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:

' 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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Follow-up to New Yorker article on price wars - The Live Chat

This is a follow-up to the earlier blog entry about The New Yorker piece by Ken Auletta on the grand e-book pricing battles involving the Big 5 publishers,Apple, and Amazon and their strategies.
 In his The New Yorker Q&A, Auletta let us know he did not realize, when writing the article, that Apple is also bypassing publishers to work with some authors directly.

ASK THE AUTHOR
Ken Auletta had the scheduled “Ask the Author” live chat with The New Yorker readers on April 19, and the Q&A transcript gives some context indicating a bit of his own perspective on all this as well.

IS AMAZON, ALONE, GOING AFTER SELF-PUBLISHING AUTHORS?
One thing I’d forgotten to include earlier was one interesting piece of sleuthing from the March 18 New York Times article by Motoko Rich (lead) and Brad Stone, which I've quoted from quite a bit, noting the article's word choices when reporting information straight from publisher reps who were in the middle of negotations and conveying to The New York Times their unhappiness with what they called Amazon’s “threats” to them.

  It was brought back to mind when I read Auletta’s interesting live-chat responses, one indicating he may not have seen that NYT article when he replied that

' I don’t believe that Apple is offering self-publishing services aside from people submitting apps. '

That's actually fairly important, as the thrust of the last part of The New Yorker article is how Amazon is offering authors a high royalty which "one irate publisher said,"

' was meant “to pit authors against publishers.” '

I went back to Rich’s article, remembering what she wrote about a job position that Apple had posted, noting that

' 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.” '

The mention of “self-published authors” in the job posting was of course interesting, I'd thought at the time.  They were entering that arena too.  Neither Bezos nor Jobs is shy about expansion, to say the least.  Also, Barnes and Noble publishes its own hard-copy books.

PUBLISHERS DON'T MIND IF APPLE IS ALSO GOING AFTER AUTHORS?
  Notice that the publishers are not complaining, in this article, about Steve Jobs' interest in going straight to authors.  The quotes from publishers and "Apple insiders" about Amazon sound almost frenetic.

  For one thing I'd been surprised to see Auletta (whose historical detail is very thorough) focus on the anger toward only Amazon -- "a close associate of Bezos" was reported to have "put it more starkly," Auletta tells us.

' "What Amazon really wanted to do was make the price of e-books so low that people would no longer buy hardcover books.  Then the next shoe to drop would be to cut publishers out and go right to authors.” '

MORE BLACKHAT STUFF
  Publisher Tim O'Reilly characterized Amazon alone of the battling groups as "ruthless" saying that

'publishers have good reason to be anxious. “Amazon is a particularly farsighted, powerful, and ruthless competitor” he says. I don’t think we’ve seen a business this competitive in the tech space since Microsoft.” '

  The one dastardly corporate entity in the publishing arena!

THE MAN IN WHITE, OR AT LEAST A WHITE HAT
  Apple's Steve Jobs, who had never sold a book, comes into the biz and tells all the large publishers he'd like to give them the higher pricing he recommended they charge (sourced in earlier stories here) but that if they wanted to publish with him, they must use his Agency model's structure and pricing for all the other bookstores, getting rid of the decades-old bookseller-wholesaler pricing that allowed bookstores to sell books lower than the publisher-set List Price if it helped drive sales in a competitive business.

  In effect, as others have noted, Jobs was successful in immediately killing the long-time bookstore model as applied to online e-books, especially Amazon's, that made lower prices on most new books possible for e-book-buying consumers, a selling point for the Kindle.  Barnes and Noble e-book pricing, with brick and mortar stores an emphasis, was not as competitive.

WHY THE WHITE HAT?
  However, as is mentioned often in the news, Steve Jobs and the iPad together are being touted as "savior" to the publishing industry that also prints our news or information.  So we won't be reading such adjectives for Jobs from Auletta's quoted publishers, or from "several literary agents, the latter reporting to Auletta that "a senior Amazon executive asked for suggestions about whom Amazon might hire as an acquisitions editor."

ENLARGING THE FIELD OF VISION
  Publishers and literary agents, watch your back.  You're overfocused on just one book-selling party's interest in going direct to authors.

  Auletta balances publisher anxiety (if not their blackhatting) with matter-of-fact reality from Amazon's Russ Grandinetti, but that isn't likely to soothe publisher nerves.  I don't think reason or history has much to do with it at this point.

