Amazon says 'will have to capitulate and accept Macmillan's terms'

[kjk]

Originally Posted by TallMomof2

Even though I won't be paying the extra money I'll be curious to see if the extra cost for ebooks results in better formatted books and maybe even cover art. Over half of the DRMed titles I purchase don't come with cover art beyond either a scanned title page or a generic cover. If the publishers insist on higher prices then I sincerely hope that they provide a better product.

You know, the cover art thing was a huge surprise to me...I'm guessing cover artists have BETTER contracts than the writers do!

[Tim32127]

You can't honestly think Amazon did this to for any reason other than to gain controll of the ebook market.
What Macmillan did was tell them they would not use their books to do that so now other company / formats will be on an even footing.

Tim



Your understanding of Amazon's business model is simply wrong. Amazon does not keep 70% of ebook sales (or any sales). That's why people were laughing at you. Amazon was paying self-publishers, and tiny publishers, 30% of the list price. Amazon then discounted this list price by 20% and sold it to the public. On average this gave self-publishers and tiny publishers a 45% cut and Amazon a 55% cut.

In the case of large publishers like Macmillan things worked differently. Amazon paid them 50% of the list price. Then Amazon sold it for $9.99 which is less than they had paid for the book. Amazon did this to help create the ebook market. What this means is that the publishers where getting 100% of the profits on ebooks based on hardcover prices. So far from "screwing" the publishers, Amazon wasn't even asking them to contribute in helping to establish the ebook market.[/QUOTE]

[phenomshel]

Well, all I can say is if Amazon is going to capitulate, do it already. The physical books are back - but not the Kindle books.

[bwaldron]

Originally Posted by Tim32127

You can't honestly think Amazon did this to for any reason other than to gain controll of the ebook market.

I doubt that anyone here is seeing any "charitable" motives on Amazon's part -- or any player in the game, for that matter. I have disagreed with a number of their decisions and practices.

However, from my perspective they did a good thing by establishing an expectation of $9.99 being a fair price for a (DRM-laden) current ebook, and by helping to establish a larger market for ebook readers.

Obviously just my opinion.

[guyanonymous]

I suspect they believe they will sell X # of copies at $9.99 and Y # of copies at $15.99, where X is much much greater than Y.

I'm reminded of an old video clip of a guy at a convention. He's selling something, and his cost is $1000000 while others are selling them at $100 (you get the idea). When asked about what he's doing, he responds, "But I only have to sell ONE."

If Amazon moves 50000 books at $9.99 and expects to only move 500 at $15.99, I can readily understand their rational.

[stustaff]

Originally Posted by guyanonymous

I suspect they believe they will sell X # of copies at $9.99 and Y # of copies at $15.99, where X is much much greater than Y.

I'm reminded of an old video clip of a guy at a convention. He's selling something, and his cost is $1000000 while others are selling them at $100 (you get the idea). When asked about what he's doing, he responds, "But I only have to sell ONE."

If Amazon moves 50000 books at $9.99 and expects to only move 500 at $15.99, I can readily understand their rational.

But equally if its believed that they will sell 100 at $9.99 or 75 at $14.99

$999 vs $1,124.25 And with a bonus(they believe) that this will help keep sales of Hardbacks at $20 higher.

[guyanonymous]

Of course. But I suspect the truth is somewhere between our numbers

Or have they actually released info on units sold etc. I don't think they've done that for the kindle itself, let alone books have they?

[Daithi]

I wanted to appologize to Kilron. I stand by arguments, but I was being needlessly confrontational. This is something I've been trying to work on, so sorry about that Kilron.

[kilron]

Originally Posted by bwaldron

However, from my perspective they did a good thing by establishing an expectation of $9.99 being a fair price for a (DRM-laden) current ebook, and by helping to establish a larger market for ebook readers.

the only thing i'd disagree with is that i don't think they care at all about establishing a larger market for ebook readers. they only care about establishing a larger market for Kindles and Kindle eBooks.

another good blog with analysis over the events of the weekend.

[bwaldron]

Originally Posted by kilron

the only thing i'd disagree with is that i don't think they care at all about establishing a larger market for ebook readers. they only care about establishing a larger market for Kindles and Kindle eBooks. [/URL]

Sure, no disagreement there.

[zerospinboson]

Originally Posted by kilron

the only thing i'd disagree with is that i don't think they care at all about establishing a larger market for ebook readers. they only care about establishing a larger market for Kindles and Kindle eBooks.

As Adam Smith yes, it's through self-interest that people will be motivated to get the best deals they can, which will result in competition, which will drive down prices/increase quality, which will be good for everyone (including producers, who are also consumers, of different goods.)
The problem is that in a monopolized+oligarchical(!) market, retailers like Amazon can't just dump 1 supplier, because there are no directly competing products (even though most fiction novels are fairly interchangeable from an enjoyability perspective). While this last fact wouldn't matter much in a new market, where all players just had to promote 'new' authors, in the real world, because of 'author loyalty', consumers will want to be able to buy their books, which they can only do from specific publishers. And because 80% of the market is controlled by 5-6 players, this will mean that if you dump 1 of these publishers, you'll immediately be 'dumping' an enormous amount of popular authors, and pissing off a lot of consumers in a hurry. The concentration is a game-changer, here. (Sure, if MacMillan's decision is exceedingly unpopular, it may result in the gradual move of authors from MacMillan to elsewhere, but this is not really something that will have an immediate impact on their business, and as such will probably not result in management changes.)
So while people might not be 'forced' to buy products from specific authors, when you realise that you're really talking about specific publishers, it becomes a lot harder to say 'oh, just don't buy that author's books then', as a single publisher may control most or all of your favourite authors. This situation is not that different from the 'anti-trust' claim that was made before, and it's only slightly less troublesome. (Though you can always stick your head in the sand and fantasize about how publishers really will differentially price different age works...)
Extrapolating from this, it's just not feasible to say that people should just stick to their principles if they're really against this 15$ mandatory price, because the price fixing means that there is no way to find out if the demand is or isn't elastic, and, furthermore, given the rather large difference in bargaining power of MacMillan c.s. vs. individual consumers, 'principle-sticking' is very unlikely to yield any results for the consumer.

