What’s Really at Stake in the Macmillan/Amazon War

There’s been so much clutter–some good, some misinformed– about the Macmillan/Amazon dispute that, with a nod to my old biz school days, I thought I might as well weigh in with mine.

Without sounding abstract, the underlying issues of what’s involved result from two economic laws.

First, publishing is pretty much a “zero-sum” game. That means there’s no real growth from any sector of the market–new technologies included– that doesn’t basically just offset some other sector by an equal amount. Therefore, whatever weakens the market suppresses overall growth.

Next, sadly, books are inherently inelastic. Which means a reduction of price does not create a corresponding increase in demand. If the price of a certain book is lowered, say, from twenty to ten dollars, it will no doubt sell more, but not likely twice as many.  That means, lowering the transactional price of books ultimately deflates total revenue. If that weren’t so, it’s my guess publishers, retailers, authors and agents would all probably embrace a kind of 21st century P and L: one with lower margins and reduced royalty percentages, but one with a dramatic increase in sales that would ultimately raise earnings.

But that is not the case—and, as we all know, the channels of distribution are potentially narrowing. And as my agent reminds me, the ultimate determinant of how much people read isn’t in the end price—it’s time!

This “zero-sum” landscape is also pressured by the fact that Borders (roughly ten percent of the market) always seems a threat to close. Add to that the fact that books are not a core part of the sales mix for the price clubs (Costco, Sams, BJ’s) who are filling that gap–and this is the real key here– that the charter of these clubs is to offer the very best value to their customers– not to become bystanders, if not casualties, in a price war between mainstream and online booksellers in a product that’s not even central to them—and those threats are swirling around. If any one of these chains suddenly says, we’re outta here, and vacates the market, the “zero-sum” industry is weighed down that much more!

In a world where the likes of Merrill Lynch, Lehman Brothers and Circuit City are now history, it’s hardly unimaginable to think of publishers going that way too.

Yes, publishers have to adapt. They know that. And no, publishers aren’t’ trying to gorge their margins by pushing this new “agency” pricing model for books on Amazon and Apple. (For obvious reasons, Kindle downloads might already be their highest margin sales.)

But what’s crucial is to stabilize a retail market in turmoil, because the risks of any further erosion (e.g. retailers leaving the game) would be catastrophic to them and to us all. If the price of “books” continues to erode, without some unforeseen jolt in demand, we will all be the losers–readers, writers, agents and publishers. It hurts us all!

Not everything that moves forward is necessary good—especially at the pace it proceeds—or benefits the consumer. Ask newspaper readers in Denver and Seattle. Personally, I am just as distressed to learn that Laredo, Texas, a city of over 250,000, no longer has a single bookstore in it– and to buy one, a real book, you have to drive 150 miles to San Antonio—as I am at what’s going on between the Big Six and Amazon. In this kind of brave new world, we all lose!

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5 Responses to “What’s Really at Stake in the Macmillan/Amazon War”

  1. greg mays Says:

    One thing that’s often left out of this discussion is that a barrier against purchase for frequent book readers, is the physical presence of ‘yet to read’ books in the house. With an ebook, that consideration vanishes. I can carry around 3500 books on my Kindle DX. So, I routinely purchase any book that ‘sounds’ interesting without giving it a second thought……UNLESS….the book costs more than $9.99. In which case I ignore the book and in about a week can’t remember anything about it.
    I downloaded ‘Dark Tide’ last week, resolving that once I was about 25% into it, and liked it, I would go back and pre-order ‘Reckless’ for $9.99, which was the price last Tuesday. I’m 50% into Dark Tide, and love it. Patterson’ish with the short chapters….but very succinct plotting as opposed to Patterson’s labyrinthe plotting tendencies. So, today I go to pre-order it, and the price is now $12.99. A 30% increase in less than a week, and beyond the $9.99 threshold virtually all Kindle users tolerate. So now, instead of Harper and by extension you receiving whatever your respective cuts would be of $9.99, you both get nothing.
    I refuse to accept that the incremental cost of delivering an ebook doesn’t tend dramatically and quickly toward a cost of zero. As opposed to printed books which have a built in structural cost of printing, shipping and distribution. I won’t even go into the fact that for physical books, they go out of book store inventory quickly to make way for new titles. With ebooks, the idea of second, or fifteenth priintings doesn’t even exist. It’s in inventory forever without so much as a service fee for keeping it there.
    The iPad may change things, but to believe that Kindle/Nook/Sony owners will pay a 30% premium for the same exact thing that will exist on the Kindle Server a year from now, is folly. Harper is causing ebook customers to forego your book next week and move on to other titles. Will we remember it when the pricing becomes reasonable? Probably not. If I were an author today, I would try to retain e-publishing rights for myself, if my traditional publisher has an unreasonable marketing model for digital books.
    BTW, I’m in Texas. If you’re outside a major city, or within 50 miles of the border, you might as well be on the moon. All markets in Laredo are small, because the standard of living is relatively low. And things get more complicated when language comes into play, as it does with books. Wal-Mart is the only bookseller they’re going to run across.
    But ebooks? Even in Laredo they can select between half a million titles right now, 24 hours a day. How much is that worth?

  2. Jane Burdette Says:

    I agree with your story 100%. Especially the war that is going on at Amazon/Macmillon. I am a seller at Amazon, and its not just between Amazon and Macmillion, its also affects the sellers. You have the marketplace sellers who do not pay a ProMerchant fee, and then you have the ProMerchant who do pay a fee to list their items each month.

    I sell used and new books. I sell out of print books, that are no longer printed. And believe me, when I say there is a battle just to get place in line so a potential customer can view your bookshelf.

    I think what I hate the most, is the sellers who will sell a 25.00 hardback for a penny. That I hate with a passion.

  3. Connie Says:

    I am also very dissapointed with this up in price for all Kindle books. I bought one of the first Kindle’s at 399.00 with the promise of 9.99 books to include all NYT and other best seller lists. Now after buying two more Kindle’s for other family members, , I find I am unable to buy book like I did in the past. I will not pay 16.00 or 14.99 or even 12.99 for a book that should be 9.99. . There are no trees involved, no shipping costs, no advertising, so I thought this was a great thing. Maybe I did not think this through. Our Library still has free books.
    This will most definately hurt all the authors that depend on the volume of Kindle books flying through the air every hour of the day.. I have bought over 250 books but now I guess I must reread what I have and forget buying anything new. Not a good decision..

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  5. katmando1955 Says:

    I also will not pay over 9.99 for any Kindle Book. I love that I can buy and download any time I want, I would think that in itself would sell more books. At the 9.99 price, I cannot resell, I can loan once so the EBook shouldn’t be as expensive as buying hard or paper back. There are some books I want in hard or paper book because of the covers, and I want to collect that authors books. Those can be bought new or used for a fraction of the cost.I have over 400 books I have bought waiting to be read. I would never buy that many if I had to pay full price and hold onto them. At the Kindle price I am buying more books and saving money. When buying in a book store by the time I could afford another new book by a fav author the price had dropped anyway. How does that help authors? It just makes sense to drop the Kindle price and fans will buy right away!

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