It looks like the tide is starting to turn decisively against Amazon's $9.99 e-book publishing model -- first MacMillan
fought back and won, then HarperCollins dragged Bezos and Co.,
back to the negotiating table, and now Hachette is beating on the door. That's at least the word according to a leaked memo from Hachette Book Group CEO David Young, in which he says the "agency" pricing model favored by MacMillan -- and used by Apple new iBooks store -- is the way to go. Ultimately this all comes down to power and control, and we're getting the feeling the publishers have realized that they have to exert it in order to keep it -- and oddly enough, it seems like Apple and the iPad are the leverage they've been waiting for. Get ready for the shakeout.
P.S.- Charlie Stross has a
nice breakdown of the differences between the Amazon model and the agency model, if you're interested in the nitty-gritty.
posted February 5th 2010 1:01PM
This just in: Apparently the electronics business isn't a good way to make friends
@yulebellow
No kidding. You've gotta feel bad for Amazon...unless the iPad fails and these guys all come crawling back to Amazon with their tails between their legs. Kind of like when NBC came back to Apple. The biggest loser however appears to be those that actually thought a Kindle was a good device to throw hundreds of dollars at. Perhaps those contemplating throwing at least five big bills in the direction of Apple should have good reason for pause (and maybe even a 180) too.
@yulebellow
One additional thought people...
Let's remember what we're all fighting about here people...books!
Perhaps someday a "direct to the end user" business model will appear that a lot of the cost out of the equation. Do we really need book publishes and distribution channels adding to the cost of an eBook? Do we really need record labels and distribution channels adding to the cost of an album? Do we really?
@yulebellow But it is a good way to turn a profit while laying people off. What gets me is that they'll be increasing retail charges, but none of this goes to all those reduced employees (printers, binders,...) that used to make the physical books. Once the completely electronic business model is honed, there should be ZERO reason for the publishers to increase the pricing this much per unit.
@DaveBach Yes we do need publishers. Someone I know is an aspiring author. She has written several books an dis hoping to be published. Most of the those books are quite good and she has hope. However, she is constantly editing and tweaking them in hopes of getting a publisher or agents eye. Those books have no doubt improved drastically in an effort of being published. Furthermore, she is in a crit group comprised of similarly unpublished authors. Some of their work is good, most of it is awful.
So the end result of a market with no publishers would be that about 10 times as many books would be hitting the market, most of them horrible, and the good ones will probably not be as good as the ones that required a lot of rewrites to have otherwise gotten published.
Authors can currently self publish with Amazon and other stores, nobody is stopping them. However, it is widely excepted that if you do self publish you will never get a publishing deal in the future unless you manage to self publish a best seller.
@yulebellow once e-books start becoming mainstream, these publisher are going to learn quickly how much of their books end up on The Pirate Bay because of their high cost and people will just find another more convent way to get books. This is why blockbuster and hollywood video can't stay in business with having netflix as competition. All it takes is a good book rental system for e-books to bring the whole system to its knees.
@yulebellow
Thank you Steve Jobs for kissing publisher ass and increasing the cost of e-books.
"You either die a hero or you live long enough to see yourself become the villain"
@DaveBach
That is a really good point sir. In the digital world there really is no need for a publisher any more. I hadn't thought of that element but it makes alot of sense. Hopefully these jerks will head over the horizon soon and we can just download these books at a competitive market driven price.
Unfortunately I think it will come to late for my college textbooks..... Sigh.
@yulebellow The theory says that competition is good because companies compete to please consumers…but that model breaks down when only a few companies dominate the market, and they realize it’s much more profitable to simply collude — er, collusion is illegal, so clearly they’re just “adjusting to market forces”…riiight
Competition is good on the end of the users..
Hopefully, it'll still be the case for the ebook wars.., Details: http://bit.ly/apple-ipad-under-fire
I thought price fixing and collusion was illegal? How is it that the publishers are even allowed to dictate prices to Amazon?
@mmaestro
Because they're selling their own product THROUGH Amazon. Same reason you can charge whatever you want on Apple's App Store. Same reason you can charge whatever you want to sell your company's product at Best Buy.
@mmaestro Exactly -
But I think what they are doing is basically telling Amazon that they can't buy their books anymore. What they can do is act as a broker and take a cut of the sale (with the price being set by the publisher).
It is price fixing in practice as they are dictating the price that resellers must sell the product, but legally it is a murky issue as technically these resellers aren't actually retailing the product, but are rather acting as a broker.
@mmaestro
This isn't price fixing. Price fixing is when companies all agree to sell the same service or product at the same price to control the market. This is creative content too so it really doesn't fall under that umbrella.
