The Book Publisher Antitrust Suit Point by Point

Today Penguin filed its answer to the Department of Justice antitrust suit against Apple and the US book publishers (MacMillan and Penguin). Prior to this both Macmillan and Apple  responded to the suit. The Penguin response is 75 pages long, so I won’t be going over it point by point. But it is particularly enlightening in that it restates the government  allegations and responds to each of them. While I was reading the documents, it struck me how much it really addressed the big issues of this litigation.  Penguin did a lot more than simply make the obligatory categorical denials to each of the 103 government  allegations.

Antitrust law is exceptionally arcane and frequently difficult to understand even  by those who specialize in such matters. There are so many exceptions that have been carved out over the years that it is always difficult to determine what the outcomes are likely to be. I know. I have been a plaintiff in 3 suits and a consultant to the Federal Trade Commission in an antitrust investigation, all of them  against  – would you believe? – the book publishers.

Let’s go over some of the key allegations and the Penguin responses.

United States allegation #2.  The government asserts: that e- book sales have been increasing “ever since Amazon released its first Kindle device in November of 2007…..One of Amazon’s most successful marketing strategies was to lower substantially the price of newly released and bestselling e-books to $9.99.”

Penguin response: Penguin admits that e-book sales have been increasing and further  “admits that Amazon’s below-cost selling of certain newly released and best-selling e-books for $9.99,… was a successful strategy for locking consumers into its proprietary Kindle platform and raising a significant barrier to entry.”

[My comment. This is a very revealing response by Penguin. Framed as an admission of the government’s allegation, it includes some  twists on Penguin’s part that go to the heart of their defense. The government implies that Amazon is simply pursuing a typical market strategy to offer  lower prices and  sell more books. Penguin emphasizes that the practice is very selective and that the strategy was initiated to lock consumers into purchasing Kindles and keeping other potential competitors from entering the market. In other words, Penguin is pointing out that the real threat to competition is Amazon, not them.]

US allegation #3. “Publisher defendants feared that lower retail prices for e-books might lead eventually to lower wholesale prices for e-books, lower prices for print books, or other consequences the publishers hoped to avoid….Publisher Defendants teamed up with Defendant Apple which shared the same goal of restraining retail price competition…”

Penguin response: Penguin admits that they had concerns about Amazon’s pricing practices. They point out that Amazon was selling some of these books “well below the prices paid by Amazon to Penguin…for these titles.” They believed that Amazon’s practices were “anti-competitive and detrimental to the long term process of expanding opportunities for developing authors and creating more content.” They also point out the Government’s complaint  “is careful to avoid stating, prior to Apple’s entry, Amazon’s share of eBook sales was 80 to 90 percent.”  Penguin goes on to argue  that Amazon’s practices  were “undercutting the margins and incentives of other booksellers, fostering a perception of eBooks as lower cost commodities, and threatening the viability of book publishers and authors, as well as other bookselling outlets vital to the marketing and promotion of books.”

[My comment. Penguin pointedly mentions  that the government avoids bringing up an inconvenient fact:  that Amazon had 80-90% of e-Book sales prior to Apple’s entry. Again, they are emphasizing that the real competitive danger lies with  the “monopolist-Amazon” and that the result of the publishers – Apple relationship was to increase competition, not to restrain it.]

US allegation #5. The government alleges that Apple and the publishers “jointly agreed to alter the business model governing the relationship between publishers and retailers. Under the old “wholesale” model, “publishers sold books to retailers, and retailers, as the owners of the books, had the freedom to establish retail prices.” Under the new model, “publishers would take control of retail pricing by appointing retailers as ‘agents’ who would have no power to alter retail prices set by publishers.”

Penguin Response. Penguin denies there was any agreement  among the publishers to change the pricing model. They again reiterate their position that “the allegation that there was a ‘robust retail price competition’ before  the adoption of the agency model ignores the indisputable fact that the ‘competition’ was nothing more than the below-cost, predatory, market-domination strategy of a monopolist distributor [Amazon].”

[ My comment. This gets to the heart of the government’s case that the publishers jointly conspired to establish a system that fixed prices at a higher level than would otherwise be the case. Certainly if  the government can establish the factual basis for such a joint agreement, then they will be in a very strong position. Penguin claims here and repeatedly in their answer that there was no joint agreement and that they were simply responding individually  to the anti-competitive practices of  the “monopolist”, Amazon.]

