The Intertubes were abuzz this past weekend, and not just because of Apple’s iPad. At least not directly.
Amazon.com, retaliating against Macmillan books for demanding that their ebooks be sold using an “agency model” (where Amazon takes 30% of a seller’s set price for a book) instead of continuing to allow Amazon to set low prices for those ebooks (generally at or below $9.99, even for bestsellers and new hardcovers), decided they weren’t going to support the publisher’s books at all — and took them off their site.
Said Macmillan author John Scalzi in his post All The Many Ways Amazon So Very Failed the Weekend:
Hey, you want to know how to piss off an author? It’s easy: Keep people from buying their books. You want to know how to really piss them off? Keep people from buying their books for reasons that have nothing to do with them. And you know how to make them absolutely incandescent with rage? Keep people from buying their books for reasons that have nothing to do with them, and keep it a surprise until it happens.
In case this is news to you, here’s a MacAmazonGate recap. The CEO of Macmillan, John Sargent, issued a letter via a paid ad in a special edition of Publishers Lunch on Saturday, which summarized things pretty nicely:
This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.
I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.
It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.
Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.
The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.
Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.
Amazon responded on their site:
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.
So where do things stand now? As of this writing, Macmillan’s books are still off Amazon–even if Amazon did say it would have to capitulate, eventually.
“Publisher Wins Fight With Amazon,” says The New York Times, and it’s true that many, many people are hailing Macmillan for standing up for themselves and taking an important step in evening out the ebook-reader playing field.
Amazon’s decision is also a victory for Apple’s chief executive, Steven P. Jobs, who first pitched the idea of selling e-books under the agency model to book publishers earlier this year. Now Apple, whose iPad tablet is due in March, can compete on fairly equal footing with Amazon.
Others, though–including Forrest Research’s James McQuivey –say, whoa, not so fast: “Amazon is the Winner.” McQuivey makes a good case, expanding on something Macmillan touched on (Amazon’s profit margin) and perhaps explaining the retailer’s sudden about-face:
1. Amazon will now make money selling Macmillan e-books. Currently, Amazon eats a few dollars on most of the e-books it sells at $9.99. By capitulating to Macmillan (and any others that might jump on this bandwagon), Amazon will now make more money than before on each of these books, because they’ll get a whopping 30% of $14.99, or nearly $5 a book.
2. Publishers will ultimately be compelled to bring e-book prices down. If Macmillan is the only publisher to move to an agency model, its e-books will be at a disadvantage compared to other publishers in the Kindle store, which is a bad place to be when you’re trying to sell to the more than 5 million people who will own a Kindle by year-end 2010. But even if the other publishers move to the same model, they’ll suddenly realize that with great (pricing) power, comes great (pricing) responsibility, and some will start to lower prices, promotionally at first and then on a more lasting basis. Because there is always a publisher who is hungrier than the rest.
3. In that future, Amazon will make more money than it does now. At that point, even if prices come back down to $9.99, Amazon will be making $3.30 from each book sold. Amazon wins in the short run and the long run. And publishers will make less money than before on each book sold.
Notice no one is writing about the Author winning in any of these scenarios. Said McQuivey:
If publishers make less off of e-books (and Amazon makes more), even at $14.99, then publishers have less to give to authors, who are increasingly reconsidering their contracts (especially authors with big followings like Steven R. Covey and Paul Coelho) in light of new promises from Amazon to offer dramatically higher royalties for authors who work directly with Amazon. Hmm, smells like round two of this fight may also go to Amazon as well.
Thoughts? Write on, all!
(Oh, and thanks to Rebecca Woodhead, who created the term MacAmazonGate but unselfishly said, “Don’t give me 100% of the credit. I want 70% of the credit so I’m iPad compliant!” Follow her on Twitter @rebeccawoodhead.)