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January 30, 2010

Amazon Removes Macmillan Books

By BRAD STONE and MOTOKO RICH
 
Amazon.com has pulled books from Macmillan, one of the largest publishers in the United States, in a dispute over the pricing on e-books on the site.
The publisher’s books can be purchased only from third parties on Amazon.com.
A person in the industry with knowledge of the dispute, which has been brewing for a year, said Amazon was expressing its strong disagreement by temporarily removing Macmillan books. The person did not want to be quoted by name because of the sensitivity of the matter.
Macmillan, like other publishers, has asked Amazon to raise the price of e-books to around $15 from $9.99.
Macmillan is one of the publishers signed on to offer books to Apple, as part of its new iBookstore on the iPad tablet unveiled earlier this week.
Macmillan’s imprints include Farrar, Straus & Giroux, St. Martins Press and Henry Holt. Popular books, including “A Long Way Gone” by Ishmael Beah, “Wolf Hall” by Hilary Mantel, “Middlesex” by Jeffrey Eugenides and “Finger Lickin’ Fifteen” by Janet Evanovich, could be purchased only from third-party sellers on Friday night.
Apple will allow publishers more leeway to set their own prices for e-books. Although the prices will be tethered to print book prices by a formula that will generally yield prices between $12.99 and $14.99 for most fiction and general nonfiction, that is significantly higher than $9.99 discount that Amazon offers on its Kindle.
Publishers have been concerned that such pricing devalues books. Tensions between publishers and Amazon have been rising as publishers have withheld select e-book editions for several months after the release of hardcover versions of books.
It is not clear yet if publishers can withhold books from Amazon while giving them to other parties like Apple. Antitrust lawyers said it could raise legal issues
.

Macmillan and its imprints have not yet returned requests for comment. Amazon refused comment.


Source.
 

Amazon, Macmillan: an outsider's guide to the fight

(Apologies for the formatting; I'm typing this on a netbook with a tiny keyboard.)
Last Friday, Amazon.com unilaterally pulled most or all of Macmillan's books (edit: including all paper editions, not just electronic) from their online store. (You can still find them via afilliates or second-hand stores, but Amazon themselves won't sell them to you. Note that this only affects me via my Merchant Princes books — published by Tor, a Macmillan subsidiary — in the US Amazon store. My Ace titles are safe ... for now.)

This whole mess is basically about duelling supply chain models.'Publishing is made out of pipes. Traditionally the supply chain ran: author -> publisher -> wholesaler -> bookstore -> consumer.

Then the internet came along, a communications medium the main effect of which is to disintermediate indirect relationships, for example by collapsing supply chains with lots of middle-men.

From the point of view of the public, to whom they sell, Amazon is a bookstore.

From the point of view of the publishers, from whom they buy, Amazon is a wholesaler.

From the point of view of Jeff Bezos' bank account, Amazon is the entire supply chain and should take that share of the cake that formerly went to both wholesalers and booksellers. They do this by buying wholesale and selling retail, taking up to a 70% discount from the publishers and selling for whatever they can get. Their stalking horse for this is the Kindle publishing platform; they're trying to in-source the publisher by asserting contractual terms that mean the publisher isn't merely selling them books wholesale, but is sublicencing the works to be republished via the Kindle publishing platform. Publishers sublicensing rights is SOP in the industry, but not normally handled this way -- and it allows Amazon to grab another chunk of the supply chain if they get away with it, turning the traditional publishers into vestigial editing/marketing appendages.

The agency model Apple proposed -- and that publishers like Macmillan enthusiastically endorse -- collapses the supply chain in a different direction, so it looks like: author -> publisher -> fixed-price distributor -> reader. In this model Amazon is shoved back into the box labelled 'fixed-price distributor' and get to take the retail cut only. Meanwhile: fewer supply chain links mean lower overheads and, ultimately, cheaper books without cutting into the authors or publishers profits.

