Amazon, Apple and the ‘Big 6’ Get Ready to Rumble over E-books

Amazon CEO Jeff Bezos

In the midst of the global publishing industry there are huge rumblings of discontent. Amazon.com, the world’s largest online retailer of books is embroiled in a dispute with publishing giant Macmillan over Amazon’s pricing of e-books at $9.99. 

In defiance of complaints from the world’s leading publishers, Amazon has insisted on setting e-book prices itself, with $9.99 as the default for new titles and bestsellers. Publishing industry insiders are convinced that Amazon’s aim is to corner the market for e-books via the Kindle

This does not sit well with Macmillan and the other 5 of the so-called “Big 6” trade publishers – Hachette Book Group, HarperCollins Publishers, Penguin Group, Simon & Schuster and Thomas Nelson– all of whom have been wringing their hands over Amazon’s insistence on setting their own prices for Kindle e-books because of their dominance in the fast-growing e-book market.  

Macmillan, for their part, have been trying to price e-book editions of their books at $15 for fear consumers get addicted to Amazon’s discounted price tag, which in turn could cause print publishers and brick-and-mortar bookstores to lose sales of hardcover titles to much cheaper electronic editions.

In a meeting last week with Amazon, Macmillan CEO John Sargent reportedly tried to sway the online giant to accept his company’s pricing and new sales model and even offered to allow Amazon to continue buying Macmillan titles for sale via the Kindle, provided Amazon agreed to delay the release of all digital editions by several months after the publication of hardcover books, as is done with paperbacks.

But Amazon would have none of it. So Macmillan put their foot down.  Last week they threatened to stop distributing new books to Amazon when they are released unless Amazon sets the price of new e-books at $15

Amazon retaliated by suspending direct sales of Kindle editions and printed books published by Macmillan. They removed the “buy” buttons from thousands of titles, including several bestsellers. If you wanted to buy print editions you could do so only from third-party sellers. Macmillan responded by taking out an ad in the Publishers Marketplace magazine protesting Amazon’s tactics in their bid to maintain their $9.99 e-book pricing.

Apple CEO, Steve Jobs shows off the iPad

In the midst of the faceoff, Apple CEO Steve Jobs weighed in and confirmed to the Wall Street Journal that publishers are withholding their e-books from Amazon.com because they are not happy with the online giant’s pricing policies.

Macmillan was one of the five publishers named by Apple as initial content providers for their new iBooks store. The iBooks store will distribute digital reading content in the same way that iTunes does with music and video. Apple will allow the publishers to set their own prices for their e-books sold through the iBooks store and many of them, including bestsellers are expected to be priced at $12.99 or $14.99.

This is the same Steve Jobs who, just prior to the launch of the Apple iPad, had been urging the US TV networks to slash their prices for video content sold through iTunes to $0.99 — half of the regular $1.99 price.

As Business Insider noted, “Networks are resisting, citing the music industry’s 2003 pact with Apple to reduce prices. The plan helped boost downloads, but album sales slumped.” 

US TV network insiders have expressed concern that Apple’s proposed 99¢ for iTunes downloads could adversely impact sales of DVD boxed sets, which are a vital source of revenue for the networks. Their fears resemble those of the “Big 6” publishers (with whom Apple is holding hands sympathetically) – namely that Amazon’s e-book pricing could cause a slump in the sales of more expensive hardcover books.

Music recording companies also have their own gripes against Apple. Less than three years after the music labels lined up behind Jobs and began hailing iTunes as a shot in the arm for music sales, some of the major record companies were upbraiding him for his insistence on maintaining a one-price model of 99 cents for songs downloaded via iTunes. They wanted it to be replaced with a structure that prices songs by popularity. They essentially wanted a mechanism that would allow the price of single-song downloads to increase on the basis of demand and enable them to make more profits. But for years they were unable to get iTunes to budge – just like the book publishers have been unable to move Amazon.

That’s not all. In 2008 when he was asked by the New York Times to comment on the Kindle’s potential, Steve Jobs said scornfully that it would go nowhere. “It doesn’t matter how good or bad the product is; the fact is that people don’t read anymore … Forty percent of the people in the U.S. read one book or less last year.”

Having seen the light, he has since unveiled the iPad and like a veritable wizard he has the publishing industry mesmerised. He also announced that the Big 6, including Macmillan, would begin using the iPad to sell digital editions of their books at prices upwards of $12.99.  

