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:
' Amazon.com 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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