Amazon are going to fight this one ruthlessly because if the publishers win, it destroys the profitability of their business and pushes prices down. (Note that Amazon have been trying to grab a larger share of the cake by dipping into the publishers -- and the authors -- share of what meagre profits there are (book publishing is notoriously, uniquely unprofitable, within the media world), even though they've already got the wholesale and retail supply chains stitched up. Their buy wholesale/sell retail model screws publishers' ability to manage their cash flow and tends to induce price wars on the supply side, which is okay if we're talking widgets with a range of competing suppliers, but books are individually unique products and the industry already runs on alarmingly narrow margins: this isn't the music or movie biz.)

Now, as to pricing and DRM -- those issues are entirely irrelevant -- at least at this stage of affairs. They're different battles. For what it's worth, the ePub format Apple, Sony, Baen, and everybody except Amazon are going with doesn't mandate DRM (although it provides an optional vendor-specified DRM layer). The DRM push comes from the board level of the corporations who own both the book publishers and the music vendors, and individual editors and publishers know it's crap. This is a battle that'll be lost or won within the publishers.
Pricing ... we sell books by reverse auction, most expensive editions first, then cheaper editions, then mass market, until we get to the remainder shelves. What any sane publisher would like to do is to get away from the current crude fixed-price points -- a system they can't do anything about right now because it's locked in via the wholesale/retail distribution model -- and get round to flexible pricing on books: start selling high, then drop the price incrementally with much higher granularity than is currently possible. Such a system would allow them to get a lock on the price elasticity of demand, and thus work out the price point at which they can maximize book sales. A fixed-percentage agency model (distributor takes a flat 30 or 35%, whatever the price, while the price is set by the publisher) lets them do that.

It's interesting to note that unlike the music industry who had to be pushed, the big publishers seem to be willing to grab a passing lifeline.
Final note: to customers, Amazon would like to be a monopoly (i.e. the only store in town). To suppliers, Amazon would like to be a monopsony (i.e. the only customer in town). Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everyubody's nuts -- the authors, the customers, everyone. They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily. And if you think things would be different if I, Charlie Stross, went into self-publishing and sold my wares directly without any icky publisher to 'help' me ... do you really think I'd get better terms out of Amazon than a huge publishing conglomerate?

Whether this means Macmillan is any better placed to adapt to the post-internet order is an entirely separate issue which I can't begin to address here.

But Amazon, in declaring war on Macmillan in this underhand way, have screwed me, and I tend to take that personally, because they didn't need to do that.

[Edit]: Just before Apple announced the iPad and the agency deal for ebooks, Amazon pre-empted by announcing an option for publishing ebooks in which they would graciously reduce their cut from 70% to 30%, "same as Apple". From a distance this looks competitive, but the devil is in the small print; to get the 30% rate, you have to agree that Amazon is a publisher, license your rights to Amazon to publish through the Kindle platform, guarantee that you will not allow other ebook editions to sell for less than the Kindle price, and let Amazon set that price, with a ceiling of $9.99. In other words, Amazon choose how much to pay you, while using your books to undercut any possible rivals (including the paper editions you still sell). It shouldn't surprise anyone that the major publishers don't think very highly of this offer ...[/Edit]

And more: Here's Tobias Buckell's take on the situation, for a different angle.

Source.


Mods: I know this isn't politics per say, but Amazon is becoming increasingly terrifying in their want to monopolize the written word. It's pretty big news with regards to how much power a retailer should have over its suppliers (in this case: Book Publishers). They effectively want to control every aspect of the chain.

I think that Amazon is creating bad habits w/ regards to e-books. Just as much work goes into e-book creation as print editions, and so they should be priced on a scale, for sure. Most books are unprofitable as it is, you throw this into the mix, everybody loses. I know we all like cheap, but content is expensive to create and publish. And I can tell you first hand that the expenses are not going to the people working on the books.

Also, that picture of Jeff Bezos is heavily photoshopped.

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