They are able to dictate prices to amazon because its their content not amazon's and amazon knows that if they don't step in line that apple or sony will make a huge dent in their business by agreeing to the terms.
@bantam Ah. I think I may be suffering from originally being from the UK, where we had a court case in the '80s about this (and it was considered price fixing - retailers can charge whatever they damn well please). FWIW, I think that explains the legal situation. I think it's all kinds of wrong, but I think I understand now.
@bantam you kind of missed aspect of price fixing - the part where wholesalers are not allowed to dictate the price at which resellers sell things. Doing so becomes an agreement between the participants to set pricing at an artificial level and amounts to price fixing and is in violation of antitrust laws.
There is a reason why MAP pricing is so common - because wholesalers cannot legally withdraw product from a retailer based on low ball pricing alone. See the supreme court ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc.,. There is certainly more wiggle room for vertical "price fixing"-like sales, but it is not legal. Wholesalers cannot set and enforce minimum sales prices for their products legally (though it's not entirely illegal either). It's a gray area of the law right now, though I have little doubt the current business-favoring supreme court would rule to allow it given the opportunity.
@mmaestro I don't know if anyone share my view or not but, anyway, I think this approach is kind of good/bad mixture for amazon. As far as my understanding on this particular situation goes, publishers will not sell to amazon anymore which means it no longer needs to invest large sum of money to stock bulks of ebooks. Instead, it can conveniently reap the commissions from each book it sold without needing to worry about overstock. It's sort of like a consignment system; the seller takes the commission from every item it sold. The bad part is, the demand may not be as high as before.
On the other hand, this gives publishers enough flexibility to adjust their pricing base on demand. If it has good demand, they can jack up the price; if it is not, they can reduce it. It's a win-win approach for amazon and publishers. Only consumers are being screwed.
@goopy
You all have it wrong. Amazon paid what the publisher wants for the books. Now the publisher is trying to tell Amazon what they can sell it for. I don't care if its their content, that is not how thing are done.
The paper market was dying and Amazon was bringng new blood to electronic books for the idiots.
@goopy Amazon loses in respect to the fact that their pricing was 1) below the cost of bound books 2) less than what the competition was willing to sell for.
By having the same price as everyone else, they lose the distinction as the value leader. By being forced to sell at prices close to bound books, fewer people may opt to invest in ebook readers, and will instead continue purchasing bound books which are more costly to distribute due to increased labor, shipping, inventory.
I know that if I have the choice to spend $200 on an ereader and buy ebooks at $15, or buy bound books for $15 (which can be shared, traded, resold...etc), I will continue buying the bound books.
@Synergi R u suggesting that this approach doesn't change the fact that amazon still has to invest in bulk buying? And publishers will be given the right to dictate the price that amazon stick on it's OWN STOCK WHICH IT ALREADY BOUGHT??
@goopy
That's exactly what they are doing. I posted this down in the thread but to make it short, publishers have a suggested retail price on books, say 30 dollars. They sale the to Amazon at whole, lets say 15. Amazon then prices them how they like, 18 dollars or in this case 9.95.. taking a loss for Amazon.
Publishers and authors commissions are paid out of the 15 dollars Amazon paid the publish. So the author isn't losing anything. But now the Publisher is saying..yea you bought it for 15 but we demand you sell it for 18 or whatever the number might be. This is controlling what the retailer sells for or in this case, forcing their prices up to match Apples higher prices.
Now the publisher is saying we'll sell it to you for 13 but you have to sell it for 15. So now the author is making less but this keeps the book prices inflated so that you'll turn to a paper book rather the going to ebooks.
Thats the easiest way I can break it down.
@mmaestro The problem isn't the price but that Amazon is only giving the publishers 30% of the sale. If they gave publishers a larger cut, the publishers would have no problem with the prices that Amazon sells books at.
@engadgetcomexcludeengadget
Wrong again, Amazon has switched and told the publishers they can have 70% and they'll take 30% however, they still want to sell new releases or best sellers at 9.99. The publishers said no..
And before you say Amazon was ripping them off they weren't. Supply chains go through a distributor who gets a 35% cut of the book profits. Then the reseller gets another 35%. IT just so happened that Amazon was both the distributor and the reseller. So the publisher wouldn't have gotten any more of a profit then they would from selling to say Walden books.
Amazon is giving up all of that to keep the price at 9.95 and they are still saying no.
@Synergi Considering those publishers are pushing this agenda, I guess there is no law that forbids it. It's sound ridiculous. I mean it's like bestbuy not allowing shoppers to buy boxing day deals unless they agree to sell it back in dictated price. In where I live, unless the retailer is under consignment agreement, wholesalers have no saying on the price of the good they already sold.
