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

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.

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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