  Publishers have TWO strong book- (and hardware) sellers interested in offering authors (primarily those who'd never get a look from large publishing houses) deals for rights to their work.  Of course, if already successful authors are free from contracts or have back-lists of books they own the rights to, Amazon and Apple are just doing what comes naturally in this digital age.

  I don't think, though, that Amazon ever required that all publishers listing books with Amazon use only Amazon's own traditional wholesaler arrangement (which publishers admit gives them more revenue, on the lower-priced e-books, to share with their authors), nor would they have been interested in keeping selling-prices higher and the same at all bookstores.

THE NEW WORLD OF DIGITAL MEDIA
  The new digital world brings added possibilities, and the large publishing executives need to find ways to maximize their business, including taking advantage of the intense interest in e-book reading.
  They have literally millions of customers wanting to pay them for new e-books, with that audience growing at an exponential rate, but they treat this new market as a negative force only because of fears that e-book sales, if encouraged at lower prices than normally heavily discounted bestselling hardcover books, could "cannibalize" hard-cover sales.  They try to ignore that people who buy expensive e-readers in order to gain portability and convenience, while easing the need for physical storage space, are not going to be rushing out to buy hardcover books.  They'll have plenty of material from which to choose when wanting to read (and even more entertainment to choose from with an iPad or other e-reader-included tablet, the latter market also exploding in the next couple of months).

  They ignore that e-book buyers remember (with the help of licenses that come with digital books) that they are not allowed by the publishers to re-sell or give away the e-books they buy (although with the Nook some publishers will allow one and only one person to borrow a purchased e-book, ever, in the life of that e-book).  Macmillan's John Sargent does not allow Macmillan's e-books to be included in public libraries.

  Hardcover books will just share more selling space with e-books.  Publishers should print as many hardcovers as actually wanted by the market and lower the costs in doing that with a realistic look at the changing audiences.

 They should offer e-books with the book text only and add value-added "enhanced" editions with multimedia features, with background, context, and author interviews, in video or with informational links.

MAGAZINES AND NEWSPAPERS
There's no question that Apple's iPad is a much better match for magazines, so there is essentially no competition there vs a device focused mainly on text accompanied by infrequent black and white photos.

AGGRESSIVE COMPANIES WITH LOWER PRICING POLICIES
  Going back to the topic of aggressive companies (this is not new).   Apple apparently did not want to compete with Amazon's lamented lower pricing so they encouraged the raising of e-book prices nationwide, knowing that the publishers would of course appreciate this and feel supported by Apple, who would give them leverage with Amazon who does want to continue lower pricing, which publishers say "devalues" their books.  Of course, publishers do also fear a "too-powerful" Amazon who they feel might be able to dictate terms as publishers and Apple are doing.  There will always be competition, as we've seen.

E-BOOK PRICING MODES
 I've already explained how, on a $26 dollar book, under the old wholesaler method, the publishers would have received approximately $13 on a $10-book while the new Agency method gives the publishers only $7.

The NY Times's Rich also wrote in the March 18 column:

' ...Apple, which has effectively said that 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.  Amazon, by contrast, has not promised to adopt the agency approach for any but the largest publishers. ”

OH, YES, BACK TO THE Q&A :-)
Some interesting responses by Auletta.

' [Yes] Authors would get a higher percentage of royalties by signing directly with Amazon to publish their books. The question is: Would Amazon be able to provide the editing and marketing support that publishers provide? '

Publishers provide this for a tiny percentage of hopeful authors.

  Auletta responds to another questioner:

' What I think midlist or unknown authors would miss if bookstores, particularly independent bookstores, keep shrinking is the word of mouth spread by bookstore salespeople customers know and whose taste they trust.

Yes, though most today read the reviews readily available from several periodicals and they also read the customer reviews on several book sites, from interested readers like themselves.

To a thought from a questioner that "the publishing industry just doens't get it yet" - Auletta replies:

' They’re getting it—probably too slowly. '

(I didn't see indications, in the article, of their getting it.)

To the question "Do you believe that e-books will become popular and accessible enough to make independent bookstores obsolete? If so, what would you estimate the time frame for this?"

'That is my fear, and the fear of many publishers. Independent bookstores are shrinking fast.  As e-book sales continue to grow exponentially, without being able to offer e-books in stores, or if they do offer them to be able to match the lower prices of Amazon or Apple, independent bookstores are menaced. How soon? Too soon.'

So, he does share with the publishers the fear of the success of e-books and its anticipated impact on independent bookstores.