US allegation #8.  The government alleges that after executing the new trade model with Apple, “the Publisher  Defendants all then quickly acted to …[impose the new model] on their other retailers. As a direct result, those retailers lost their ability to compete on price, including their ability to sell the most popular e-Books for $9.99…”

Penguin Response.  Under the new model, “price competition has moved from the retail level to the publisher level. Price and non-price competition both among publisher and among eBook retailers has exponentially increased as a result of the move to the agency model.

[My comment.  Penguin’s apparent argument that price competition continues to be robust because it is practiced at the publisher level, as distinguished from the retail level seems to be a bit of a strain, even if true.  But they do point out that outside of the very limited class of best sellers that Amazon had been selling for $9.99, there is increased price competition. And furthermore the government has not considered the competitive benefits of more players in the market selling more types of electronic readers and even more types of book formats, like enhanced e-Books that did not exist until the iPad.]

Ok. That’s enough for this blog. The complaint goes on with numerous allegations of specific facts that the government hopes  will prove  their case. Probably the most conspicuous allegations (at least from the point of view of publisher tittle-tattle are #39-45, where the government describes repeated meetings  attended by publisher CEO’s at fancy New York restaurants. The government complaint fails to show exactly what was discussed over Chardonnay but insinuates that this was the venue where the agreements were made.

I hope this gives you a little flavor of what the issues are in this case and how the two parties frame those issues.

 

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George Witte of Saint Martin’s Press Talks About the Work of an Editor

George Witte is editor-in-chief of St. Martin’s Press, an imprint of Macmillan Publishers. He has worked at St. Martin’s since 1984.  Over the years, George has acquired and edited books by notable literary novelists including Fred Chappell, Robert Clark, Claire Davis, Eric Kraft, Janet Peery, and Gregory David Roberts;  thriller writers P. T. Deutermann and David Poyer; and a wide range of nonfiction authors including Ray Anderson, Francis Bok, Jason Elliot, P. M. Forni, Emmanuel Jal, Stephen P. Kiernan, David Kirby, Irshad Manji, Bill Reynolds, Mitt Romney, Matthew Scully, Gerry Spence, and Charles Sykes.

George is also an award winning poet whose poems have been published in (to name a few): The Atlantic,  The Kenyon Review, Ploughshares, Poetry, Southwest Review, and The Virginia Quarterly Review. His most recent collection of poetry is: Deniability: Poems published by Orchises Press in 2009; his first book, The Apparitioners, was published in 2005, and also is available from Orchises.

Andy: George, thanks for coming to the blog today. I’d like to talk about how you make acquisition decisions. I’d just like to add that this blog has done some entries on publisher rejection. Most recently we composed: Publisher Rejection Letters From Plato to Hitler. Let’s hope that St. Martins would publish the former and reject the latter.

 Andy: Can you tell us some of the books you have been working on lately? Maybe one by one, tell us what they are, why you are excited about them and what did you consider when you made the decision to acquire them?

George:  This spring and summer I have continued to work on the publication of David Kirby’s Animal Factory, a book on factory farms and their enormous environmental impact, which becomes more relevant each day.  (Last week’s massive egg recall is just one example.)  Kirby is a terrific investigative reporter and writes with a sense of narrative urgency; he knows how to organize complex information and science into a story about people, and he has a nose for important subjects.

 

Andy: That sounds like a very interesting book. One of my clients is Jeffrey Moussaieff Masson, who writes about animal rights and animal emotions.  I’ll make sure he reads that book. What other book do you find exciting right now?

 

 George: Another recent book is Stephen P. Kiernan’s Authentic Patriotism, which seeks to reclaim the word “patriotism” from the current “us vs. them” climate of hysteria, and defines it as many of the founding fathers did: as service by citizens to country.  Stephen is a dynamic writer and speaker who inspires everyone he meets, and this book portrays a wide range of Americans who are doing remarkable, wide-ranging things that improve the lives of people in need…with no political agenda.

Andy: How many book proposals do you look at in a typical week? How do you sort through them?

George:  I read 20-40 proposals and manuscripts each week, most of the proposals for nonfiction books, most of the manuscripts fiction.  Nearly every project is represented by an agent, and the proposals are structured in roughly the same way: a descriptive overview of the book, a chapter outline (often with substantive text), at least one sample chapter, an assessment of competitive and/or similar books on the subject, and information about the author’s credentials.  All these proposals reach a level of professionalism, and all are “publishable.”

Andy: So what are the things in the proposal that really grab your attention?