With their backs against the wall, Amazon finally caved in to Macmillan’s demands. In a press release, the wounded giant stated:

“Macmillan, one of the “big six” publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases. We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”

News Corp CEO, Rupert Murdoch

At Amazon’s capitulation, even News Corp CEO, Rupert Murdoch whose media empire includes Harper Collins books, chimed in and had a go at twisting the knife in Jeff Bezos’ gut. “We don’t like the Amazon model of selling everything at $9.99 … They pay us the wholesale price of $14 or whatever we charge but I think it really devalues books and it hurts all the retailers of the hardcover books,” said Murdoch.

The big question is, where does all this leave Kindle users who have become used to $9.99 e-books?

Furthermore, Amazon has raised a troubling question. In their statement of surrender, they said categorically that they believe the price of $14.99 is “needlessly high for e-books,” adding that customers will eventually “decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book.”

Interestingly, Apple reportedly employs similar logic in their negotiations with the TV networks over the pricing of iTunes downloads of their shows. As Business Insider noted, “Apple thinks users are paying too much for shows, or simply aren’t bothering to get them at all because of high prices.”

This begs the question – how does a publisher justify the price of an e-book being the same as hardcover books? Some hardbacks can cost as much as $27. Do e-books incur the same costs associated with hardcover books, such as printing, warehousing and distribution? What is the rationale for equal pricing?

The Huffington Post is among those who think that pricing e-books the same as hardbacks is unfair. “Manned printing presses, manned distribution warehouses and manned retail stores place high fixed costs on the publishing industry. E-books eliminate almost all of those costs. But instead of reflecting the savings in reasonably priced e-books, the industry contorts itself to maintain its bloated distribution model and the attendant high prices.”

It should be noted that this was not the first time that Amazon had sought to teach a publisher a lesson by temporarily stripping it of access to their all-powerful “buy” button.

In 2008 they disabled the buy button on their UK website for numerous titles published by the British unit of Hachette Livre on account of a dispute over revenue sharing from online sales. The publisher’s chief executive, Tim Hely Hutchinson had to write to the affected authors explaining the cause of the vanished buy buttons.  

In his letter Hutchinson said “Amazon seems each year to go from one publisher to another, making increasing demands in order to achieve richer terms at our expense and sometimes at yours … if this continued, it would not be long before Amazon got virtually all of the revenue that is presently shared between author, publisher, retailer, printer and other parties.”

A few months earlier Amazon denied some small publishers in the US access to their buy buttons after the publishers resisted Amazon’s demand that they use an Amazon-owned company, BookSurge, for print-on-demand services. Some of the publishers opted to yield with their tails between their legs and signed service agreements with Amazon. Others refused to do business with BookSurge, complaining that the POD publisher had been demanding discounts of up to 52% on the retail prices of their books. 

Even the Authors Guild, a US-based trade group, got a taste of Amazon discipline when the buy icon was removed for some of their books sold from the POD service BackinPrint.com. Commenting on Amazon’s actions to the New York Times, the Authors Guild executive director Paul Aiken said, “The buy button is their weapon of choice and that’s how they impose market discipline.” He warned cryptically, “This is such a clear indication that once they have the clout they are willing to use it to the full extent that they can. It’s ugly with Amazon and will probably get uglier.” 

Amazon’s actions ignited such rage among bloggers in the blogosphere some of them began organizing petitions and letter-writing campaigns deriding the online giant for behaving like a bully.

Two years later the chickens have come home to roost with a vengeance.

Notwithstanding Amazon’s hardball antics, Macmillan and the rest of the Big 6 give the impression, by the way they’re rallying around Apple that they see in Steve Jobs a savior who can shield them from the claws of the great digital giant, who, like it or not controls about 20% of the book-buying market.

Apple seems agreeable to allowing publishers to set their own e-book prices within a limited range when they sell them via the iPad. But it bears repeating that this is precisely the sort of deal that they were unwilling to offer the TV networks and music companies, which complained incessantly about the iTunes 99 cents one-price model that they had to contend with for years.