@Synergi
Actually one of the biggest complaints that the Publishers had what that Amazon was huying books at $14.00 per unit and selling them at $9.99 across the board, taking a $4 loss on every book sold. The publishers would like to sell a great deal of paperback books, such as Tor fantasy novels lets say that alway do better in paperback than in hardcover, which would actually mean less profit per book for them in hopes that they will move a lot more content at the cheaper price. While new releases still in hardcover would be $14.99 and they would make up losses in one area with gains in the bestsellers area.
From reading blog posts of a dozen or more authors involved in this. they felt that Amazon was using their leading market share and surplus of money to undercut everyone else in the e-book business and gain domination of the market. I actually believed till now that it was actually illegal to sell at a in this way to gain or hold marketshare, but I guess it must not be if they were doing it for so long. But what they were doing was to completely devalue the books for all the bound book stores, especially the small local shops that have a hard enough time competing with Amazon already.
Also from what I have read on many sites so far, in order to get the 70/30 split changed to 30/70 in the publishers favor they had to sign over all publishing rights to the books to Amazon as the only one place authorized to sell an e-book version of that title and that the Publisher could not sell any version of the book to anyone cheaper than they sold to Amazon, in effect insuring that Amazon was always able to be the cheapest or only place to get the titles.
If that is correct than Amazon is not the White Knight in this, they are actually doing harm to the marketplace overall for their own gains.
@dennisheadley
I've read that agreement Amazon made them. I don't recall seeing Amazon say they would be the only seller. I do recall them saying they wanted to keep best sellers at 9.95.
I for one don't believe a lower price in ebooks devalues the hard cover. I think pricing a ebook (which you can't resell or trade in) the same as a hard cover destroys the ebook market. What a surprise there.
I also think, books becoming so expensive is what was killing the book market. Amazon brought the prices lower and its a fact there customers bought more books at amazon then they had in years. I probably bought 40 books last year. I haven't bought that many books in the last 10 years. But apparently I'm devaluing the market because I'm not going to pay 15..oh well. 9.95 is better then 0 if you ask me.
@Synergi
Can you point me to the agreement by chance? I've been to the Amazon site and looked around, but it is not any of the reseller pricing structures for books listed on their website.
I'd be interested to give it a read, because I have read over a dozen blogs from varrious authors and publishers who all say differently.
Feel free to correct anything I get wrong. Amazon buys books from the publisher and using their market clout, get a much cheaper price than everyone else, up to 10% or more in some cases. They then sell them at a loss, almost a 30% loss, and in effect make all other resellers either sell way higher than them or sell at a 40% or more loss to reach the same price point.
It's a model the other resellers can not hope to sustain for long without bleeding to death, but Amazon can do for a longer period as long as they have huge reserves and they are not solely a book seller. In the end they win the marketshare competition through attrition. Having a sole source is never in the interest of the consumer, even if in the short term they get the bennefit of the low price.
What the publishers purpose lets all resellers sell something like TOR fantasy paperbacks a say $5.99. As these books always do much better in paperback than hardcover. So the customer gets books that are normally paperback sellers, fantasy/sci-fi, romance, etc. for less but may have to pay more for a new release best seller.
I would rather have the choice to buy from anyone and for less on a great number of books and slightly more for the occasional best seller, than have a one size fits all price for everything.
On the road as it was going it would be Amazon or nothing in the e-book market.
I think it's great that the added competition Apple has brought to the market has benefited consumers.
Oh wait...
@PerryAJ
Situation is bit more complicated. Unfortunately the consumers in the case of the iBook store happen to be publishers, not us. And publishers were able to benefit by raising prices.
@PerryAJ Competition driving prices up....Marx must be turning in his grave
@PerryAJ - In fairness, the consumer does win in the sense that the books come out sooner this way. Underthe old model, publishers would have to withold books until the brick & mortar establishments got a chance to sell before being under cut by Amazon.
@PerryAJ
Seriously. It's downright foul that electronic versions of these books cost as much (or nearly as much) as a physical, printed, shipped, book.
Throw in the added limitations that you can't resell the book, and you can't loan it, and it's like.... wait, wut?
These publishers are no better than the MPAA or RIAA. They don't realize that the more restricted a format is, and the more they price gouge it, that the more likely people are to simply pirate the content.
The fact that you can trade, give away, or resell books is ABSOLUTELY one of the things that makes them worth the money you pay for them. Ugh.
@PerryAJ
im confused: hasnt apple been fighting the music industry to have predetermined prices for songs for the last few years? yet has thrown a spanner in the works of amazons predetermined price model for ebooks... i understand that its caused a reshuffle of the industry, causing publishers to realign, giving apple publishers, but why didn't they just compete with their own set priced model? Apples greed has created high staggered prices that will definitely affect its ibook store sales.
