Dispatches from the Ebook Wars: Macmillan vs. Amazon

by Victoria Strauss

For some time, publishers and others have been concerned about Amazon’s policy of pricing ebooks at $9.99, regardless of the price tag publishers put on them. Many feel that Amazon’s discounted ebook pricing is an attempt to control and monopolize the ebook market by forcing a pricing standard. Some in the publishing industry have even called the practice predatory. (Readers, of course, are more likely to applaud cheaper ebooks, but many publishers, which have fixed costs to earn back whether a book is ink on paper or pixels on a screen, regard the $9.99 price point as a major threat to revenue.)

Over the weekend, a publisher finally went head-to-head with Amazon on this issue.

Earlier last week, John Sargent, CEO of “big six” publisher Macmillan, presented new terms of sale to Amazon for Macmillan ebooks. Under the so-called “agency” distribution model (which means that Amazon could not discount the books–see below for an explanation), digital editions of Macmillan trade titles would be priced from $5.99 to $14.99, and digital editions of first-release hardcovers would be priced from 12.99 to $14.99. Amazon found this unacceptable, and on Friday, it yanked the buy buttons from all of Macmillan’s titles, both digital and print–a move that forced Sargent to issue an emergency explanation to Macmillan authors/illustrators via industry newsletter Publishers Lunch.

You may remember that Amazon employed this very same power play back in 2008, when it decided that it would sell no print-on-demand titles that weren’t produced by its own POD subsidiary, BookSurge (now CreateSpace), and disabled the buy buttons of some POD-based publishers that refused to deal. That decision spawned a lawsuit (recently settled), but ultimately, Amazon prevailed.

This time was different. On Sunday, in a message posted to its Kindle forum, Amazon gave in, if not entirely graciously. Despite “strong disagreement” with Macmillan, Amazon “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.” (An interesting use of the word “monopoly,” given that Amazon’s own pricing policies have been subject to the same accusations.) Amazon goes on to say that “customers will decide for themselves,” and that “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.” (Take that, bad big publishers.)

So what’s behind the dispute? Basically, competing distribution models for ebooks. Under the familiar wholesale model that is the norm for print books, and till now has been the norm for ebook sales from major publishers, publishers sell to intermediaries–such as bookstores or distributors–at a fixed discount, and the intermediaries then re-sell to the consumer at whatever price they choose. What Macmillan proposed is known as the agency model: Publishers sell directly to consumers via “agents”–such as Amazon or Apple’s iBooks store–which get a commission on those sales. In the wholesale model, consumer prices are controlled by the intermediary, whereas in the agency model, they are controlled by the publisher. You can see why Amazon, with its aggressively competitive discounting policies, would not be enthusiastic about the agency model (even though, as agent Nathan Bransford points out, $9.99 ebooks are a loss leader for Amazon).

While this might seem to be a two-way tug of war–Amazon vs. publishers–there’s actually a third player involved: Apple, whose brand-new iPad is perceived by many as a possible Kindle-killer, and which has adopted the agency model for ebooks sold through its iBooks store. There may have been an Apple in Amazon’s eye when it blinked on Sunday. Other hints that Amazon is concerned about Apple competition emerged in the weeks leading up to the iPad’s launch: Amazon increased royalties to 70% for authors and publishers using Kindle’s self-publishing system (developers of apps for Apple products receive 70% of revenues), and opened up the Kindle to outside developers to stimulate the creation of Kindle apps.

As of this writing, the buy buttons for Macmillan books are still MIA at Amazon.

For a fuller analysis of the wholesale/agency issue, see this post from Mike Shatzkin’s Idea Logical blog.

There’s good analysis also from Macmillan author Charles Stross.

More analysis from agents Ashley Grayson and Rachelle Gardner.

A roundup of stories on the dispute.

Most people seem to think that Amazon is the loser here, but James McQuivey of Forrester Research offers an interesting opposing view.

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