 George: When I’m reading, I’m really listening…for a voice, a sense of urgency, a passion for the subject that excites me even if I have no previous knowledge of or interest in the subject at hand.  Yes, other things are important: how many books on this subject have been published recently, how have they sold, and how is this proposed book different?  Does the author have a “platform,” which can mean anything from he/she is a journalist who has published widely on the subject, or is an academic writing for a general audience, or is an expert for some other reason, or has contacts with individuals, groups, organizations, and media that can help the publisher sell, market, and publicize the book.  But the key thing is the author’s voice, which no amount of proposal-laundering and packaging can supply.  The best books have a distinctive sound and it’s audible from the very first encounter.

Andy: It sounds to me that you have pretty wide ranging interests. Do you have any special areas that might fit into the publishing program or are you just looking for good books that excite you and (hopefully) your readers?

George:  St. Martin’s publishes all kinds of books for all kinds of readers.  Different people want different things from books—some want pure entertainment, some want information about a specific subject that is important to them, some want to learn about a completely new subject, some want to be deeply moved, some want to change their lives and hope a book will show the way.  We read a wide range of books and look for those that seem the best for their intended audience.  These days, I’m looking for investigative journalism, current affairs/issues, a certain kind of memoir (usually those that connect with larger social questions), and narrative nonfiction.  I am not publishing as much fiction as I once did, but am open to a special literary novel. 

Andy:  But even if you fall in love with a project, it doesn’t mean it will get published. Where is the final decision made and who makes it?

George:  Final decisions are made at our weekly editorial meetings, with our two publishers having the last word.   

Andy: Could you tell us a little more about how you work with books after the book gets acquired?

George:  After acquisition, I’m in touch with the author along the way to delivery of the manuscript.  Some authors like to submit sample chapters or sections, others prefer to finish the book and begin editing then.  I work closely on editing—line to line as well as structural—and usually go through two drafts with the author before we have a final manuscript.   Then I circulate the manuscript to the people in house who will have a hand in its publication: art, sales, marketing, publicity, subsidiary rights, and others.  After it’s typeset, I seek out advance quotes to help support the efforts of the sales, marketing, and publicity departments, and I work with each department to provide information that will be useful in their respective efforts.   I attend a range of meetings to discuss these efforts and follow up with each department.  I work with the author throughout the publication and usually for at least three or four months after publication date, or longer if needed, to keep reaching out for readers. 

Andy: George, we are always hearing that editors don’t edit any more. It sounds to me that you are still of the old school.

By the way, I’m the agent for a lead title at St. Martins in the spring. It is called The Jersey Sting. Most people remember the unforgettable picture of the Hassidic rabbis in handcuffs. The book is about the biggest corruption scandal in New Jersey history (and that’s saying a lot.) The authors are journalists with The New Jersey Star Ledger and were finalists for the Pulitzer Prize for coverage of this story.

E-Book Instant Update: Amazon Not Carrying New Penguin E-Books

Just in. News from Publishers Weekly. Amazon.com, the Earth’s largest bookstore, has just gotten a little smaller. Starting today all new titles from Penguin Books will not be available on Kindle editons from Amazon. They will be available from other e-book distributors. Since Amazon currently sells 90% of all e-books, this is not good news for Penguin authors and will put additional pressure on other publishers do it the Amazon way or no way.

Battle of the (E-book) Titans

Ask the Agent has been covering the developing story of the changing models for selling e-books and the struggle for market share between  Amazon and Apple.

An article appeared in the New York Times on March 17 that adds a new and troubling wrinkle to the story.

90% of the retail sale of e-books is now done by Amazon. This would be a monopoly by any reasonable definition. Amazon is cementing its dominance in the marketplace by offering  e-book downloads that can only be read by the Kindle, a media device that is manufactured by Amazon and sold exclusively  through Amazon. Thus if you own a Kindle, you can only buy e-books from Amazon. If you buy e-books from Amazon, you must buy a Kindle to read them.

Amazon has come to dominate internet retailing by aggressively discounting products in order to increase market share. They did this to great effect with books from the very beginning. They have been doing the same thing with e-books. Publishers have been selling e-books to Amazon for approximately $12.50. Amazon has been selling below cost at $9.95 for their  e-book  best- sellers.

If you ask the  major publishers how they feel about this, they will tell you privately, as they have told me,  that they are profoundly troubled by the market power of Amazon and are concerned that the deep discounting practiced by Amazon will devalue  what the marketplace thinks is a fair price for books. Last month the sixth largest American publisher, Macmillan, announced that it was changing its retail terms for e-books to the “agency model” which would not permit Amazon to discount titles. Amazon retaliated by pulling  “buy” buttons for all Macmillan books both electronic and physical.   This lasted only a week, but it should be a cautionary tale regarding the dangers of monopoly power in the distribution of ideas in a society or, in the case of Amazon, in the world.

