Thursday, January 21, 2010

Amazon "Fires Missile" at Book Publishers--But Is the Target Really Apple?

I had hoped to avoid writing about e-books for a while, not because I don't think they are interesting but because I'm reluctant to have one topic monopolize this page. But  developments are coming fast and furious in this quarter of publishing so you can expect to see a lot more about this here for the foreseeable future.  Witness two events of the last couple of days: First, we learned that Apple has been in discussion with the "Big Six" publishers about terms for making e-books available on their much-bruited new tablet computer. According to Michael Cader at Publishers Lunch, these discussions center around an "agency model" in which--unlike other e-tailers (notably Amazon)--publishers will own their book files and set prices while Apple will in effect take a commission on those sales rather than buy and resell the books to consumers. Although the functional difference between "reselling" and "licensing" is trivial, as Cader points out, it's huge to publishers because it gives them control over pricing and allows them to experiment in this area, instead of acceding in Amazon's attempt to commodify all titles at $9.99 or less. 

Almost simultaneously with this news, Amazon announced a new e-book model for publishers and authors, offering a 70 percent royalty (a big improvement on their usual terms) with certain key conditions--including a) the e-book must be priced no higher than $9.99 and b) it must be at least 20 percent lower than the printed book price.  

There seems to be some confusion about what this announcement means. Henry Blodget, at The Industry Insider, hollers that this move "fires a missile at the book industry" and will force publishers to cut their prices for e-books; also that it " should also solidify Amazon's already tremendous dominance of the ebook business" by enhancing the popularity of the Kindle. 

I think Blodget has it backward: Amazon is staring at the possibility, even likelihood, that a host of new e-readers--numerous models have been announced--will rapidly grab much of its share of the e-book market. Many readers, me included, actually prefer buying e-books via the Kindle store, then reading them on iPhones with their crisper more responsive display. When we can read them on a large-screen Apple tablet--and buy them via an elegant, simple Apple-designed e-book store (or through iTunes), we won't need either Amazon or Kindle. 

In other words, Amazon is trying to compete on price while Apple and others compete on quality and features. So far, Apple has been highly successful at that kind of contest. In short, I see this as a would-be preemptive strike by Amazon in anticipation of the Apple tablet. Amazon is going to be a major player in this market for the foreseeable future, but rather than being the game-changing "missile," their current move seems like an admission that they will no longer be a sole 600-pound gorilla. 

So far these events seem like good news for publishers. With several players competing to sell e-books to the public, we're less likely to be bullied by one of them, and with these differerent business models in effect we may be able to accelerate the necessary process of trial and error regarding pricing, timing and so on. 

Still, one aspect of the new Amazon pitch has the potential to further destabilize the marketplace and threaten publishers. The 70-percent royalty is surely meant to attract authors to make direct deals with Amazon, cutting out publishing houses altogether. Amazon may well offer even better terms to carry a certain e-book exclusively. This has already happened with one bestselling author, as I've discussed here. If this becomes a major trend, it could really damage publishers' profits and they can't afford to take this threat lightly.