Monday, February 1, 2010

And the Feathers Fly! Amazon & Macmillan Duke It Out

Whew. Just hours after I posted on Friday that it looked like a battle was brewing between big publishers and Amazon over e-book pricing, the fight broke out. I won't attempt to give a blow-by-blow here, but Mike Shatzkin gives a good summary here and there will be plenty of other accounts to come. 


In brief, Amazon went to the "nuclear option," as Shatzkin puts it, by delisting Macmillan titles and it blew up in their face. Many others will analyze this event and I'm not sure the dust has settled yet, so I'll restrict myself to a couple of observations: 


First, it's very interesting to read the Kindle forum posts on Amazon. Their announcement is clearly intended to cast Macmillan as the bully in the situation, even though it was Amazon who punished the publisher. On Amazon's Kindle page, not surprisingly, a vocal audience of Kindle owners, who have come to regard $9.99 as the inalienable right of e-book buyers, are ready to see it that way. (In fact, even before both companies' announcements, posters at the Kindle forum tended to assume Macmillan was boycotting Amazon rather than the other way round.) 


Still, even among Kindle owners, there are several posters who say, "geez, 14.99 doesn't sound so bad, it's still a lot less than a hardcover." Completely lost in the conversation is the fact that all these Macmillan titles might be available for $9.99 if you're willing to wait for them, the way you do for a paperback. I think Macmillan (and other publishers who want to "window" e-books) need to make consumers much more aware of that. 

Also interesting, I also read a hundred or so comments at the NYT Bits blog post on the controversy. There, many readers knocked Macmillan but a greater number (though not at first glance a majority) saw this as bullying by Amazon. In other words, among a sample of people who aren't all Kindle fans, opinion is much more divided. (Naturally there are plenty of "plague on both their houses" opinions and a few gimlet-eyed, "hey, they're both just rational actors attempting to maximize their profits" types.) 

I don't know whether we'll see $14.99 hold as the new standard price for e-books but I think it was fortunate for publishers that Apple came along when it did, before Amazon was able to get a stranglehold on the e-book market. 



Granted, there's much debate, especially outside the Big Six publishers, over whether it's really desirable to raise e-book prices. I'm frankly of two minds about it. Will have to take that up another time. But as Shatzkin points out in the comments threat on his post, publishers who are still absolutely dependent on print books have powerful incentives to slow the erosion of prices, and even the adoption of e-books in general, which are a serious threat to bookstores, still by far our biggest sales channel.  




(Full disclosure: Bloomsbury Press titles are distributed by Macmillan, but Bloomsbury has a separate relationship with Amazon and was not a party to the dispute.) 


Image from tshirtworks.blogspot.com

9 comments:

Anonymous said...

A few problems.

First, $9.99 is way too much for a DRM crippled book. Second, book piracy is starting to take off. Last, the customer is just getting screwed during a recession.

The $15 prices will come across as being greedy. Piracy will increase as customers will look for cheaper alternatives (free). And Macmillan will look like the bad guy.

This is the music industry all over again. Watch publisher's profits dip in the upcoming quarters. Macmillan jumped the shark this time. I expect more insanity to follow.

Peter Ginna said...

There's plenty of debate about whether the music industry is a valid example for publishing. As I've said in earlier posts, piracy is happening already and may well increase. But two surveys presented at Digital Book World (by Verso and the Book Industry Study Group) suggest that a) piracy is confined to a relatively small percentage of e-book readers and b) consumers are more flexible about prices than you suggest.

Piracy was certainly a big problem for the music industry--but many people also think that letting Apple set the price of all songs at $.99 was also a big problem.

D. Antone said...

The demographic of people who are willing to pirate music is larger than those readers willing to pirate e-books. I keep a close eye on the pirating community. In my experience, those willing to pirate loads of music are the same people who would rather be tortured than read on their free time.

I have faith that my fellow book worms are of a higher caliber. I hope I'm not wrong.

Gary said...

Thanks for the post, Peter. I just want to chime in here and say that I agree that the music industry and the book industry are not entirely (if at all) analogous. The pirating of e-books will inevitably increase, but not, I believe, to the point of destroying publishers.

As an avid reader and buyer of books, (and one who hates to wait for soft covers) I will pay $15 for a new release, as opposed to $25. And I think there are many more like me.

Peter Ginna said...

