The Shatzkin Files


The ebook windowing controversy has subtext


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It took me a couple of days of pondering this to come to my current understanding of it, but I now think that Carolyn Reidy of Simon & Schuster and David Young of Hachette Book Group, since joined by Brian Murray of HarperCollins, are not really fighting a battle to rescue hardcover books from price perception issues caused by inexpensive ebooks. What this is really about is wresting control of their ebook destinies back from Amazon.

I first — mistakenly — focused on the economics of the decision announced by Reidy and Young through the Wall Street Journal to withhold ebook editions from the market for a few months on major new releases. I was not the only blogger or analyst to see it that way. The purpose stated explicitly by Reidy to the Wall Street Journal was to protect the hardcover sales from being cannibalized by very inexpensive ebooks. This sounded like a very dubious calculation to me; I just couldn’t see very many people saying to themselves, “I’d have bought the ebook right now if it were available right now, particularly for those cheap ebook prices, but I just can’t wait to read this new book, so I’ll pay extra to read it sooner in a format which isn’t the one I prefer.”

But, reflecting on this, I realized: “I know Carolyn and David are smart people. They wouldn’t flub this math!”

So I thought a little harder. The subtext should have been more obvious.

The penny dropped for me when HarperCollins announced a similar policy. That’s three of the Big Six, three of the publishers that deliver all the high-profile big books to the industry. Publishers Lunch reports today that Macmillan has delayed some books and will continue to look at that strategy, that Penguin might do it from time to time but “not systematically” and, so far, no word from Random House. Random House is particularly interesting since their new key executive decision-maker, Madeline McIntosh, just returned to them from Amazon.

We know something else that matters: agents must, for the most part, be supporting this. The three houses that already announced are (like the others) agent-sensitive and in touch with them all the time. And no agent has stood up yet and protested. There’s an easy answer for any that do; no publisher has announced this as a policy covering all their books. “You don’t want a delay on your author, Ms Agent? If it’s what you’d like, we’ll put that ebook out simultaneously.”

In fact, Reidy hinted at this. She said there was one S&S author who asked to not be included in the list of withheld titles. She didn’t say how they handled it, but big houses don’t generally fight with big authors.

If all of the Big Six, or even just those who have announced this delay policy, stick to their guns then the ebook world may have lost a driver of converts from print. It may be that Amazon has, at least temporarily, lost an important sales tool to move Kindle devices. And, regardless of how this plays out from here, the power of the major author brands — through their publishers today and through their agents forever — to influence the course of development of the ebook market has been so clearly established that I (and other analysts as well) are not likely to miss the point again anytime soon.

So this is really about the agents and publishers trying to take control of ebook pricing, and value perception, back from Amazon. Some further evidence of that comes from the reaction of Len Riggio, Chairman of Amazon competitor Barnes & Noble (vendors of Kindle competitor Nook) who is reported in the Journal piece to be quite comfortable with this tactic, which the Journal characterizes as “in keeping with the long-held practice of issuing paperback editions after the initial hardcover.”

If the other biggest bookseller, which also has a dedicated ereader and an aggressive attitude toward consumer pricing, seems okay with this idea, it strengthens my belief that it is about controlling Amazon, not about controlling ebook pricing. The desirability of restraining Amazon is certainly something the big publishers and Barnes & Noble can agree on.

If the big houses can do this, they can do much more than this. They can sell ebooks direct off their own web sites. (That’s not doable for Kindle at the moment, but they’re eschewing Kindle sales for a time with this strategy anyway.) They can put ebooks into some channels (let’s say ScrollMotion, or the new Baker & Taylor Blio platform) and not others. They can’t tell a retailer what to charge for what they sell them (until somebody figures out how Apple and Bose manage to enforce price maintenance, apparently legally, but without the added complication of a wholesale-supply network), but they can deny a retailer whose policies about anything they don’t like direct access to their content.

How will Amazon respond to this? That is the big question. Their first reaction is to cut the price of the Sarah Palin book, which had been withheld, from their $9.99 point to $7.99. That’s not a conciliatory gesture, but it is a costly one!

Therein lies the irony that is scaring the hell out of the publishers. Amazon pays (approximately, I am not privy to the actual deals) half of the publisher’s suggested retail for these ebooks and then is selling the $9.99 or cheaper ones at a loss on every unit. From Amazon’s perspective, that makes complete sense. They build market share for the Kindle and they build a lot of customer loyalty. And they could even be doing this and still be making a positive margin contribution across all the content they sell for Kindle, even with the losses on the biggest books selling the most units.

So the publishers (and authors) actually benefit from Amazon’s policy; they sell more units and have more margin to share between them on each than they do on the print book.

But publishers don’t trust Amazon to keep things that way. From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers. How long can it be, publishers figure, before Amazon says “sorry, now you have to sell me these for under ten dollars”?

The most-frequently ridiculed quote in the Journal article from Reidy points to that irony. The Journal quotes her saying, “with new [electronic] readers coming and sales booming, we need to do this now, before the installed base of e-book reading devices gets to a size where doing it would be impossible.” Taken literally, this remark leads to the ridicule that she’s shafting a market where sales are booming. But the subtext is that if publishers can slow down the growth of the Kindle installed base, it will give time for other technologies to catch up and create a more diverse marketplace, which is better for publishers.