[guyanonymous]

Wait...so if a publisher has a monopoly on an author's work...ok...I'm not sure where this though was going, but somehow "exclusive" contracts seem wrong!

[kennyc]

Originally Posted by guyanonymous

Wait...so a publisher has a monopoly on that Author's work..hmm...

By contract typically.

[Kali Yuga]

Originally Posted by mcl

Yes, retailers' costs are part of the package. And Amazon's $9.99 pricing was not sustainable over the long term. But Amazon was gambling (right or wrong) that eventually their costs would come down, making the price sustainable. Whether that was due to wholesale prices decreasing or other costs decreasing is anyone's guess.

Perhaps you're forgetting this little thing known as "inflation?" Costs on goods like books and other media content actually tend to go up, not down. It's really only electronic devices that swiftly and routinely decline in value. Ironically enough, the publishers are trying to maintain a similar pricing model to electronics -- charge high prices at first to defray costs and exploit the initial high demand, then reduce prices once those costs are covered and/or to increase demand.

A set $10 price is not necessarily a bad thing, but it seriously curtails the ability to stimulate demand by lowering prices.

Originally Posted by mcl

The retail price, and how many copies are sold at that price, is irrelevant in a non-agency model because the publisher makes their money from wholesalers, not retailers....

If a publisher can't break even on most titles with high-margin tactics like stratified cost structures, I don't see why they are likely to embrace a flat price with little or no room to lower prices to stimulate demand.

Besides, you're missing the point that this whole brouhaha is about the future, not current contingencies.

Originally Posted by mcl

If you're referring to the publisher's fear that ebooks would destroy their margins across the board due to decreasing physical book sales, well...that's just too bad.

If you're expecting publishers to lay down and get run over by a middle-man reseller, well... that's just too bad.

Originally Posted by mcl

The market is changing, and publishers need to adapt, or die.... The advancement of technology is inexorable; they may delay the inevitable, but it WILL come, and they MUST change, margins be damned.

They will need to change. But I see no particular reason why the only acceptable price for a brand-new ebook absolutely must be $10, or why dynamic pricing won't work -- especially since it seems to work reasonably well in other content industries (e.g. video games). Nor do I see why publishers have absolutely no choice but to give up, eviscerate their margins and fork over influence to whatever reseller happens to be selling the most books on a given day. Instead they've gotten extremely lucky and may have found a different way to adapt, largely because one major player is currently willing to give the publishers what they want in exchange for title availability.

Originally Posted by mcl

So your argument is that, because the wholesale cost might go down, the publisher should just force retailers to accept the retail price the publisher demands.

I'm merely pointing out that the publishers have a valid reason to stick to their guns in order to try and protect their margins. In fact, the publishers might be more willing to put out ebooks in a timely fashion, if they believe it won't decimate their profits.

And in contrast, your argument is that the publishers should just accept the retailer's attempt to crater the value of their product, regardless of the consequences to their ability to conduct business? Sweet.

Originally Posted by mcl

So their margins decrease for several years? So what? They're not going to go out of business, and they're not going to suffer any great hardship by making slightly less profit. They don't have R&D costs. There's no need for significant reinvestment of capital back into the company from profits taken.

In case you missed it, publishing has notoriously thin margins. And no one in their right mind likes to leave money on the table, or have the value of their product cut by 60% or more, especially when their costs are only falling by 15% or so.

By the way, if your boss said "you can take a 50% pay cut or we'll outsource your job to India, and I know you can afford it because you just moved into a cheaper apartment so your cost of living is lower," I doubt that you would give him a cheery smile and thank him for his consideration. (Or if you did, you'd email out 50 resumes and/or pour sugar into his gas tank by the end of the week. )

Originally Posted by mcl

One nice thing about a digital economy is that as value declines, volume increases. So one offsets the other.

Lower prices can result in higher volume... only if, as I mentioned, the consumers plow their savings back into ebooks. But that is hardly a foregone conclusion, especially given the extensive competition for various types of content and the time it takes for someone to read.

Again: if I consistently spend $20/month on ebooks, I may wind up getting two ebooks a month instead of one hardcover. Perhaps the net profit is the same, but perhaps not -- e.g. a $20 hardcover may have better margins than two $10 ebooks. Or, if I consistently read 1 book a month (instead of following a budget), then the money I saved very well might go somewhere else. In which case, the diversified retailer is significantly more likely to recapture those dollars than an individual publisher.

Originally Posted by mcl

Why would you willingly want to surrender what little power remains on our side (if one can paint Amazon as having been on our side)?

Amazon most certainly isn't on "our" side, they are on their own side. I do think they want to promote ebooks for reasons beyond mere profits or market dominance; but I also believe that publishers also care about a lot about books, probably more than they do about profits. (If you're greedy, the book business is definitely the wrong industry for you -- as any investment banker's asset portfolio can clearly demonstrate.)

And I've explicitly stated that I have not chosen a side, only that I view both Amazon and Macmillan as having valid reasons for their actions.

[DawnFalcon]

"or why dynamic pricing won't work -- especially since it seems to work reasonably well in other content industries (e.g. video games)"

Where do video games use dynamic pricing?