Amazon vs. Macmillan: Capitulation will lead to higher e-book prices, Apple iPad momentum

Amazon vs. Macmillan: Capitulation will lead to higher e-book prices, Apple iPad momentum

Summary: A showdown between Amazon and book publisher Macmillan over the weekend will translate into higher prices for digital books. Simply put, Amazon caved. And once other publishers follow Macmillan's playbook e-book price inflation will be rampant.

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A showdown between Amazon and book publisher Macmillan over the weekend will translate into higher prices for digital books. Simply put, Amazon caved. And once other publishers follow Macmillan's playbook e-book price inflation will be rampant.

The talk of the weekend was Amazon's move to pull Macmillan's digital books from the Kindle. In a nutshell, Amazon wanted to price Macmillan's digital books at the customary $9.99, a price that's nice for the consumers, but has publishers freaked out. Macmillan wants to charge you higher prices for new digital releases. Amazon took a stand over the weekend---when sales wouldn't be impacted too much---and then gave in before Monday rolled around.

On Friday, Amazon removed Macmillan's best sellers---think the "Gathering Storm," from its store. You could only buy print editions through third parties. Kindle versions were nuked too.

It looked like Amazon was taking a stand. On Sunday, it was clear Macmillan won the same terms it cut with Apple last week for e-books. In a nutshell, Apple allowed publishers to set the price of their own books and the retailer would act as an agency. In this model, the retailer gets 30 percent commission and prices for new releases will be in the neighborhood of $12.99 to $14.99. Amazon typically is a wholesaler. Now Amazon will be forced to play by the model set by Steve Jobs.

Special Report: Apple tablet: It's an iPad

Apple played along with five large publishers---Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin Group and Simon & Schuster---for its iPad. The iPad has proven so disruptive that it isn't even in the market and Amazon is backpedaling on its pricing policy. In less than a week, Apple has hurt Amazon's e-book pricing power. Now when Apple's book store launches it will be tougher for Amazon to use price and scale as a weapon.

According to the New York Times, Macmillan gave Amazon a choice. Take a "release window," or a delay of months before a digital book was available after a hardcover release, and stick with $9.99 pricing. Or price new digital books higher.

In a forum post, Amazon said:

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.

A few things to note here:

  • First, Amazon could have gone nuclear on Macmillan for a week or two if it really wanted to prove a point. A weekend skirmish wasn't enough to prove much of anything. If Amazon really wanted to hurt Macmillan it would let it suffer a month's worth of lost sales.
  • Amazon is urging customers (in a passive aggressive way) to let their wallets do the talking.
  • Amazon seems to think other publishers---like the five of six largest ones that have Macmillan's deal on the iPad---won't follow suit.

On that last point, Amazon is delusional. All publishers will go the same route as Macmillan. E-book prices will rise. And Amazon loses its e-book pricing leverage. Apple iPad 1, Amazon Kindle 0.

As for customers voting with their dollars, the e-book market isn't large enough to move the needle. I stopped my Kindle subscription of the Wall Street Journal when prices soared, but I doubt anyone noticed.

Meanwhile, some Amazon customers are already caving too. Some reaction to ponder from Amazon customers:

I believe $14.99 is reasonable. It's a heckuva lot less than what I paid for new hardcovers. (And I get to read them on Kindle!) People who waited for paperbacks can wait for the cheaper eBook edition. You offer them for sale and we'll decide whether or not to buy them.

And.

I personally have no problem paying more for a new-release e-book. However, I would then expect that it be available on the same day as the DTB hardcopy. If they want to delay for a month or two then no, I would not be happy to pay the premium price.

And then there are the folks that say Amazon just punted its pricing power away:

I sure hope you are right on that call... I believe that you just showed a weakness and the others will pounce knowing you gave into Macmillan...

And.

I still love my Kindle and still love my books. I just wish you would have stuck firm to not letting Macmillan dictate your prices as part of this settlement. Sounds like a victory for the iPad and Apple...

Indeed, many customers saw Amazon's move as a recipe for disaster.

I have no issue with you over price. I will be disappointed, however, if Amazon's cedes the right to set that price to Macmillan and agrees to an "agency" relationship, where they are not in charge of their own purchased inventory.

And.

Amazon - I will be sorry if you give in on this. Stating publicly now that will do so, I think, is also a mistake. I believe publishers will believe they can always have you over a barrel, when probably the reverse in true.

Steve Jobs is calling the shots here and costing the consumer more money.

Simply put, Amazon is playing a game it could very well lose to publishers and Apple.

Related: Apple's iPad vs. Amazon's Kindle: It's not zero sum

Topics: Amazon, Apple, Hardware, iPad, Mobility

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96 comments
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  • Well yeah...

    ...that happens when suppliers have a choice of more than one end vendor.
    Sleeper Service
    • Yes, but the ultimate vote belongs to the people...

      It's called voting with your dollar...

      And it has nothing to do with Steve Jobs nor
      anyone else...

      Competition and what the market will bear are
      the two factors that set the price for
      anything... If enough idiots are willing to
      pay a high price for a product, and there is
      very little or no competition at a lower price
      point, then the market will bear the higher
      price until the idiots run out, then prices
      will slowly drop until they hit a price that
      the rest of consumers are "willing" to pay...

