where the writers are
Book Banning at Amazon.com

I woke up this morning to the astonishing news that Amazon.com has stopped selling all titles from Macmillan , the sixth largest publisher in America.  I learned  about this first on Frances Dinkenspiel's blog, Ghost Word.  Frances is a Macmillan author.

 

According to an article in The New York Times [http://bits.blogs.nytimes.com/2010/01/29/amazon-pulls-macmillan-books-over-e-book-price-disagreement/] Amazon's action was related to Macmillan's decision to adopt new terms  for the sale of e-books to retailers based on the structure that is being implemented by Apple for its i-pad.  Under the new Apple model, publishers will have the ability to set the final retail price of an e-book  at  $12.99 to $14.99 for new titles. Amazon has been selling them at a loss for $9.99.  Macmillan CEO, John Sargent today wrote a letter to Macmillan authors explaining the dispute.

One can only hope and one must assume that Amazon's decision is temporary and an act of saber-rattling. But the episode should be a clarion call for us to consider some very large issues about the dangers of monopoly power and how it can compromise the free dissemination of ideas.

A specter is haunting the world of books. From Amazon's beginnings in the late 1990's, the company has pursued a strategy of monopoly power. American consumers have embraced Amazon because of its outstanding "customer-centric" technology, its breathtaking selection, and its pricing. But this has not come without a cost. Amazon has gained a stranglehold on  the sale of books online and has attenuated the ability  of community-based bookstores, chains and independents, to survive at all.  With the interdiction of the Macmillan titles, they are now reaping the grapes of wrath.

There are a lot of legal subtleties associated with this issue. Whether a manufacturer (the publisher) can dictate the final selling price of a product to a retailer is an important anti-trust question that won't be resolved by blogging. But the manifest power of Amazon to effectively cut off  a book publisher's access into the largest channel of book sales,  the Internet, should give us  pause.

What is this dispute all about?  What's at stake here?  We have made several recent blog entries on the implications of the e-book revolution. E-books are currently a small niche market for trade books, still less than 4%. But their market share is growing exponentially. Currently electronic book readers are the hottest products in consumer electronics.  It is altogether likely that the book business, not unlike the music business, will reach a kind of tipping point in which e-books will become the standard and paper-based books will become the niche.

Not surprisingly, Amazon jumped on board early. It developed  and marketed the Kindle, an excellent product. Very quickly Kindle became the shorthand word for "book reader", just as Amazon became the shorthand word for "Internet retailer". Also, not surprisingly, Amazon has designed the entire system to give it effective monopoly power over the distribution of e-books.

Kindle technology only allows downloading from Amazon and requires that any book purchase will be made through Amazon only.  Amazon has priced the books aggressively. Most new e-books are being sold as Kindle downloads for $9.99. This is a considerable discount from the costs of new hardbacks. Their retail price is typically $25-30. Hardback  discounted prices on Amazon are $15-18. Amazon purchases e-books for about $12.50, a price similar to the  cost for non-e-books. Amazon sells them as loss leaders. This strategy has sought and has succeeded in allowing Amazon to dominate the e-book market.

Publishers have problems with this.  They feel, and I agree with them, that by pricing  books so low, it will inevitably cause the book buyer to diminish their subjective sense of the  value of  books as a commodity. They will come to feel that a book is only "worth" $9.99. With customer pressure to make this price the de facto "list" price and with Amazon's market power, the  publishers will have to change their business model to accommodate the new reality and begin selling books to Amazon for  something closer to $5 per book instead of $12.50. Good for the consumer, right? Wrong.

We have spoken in an earlier blog entry about the unfortunate tendency of Internet Culture to devalue the worth of intellectual work.  But there are costs to producing books, just as there are costs to producing any product. E books have no manufacturing costs, but there continues to be marketing, publicity, editing, and…yes...sometimes this seems like an afterthought….creating.

And so it all comes down to the irreducible and irrefutable fact that books cost money. And publishers will not be able to produce books or pay the writers a decent royalty  in return for revenue of  $5 per book. Certainly the literary "tea-partiers" will tell you that publishers are dinosaurs, that the essence of the Internet is "disintermediation" and that the future is with authors selling direct to the reader. That most of these books are being "mediated" through Amazon is a detail often overlooked. But let's leave that for now.

Self publishing is a worthy endeavor and has brought many fine books to the market that would have otherwise died. But it is a bit of a quagmire of unfiltered material. It is a little hard to separate the dross from the gold.  This  fits in quite well with the Internet Culture of  Wikipedia (see previous blog entry)  in which everyone is an expert.

The emerging business models for the e-book, Apple and Amazon alike, are bad news for authors. Any way you calculate it, author's are going to suffer reduced royalties. The publishers will realize huge cost savings with the e-book if the price of the book is comparable to  paper-based books. With e-books, there are no manufacturing costs, warehousing costs, shipping costs, packaging costs, and, crucially, no returns. Since the e-book is non-transferable, publishers will not lose sales from book borrowing or from the used book business. How this will all affect libraries is still unclear to me.

But authors are being asked to reduce their  percentage royalties for e-books. And the reduced retail price, both under the Amazon and the Apple model, will drive consumers away from physical books very rapidly and will force authors to take a smaller percentage of a dramatically smaller pie.

I am very worried.

  

Comments
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Thank you for your careful

Thank you for your careful examination of this, Andy. It wasn't on my radar until I read your blog. I'm not certain of my stand on the subject, yet. I'd have to do some more reading. But I wonder, do you know what percentage printing and distribution is compared to creation, editing, publicizing and marketing? I'm curious.

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Can't entirely answer your question

I am sure that there are people in the production process of publishing who can give you a definitive answer. Manufacturing is a relatively small part of list price. I assume about 10% or less. But warehousing and shipping are significant. But the real savings is going to be in the fact that e-books aren't returnable. Returns on a hardback can typically run to 30-50%. And processing returns is a significant expense. One can assume that (under the Apple agency arrangement), a book for which a publisher receives $10 makes it a profitable venture. But your question is good. And I hope someone can answer it. I'll try to query some publisher friends to see if I can get a better answer.

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Oh, I didn't even think

Oh, I didn't even think about returns.
I can't help but think that people will always want a hard copy book, especially as gifts. Maybe I'm wrong.

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Jodi, check my update just

Jodi, check my update just posted. It links to Mike Shatzkin's site that addresses a lot of your questions. It is inpenetrably technical. But has good information