walmart, Target, and Amazon are falling over each other to bring you the books with little or no markup over wholesale. Still, Amazon is offering the 70-30 split only if you priced your book under $10 (otherwise it seems to be 65-35).

Re:Why?

[2obvious4u]

They are just using supply and demand to set the optimum price. To the publishers (if they did their research properly) they may have found that $15 will give them the largest ROI. A book may only have a limited audience and that audience would be willing to pay $15, the audience may not grow even if the price were $0 because nobody else is interested in the topic. What this means is that publishers are just getting more bang for their buck.

What is wrong with the way they are doing it is that consumers feel like they are getting screwed. They see the costs of manufacturing plummeting yet prices are rising. From the business side they are seeing costs of manufacturing going down and an opportunity to increase profit margins. They aren't passing on cost savings to the consumers, they are instead lining their pockets; which they are in their right to do. It just isn't going to endear them to me and I won't be buying any books any time soon - paper, digital, or otherwise.

Re:Ugh.

[jellomizer]

That and they want to kill the technology without looking like they are trying to kill the technology. They always save they will pass the savings onto the consumer but what usually is the case is that they wont raise prices for a longer period of time. And take in the extra profit as long as they can.

Re:Why Publishers Exist

[Trepidity]

In the fields I'm familiar with at least, my impression is that large publishers like Macmillan filter for expected popularity rather than quality; they're in the book-selling business after all, not academics. As a result, an appalling proportion of Macmillan books on academic subjects contain factual errors, gross exaggerations, popular myths presented as fact, sloppy conflations, etc. It's one reason many academic departments give little career credit for publishing popular press books: if you got your history book placed with a respected academic press, people are willing to believe you made a contribution, but if you got it placed with Macmillan, who knows what nonsense history you wrote.

Re:Ugh.

[Pojut]

Exactly. I could understand if they had to OCR and then verify the books they sell, but most if not all writers use a computer nowadays...their shit is already digital!

Re:unfortunately, recently permitted in the U.S.

[Trepidity]

The latter is what they're doing. Macmillan previously sold ebooks wholesale to Amazon for $9.99, and Amazon chose to sell them with no markup to promote the Kindle platform. Macmillan demanded a move to "agency pricing", where Macmillan sets the price, and Macmillan and Amazon split the revenue according to a fixed percentage. It's not really about money per book for Macmillan---they'll get about the same $9.99 per book either way---but about control over pricing.

I work at a University Press

[twidarkling]

and I have to say, our director would have an aneurysm at the prospect of "stealing" the copyright from our authors. The deal is we have copyright as long as the book is in print, but that's necessary to actually do business. Multiple editions are at the author's discretion, but it's generally in their best interests, and are usually the ones pushing for it so they can get more royalties.

We're not a textbook publisher, though (we've published textbooks, but it isn't our business model), so most of the charges levelled by the summary don't apply to us, and we're Canadian, so the others aren't directly analogous either.

The one thing I can speak to though, is the issue of people thinking e-books should be so much cheaper than print books. That's bullshit. The cost of physically printing books is generally about 30% of the cover price, even less for larger print runs. The biggest chunk of the price is retailers. They buy our books at a 40% discount, meaning they pay $6 for a $10 book. If Amazon wants to make books cheaper so desperately, they can take a fucking smaller profit margin (especially since they like to push for even *larger* discounts, so they can offer the book cheaper). The market for e-books is still quite small compared to paper books, mostly because of how much uncertainty there is in the format (it's worse than Betamax vs. VHS right now) and selling them for so cheap makes it incredibly difficult to recoup costs for small publishers like us (we put out about 15 new books a year, and have 9 permanent employees). Most of our scholarly works retail for between $30-$50. Without printing costs, we could probably move that to $25-40 (keeping in mind we get a little over half that amount, including what we need to pay to the author in royalties-generally another 10%). How many people are going to pay that for an e-book, when there's no guarantee a new reader will actually read it 3 years from now? Maybe with the iPad we'll see some standardization in the e-book format, and then we can drop the price to something lower, and make it up in volume, because right now, it's just not feasible.

