Friday, February 24, 2012

Kindle News: Amazon's removal of 5,000 IPG Kindle books (+ AWS pricing)

PublishersLunch's Michael Cader reported this week that Amazon removed Kindle versions of approximately 5,000 e-books from Independent Publishers Group (IPG) after talks broke down when IPG, which represents hundreds of small presses, refused Amazon's "demand" for larger discounts.

  This is happening before the Big 6 publishing houses' Agency Model agreements (responsible for price hikes of about 50% the last 2 yrs) are up for renewal and renegotiations.

  When Amazon did something similar with Macmillan in January 2010, removing Buy buttons for Macmillan e-books because pricing would be too high in their minds, customers wanted the e-books no matter what the cost, so Amazon gave in to the higher pricing although, at that time, they would have been paying publishers and authors more under the older traditional contract -- but the issue has been control over who sets the prices.

  Generally, Amazon goes for lower customer prices for most things they offer, which the Big6 felt devalued their hardcover books.

  One of the books included is the Kindle version of the American Cancer Society Nutrition Guide.  The print versions would not be affected though.

  With the small presses, Amazon would seem to have more leverage when it comes to pricing, though I hadn't read that they're specifically going for lower pricing.  They're under pressure from Wall Street and shareholders to get better margins.  And of course the middlemen (IDG) and publishers and authors don't want smaller ones.

  The New York Times's David Streitfeld writes that "At the same time, it is committed to selling e-books as cheaply as possible as a way to preserve the dominance of its Kindle devices" (and for reasons described in an article referenced below on their new and future pricing for Web Services).

 The IPG group feels Amazon's new terms are "unsustainable" for them but they don't want their small press publishers to say what those terms are although they describe them as "substantially" affecting the publishers' revenue.  Amazon may have asked them not to say what it is during negotiations, which have ended.  The ball is in Amazon's court.

 IPG, as a distributor is a sort of 'middle man' which has made life easier for Amazon in the past as they could go through one party instead of dealing with a few hundred individual publishers.  IPG's client-publishers, who use IPG for distribution of paper books, are required to agree to IPG "distributing" any e-book versions also, and IPG is said to take 10% of the Amazon royalty for that.

 Now that Amazon is wading into the publishing arena, they may be looking at things differently.  Also, Amazon is responsible for about 60% of the sales of IPG e-books, apparently.
  There's no doubt that publishers will be concerned about Amazon's dominance of the e-book market and the effect on their revenues and control, though Amazon's market share has decreased as others like B&N and Kobo catch up in this area.

RELATED ?  "Amazon Brings Price-Cutter Mentality to AWS" (Amazon Web Services)
Information Week's Charles Babcock looks at Amazon's insistence on lower pricing in general, and I couldn't help but wonder about the conflict between publishers and Amazon on Amazon's preference for lower e-book pricing.

The parts of the analysis of Amazon "price-cutter mentality" that struck me were these:
' is a unique company that has built a huge online retail business through aggressive pricing. It started with hawking books below store prices. It is now suspected of selling its popular Kindle Fire tablet at cost or even below cost, in order to build a clientele for future digital content downloads. And it has kept prices low on many other fronts. Now Amazon may be bringing its low-cost attitude to cloud computing, as seen in its Feb. 6 decision to lower prices on S3 cloud storage.

"We're highly predictable," said [Amazon VP Adam] Selipsiky, during a recent interview in InformationWeek's San Francisco offices. "We take the cost savings we produce and pass them on to the customer."  When Amazon lowered S3 prices, it didn't just apply the reduction to new subscriptions, but to existing subscribers as well.

This attitude is part of Amazon's DNA--and has earned the company periodic hits to its stock price
... Amazon's profit margins are slim, 2.4%, as it pours money into building its business. It's hiring people to staff 17 planned or recently completed fulfillment centers, and its head count increased 67% in 2011 to 56,200 full and part time workers. "We are investing in many different areas. The majority of new employees go into operations and customer service in support of that growth," said CFO Tom Szkutak during the earnings call.