      If Consumers don't buy ebooks priced higher
      than 9.99, then they will stop asking for more
      than 9.99 per ebook.

      And seriously... Printing costs are gone with
      ebooks, Shipping cost are extremely minimal
      (internet download)... And... You can't get an
      ebook signed by the author at a book signing
      event.

      An ebook should be far, far, far less $ than a
      printed book (even as a brand now release /
      best seller)... And it should be out and ready
      to buy sooner than the printed version... Will
      that be the case??? That depends on how many
      idiots we have in the world who are willing to
      pay more than they should for an ebook...
      Because in reality, buying an ebook reader, is
      like paying for the printing and shipping in
      advance.

      So the moral of the story... If you have an
      mentally challenged friend who buys ebooks for
      more than 9.99... bee-otch slap some common
      sense into that bozo... It would only take a
      few weeks of no one paying more than 9.99 for
      an ebook for the greedy publishers to adjust to
      the market... And that's when consumers win.
      i8thecat
      • Will never pay more than paperback price for a file copy.

        The only thing this publisher has done is to guarantee that I will NEVER buy a new release book from them. A digital file copy costs virtually nothing to sell a million times. There is no way I'm paying more for an e-book than what a paperback costs. I don't care how new it is.

        I agree with this post. If you know somebody who is paying more, tell them to stop. Explain why. The only way these idiot publishers will understand the stupidity of their outrageous pricing is if we refuse to buy. Conversely, if one publisher goes against the grain and sells new e-books at less than paperback prices, reward them by buying a lot!
        BillDem
        • Would that it were true

          "The only way these idiot publishers will understand the stupidity of
          their outrageous pricing is if we refuse to buy."

          As much as I agree with the sentiment, this is 180 degrees backward.
          The only way this pricing is outrageous and stupid is IF people refuse
          to buy. If they DO buy at that price, then the publishers are correct,
          prescient, and in no way stupid.

          "Conversely, if one publisher goes against the grain and sells new e-
          books at less than paperback prices, reward them by buying a lot!"

          Not really. Each publisher has a monopoly on titles in their catalogue.
          So another company offering cheaper titles, will only have minimal
          effect. While it would be nice to think that lower prices in these
          domains would effect the boutique publishers, the fact that their titles
          can ONLY be purchased from them will ensure that only if such a
          pricing boycott were ironclad and universal would it have even a
          marginal chance at success.
          SpiritusInMachina
      • Neither Apple or Amazon are the enemy

        Neither Apple nor Amazon are the enemy. I put the blame on publishers who want to keep prices high, even in the environment of reduced publishing and distribution costs.

        I already avoid eBooks that cost more than $9.99 and will continue to do so. There are enough books out there that I can always find something else interesting to read until the cost becomes reasonable.

        Sure, the power play between device companies has an effect, but in the end us readers will have to vote with our dollars if we're going to break the tyranny of the publishers.

        Stopping paying the high prices and join the "Boycott anything over $9.99" forum.

        Maybe we can be heard if we all boycott high prices. But in case there are too many who don't, I'll just keep searching for deals under $10.
        sgs_z
  • RE: Amazon vs. Macmillan: Capitulation will lead to higher e-book prices, Apple iPad momentum

    Hmm... I was considering buying a Kindle but now I wonder. The eBooks were already at paperback prices (roughly) which was a bit steep considering they don't need to print and move inventory around, but now even higher? (I also have to consider the currency exchange in my calculations, since I'd have to buy all that stuff in US$)
    MikeR666
  • It's just competition

    At least iPad brought some healthy competition.

    But I disagree that Amazon will be the one hurting
    most from this. Apples playbook is designed around
    <i>exclusive</i> deals. iTunes is what made iPods so
    popular.

    Publishers have taken note of the bind the music
    industry found themselves in, ending up dancing to
    Apples guns. Clearly they know that they must secure
    more distribution channels.

    At the same price, will you rather buy an ebook locked
    to your Apple devices or would you rather buy an ebook
    from Amazon which can be used on a multitude of
    devices?

    I don't see the iPod history repeat itself with the
    giant iPod. Publishers know the history, too.
    honeymonster
    • Good Points, But

      One thing worth considering is that lock-in may not be such a big deal for many people when it comes to books. Most music, you may listen to many times over a range of years. On the other hand, there are plenty books you'll only read once (for instance, I'm reading about 100 books for a degree I'm working on, and most I'll never touch again). So, portability will not be such a big issue for many purchases.
      dunraven
    • Multiple Devices

      [i]At the same price, will you rather buy an ebook locked to your Apple devices or would you rather buy an ebook from Amazon which can be used on a multitude of devices?[/i]

      While it's true you can read Kindle books on several devices (PC/Mac, iPhone, or Kindle), I don't think that puts Amazon at [i]that[/i] much of a disadvantage. iBooks books will almost certainly be viewable on the iPhone/iPod Touch at some point in the near future. (The iPhone/iPod Touch doesn't really compete with the iPad.) On that score, at least, I think they're just about even.