Re:I work at a University Press

[twidarkling]

That sounds like a bit of a scam to me because you're making a much larger profit for much less work.

I know you won't actually distribute an infinite number of books because there aren't an infinite number of people to buy them, but the point I'm trying to make is the market is much wider.

As cdguru pointed out, the ebook market right now is *very* small, especially for a publisher like ours. Yes, over time we might make more money selling ebooks for $10 a shot instead of $40 for a physical copy, but the timeline stretches out a lot further, and we pay for everything upfront, so that means rather than say, recouping costs in 2 years, it might take 5, or 10. And with ebook publication comes that overhyped spectre of piracy. I won't say we'd lose a lot to it, but when you're selling only 200 copies a year, even a few people pirating makes an impact. Yes, 200 copies. An initial print run on our books goes to about 1000 copies for something we think will sell well.

Another thing about books is their a lot like games, sales-wise. Unless they're adopted in to a classroom, sales are mostly done in the first year, and drop off after that, fairly steadily.

So, to put this in a more concrete format, we'll take a hypothetical book and take two scenarios, 1 will be physical-only distribution, 2 will be online-only distribution, and we'll assume that interest in the online-only is stronger, and longer lasting.

1. Book is printed for 1000 copies. Publisher receives $10 per copy, let's say. Book sells strongly, and 500 copies move the first year. That's $5,000. The next year, sells 250, getting $2,500, bringing us to a 2-year total of $7,500, with another 250 copies to sell over time.

2. Book is placed for sale online, and publisher receives $2 per copy, due to lowered prices for online copies. First year, book sells like wildfire, 1,000 copies! Amazing! But that's only $2,000. Second year remains strong, another 1,000 copies! But we're only at $4,000 after two years. That's only $4,000 to put towards new projects' costs. Okay, let's extend the timeline. Third year, interest dips. 500 copies. $1,000, for a total of $5,000. Three years to reach the sales total of situation 1 after one year, and that's with an extra 1,500 copies sold. And then oops, the technology changes, so the old version doesn't work on new readers. And paying to get something converted is nearly as expensive as getting a new print run.

And as I said, we're a fairly niche publisher. Selling 2,500 copies of something is insanely optimistic for us, especially since it's targeted to academics and scholars--a group known to be classically technophobic.

So, as I said, the market isn't there, and a $10 price point for an ebook when the physical copy goes for $50 is not a sustainable business model yet.

We _are_ looking at publishing ebooks, and we've got some of our older, out-of-print titles scanned and converted, and listed in e-library services, but until the technology's solidified so that the market's less divided, we likely won't do much. And even after it's solidified, we're likely to do dual runs, both hard copy and physical. And it's very unlikely we'd run at a $10 price point for new books.

Re:I work at a University Press

[Vanderhoth]

Sorry, but if you have been paying attention the eBook market is much, much smaller than the market for printed books.

If you have been paying attention you'd know that E-Readers are a relatively (compared to books) new product, and that the market for e-books is growing. Hence the reason for this discussion.

Most people want a physical book.

That's a very good point, and the main reason my wife doesn't want an e-reader. I do think that will change with time, but it's hard to say. Having a physical object in hand that can be given to anyone and only requires the skill of reading to use vs. an electronic device that requires power, can only access books in certain formats and have a plethora of other restrictions on what can be done with them.

The price point is the reason I haven't bought an e-reader. I can't see a reason to go an purchase an e-reader when the price of the books is virtually the same. So instead of getting a good discount on the books because the publisher saves money on the physical distribution aspect. I pay the same for the books plus have to buy the reader, I can only access books of specific formats and the formats might change in the future.

Of course, you will sell almost none of them - no editing and no promotion. That's where the publisher comes in.