Oracle, by contrast, likes profit margins closer to 30% and even bricks and mortar Wal-Mart would be unhappy with anything lower than its current 6% margins.
... [Selipsky said,] " A lot of technology business is a good business with high margins. But that's not Amazon’s strategy. We've lowered prices 18 times over six years. Amazon's approach reflects its roots in the business of retail. We drive the scale of business and lower prices. That part of the strategy is continuous across the company," whether it's selling Robert Ludlum's Jason Bourne series or virtual servers and disk drives, he said. He wouldn't comment on which service might be next – DynamoDB? Elastic Block Store? ...

Update - When a current contract comes up for renewal, it's not normally surprising that one or both of the parties will want a better deal.  With the new distribution-realities of e-books, it could be that Amazon is counting on IPG to realize they may need to take a smaller cut from their handling of e-book availability than before without it badly affecting authors or small press publishers.

  I see an article from TIME that has a balanced summary of the situation and then ends with:
' Despite Amazon’s strong-arm tactics, it’s hard to fault the retailer for leveraging an opportunity in an industry ripe for disruption.  Amazon has been an innovator in a field that has dinosaur leanings.  Its genius has been its cheap, varied and seemingly limitless offerings from the likes of Random House to the solo book purveyor nestled in the midlands of England.  And it pioneered new concepts in publishing, such as “Author Stores” and an imprint that will work directly with authors. '

I hope they all come up with a decent compromise soon.

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  1. Lot of puffery in the quotes including this: "When Amazon lowered S3 prices, it didn't just apply the reduction to new subscriptions, but to existing subscribers as well."

    Virtually every web service provider does that, including my own Bluehost. If you don't, you'll lose clients by the boatload. Amazon is praising itself for merely being average. That's vain and silly and someone should call them on that.

    I tend to disagree with Time on almost everything and this is no exception. Amazon is hardly "an innovator in a field that has dinosaur leanings." The great bulk of Amazon's ebooks use mobi, a format designed for Palms in the mid-1990s. The publishing industry as a whole as adopted epub as their standard. It's linked to HTML 5.0, a standard that's not yet finalized. So, it's Amazon that's a decade behind and in technology that makes it the dinosaur.

    Apple, who is not even into digital ebook nearly as deeply as Amazon, has quite good WYSIWYG editor for their ebooks, iBooks Author. Amazon's ebook creating software is quite is literally a command-line program, something's that's from the early 1980s and the first IBM PC.

    Nor it Amazon's bullying of suppliers all new or cool. The robber barons of the late nineteenth century did the same thing and became hated for it. And in the mid-1990s, Boeing staid management was treating their suppliers much like Amazon is treating the IPG. The result so weakened those suppliers, that they lacked the resources to help Boeing meet its 787 schedule. Saving a few hundred million back then contributed to making Boeing $32 billion in the hole on the 787.

    I fear Amazon's attempts to squeeze every penny out of publishers and authors with have a similarly negative impact on the book industry. In no field is big more likely to be bad than in book publishing and distribution. The only thing worse is when the government controls it.

    1. Mike, thanks for the other side of it. I was expecting a good comment from you and glad to get one.

      As a customer, though, I am 90% of the time -- with places I've been loyal to -- quite upset when they give only newbies their lower pricing and we oldtimers are not. That is, well, 90% of the time.

      Most of the the time the loyalists say, "This is Just Business and they always allow lower pricing only to Newbies." And of course you see this as commonplace with any cable subscription company. Or smartphone carrier. "New customers only."

      But it's true with almost everything I'm signed up with.

      I've been reading about many problems with ePub 3 not being so smooth in its various implementations and idiosyncrasies with this or that system. I'm subscribed to an ePub thread, and the complaints and bewilderment are large.

      Apple? Yes, beautiful layout. In the entire area of e-books, though, pricing is not something I'll give them credit for in a good way. As for layout, Steve Jobs was always into beautiful fonts and design and it shows.