D.Antone, I hope you are right about pirating, although if you read my post from a couple of days ago you'll see a link to an interview with an avid reader who's also an avid free-file uploader.

But I tend to agree with Gary that piracy is more likely to be a persistent nuisance than a crisis. One big reason is that in music, file-sharing was already well under way as iTunes was just getting started--i.e. listeners were helping themselves to files partly because they didn't have a convenient way of downloading music they liked. In the e-book world, we're going to have several well-stocked and very convenient legal ways of buying digital books. Whatever you think of Amazon, they have done publishing a huge service by creating a first-rate e-book buying experience that's widely available. That in itself is the greatest single deterrent to piracy any party has contributed.

Anonymous said...

There are a few things that, I think, impact someone's decision to pirate:

1) Timeliness
2) Quality
3) Price
4) DRM
5) level of tech savvy

I will use anime pirates as example since it's pretty pervasive on the Internet.

1) anime fansubbers put out a fansub within a day or two of the airing of the show in Japan; US distributors put out the same product 1-3 years later or never

2) anime fansubbers put out a superior product to the commercial release including HD version, which US distributors rarely ever release

3) anime fansubs are free; US distribution copies cost around $30 for 4 episodes, which is far more than US TV shows sell for

4) DRM only an issue on Blueray releases, which are rare anyway

5) needs a torrent or irc client and a media player; trivial

Now, take those same measures and apply them to publishing.

1) publishers want to put an eBook version 3-7 months after a hardcover; book pirates can put out the same book sooner by OCR'ing the hardcover

2) book pirates seem to surpass or equal the quality (formatting) of the publisher's eBook release

3) publishers want to charge $15 for an eBook; if a paperback costs $8 and is discounted 30%, the book really costs about $6. The new pricing for the eBook is all most 3x that price. This is what I call insane pricing.

4) the pirate version contains no DRM and can be used on any device; the publisher version can only be used on the device it is downloaded to and cannot be shared.

5) needs a torrent or irc client and needs apps to convert; some minor barriers to entry

The PRO's versus the CON's with the new pricing, I think, will push people to pirate more.

But this will not be as bad as the music industry. What really hurt the music industry was people buying separate tracks, rather than whole albums. If there are twenty good songs a year by 20 artists, than that's $20 for mp3's versus $240 (assuming an average $12 cd cost) for the albums containing those songs. That's where the money loss is coming from.

Peter Ginna said...

I can't argue with your analogy to anime since I don't know that market at all. BUT there's one key point that you are misunderstanding--not surprisingly since coverage of this issue usually buries it.

Publishers are not going to charge $15 for ebooks where the printed book's price is less. They're not crazy. If a book costs $8 in paperback, the ebook price will be less than that. And even for new releases where the hardcovers are $20 plus, many ebooks will be priced at less than $15. Macmillan et al don't want to price ebooks where no one will buy them--they want to narrow the gap between the printed book price and the ebook price.

Also, note that the idea of putting ebooks out later than hardcover, at least in Macmillan's model, was *when the ebook was $9.99.* In other words, you could have a cheap e-book later or a more expensive e-book now. Macmillan CEO John Sargent has said on record they want to experiment with dynamic pricing--i.e prices that change over the life of the book, and aren't carved in stone at publication time. I believe all publishers need to experiment in this area.

Myrna Foster said...

It is interesting to me that Jobs may have been right (in your previous post) when he projected that e-book pricing was going to change because publishers weren't happy. Publishers haven't been happy for a long time, but that hasn't changed anything until now.

I don't think that Amazon handled this situation well at all. Inconveniencing their customers was not a good way to prove their customer service or products superior to Apple's.

Anonymous said...

Peter,

Great points. But I struggle with dynamic pricing for eBooks. I have never been a timely buyer for books. I usually buy them when they are paperbacks or used. I think readers would value a deep dive into dynamic pricing for eBooks. The more educated customers are to what is happening the better they can react.

Curious about eBook pricing, I went out and picked up an add-on for my browser called Camelizer. It provides pricing trends for amazon.com and newegg.com.

http://lifehacker.com/5375601/the-camelizer-tracks-retailer-prices-over-time-to-find-the-best-deal

It's a great tool for tracking book prices over time. I'm hoping to get a better handle on Kindle pricing. It's interesting that some eBooks have actually increased in price over time.

Check out this add-on for some good data.