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Whose move? Amazon and Macmillan vie for position

February 1, 2010 |  5:30 am

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What is it with Amazon.com and weekends? It was Easter weekend when gay- and lesbian-themed books disappeared from the site. It was a Friday in July when George Orwell's "1984" was erased from the Kindles of some customers who'd purchased it. And on Jan. 29 -- Friday -- Amazon.com made its latest big move that stirred controversy. In a dispute over ebook pricing, Amazon.com stopped selling books by publisher Macmillan.

If the company had assumed everyone was out skiing -- or, around here, playing tennis -- that wasn't quite the case. After the New York Times reported on the story, observers sped to their computers (including BoingBoing, Publishers Weekly, Mashable, Galleycat and many on Twitter). What did the move mean? What role did the just-announced Apple iPad and iBook Store have in the negotiations? Was Macmillan, the smallest of the big six publishers, a vulnerable target?

Macmillan's CEO John Sargent thought he ought to make his position clear, so on Saturday, he ran an open letter as a paid advertisement in a special edition of the Publishers Marketplace email, which is widely read by those in the publishing industry.

Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for  ebooks 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.

The letter went on to explain the details of the dispute. Amazon has set a price point for ebooks for its Kindle -- $9.99 -- that many in publishing find unsustainable. Macmillan, which would prefer ebooks cost as much as $15, had proposed an alternative, Sargent explained. Amazon refused it, then stopped selling Macmillan's books. (Sargent's explanation of his proposal is after the jump.)

There were more questions. Publishers Marketplace kept track of how major Macmillan books were selling: They fell on the Amazon.com bestseller lists, while climbing the bestseller lists at Barnes & Noble. The site also rooted around and found a few Macmillan titles still being offered through Amazon. Authors blogged about their books disappearing, started switching buy links to other sites, and generally consternation bubbled.

Then, on Sunday, Amazon.com capitulated. That's what it said -- "capitulate." Who exactly said this is unclear. On a Kindle message board, the "Amazon Kindle Team," designated "Amazon official" by the site, posted an announcement:

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.

The message immediately spread on the Internet: Amazon backed down, waved the white flag, "capitulated." But that's not the end of the story. Whatever is meant by "ultimately," Macmillan titles had not been restored by Sunday night.

It's worth mentioning that the text of Amazon.com's statement is somewhat irregular. Not only is "capitulate" a pretty strong word for a corporation, but the use of "monopoly" is entirely perplexing. A monopoly is exclusive control over a commodity or service -- what Macmillan has is ownership of a specific set of creative properties that they've bought, developed and produced. For any publisher to have a monopoly, they'd have to be American's only publisher and control all books. It's like saying I have a monopoly of the delicious scrambled eggs I made for breakfast; well, sure, I control my breakfast, but there are plenty of other eggs I don't control -- hence, no monopoly. As far as official statements go, this one seems unusual, but our request for an official comment was not returned.

If this Kindle message board statement becomes company policy and Macmillan titles are eventually sold again by Amazon.com, it is sure not to be the end of the story. It's not just ebook pricing that's in flux: The larger question is how publishing houses will survive. In recent years, many in publishing have said that parts of the system are broken -- the pressure of competing ebook readers and online retailers is leading to some surprising moves on the chessboard.

-- Carolyn Kellogg

For more about books, follow me on Twitter @paperhaus

Macmillan CEO John Sargent wrote:

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.

Photo credit: Scott Eells / Bloomberg News

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