Enter Apple and the iPad. It is difficult to imagine that Steve Jobs can be considered the friend of the little guy and a force against monopoly. Certainly the clout that Apple exercised with  the music industry in forcing them to accept   the iTunes model has done considerable damage to the music companies and artist royalties. But in publishing, as in Mid-East politics, the principle that “the enemy of my enemy is my friend” rules.

Five of the six largest book publishers fell into the arms of Apple and negotiated a new  sales model that allows the publishers to control the retail price sold to consumers of the book. But Steve Jobs is not Mahatma Gandhi and has imposed his own stringent conditions on the publishers. Under the new agreements with Apple, publishers will not be permitted to allow any other retailer to sell books below the price that is sold by Apple.

Amazon has reluctantly gone along with the new model, but is insisting on having a 3 year contract that would lock publishers into the current arrangement and guarantee that no other retailer will get better terms. Publishers are reluctant to agree to such a contract. The whole e-book market is in flux. Nobody knows what the e-book firmament will be like in three years.

But according to the New York Times, it gets a lot worse. Amazon has only agreed to the new “agency model” for the six largest publishers. The other 10,000 smaller publishers have not yet signed on with Apple. Amazon  has been speaking to them and telling them that they prefer to stick with the old model where Amazon can sell books for whatever price it chooses.

 These same publishers have spoken to Apple and have been told that Apple will only work with them if they sell to all other retailers under the same terms as  they are selling toApple. In other words, there is reason to believe that in order to do business with  Amazon, publishers will not be able to do business with Apple –and vice versa. A tough choice for the smaller publishers and a distressing possibility for the consumer.

The message Amazon sent forth during  last month’s negotiation between Macmillan was eloquent and persuasive.  That message was that  a publisher who doesn’t agree to Amazon’s terms risks having their books not be carried by the largest book retailer in the world.

Book publishers, and particularly smaller book publishers, are clearly getting whip-sawed by the two giants. The stakes are high for both Apple and Amazon. But the stakes are even higher for book buyers and the free marketplace of ideas.

Amazon v. MacMillan: The End of the Affair

Well, it looks like as of yesterday, Amazon has restored the “buy” buttons for books published by Macmillan.  During the past week, Macmillan has been negotiating terms with Amazon. Apparently they have reached an agreement. We don’t know the details. Two days ago, Macmillan CEO John Sargeant said: “Amazon has been working very, very hard and always in good faith to find a way forward with us.” Good faith, huh!  I’m not sure that pulling a publisher’s books from the digital book shelf  during negotiations is indicative of bargaining in good faith. It certainly showed no good faith to the Macmillan authors whose books were unavailable for a week and to the readers seeking those books.  As more major publishers revise their terms for e-books, it will be interesting to see whether Amazon will stop selling those titles while negotiating in “good faith”.

This entire affair has highlighted some very important issues that go well beyond the squabbling over crumbs by  two large corporations.  You can read some of the comments on this blog and others. What are the dangers of  monopolistic concentration  in the distribution of ideas? How important are e-books in the literary future? How do commercial values conflict with literary values? What is the role  of the community book store as books turn to digital? How will authors be fairly compensated for their work under the new e-book business model? What provides the better reading experience: e-books or paper books? Are the major publishers dinosaurs? How much is a book worth?

And then there is this  notion that “information wants to be free”. We have discussed this in a previous blog entry about the book, Free by Chris Anderson.

 Amazon was playing to the house throughout this affair by implying that they were trying to protect consumers by offering e-books at a good (i.e. loss leader) price. Amazon fans made their opinions known with numerous comments that books weren’t even worth $9.95.

Humorist Roy Blount Junior, who is president of the Authors Guild,

 made a brilliant and witty statement about this curious notion in the Authors Guild winter newsletter. I’ll quote it here:

“Then of course there is the school of thought that books shouldn’t cost anything, because “information wants to be free.” One thing wrong with that notion is that just as a pie is more than its ingredients (and does anyone other than a child living at home expect pie, or even pie ingredients, to be free?), a book is more than information. It’s someone’s –several people’s—work.