Commenting on the pas de deux between Apple and the Big 6, the blog An American Editor asks a very pertinent question: “Let’s assume that publishers get very favorable terms from Apple. How long do publishers think that honeymoon will last? My guess: until Jobs decides that people really do read books and realizes that he needs to do to publishers what he did to the music companies.”

Since Macmillan took the decision to delay the release of all digital editions of their books by several months after the hardcover publication, some Kindle users have been boycotting their titles in protest. They have also been refusing to buy e-books priced higher than $9.99.

Inevitably, authors are going to feel the pinch if this continues. To make matters worse, as of Thursday, February 4, Amazon still had not restored the buy buttons for Macmillan titles despite conceding that they would have to “capitulate and accept Macmillan’s terms” in their earlier public statement.

Meanwhile, the Authors Guild on February 5 announced the launch of WhoMovedMyBuyButton.com, which allows authors to keep track of whether Amazon has removed the “buy buttons” from any of their books. “Simply register the ISBNs of any books you’d like monitored and our web tool will check daily to make sure your buy buttons are safe and sound.  If there’s a problem, we’ll e-mail you an alert,” said the Guild.

That the world’s publishing giants could be so vulnerable to the machinations of Amazon and Apple is sad to say the least – bearing in mind that between them the top six trade publishers control about 59.1% of the book market. It underscores the reality that the heart and soul of publishing (and the future of the industry) lie in the hands of a cabal of corporate overlords who seem content to cling to a modus operandi that is archaic and rooted in outdated practices and traditions. This leaves them ill-equipped to deal with the advent of new media and increasingly complex negotiations – not to mention the dynamic changes being wrought by technology.  

As the Huffington Post alluded, even with basic functions their backwardness was evident. “Only recently have the majority of publishers accepted electronic submissions … They insisted on five pounds of paper being schlepped around Manhattan. Only in the past few years have agents routinely responded to e-mail queries. They insisted on snail mail.”

Here’s hoping the indie presses and their writers, as well as the brick-and-mortar bookstores, learn some valuable lessons from the errors of the Big Guys.  To the extent that the techno-revolution empowers small and independent presses, writers, readers and booksellers, they must seize hold of it and own it.

There is no question that e-books and other related technologies empower writers, booksellers and publishers (including small and medium indie presses) and give them the ability to extend their reach and tap into markets that hitherto were inaccessible.   It’s up to them to pursue these alternative paths and make the most of them.

Advertisements

2 responses to “Amazon, Apple and the ‘Big 6’ Get Ready to Rumble over E-books

  1. “A few months earlier Amazon denied some small publishers in the US access to their buy buttons after the publishers resisted Amazon’s demand that they use an Amazon-owned company, BookSurge, for print-on-demand services.”

    One small publisher (our company, Booklocker.com) fought back, and sued Amazon for this. Amazon recently settled the lawsuit and agreed to withdraw their previous policy. (See the settlement at: http://antitrust.booklocker.com)

    If all traditional publishers refuse to play Amazon’s pricing game, Amazon will have no choice but to “capitulate” to all of them. Amazon won’t want to remove the entire New York Times list of best sellers from their direct sales channel.

    Manufacturers must be able to control the price of their products so they can continue to pay their expenses, and stay in business. Allowing the world’s largest retailer to control a publisher’s prices will force many of those publishers out of business. People have been comparing Amazon to Walmart for years.

    A lot more goes into producing a book than paper, ink and glue (with print books) and bytes (with ebooks). There are authors, designers, editors, marketing and other support staff, office rent, electricity….the list goes on and on. Assuming the production expenses for a book are just the cost of a few pieces of paper or a few kilobytes on a hard drive is pretty silly.

    Companies (publishers and bookstores) should allow readers to decide what they are willing to pay for ebooks. If a reader thinks a book is priced too high, they will let the publisher know by not buying that ebook. Best-selling authors’ ebooks and other ebooks in demand will continue to sell as long as they are priced less than the print versions, even if the price is just slightly lower. The demand is there and will continue to be there. If it’s not, publishers can choose to lower their prices. They should not be forced to do so by a large retailer.

    Forcing a publisher to assign bargain-basement prices to a product, which is simply an attempt to outsell every other retailer and control a specific market, including the publisher itself, will hurt the entire supply chain and, through the loss of good authors, ultimately, the readers themselves.

    Angela Hoy, Publisher
    Booklocker.com
    WritersWeekly.com

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s