Thursday, March 18, 2010

Amazon plays hardball to keep lower pricing option

NY Times's Motoko Rich and Brad Stone or their editor wrote a rather black-hat title for their column on the latest stage of the hardball battle between Amazon and Apple's "guidance" of the Big 6 publishers toward higher prices (Random House, to its credit, is not following, however).  So, we see "Amazon Threatens Publishers as Apple Looms."  Very dramatic.

  One might say the publishers have "threatened" to force Amazon to follow the Apple-Agency plan of higher pricing for book customers and if Amazon balks, the publishers would not provide a Kindle book for new or NY Times Bestseller books.  Do we ever see that described as 'threatening' Amazon?

Traditional Wholesale Agreements - and Authors' revenue basis
  Bear in mind that the traditional wholesale arrangement Amazon has used does NOT affect the author as the publishers seem to like to get their authors to write on the forums.

  Amazon has always paid the publishers an agreed percentage based on the Publisher-Set LIST price.  Don't be fooled by the mantra "Let the publisher set the price" because they always have.

  Again, if Amazon pays the publisher 50% of $25 (traditionally), Amazon pays the publisher $12.50.  Period.  It doesn't matter, for the author (except for pride of an expensive book maybe), that the bestseller might be sold at $10 by Amazon.  The publisher (who pays the author) GETS the full $12.50, from which the author is paid.

Amazon manages to do well with loss leaders while selling some 'cooled' e-books at higher rates.

  The low pricing does not mean less money for the author, unless the publisher decides the author should get a lower percentage.

Trouble-making, Non-physical E-Books Available for Less
  Large, long-time book publishers worry about Kindle books selling too well "causing" e-book consumers to not buy their hardcover books (as the publishers have said).  They should wake up and realize that most e-reader buyers are NOT going to go get new hardcover fiction books after buying e-readers.

  It's a new world, and most will wait and then probably decide not to get the book at all if book reviews are not great or if the book is Old News by the time it's released.  The latter is already happening.

  Publishers are refusing money being offered them for e-titles, preferring to attempt to artificially inflate the attractiveness of hard-cover books in a new digital age.  The audience has changed.  Whether they know it or not, publishers will do better following the Amazon pricing, because most I know will not be running to hardcovers.  There is just too much we want and can buy to read now.  People are also discovering why the classics (free) are classics :-)

The Genesis and Evolution of the Push for Higher E-Book Prices
  All right, back to the NY Times article and the drama going on between Amazon and the publishers, and Apple's part in it.

For background, see the genesis of all this unnecessary, forced raising of prices.

  Adding another layer of normal business manipulations was the discovery that Apple is inserting language into the Agency plan that insists that THEY be able to sell "hottest" books or bestsellers at $10 if they want (!)  I'd love to see the publisher reactions to that, but the last I read they were still "in negotiations" on that.

Rich and Stone write that has "threatened to stop directly selling the books of some publishers online unless they agree to a detailed list of concessions regarding the sale of electronic books, according to two industry executives with direct knowledge of the discussions."

 In other words, the tone of the reports is colored by those IN publishing and unhappy that Amazon has not agreed to their demands.  They don't like the concessions wanted to get their way, so what are those awful concessions?

 Reading on ...
' "An Amazon spokesman, Craig Berman, declined to comment on any talks with publishers."   [Wise man.]

Five of the country’s six largest publishers — Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin — have already reached deals with Apple to sell their books through its iBookstore, which will be featured on the iPad. (The holdout is Random House.)

Under those agreements, the publishers will set consumer prices for each book, and Apple will serve as an agent and take a 30 percent commission.  E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99.

Amazon has agreed in principle that the major publishers would be able to set prices in its Kindle store as well.  But it is also demanding that they lock into three-year contracts and guarantee that no other competitor will get lower prices or better terms. '
  Well, that demand for a guarantee when agreeing to raise prices to Apple iBookstore standards is certainly rude of Amazon, isn't it?  All emphases in the quoted areas are mine.  Back to the NYT article
' Apple, for its part, is requiring that publishers not permit other retailers to sell any e-books for less than what is listed in the iBookstore. '
Oh, I see.  Apple is not 'threatening' or 'demanding' -- they are just 'requiring' that the publishers not permit other online bookstores to sell anything for less than what Apple has decided for its own iBookstore.

Who's In Charge of Making and Maintaining Fixed Pricing, U.S. wide?
 And if the publishers refuse? What? Would Apple 'threaten' to do something unpleasant?

  This reporting of Apple's "requirement" for publishers is different, for Rich, from Amazon's "demanding" a similar guarantee for AGREEING TO Apple's publisher-plan.  Good grief.

  Notice who's in charge in this battle?  Notice who all have to follow whatever Apple (Steve Jobs?) ever decides is right for the customer in the way of book pricing?  Do we get black headlines about how Apple is threatening publishers with not signing contracts to sell their books?

