Fleshing out The Times’s ebook story of May 17
I love and value The New York Times. But I have to admit that every time they write about something I know a lot about, it makes me wonder whether they’re complete and accurate when they write about the things I don’t know a lot about.
There’s nothing wildly inaccurate in Motoko Rich’s “Week in Review” article of May 17 headlined “Steal This Book (for $9.99)”, but there sure is a lot left out. And more that is misinterpreted.
We start out with an eye-catching but pretty phony premise: that author David Baldacci took it on the chin from his reading public because Amazon briefly priced his new $27.99 list hardcover for $15 instead of $9.99. In sadly typical fashion, a few posts from protesting readers become an undocumented “hundreds more” who have joined an “informal boycott” of “digital books priced at more than $9.99.”
Most customers for most products understand that the retailer sets the price they pay. For those who think they know more about the publishing business and think beyond the retailer, they would know the publisher sets the suggested retail price (which is one reason it is to the bookseller’s advantage that publishers have traditionally printed that price on the book itself so the publisher can take some of the blame.) I won’t say there is nobody in the world that wouldn’t blame Baldacci (or any author) for his book’s price, but that would be an ignorant and relatively rare reaction that shouldn’t be suggested as a widespread fact in any story’s lead, particularly not in The Times.
Rich does a superficial analysis of the economics. She is accurate in saying that Amazon is taking a per-unit loss on many titles in the Kindle store because doing so a) helps them sell more devices and b) helps them “lock in” their Kindle audience. And she accurately reports the publisher’s fear — and the common-sense likelihood — that Amazon will, at some point, insist that publishers bring the prices they charge Amazon into line with what Amazon is charging the consumer. The choice for publishers then would be painful: either give up a growing army of Kindle owners as customers for a book or lower prices to a point that would make ebook margins a fraction of the print book margins they are replacing.
From that point on, we need to add facts and nuance that the article didn’t cover, and we have to discourage one pretty peculiar suggestion that is floated as though serious from a professor of economics.
What the article misses is that, because of the iPhone and App Store — and similar environments that will soon surround the Google Android phones and Blackberries, as well as just about all smart phones from just about all carriers — Amazon has already had to adjust its strategy in ways that will wean people off of their devices! A month or two ago, Amazon distributed a Kindle reader for the iPhone. That meant that Kindle owners could immediately access their entire Kindle library through their iPhone as well as their Kindle. There are two serious consequences of that action:
1. It exposes people who had formed the Kindle habit to reading on a different device, the iPhone. And, if they get an iPhone reading habit, then Kindle is no longer the only game in town. There are at least three other formats (Stanza, Scrollmotion, and eReader) that work just fine on the iPhone and we can be sure there will be more, just as we can be sure that what works on the iPhone will soon have to work on most, if not all, other smart phones.
2. It “unlocks” the content from being chained to a single device. That means that one “copy” of an electronic book can now be read by two people simultaneously: one on a Kindle and one on an iPhone.
How does this work in practice? Here’s one man’s true story. I bought a Kindle in December 2007. I read on it almost exclusively until Kindle released their iPhone app. Then I started reading on the iPhone because I was reading the same book on two devices. That was in February. Last week I gave my Kindle to my wife and I am reading on the iPhone exclusively. But I’m not reading Kindle exclusively anymore. I have four books open in the four different readers I referred to above. And my wife is working her way through many of the 40 or 50 books I had purchased on the Kindle for myself over the past year. And when she buys a book (I just introduced her, ironically, to David Baldacci), I can read it too.
So this article misses the importance of the iPhone, and its strategic importance particularly in relation to Amazon and Kindle.
The second big thing the article misses is the sheer complexity of the ebook supply chain. There is this proliferation of formats and points of distribution. There is the fact, that Rich mentioned, that Barnes & Noble has bought Fictionwise (a big ebook retailer) and therefore now owns eReader, Fictionwise’s ebook platform. B&N has been the Sleeping Giant of the ebook space: the biggest brick-and-mortar book retailer, probably still the biggest player in the consumer book business, but not a participant in ebooks. The purchases they made were mentioned, but the strategic implications were not. B&N is rumored to be launching their own reader this Fall. Whether or not they do that, they are certainly going to be doing something to compete in the ebook space. That’s potentially a signficant counterweight to Amazon, but it isn’t mentioned in this article.
And if the looming problem for publishers with ebooks is their margins (and I think we can agree on that), then why not mention the ultimate solutions: publishers selling digital downloads directly to consumers and, at the same time, reducing the discounts off retail (the margins) offered to intermediaries? Rich does a nice job of enumerating how the publishers’ cost structure changes with ebooks; she neglects to mention that the costs for retailers evaporate as well when they don’t have to invest in inventory or handle physical goods (and handle many physical goods twice — purchase and return — without any revenue to show for it!)
The proliferation of ereading delivery options is not only not spelled out in this piece, its absence is magnified in importance by the article’s close. Some anecdotal evidence is introduced to suggest that lower prices might increase book purchases. Brian Murray, CEO of HarperCollins, is quoted as saying “if the overall market is bigger, then we should be O.K.”
Then Rich concludes with the punch line that sales might rise not just because of lower prices but also because of the ease of purchase. So we conclude with a former book editor who, after buying the first of Stephenie Meyer’s “Twilight” series and finishing it at 1 am, bought “the next installment on her Kindle from her bedroom”. Well, here’s my conclusion. She could have done the same thing from many different online locations and in many different formats using her phone. I think the Times should tell you that.
Oh, yes, the professor. Professor Fiona Scott Morton of Yale did entertain a market coming from Apple, based on the new Kindle-sized tablet they are reputed to be about to introduce. Morton says: “then the book publisher of Obama’s next book can say, ‘O.K., which of you is going to offer us the best deal?’”
Uh, probably not. That’s not how publishing works. Publishers don’t put their books up for bid between Barnes & Noble and Borders, and they won’t between Amazon and Apple, either. But what is true is that B&N and Borders are aware of their “market share” on major books, and neither wants to be without a book the other is successfully selling. That, ultimately, is the publishers’ protection against pressure from Amazon. Kindle got where it is largely by offering the best selection of any ereading platform. It is in the retailer’s DNA to try to get some exclusive product, but it is in the publisher’s DNA to put everything they have in front of the consumer in every way they can.
May 28 at 11 am: “Stay Ahead of the Shift”, at the Javits Center. A 20-years out view provides a context for viewing the changes we are likely to see along the way, and what publishers should do about it.