“Another thing wrong with “information wants to be free” is that it is espoused, it’s my impression, by three categories of people:

“One: People who are paid by universities to teach occasional seminars and write books that not many people would want to buy anyway if they could help it. To send one’s child to one of these universities costs (say) an author maybe $50,000 a year. How about College wants to be free?

“Two: People who have invented a high-tech gimmick that has enabled them not to need any more money the rest of their lives. How about High-tech gimmicks want to be free?

“Three: People who live at home with their parents.”

Good for you, Roy Blount! Once again the best weapon against bombast is ridicule.

Amazon v. Authors: Let the Punishment fit the Crime

 The “buy” buttons on Amazon.com for Macmillan authors have still not been restored. It has been 7 days. In 1989, Barnes and Noble pulled all the books by Salman Rushdie from their shelves nationwide. People were not happy. Authors set up picket lines at BN stores. At least then Barnes & Noble was motivated by a concern for the safety of their employees. This week Amazon has effectively taken the same action. Their motivation is somewhat less humane . They are using authors as pawns in a strategy to maintain a monopoly.

I offer a modest proposal. With apologies to Gilbert and Sullivan, I ask authors to consider doing for Amazon what Amazon has done for them. Remove the Amazon link from your author website. Don’t restore their “button” until they restore your “button”. There are lots of other on-line booksellers who will be happy to sell your books on-line. Let me know what you think of this idea.

Amazon vs. Publishing 3: Authors Guild Weighs in

 

The Authors Guild, the largest advocacy organization for authors in America, weighed in on the Amazon-MacMillan affair yesterday. Their position is, I believe, a fair and balanced position on the interests of authors as it relates to the controversy. In a rare show of solidarity, Author’s Guild has given unqualified support to the position of large publishing.   Authors Guild linked to another article by Fast Company that is a little less nuanced but probably a little more articulate of what this fight really means.

Their statement addressed a point that is worth considering relating to the long-term interests of authors on this issue. Amazon pulled the plug on Macmillan Books without notifying Macmillan or its authors. This was done on Thursday, January 28. On Sunday, January 31, Amazon made a smarmy statement characterizing Macmillan as having a “monopoly” on their books and insinuating that they were going to lose the battle. We all assumed they were conceding. As of this morning at 8:30 PST, the buttons have not been replaced on Macmillan titles. This is becoming a real problem for Macmillan authors who rely on Amazon to sell 75% of all sales on their book on-line.

Clearly Amazon is throwing its weight around and continuing to send the message to publishers that they, like the Wall Street banks, are “too big to fail”; or, at least, too big to cross. Their position is arrogant and points out eloquently the correctness of the concerns of publishers, authors, and agents that Amazon has  asymmetric market power that has become a danger to our industry. It is Amazon, not the commercial publishers, who are seeking to establish a monopoly.

 This is not the first time Amazon has removed buttons from titles, but it is the first time they have done it with all titles of a publisher.

This affair is not a tiff between quarrelling parties. It is really a struggle for the future of book publishing. Stay tuned.

Battle of the E-book models (a follow up)

Yesterday we posted a blog on the week-end brouhaha of Amazon pulling the “buy button” plug on all titles from Macmillan Publishing.

Things are beginning to sort themselves out. Amazon pretty much admitted that they were capitulating because Macmillan had a “monopoly” on their books. Although this is technically true, the use of the loaded term, “monopoly” was artful and paradoxical; since Amazon’s strategy all along has been to establish a monopoly on the distribution of the e-book to the consumer.

I have gotten some questions about some of the technical issues , specifically the economics of the conflicting models, who gains and who loses and what will be the competitive impact on  the physical book and the community bookstore. I would refer you to Mike Shatzkin’s blog, “Ideological” which offers some very detailed answers to some of the questions. Mike’s language is pretty technical and seems to speak to industry insiders, but it is also pretty incisive.

Mike just emailed me and made a significant point, an error in my observations. He said that the Amazon model is “sustainable”. They are only selling about 25% of their e-book titles as loss leaders. E-books are actually profitable for them. The reason that publishers are fighting on this (and will probably prevail) is that they are concerned that Amazon will be the only retail channel for sales. They do not want this to happen.

One other issue to consider is that under both plans, the price of e-books will be heavily discounted off the price of physical books, at least in hardcover. Ideally publishers would like there to be parity in price so as not to discourage the consumer’s choice. This does not appear to be happening. On the other hand, there is no indication at the moment that the e-book price will be reduced at the time that a paperback will come out. The e-book price will be much closer to the price of the paperbacks.

We’ll be bringing you updates on this important issue. Stay tuned.

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.