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.