  They are reacting to what they experience as a Volcano of E-books threatening (for some) to cover all with ashes.
  The solution: Preparation, keeping in mind that could actually be, instead, a mountain of opportunities for mining.

 Barnes and Noble is wisely encouraging visits to their store with the Nook's bonus store-features and encouraging discovery of its e-reader by non-store regulars at Best Buy stores.

I liked the advice he gave to a questioner.

'You’d have to be a fool not to worry.  The challenge, however, is not to be immobilized by fears, to think of the digital world as a challenging opportunity. '

I couldn't agree more.

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A bit of sun with Apple provisions for lower ebook pricing

NY Times's Motoko Rich reports today that Apple's prices for e-books may be lower than expected.

The image I used for this is a bit over-optimistic, but Rich begins her article by saying that "Maybe e-book prices won’t be rising so much after all."

We've seen public statements by Macmillan; Simon & Schuster; Murdoch for HarperCollins; and Hachette, expressing happiness over eventually being able to push Amazon to change their traditional Bookseller-Publisher wholesale price agreements to the 'Agency' fee contract modeled on Steve Jobs' Apple plan with publisher-set customer-prices of $13 to $15 for new bestseller e-books.

 The aim was to prevent Amazon -- Macmillan said -- from 'devaluing' their books by selling the e-books for only $9.95.

  Motoko Rich wrote in an earlier NY Times article (Oct '09):

'But some publishers worry that the convenience of borrowing books electronically could ultimately cut into sales of print editions.
  ...
  As digital collections grow, [John Sargent, chief executive of Macmillan] said he feared a world in which “pretty soon you’re not paying for anything.”

  Partly because of such concerns, Macmillan does not allow its e-books to be offered in public libraries. '

  In the current NYT article, Rich explains the Apple loophole:

' ... When Steven P. Jobs showed off the iPad last month, he announced agreements with five of the six largest publishers to offer their content through a new iBooks application. Those publishers ... agreed to terms under which they would set e-book prices and Apple would serve as an agent to sell the books to consumers...
  ...
Publishers indicated that e-book editions of most newly released adult general fiction and nonfiction would sell in a range from $12.99 to $14.99, under a complicated formula that pegs e-book prices to the list prices of comparable print editions.  Publishers liked Apple’s deal because it resulted in a marked increase above Amazon’s $9.99 price for most new releases.

But according to at least three people with knowledge of the discussions, who spoke anonymously because of the confidentiality of the talks, Apple inserted provisions requiring publishers to discount e-book prices on best sellers — so that $12.99-to-$14.99 range was merely a ceiling; prices for some titles could be lower, even as low as Amazon’s $9.99 [AB: All emphases mine].

  Essentially, Apple wants the flexibility to offer lower prices for the hottest books, those on one of the New York Times best-seller lists, which are heavily discounted in bookstores and on rival retail sites. So, for example, a book that started at $14.99 would drop to $12.99 or less once it hit the best-seller lists.

Moreover, for books where publishers offer comparable hardcover editions at a price below the typical $26, Apple wanted e-book prices to reflect the cheaper hardcover prices.  These books might be priced much lower than $12.99, even if they did not hit the best-seller list.

Tom Neumayr, an Apple spokesman, declined comment.

  ... Amazon has effectively lost money on each sale at [$9.99] because it buys and resells e-books as it purchases printed books, by paying publishers a wholesale price generally equivalent to half the list price of a print edition.

  That means that on a $26 hardcover book, Amazon would typically pay the publisher $13, losing just over $3 on a digital edition it sells for $9.99. '

I quoted a lot of that rather than try to paraphrase it, as the NY Times did an unusually clear piece on the traditional pricing arrangements.  Read the full article on their site for more details.

Amazon has used the $10 pricing as a loss-leader, with sometimes higher pricing on some of its older e-books -- and earnings over the past year (in a bad economy) show that's worked very well for the stockholders and customers.

  It's a hardball tactic that has left publishers fearful that other bookstores can't compete on that basis and Amazon would have too much control over the e-book market.  After seeing the attempt at a 50% increase in bad times, I'd rather the publishers not set the customer prices but continue to set the wholesale ones and get their money, which they say is more money for them than with the agency plan.  I would think authors would like that too, unless Macmillan is not sharing that added amount with them.

  NO small factor is Random House's recently stated position that it does not plan to go to the Agency plan, leaving one big publishing house selling e-books at considerably lower pricing, putting more pressure on the other large publishers. Below are ways to Share this post if you'd like others to see it.
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