Who is Threatening to Remove Buy Buttons
  The publishers are threatening to remove from access, Kindle editions of bestseller books if higher pricing wants aren't met.  They are 'removing' access ahead of time and are refusing to allow 'Buy' buttons for their bestsellers if in Kindle format.  This is a change.

  So, Rich/Stone continue, the publishers have 'sought,' not 'insisted on,' but 'sought' (much more polite) to renegotiate agreements with Amazon to make them align their selling practices with what Apple decides is right for the book-readers of the entire United States.

The Digital World is What's Looming
  I don't blame publishers for resisting 3-year contracts, as they are right that the digital book world is changing rapidly, but then why don't they acknowledge the changes as a reality and adjust to that instead of trying to stall, slow down, and stop it, as has been written?

  This particular article ultimately does a pretty fair job of reporting, but it is worded initially and headlined as if fed by publishers again, as was perceived by many in a recent article by Motoko Rich on the publishers' lament that they earn practically nothing much on e-books because of the expenses they need to charge against them.

Publishers make small margins on E-Books?
  Read the excellent analysis by Fair.Org's Jim Naureckas with regard to the publishers' claims and to that earlier NYT piece itself.  This wasn't a shining moment for NY Times's objectivity.  But they are a publisher also in need of a way to meet the challenges of the digital reading world.

What Choices will Smaller Publishers Have?
Amazon is talking with smaller publishers (let's call them the Small Thousands vs the Big 6) that haven't yet signed with Apple, in hopes of retaining its wholesale pricing model with them.

The Push to Fix Prices to be Never Lower than what Apple has Chosen
 However, some of the smaller publishers are of course talking with Apple too, and have been told the following by Apple, according to Motoko Rich:
'...any publisher that wishes to sell its books on the iPad must offer the same terms to all booksellers.  In other words, to do business with Apple, publishers must export Apple’s business model to all retailers. '
  Our-way-or-the-highway... And if the small publishers don't want to do that, then what ?
  No Apple Buy-Buttons for them?  It's an arena filled with implied threats.
Life in the rough lane.

Updated: I forgot to add that Rich's article included this interesting tidbit:
' Apple is not likely to give up on smaller publishers.  A new job posting on its Web site is for an “independent publisher account manager, iBookstore.”  The posting says the person would be “responsible for building and growing relationships with small- and medium-size book publishers, self-published authors and other content providers for the iBookstore.” '
  But back to Amazon's "threatening" behavior, did we ever see Amazon insist, under the traditional wholesale arrangement, that publishers not allow other stores to price any of their books lower than Amazon's pricing?

 What would the NY Times have written about that?

  But casually "fixed" pricing will bring all these problems with it.

I do agree that if Amazon ever felt it had to remove 'buy' buttons again for awhile, it could hurt its own reputation.  Point to Steve Jobs there.  Good play.  The books would be available elsewhere anyway, at of course higher prices.  Consumers want to consume.

Smaller Publishers and pricing plans
Rich and Stone point out that
' Amazon may believe that if it can keep those publishers from moving to an agency model, Apple will choose not to sell their e-books, and Amazon will be seen as having a broader selection.

Amazon’s strategy “is to work very hard to limit participation in the agency model to only the big four or five firms that are already announced,” said Evan Schnittman, vice president for global business development at Oxford University Press. “This would leave 50 to 60 percent of the content out there subject to the standard distribution terms, enabling Amazon to promote and price as it does today, and forcing Apple to have to compete with Amazon’s strength.” '
  But, as Rich and Stone point out, Apple wouldn't likely just give up on smaller publishers.  And shouldn't.

Fair.Org's Jim Naureckas is not resting.  He has a wonderfully ironic piece about this New York Times article, titling his response:
"NYT Exposes Amazon's Fiendish Plot to Sell Books for Less Money"

' By implication, the hero would be Apple, which is also entering the electronic book market.
  Apple's business model, at any rate, doesn't get the harsh spin from the Times that Amazon receives. '
EXACTLY right.  More...
' Which is funny, because Apple's plan would result in consumers paying from 30 percent to 50 percent more to buy most e-books, and prevent publishers from allowing anyone else to undercut Apple's inflated prices. [Emphasis mine] '
  He says it's a "terrible deal for consumers ... but the piece is written with the unstated assumption that we're all rooting for the publishers. "

  And worse, the last two NY Times articles on this, with Rich headlining them, seem worded to make us root for the publishers. Below are ways to Share this post if you'd like others to see it.
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  1. Okay, it's not just me then. Thanks. It seems like the NYT has fallen into the reality distortion field that hovers around Apple these days.

    The fact they were on stage at the iPad launch couldn't possibly have anything to do with it, I'm sure.

    If the publishing industry is so desparate that they're letting some company (who uses them merely as a checkbox on a feature list) come in and entirely disrupt their business model, well, they get what's coming to them.

    I have a feeling when all's said and done, the only publishers that will escape this shift unscathed will be Baen and O'Reilly.