      Where I think Amazon has the advantage right now (and the foreseeable future) is with market penetration. Lots more people have the Kindle than will have the iPad anytime soon. If you were trying to get your books sold, which device would you rather be on?
      bhartman36
      • There's an app for that...

        There is already a Kindle app for the iPad (it
        has been out for the iPhone/ iPod Touch for some
        time...

        It's going to come down to consumer votes, not
        Steve Jobs...
        i8thecat
        • At least until

          Steve Jobs deems that Kindle App a duplication of Apple software and removes it from the iTunes Store... what other browsers are allowed on iPhone besides Safari?

          What happened to Google Talk on the iPhone?
          condelirios
          • Several browsers available

            If you search the AppStore for browsers you find several of them. I'll just
            mention one:

            http://www.sopods.com/fullscreen.php
            perronne
          • The difference, as far as I can tell...

            ...is that Apple doesn't make [i]money[/i] off of the browser. iBooks will be a different story altogether. There's [b]gold[/b] in them thar hills!

            And the Kindle app will be different from Google Voice in another way, too: You won't see Amazon turning the Kindle app into a browser app. They made a pretty conscious decision [i]not[/i] to go in that direction.
            bhartman36
        • Maybe, maybe not.

          [i]It's going to come down to consumer votes, not Steve Jobs...[/i]

          For the short-term, it is. Whether Jobs will continue to allow the Kindle app on the iPad is another thing entirely. If I've got a bunch of books on the Kindle, Jobs has a lot of incentive to make sure I [i]can't[/i] load them on to the iPad, because he wants to sell the eBook content. Compatibility with Kindle is important initially (so that people don't realize the jump they're making), but ultimately, Jobs wants to sell the eBooks, just like Bezos does.
          bhartman36
    • reverse competition, GiPod insanity

      Interesting that Apple should "compete" by boosting prices for e-books and super size something that sells well because it's small and portable and still does a lot. Jobs is crazy!!! Maybe, time will tell I guess. GiPod is shackled to AT&T, kind of a restrictive ball and chain. That's fine,if you like living that way but I think Amazon has a much better concept and the publishing industry would have been just fine with their financial arrangement or they wouldn't have accepted it.
      bergrrt@...
  • Competition is lacking all the way around.

    Just like the music cartel, we have a few giant publishing conglomerates going through a handful of viable distributors. Now we have the added complexity of incompatible formats (thanks to Apple).

    Not much is said about piracy in the book space, but it does exist in moderate levels. Book publishers had a chance to combat it with offering more convenience at a reasonable price, but now I see the conditions aligning that will cause piracy to ramp up significantly. Not only higher prices, but classic DRM incompatibility will be a big factor.

    Finally, I can't say I have much sympathy for people who "can't" wait for a better deal. What they are really saying is that they *won't* wait, and damn the cost.
    terry flores
    • Yup..

      The DRM will be cracked and books will increasingly appear as free torrents. This is probably a necessary phase to bring some sanity to the e-book market. To pay more for en electronic copy than for a paper back does not make any sense to me at all, other than playing along with a few monopolists/oligopolists if you want to read their stuff.

      Ultimately I believe the large publishing houses will lose. Authors will be able to publish more directly to the consumer. At a buck a copy you can still make millions with a best seller and consumers could fill their devices with books they would otherwise not consider reading. This is the power of the internet and this is where we ultimately need to end up.
      Economister
    • Yawn

      There are scores of self-publishing resources for books just like there
      are indie labels for music.

      What you really mean to say is that big publishers and big music labels
      are able to attract talent by offering a larger customer base.

      But, of course, that truth destroys your ideology, so you ignore it.
      frgough
    • Knowing what you are talking about

      How is the epub format either an "incompatible format" or "thanks to
      Apple?"
      Seriously, you really should be a bit more reticent with your opinion
      on matters you have no clue about.

      First, epub is NOT from Apple, and has been around for quite some
      time Second, it is an OPEN standard, and as such is in no way
      "incompatible.' ANYONE can publish in the epub format.
      In particular EPUB became an official standard of the International
      Digital Publishing Forum (IDPF) in September 2007. How is this
      Apple's fault.

      Careful, your bias is showing.
      SpiritusInMachina
      • Apple and EPUB

        You're correct that the EPUB format didn't originate with Apple. But don't kid yourself: Apple adopting the EPUB format for iBooks means that they're now the big kahuna in the EPUB market. I think that's what the original poster meant. If Apple had adopted something else, it would've been an also-ran. (Add up all the EPUB-supporting devices together, and compare them to the Kindle.) The fact that a standards body adopted EPUB means precisely nothing, in practical terms.

        Secondly, Apple's EPUB isn't plain vanilla. Like Amazon's format, it's DRM'd. So while anyone can technically publish to it (going through Apple), [i]not[/i] every device can display it.

        Of course, both of these things are fair for Apple to do, but it does make the market more complicated.

        And that's [i]before[/i] you factor in the way that Apple bent over for the publishers, which is going to have serious negative repercussions for anyone who loves e-books.
        bhartman36