Book Banning at Amazon.com

I woke up this morning to the astonishing news that Amazon.com has stopped selling all titles from Macmillan , the sixth largest publisher in America.  I learned  about this first on Frances Dinkelspiel’s blog, Ghost Word.   Frances is a Macmillan author.

According to an article in The New York Times Amazon’s action was related to Macmillan’s decision to adopt new terms  for the sale of e-books to retailers based on the structure that is being implemented by Apple for its i-pad.  Under the new Apple model, publishers will have the ability to set the final retail price of an e-book  at  $12.99 to $14.99 for new titles. Amazon has been selling them at a loss for $9.99.  Macmillan CEO, John Sargent today wrote a letter to Macmillan authors explaining the dispute.

One can only hope and one must assume that Amazon’s decision is temporary and an act of saber-rattling. But the episode should be a clarion call for us to consider some very large issues about the dangers of monopoly power and how it can compromise the free dissemination of ideas.

A specter is haunting the world of books. From Amazon’s beginnings in the late 1990’s, the company has pursued a strategy of monopoly power. American consumers have embraced Amazon because of its outstanding “customer-centric” technology, its breathtaking selection, and its pricing. But this has not come without a cost. Amazon has gained a stranglehold on  the sale of books online and has attenuated the ability  of community-based bookstores, chains and independents, to survive at all.  With the interdiction of the Macmillan titles, they are now reaping the grapes of wrath.

There are a lot of legal subtleties associated with this issue. Whether a manufacturer (the publisher) can dictate the final selling price of a product to a retailer is an important anti-trust question that won’t be resolved by blogging. But the manifest power of Amazon to effectively cut off  a book publisher’s access into the largest channel of book sales,  the Internet, should give us  pause.

What is this dispute all about?  What’s at stake here?  We have made several recent blog entries on the implications of the e-book revolution. E-books are currently a small niche market for trade books, still less than 4%. But their market share is growing exponentially. Currently electronic book readers are the hottest products in consumer electronics.  It is altogether likely that the book business, not unlike the music business, will reach a kind of tipping point in which e-books will become the standard and paper-based books will become the niche.

Not surprisingly, Amazon jumped on board early. It developed  and marketed the Kindle, an excellent product. Very quickly Kindle became the shorthand word for “book reader”, just as Amazon became the shorthand word for “Internet retailer”. Also, not surprisingly, Amazon has designed the entire system to give it effective monopoly power over the distribution of e-books.

Kindle technology only allows downloading from Amazon and requires that any book purchase will be made through Amazon only.  Amazon has priced the books aggressively. Most new e-books are being sold as Kindle downloads for $9.99. This is a considerable discount from the costs of new hardbacks. Their retail price is typically $25-30. Hardback  discounted prices on Amazon are $15-18. Amazon purchases e-books for about $12.50, a price similar to the  cost for non-e-books. Amazon sells them as loss leaders. This strategy has sought and has succeeded in allowing Amazon to dominate the e-book market.

Publishers have problems with this.  They feel, and I agree with them, that by pricing  books so low, it will inevitably cause the book buyer to devalue books as a commodity. They will come to feel that a book is only “worth” $9.99. With customer pressure to make this price the de facto “list” price and with Amazon’s market power, the  publishers will have to change their business model to accommodate the new reality and begin selling books to Amazon for  something closer to $5 per book instead of $12.50. Good for the consumer, right? Wrong.

We have spoken in an earlier blog entry about the unfortunate tendency of Internet Culture to devalue the worth of intellectual work.  But there are costs to producing books, just as there are costs to producing any product. E books have no manufacturing costs, but there continues to be marketing, publicity, editing, and…yes…sometimes this seems like an afterthought….creating.

And so it all comes down to the irreducible and irrefutable fact that books cost money. And publishers will not be able to produce books or pay the writers a decent royalty  in return for revenue of  $5 per book. Certainly the literary “tea-partiers” will tell you that publishers are dinosaurs, that the essence of the Internet is “disintermediation” and that the future is with authors selling direct to the reader. That most of these books are being “mediated” through Amazon is a detail often overlooked. But let’s leave that for now.

Self publishing is a worthy endeavor and has brought many fine books to the market that would have otherwise died. But it is a bit of a quagmire of unfiltered material. It is a little hard to separate the dross from the gold.  This  fits in quite well with the Internet Culture of  Wikipedia (see previous blog entry)  in which everyone is an expert.

The emerging business models for the e-book, Apple and Amazon alike, are bad news for authors. Any way you calculate it, author’s are going to suffer reduced royalties. The publishers will realize huge cost savings with the e-book if the price of the book is comparable to  paper-based books. With e-books, there are no manufacturing costs, warehousing costs, shipping costs, packaging costs, and, crucially, no returns. Since the e-book is non-transferable, publishers will not lose sales from book borrowing or from the used book business. How this will all affect libraries is still unclear to me.

But authors are being asked to reduce their  percentage royalties for e-books. And the reduced retail price, both under the Amazon and the Apple model, will drive consumers away from physical books very rapidly and will force authors to take a smaller percentage of a dramatically smaller pie.

I am very worried.

UPDATE: AMAZON RESPONDS.

At 2 PM today, Amazon posted an announcement on their website addressing the issue of Macmillan. It is as follows:

“Dear Customers:

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. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer.”

This is typical and predictable public relations strategy of Amazon. It has all the elements of  a Zen-like, or more accurately, a  Hegelian position wherein Amazon seeks to weave contradictory forces into a new and higher synthesis. Coincidentally, it sends some less than Zen-like messages. 1)Amazon can’t stop  selling Macmillan books indefinitely, but we can surely display our power to intimidate.  2) Other publishers, take note. and 3) Publishers have monopolies. Amazon just has customers. 4)We just want to help our customers buy books cheaper.

This is a cynical, manipulative, deceptive, and self-serving response.

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5 Responses to “Book Banning at Amazon.com”

  1. Lynn Henriksen Says:

    Thanks for the heads-up, Andy. Seems like each day there’s something disturbing about the literary industry. I’m wondering (obviously, along with millions of others)where it will all end…

  2. Nigel Hawkins Says:

    I agree with Lynn
    Its truly a worying time

    Nigel

  3. Mike Lipsey Says:

    I was amazed Amazon would go head to head with Macmillan, which accounts for so many imprints and best selling authors. Quite a financial hit on both sides of the war.

    Regarding setting prices, publishers are manufacturers, and in this country, manufacturers are generally not allowed to fix prices for goods that are sold by distributors and retailers. At least that was well established in my industry.

    I think the problem with eBooks is ultimately going to be not what the publishing industry, as it exists, thinks they need to get for books, but what the consumer is willing to pay for them. I’ll bet the price points are going to end up a lot lower than printed books and publishers are going to have to find ways to deal with that or go out of business. Consumers and technology drive change, business has to adapt or die.

    • andyrossagency Says:

      Well, yea, Mike. In a perfect world that is true. But products cost money. At the end of the day, if you lose money on every unit you sell, you will stop manufacturing the product.

      Amazon is artificially creating expectations that the “worth” of an e-book is $9.98. They are doing this by using market power to distort market forces by selling below cost.

      As I said, Internet culture has led us to believe that intellectual work should be free. But it isn’t.

      In a perfect market, books will find the right price that will be acceptable to customers and provide a fair return to the producer.

      But this is not a perfect market. It is being distorted by Amazon’s market power. It’s bad news.

  4. Battle of the E-book models (a follow up) « Ask the Agent Says:

    […] Ask the Agent Night Thoughts of a Literary Agent « Book Banning at Amazon.com […]

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