      We've had two years (we customers, that is) of dealing with Apple-driven pricing of e-books with the Big6, and many of us are sick of the $15 prices for e-books. That doesn't mean IPG publishers should suffer for that, so I hope they all work it out.

      Reality of contract renewal and negotiation processes don't equate immediately with 'squeeze every penny' -- if you read all the general forums on any of this you'll see that paying e-book customers are really tired of the hamfisted actions of too many publishers to take every penny possible for digital books.

      IPG can sell at B&N, Kobe, Sony, their own sites, and new opportunities may open up if they decide they can't work out a deal with Amazon. Me, I am pretty sure they and Amazon will.

      But if Amazon's clout is worth a lot to IPG's group, they're more likely to find a compromise and if Amazon's asking too much, then both may suffer but Amazon would suffer more because one of their bragging points is they carry everything.

      I don't see that renewal time and the eventual negotiations mean that Amazon should not ask strongly for better discounts. They are under shareholder and Wall Street pressure too and are not just the big bad wolf because these two have not come to agreement yet. IPG is using the media to pressure Amazon. That's the way of these things and is to be expected. Neither side is made up of angels.

      (A customer's take)

  2. has a wonderfull graph comparing the daily sales rates for music , apps & books for i-os devices at
    The take away from the graph is that book sales in i-os are languishing, in the tiny percentages of either apps or music. No amount of pretty formats & colour & animated page turns can rescue books in i-os from the malign effect of the agency deal. The control that apple exerts over the sale of apps & music is evedent in the much much larger sales.

    1. Francesco, thanks. That's a fascinating graph. Here's a hyperlink for it.

      The iBooks line is not mentioned otherwise. Here's the interesting appended Note also:

      "Apple reported its iTunes income (as the anachronistic “Music” line item in its Income Statement) as $2.027 billion in Q4.It would be tempting then to think that Apple got $1 billion from apps and $1 billion from songs and videos and iBooks. This is not the case however.

      Apple does not report all its app income (what I call gross income). Under the “agency” model of retail sales it reports only the part it retains, keeping the 70% paid to developers off its books. Therefore, of the $2 billion in iTunes income, only $300 million were actually booked from apps. That therefore implies that Apple’s “everything-but-apps” iTunes revenue was $1.7 billion.

      Note however that the non-app income is mostly gross income and the payouts on that income will be significant (as much as 90% depending on many factors)."

  3. Most of the things I have seen written about this situation paints Amazon as the bad guy in all of this. It apparently does not matter that nobody knows what the previous deal was or what changes they wanted to implement. All we have is the IPG statement on which to base our opinions.

    But you have to question IPG’s motive. I am sure they provide a great benefit to all of their clients when it comes to distributing their print books but what percentage of a cut do they need to take to essentially upload a file? I assume that the publisher itself is still responsible for editing, covers, formatting, etc. Is IPG simply uploading the formatted file to the handful of e-books sites and expecting the same percentage that they are receiving on print books? This is a one-time task that needs to be completed.

    It seems to me like IPG is trying to keep themselves relevant in a publishing world where physical distribution is becoming less important and e-books are becoming more important. I feel bad for the authors caught in the middle because 5000 books is a drop in the bucket for Amazon and most readers will simply find something else to read in place of the books they can no longer find.

    1. All really good points, Tom M.
      What's also interested me is what's said in the comments section of most of the sites I've visited. That hs been almost wholly with Amazon -- these are people who tend to be customers though -- and it's not just because of the tremendous rise in e-book prices over the last 2 yrs, sometimes higher than print versions, it's exactly that they sense what you describe.

      It bothers me that the larger publishers cut author percentage from 25% to 20% 2 years ago (while raising prices ibut the agency-model giving actually less money to publisher/author and this was accepted due to Control being the goal) and they were still able to get their authors onto forums to argue the large publishers' perspective only.

      I was reading a few threads at too which has a mixture of readers and small publishers. A good mix of views.


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