Amazon vs Macmillan. The world’s largest online retailer, which accounts for 15-20% of books sold in this country, pitted against one of the sixth largest book publishers. A match between titans.
Up until its fight with Macmillan, Amazon charged $9.99 for an ebook. But instead of pricing all ebooks the same, Macmillan wanted Amazon to charge between $12.99 to $14.99 for ebooks it published, which is called the “agency model.” The price of a Macmillan book would decrease over time as the book lost its status as a new release. The deal was similar to the one Macmillan (and four of the other “Big Six” publishers) had just signed with Apple for use with its iPad.
In response, Amazon removed all of Macmillan’s titles from its web site.
In the end, though, Amazon — in its words — “capitulated” because Macmillan held a “monopoly” on its books:
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.
In its announcement, Amazon doesn’t wrap itself up in the American flag, but it does wrap itself up in the “consumer protection” flag. Amazon claims that it wants to sell “consumers” ebooks at reasonable prices — $9.99 instead of $14.99. But Macmillian won’t let Amazon do that because Macmillan has a “monopoly” over its books and apparently wants to gouge the customer by charging much more than the book is worth.
Amazon’s Deceptive Argument
Amazon’s argument is deceptive, for several reasons.
Companies That Make Products Have Monopolies over Those Products
Macmillan publishes books, which gives it control over the books that it publishes. And if book publishing is a monopoly, as Amazon claims, so is about every other business that produces products. Colt firearms has a monopoly over Colt firearms. Firestone tires has a monpoly over Firestone tires, Hallmark Greeting Cards has a monopoly over Hallmark Greeting cards. And so on ad nauseam.
By saying that Macmillan has a monopoly over its books, Amazon is setting up a straw horse — all the better to make itself seem like a White Knight for the “consumer” — in this case, readers.
$9.99 Is Not Necessarily a Reasonable Price for an Ebook
Amazon is a book wholesaler, not a book publisher. That is, Amazon — like any other bookseller — buys books from publishers such as Macmillan at wholesale prices, increases the price, and then resells the books to the public. Because of its size (the country’s 19th largest retailer) and buying power ($19 billion in sales), Amazon gets around a 50% discount on books it buys from publishers. (By contrast, chain stores get around a 40% discount and independent book stores get around a 20% discount. No wonder Amazon can sell books at such low prices — because it buys them low, which is an advantage other booksellers, especially independents, don’t have.)
So Amazon actually pays $15 for, say, a $30 book, but sells it at $9.99. That’s a called loss leader. Amazon sells the ebook at below cost in order to gain market share — and put other booksellers out of business.
The book Amazon wants to sell at below cost might be an ebook, but considerable time and expense went into producing that book:
- The writer spent time researching and writing the book.
- The writer’s agent spent time getting the book ready to sell to the publisher and also did all the work of finding a publisher that would buy it. The agent also went to considerable effort to look out for the writer’s interests.
- The editor spent time reading and editing the book.
- The graphic designers spent time designing the book cover and book layout.
- The marketing people spent time devising a marketing campaign
- The publisher spent money marketing the book
Some people might say that an ebook shouldn’t cost much because the work of creating it has already been done. But that’s not true. According to Erick Sherman:
the electronic versions [of hardcopy books] only save a little money per copy in printing and inventory costs. The vast bulk of the expenses in writing, editing, production, and marketing remain.
Amazon Uses Cheap Ebooks to Sell Kindles
Amazon loses money on its $9.99 ebooks. So how does Amazon make up for its lost revenue? By selling Kindles at between $260-$490 each. That’s right. The Kindles have a high profit margin. And once a reader buys a Kindle and begins reading ebooks on it, he or she is glued to the Kindle.
And that’s just what Amazon wants.
Amazon’s Great Deception
Amazon’s Great Deception is that, like WalMart, it wants to get a strangle hold over what products — in this case, books — are sold to everyday citizens like you and me. And Amazon’s talk about “monopolies” and “reasonable” prices is just a smoke screen to hide its real agenda.
Amazon actually wants to reduce choice and put independent book stores, as well as chain book stores, out of business.
How is Amazon trying to do that? By:
- Emphasizing the “consumer’s” right to a low, low price
- Controlling readers’ access to ebooks
- Controlling rights to a writer’s ebooks
Emphazing the “Consumer’s” Right to a Low, Low Price
I mentioned in my post about how chain stores turned us into consumers that we went from being a nation citizens who shopped to being a nation of “consumers” whose role it is to expect low prices. The notion of low prices is key to Amazon’s business model. And it’s central to how Amazon markets the Kindle: Amazon customers should expect to buy ebooks at below cost — regardless of how the below-cost pricing affects publishers and writers.