Another good point. I agree with you that a publishing company would make these things easier. However, I think someone with similar skills to myself could do this on their own and with digital distribution there's no need for them to pay $3 a copy and by 1000 copies. I have to admit I'm ignorant about how digital distribution works and I don't know how you'd go about getting a entity such as Amazon to distribute a book for you, but I'm sure all it would take is an initial lump-sum fee plus a smaller fee (probably in the less than a dollar range) for each downloaded copy. Seems much more like the JITI method of distribution, much more efficient then printing, transporting, storing thousands of copies that you might never end up selling.

Re:Monopoly?

[Sheik Yerbouti]

But why should bits honestly cost that much. I mean the fact that people are even willing to pay 9.99 for bits is a amazing to me. It is not a physical object it's completely imaginary property at this point and that does mean the value is less. I think what peaves customers is that the publishers want to give you DRM restricted conent that they have MORE CONTROL OF and the want to charge similar prices to before when it was a physical object that WE HAVE MORE CONTROL OF. You may not get it but this is what makes people see red and want you all to just go away. Because fundamentally you want your cake and to eat it to. In essence your just being greedy as hell as per the norm.

Now I get that there are writers, editors and designers involved and they all need to get paid. But a digital only copy of a book especially with restrictive DRM is just not worth any where near what even a second or third run paperback is worth in my opinion. If you try and charge me first run hardback pricing than I would just as soon see you all out on the street than buy ANYTHING at all from you.

Re:Monopoly?

[mmarlett]

Yes, that's why iTunes is such an epic fail, costing Apple billions. Oh, wait...

Radio's strength is that DJs can repeatedly play crappy songs until you think you like them. Repetition, repetition, repetition. Ask any radio DJ. It's why payola is illegal in the U.S. -- record companies would pay radio stations to play the music which would in turn sell the albums. There was no gate keeper going on. There was no quality control, unless you consider "quality" to be the milquetoast slop that record companies want to sell.

If record companies built houses, they would build beige houses. Is beige a bad color for a house? No, it's neutral. It's not good and it's not bad. It's not challenging or interesting -- it's safe.

People are smart enough to look to a genre they like and start asking the crowds of people in that genre what is good.

Of course, how you're going to stop record companies from creating thousands of dummy accounts and flooding the ranking systems with bogus recommendations is a whole different problem.

Re:Ugh.

[digitig]

riiiight, because they are going to charge $14.99 for an eBook that has a 4 year old discount paperback out..:eyeroll:

Based on current pricing, yes they are. I have a Sony eReader, and all the books I've actually wanted so far have either not been available at all or have been more expensive than dead tree versions, even after P&P. Sometimes a lot more expensive. Publisher's are already charging $14.99 and more for eBooks that have 4-year old discount paperbacks out. It seems that they figure that people who buy eReaders have more money than sense, and they can sting us again. Well, it looks like I'm caught bang to rights on the first point, but I'm not getting caught on the second. The eReader is languishing in a drawer until it becomes cost effective to buy eBooks.

Re:Data centers and bandwidth aren't free either

[dhovis]

Well, if the only cost that goes away when you go to an eBook is printing, then how much should the cost drop? I'm genuinely curious. My guess would be maybe 10%. I'd be shocked if more than 20%. In which case you could lower the cost of the eBook proportionally.

But if the eBook is only 10% cheaper to produce, then a $15 printed book would become a $13.50 eBook. Unfortunately, that isn't going to satisfy the type of people who think that eBooks should be substantially cheaper than printed books. To the end user, that marginal cost is within the noise. People around here seem to expect that a $15 printed book should be $5 as an eBook.

Now, I'm not accounting for distribution costs, which you mention as being higher than the printing cost. So maybe you could give us an estimate of the savings to the publisher by going to eBooks. How much of a discount do people expect when the marginal cost of reproduction drops actually to zero? I suspect that most people would be disappointed.