Amazons consumer friendly, hassle free pricing was brilliant. Damn you apple.
@hybridmail Yeah, I can't help feeling like this pricing model is more about Apple killing the Kindle than about selling books. They don't want the competition.
@PerryAJ
I couldn't have said it better.
Apple never undercut what the other music resellers were charging though, and they never took an intentional 30% loss on every song they sold in order to grab marketshare and kill off competition. There were plenty of sites that sold at their price or less, or offered subscription services. From the start people have complained that Apple was not the most cost effective way to get music and shook their heads at Apples climb to the number one spot.
@dennisheadley
Not a direct rebuttle, but I think this is relevant.
Thing about it is though that when the Kindle came out, there really was no serious competition. There was no centralized place where you could download books. The entire thing was fragmented. You could get this e-reader, and it would work with these three publishers, and this book store, but if you want to read books from publisher D, E, and F, they you needed to get E-Reader B. And if you wanted this super special feature, you needed this other e-reader, but it didn't work with any publishers that you actually wanted to read. It was a ridiculous situation. Then the Kindle came along, and buying books was dead easy. You picked up your device, found your book, and bought it. You didn't need a computer to connect to, you didn't even need a network connection. It came with a cellular connection and even more, that connection didn't come with a monthly fee. It changed the way we look at e-books.
Another difference between the music situation and the book situation is that Mp3s that lack DRM can be used anywhere and on anything. You don't have a proprietary format to build around.
You add to the fact that big book readers like myself would much rather read on an e-ink display, and this only does bad things for me. I have to use a device that won't perform the way I want it to, I'm paying for a monthly cellular service, and I'm paying more for books.
I'll agree with other posters and say that if this is where e-books are headed, I'm not buying into it.
@PerryAJ
Amazon gets into the mp3 business and forces Apple to get rid of DRM.
Apple gets into the ebook business and forces Amazon to raise prices.
Does anyone see a problem with this?
@jon
Seeing as how Apple had DRM free tracks from EMI before Amazon opened their store, how in the world did they force Apple to get rid of DRM? It was the music companies that were holding onto DRM on itunes.
@BigJayDogg3
I'm not saying that the e-book market doesn't need to come together on one format so things purchased anywhere can be used on any e-reader. That would be fantastic.
What I am saying is that there is a very real issue of Amazon trying to dominate the market and they are willing to go to great lengths and lose a lot of money in order to do it. Amazon controlling 80% of the market as it is now is not good, Amazon controlling 99% of the market is a disaster.
If the roles were reversed and Apple would have sold at a 30% loss on music, everyone would have crucified them for selling tracks at 60 - 65 cents each to grab market share and sell more iPod units, not praised them.
@iPad
Right, the labels were forcing Apple to use DRM, but let Amazon sell tracks for the same price without it. Sure.
What percentage of iTunes songs were DRM free before Amazon? And after?
What bit rate were most of iTunes tracks before Amazon? And after?
The RDF stretches only so far.
@BigJayDogg3
No one is forcing you to pay for no monthly service. It is not a requirement for the iPad, you fail.
@jon
Hey genius itunes had DRM free tracks before Amazon mp3 came into being so what is your bloody point. If one label on itunes was DRM free and the others weren't, how did Amazon all of a sudden force itunes to get rid of DRM. The other remainigng labels with DRM were just using Amazon as a pawn to get variable prices which they did and then reliquenshed on the DRM.
@iPad
Wanna download books away from WiFi?
Thank you and goodbye.
@BigJayDogg3
test
Why do I get the feeling these publishers are going to regret pissing Amazon off? Something about biting the hand that feeds you...
@scoobydooby It's not so much amazon that publishers should fear, it's consumers who they should. Higher prices means more urge to pirate the books.
@scoobydooby Though I am unhappy about the whole variable pricing issue, one could argue that the books are the food. Without other people's products, Amazon has nothing to sell.
Who is being fed here?
Well I guess cant buy any of their books anymore.
can somebody quickly explain the difference between the two pricing models to me?
or is it just that iBooks is more expensive?
@spasewalkr according to Charlie Stross in the Amazon model publishers sell to amazon at a discounted rate then amazon sells at whatever price they feel.(meaning amazon is setting the price not the publisher) In this model amazon ends up taking as much as 70^ of the profit. In the apple model apple sells it at a fixed price and takes 30% cut regatdless of price.
\
Although in reading the Charlie Stross article I certainly detected some form of biased on his part. I'm not fully buying what he is saying.