Amazon’s market clout, which lets it buy books from publishers at wholesale prices independent book stores and chain books stores can’t meet, lets it charge lower prices than its competitors. That’s hardly an even playing field. Amazon’s size also lets it sell ebooks at below cost — something that independent book stores can’t do, unless they have a death wish to go bankrupt.
Like WalMart, Amazon’s charade as a champion of low-cost products comes at a high cost to “consumers” by limiting what they can read, and by driving independent book stores out of business, and by siphoning money from towns and cities to Amazon’s corporate coffers.
(If you go on the Amazon Forum, you’ll see a lot of people denegrading Macmillian and praising Amazon for its “pro-consumer pro-book” stance.)
Controlling Readers’ Access to Ebooks
Through its claims to digital rights management (DMR), amazon controls readers access to the ebooks its sells. To put it simply, Amazon — not you — owns the ebooks you “buy” from the Kindle store. The DMR contract that you agree to when you download the ebook prohibits you from sharing the ebook with someone else, reselling the ebook, or moving the ebook to another brand of ebook reader to read. (Of course, right now even if you move the ebook to another brand reader that reader can’t read the format of the Amazon ebook.)
I believe that some ebook readers are incompatable with the Kindle as well — and also with one another. However, Amazon is the Big Enchilada that’s trying to take market share from everyone else.
The situation is fraught with peril for anyone who likes to read, for anyone who wants to write and be published, for publishing companies, and for both independent book stores and chain book stores. Blogger Farhad Manjoo fears for the future of the publishing industry and wonders “what will happen when it [Amazon] has no rivals.
Controlling Rights to a Writer’s Books
Amazon controls the rights to a writer’s books that it sells electronically — even if you, the writer, own the copyrights to your books. To have Amazon publish your book, you have to agree not to allow readers to read your digitized book on any other book reader except the Kindle. If you won’t agree, then Amazon won’t sell your book as an ebook.
But Amazon wants to be more than a book seller. It wants to be a publisher, too, by encouraging writers to self-publish their books as ebooks and sell them on Amazon. Is publishing on Amazon a good thing for writers?
Not according to Damon Brown, who says that authors who self-publish ebooks on Amazon put themselves in a particularly bad situation and also put themselves at Amazon’s mercy. First, by allowing the writers to self-publish, Amazon eliminated the literary agent, who typically deals with the publisher and looks out for the writer’s welfare. So the writers are left on their own, with no one to represent them.
Second, in its contract with those self-published writers, Amazon gains total control of their books without providing the benefits a traditional publisher gives them:
The new Kindle deal gives Amazon as much power as a traditional book publisher over an author’s work, but it lets Amazon own the rights without the promise of promotion, negotiation or other traditional publishing options. There is no marketing budget. There is no return of rights after the book goes out of print – - because, well, it will never go out of print. There is no renegotiation if the Amazon decided to use the book someway with its Kindle apps – - and no guarantee the author would be paid additionally for it since it isn’t technically a “book”.
If you own an independent book shop or like to buy online from independent book stores, you won’t be able to find the digitized versions of books that Amazon sells. You’ll only be able to find — and buy — them at Amazon.
The fact that Amazon “capitulated” to Macmillan is good for readers like you and me and, hopefully, for independent book stores. Why? Because Amazon — not Macmillan or any other book publisher — wants to develop a monopoly over the books you and I read. And Amazon’s “capitulation” put a wrench in its gears, slowing it down but not stopping it.
A Better Alternative
We’ve been through this problem many times before — from proprietary computer software to VHS to DVDs. The readers who are being preyed on by Amazon — people like you and me — should demand a single format for ebook readers.
If Amazon wants to become a publisher of ebooks, then it should act like a publisher. It should make its ebooks available to other stores and web sites that sell ebooks — just like every other publisher does.
Amazon criticized Macmillan because it wanted to use Apple’s “agency model” of pricing. In this model, Apple acts as the distributer of the ebooks, not the wholesaler, and lets the publisher set the price up to a $14.99 ceiling. As time goes by, the price falls just as happens with hardcopies. Perhaps the “agency model” isn’t the best model, but it’s a lot better than Amazon’s.
And Amazon should collect sales tax on the books it sells. But that’s another story.