  2. That's a great description, Eric.

    Maybe Random House will do okay too.

    The story reads as if the leakers wanted (and got) a mouthpiece who would warn the world that Amazon Vader was about to destroy the e-book world as we know it. Getting readers and watchers into the 'right' mindset... for the end goal.

    But the NYT duo did write, if with less alarming language, about what Apple is "requiring."

    That may happen but at Amazon's instigation.

  3. Interesting that NYT online is also not allowing comments on this article...good piece, Andrys.

  4. newwine,

    It seems that the Technology columns by Rich or Stone don't have a comments area, usually. Odd. I imagine it's a hassle since people feel so strongly about everything.

  5. Nice article, Andrys!

    I think a key point in all this is that Apple doesn't really care about selling books as much as they do about selling iPads. If e-books become less attractive, that hurts the Kindle...but not the iPad as much (since people will have that for other purposes as well, and in many cases, reading will not be the primary purpose).

  6. Bufo,
    I think you're exactly right.

    He wouldn't compete on price on the low side so he's made everyone come to his heights for that. That's power for you. They're like lemmings, as ebook sales decrease after the initial interest.

    Jan of TheKindleReader tweeted last night that after using Kindle for Mac on her computer, she will be reading ebooks on the Kindle.

    That's definitely how I feel. I love to look AT it on my netbook (which has a beautiful matte-finish display and I can have the windows fill up the screen when browsing (no tabs, no headers)) but when reading a book in sequential or serial fashion, there's little relief from little black chracter lines against WHITE even when I dim it to lowest point. It's good for about 20 minutes to half an hour for me though i can surf the web for hours on end with random jumping around that moves and relaxes the eyes with changes in foreground and backgrond and subject matter.

    But that pricing -- there's a lot we can buy when ignoring the too-costly books.

    It'll be interesting to watch.

    Thanks for visiting!

  7. What Bufo says. Nice piece, Andrys.

    There's another bit to your argument that the e-book buyer just isn't the hardcover customer. Publishers are somewhat shooting themselves in the foot with 'embargoes' as they are called in the world of electronic journals (the practice of delaying availability). In much of the public discussion of the fabulous Whispernet, it has been construed as a 'service' to the customer. Make no mistake, it does serve Amazon hugely. Len Edgerly's recent author-guest on the 'Chronicles' made the point cleverly when she said she'd love to benefit from purchases made by people who'd had a few drinks. But what really makes a drunk click 'Buy'? It's that author on BookSpan, or Charlie Rose, or The Daily Show, talking about their just-released book. But some of those books turn out to be cr@p and end up as heaps of remainders; so like film production companies on opening weekend of a film, publishers need to capitalize on their own hype -- before word gets out about which books suck. Memory fades with the passing of time, too. Many who would be inclined to click 'Buy' when a book is newly released will completely forget about it over time. The publishers who make their new releases available in e right away will eat the lunch of those who embargo. I suspect that some form of stepped pricing may well be the answer here. But e with DRM really does need to be significantly cheaper than hardcover, all the same. (We don't all have to re-buy the White Album when we dump our Samsung CD player for a JVC, after all.) And as an e-book 'purchaser', no way do I want to subsidize a house's print remainders. So even given the broad 'solution' of stepped pricing, there will be details to work out. There may be no perfect model; but there might be a lesser evil.


  8. See my take on Ken Auletta's discussion of the Amazon/Apple war:

  9. Mary, thanks. I thought I had replied to this but apparently not (though has been buggy about showing comments, including mine lately, and one that was just made, in fact and maybe that one will show up after I type this).

    But it's a good point that we have impulses to buy a book after hearing about it while watching a show, etc., and once that impulse is ignored because the book isn't made available, then it may just not be there in the future.

  10. Jim,
    Many thanks for the alert to the article at I'll include that in a blog entry -- and didn't you love the characterization of Bezos made from hearsay along with the rosiest treatment I've ever seen of Jobs dealing with partners?

    Re the publishers, for a $26 book -- not using Rich's figures but it was good to go with hers since she was espousing the publisher line and taking their info from the negotiations, presenting those from their perspective, and even then the case is made:

    On a $26 publisher-set-list price book, the traditional wholesaler arrangement would have meant about $13 of it going to the publisher even when the bookstore/retailer charged only $10 for the book as Amazon did, who treated bestsellers on the NYTimes list as loss-leaders.

    As Steve Jobs inserted into his Agency agreements with the Big5 later, he wanted, after all that, the ability to sell the 'hottest' books (apparently the first 10 of the NYT bestsellers) for only $10 and did get that. In other words, he did want to 'devalue' those (in the publishers' eyes, $10 was a devaluing) and got it.

    So, the publishers get $7 with that instead of the $13 that Amazon did pay them under the wholesaler arrangement, meaning there was MORE money for the auuthors from the older non-agency arrangement as they affected the most popular books.

    Yet they carry on about wanting the authors to get more.


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