There are two important aspects of this that will play out later. One is that what the publishers can do to Amazon today, the authors can do to the publishers tomorrow. If the publishers could sell the ebooks of big books successfully from their sites, then the big authors could also sell them directly without a publisher. The other is that this is a “last gasp” of a “static product” publishing economy. Big moneymakers ten years from now won’t often come from just selling the same content over and over again, but will more often come from content that triggers a more extended interaction. The most future-oriented thinkers are already past this battle, although there’s still a lot of fighting left to be done.

Does the war escalate from here? Do the publishers take their displeasure at Kindle pricing policies and Amazon’s apparent determination to promulgate cheap books to the next level, putting ebooks out in other formats and not Kindle?

And does Amazon, which has shown its willingness in the past to suppress the sale of print books, using its power to control the “buy” button”  to retaliate against policies it doesn’t like, fight back even harder than the Palin pricing decision indicates?

And if Amazon does fight back, do the publishers who aren’t executing this policy (Penguin is tentative and Random House is silent) benefit at the expense of those who are creating this window?

Will authors and agents (and let’s recall that a dozen agents were guests of Amazon out in Seattle a couple of weeks ago; one wonders that have been in any way a prelude to all of this) support the publishers in this policy which, after all, is costing both publishers and authors sales in the short run?

It is hard to imagine this battle ending peacefully anytime soon.

I am so glad that we have some panels at Digital Book World with agents on them and two panels on ebooks — one on pricing and one on windowing — that have both agents and publishers on them. This is one of those conversations about publishing’s future that makes no sense if you don’t include agents in the conversation and DBW is the first major conference on digital change in publishing to do that.

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  • I think you nailed it, Mike. We sat around our own board room today debating all the pros and cons. I won't disclose our conclusion, but suffice it to say, there is more to this than what it appears to be at first blush. I do think the issue is control.

    Thanks for another thought-provoking post.

    • I appreciate the praise, Mike, from somebody who really understands the
      issues.

      Mike

    • Michael Hyatt,
      Thanks for your straight forward non-geeky assessment of the future. The SI Tablet stunned me as well, and I can only say, as a writer/illustrator, the media and interactivity one can add to one's story boggles. Now the content provider can reach as far as his/her imagination is capable.

      I agree, I see more folks tuning into *reading.* (Imagine that – increasing number of folks *reading*). The hard core nose-in-a-book, (my wife) will always be there. Interesting times!

      Ok now, when can I start adding black and white/color illustrations with high definition quality and multimedia to Picture Books and Middle Grade e books?

      Haste yee back 😉

  • Very interesting and insightful post. In the world of demand, efficiency, and money, the path of least resistance will redirect the revenue stream. If there had been an internet during the transition from horses to cars, I'm sure this very same conversation would have happened.

    • Horses to cars. Radio to television. Etcetera. I agree, Charlie.

      Mike

      • Michael57

        Are we sure the proper comparison is horses to cars? Are e-books that superior to printed books? Are there not pros and cons?

        I would like to ask if devices like the Espresso Book Machine might make the traditional bookstore model competitive in a digital future. One of the major improvements attributed to the Kindle etc. is that waste will be cut out of distribution. Digital delivery to bookstores seems to accomplish that as well, plus you retain advantages of the older model, such as browsability and the permanence of the artifact.

      • Michael, cars weren't “better” than horses in the beginning. They weren't
        reliable, didn't go fast, and couldn't be refueled. It took some
        development. So, yes, the analogy is apt. Think of ebooks as cars c. 1902
        and it won't seem so crazy.

        The Espresso is a useful tool, but I don't think it changes the equation
        that dramatically for a store. It takes five minutes to make an Espresso
        book. That's 12 an hour, or about 100 day, 700 in a 7-day week. That would
        be about $15,000 in volume for a store, o*r *$750,000 a year. Running at
        full capacity. It would take a *lot* of inventory to attract the traffic
        required to sell 100 books a day (and if it wouldn't, why would you bother
        putting it in a bookstore rather than, say, a Kinko's.) A big bookstore
        needs to do several million a year to work. So I don't think Espresso can
        turn a small volume store into a profitable one.

        Furthermore, from the customer's point of view: five minutes isn't too long
        to wait for a book, but what if you're fifth on line. You can't get to max
        capacity with 100 customers a day showing up every five minutes. If the wait
        for your book is behind ten other people, that's over an hour and a half.
        You going to wait?

        My understanding from talking to two Espresso owners is that they're
        profiting now by doing a lot of local vanity book producing. That's a
        perfectly good model, but it is supplementary to having a successful
        bookstore, not core.
        *
        *
        Mike

      • Michael57

        You've pointed out the weakness of relying solely on the Espresso (though you are allowing for advances in ebook technology and not for advances in POD technology–what if you could print five titles at once? Twenty titles?) Now let me point out the weaknesses of the ebook model.

        In this future you are envisioning, how will readers become aware of books that might interest them? If publishing houses can't make money and bookstores don't exist, who will market books? How will unknown authors become known? How will literary authors build an audience? If there is no room for physical bookstores, how will the browsing experience be duplicated? –and that is a major concern, as a large percentage of books that are sold today were not on a reader's shopping list when they entered the store. What will happen to the idea of the author event? Who will be the enthusiastic booksellers recommending books–bloggers?

        It seems to me we're envisioning an impoverishment of our literary culture in the name of … what? I am still unclear on the specific advantages conveyed by the e-reader format.

        That's just for starters. I haven't even gotten to the part where you try to imagine children learning to read using a Kindle.

      • Michael, first of all, let me say I try to predict what I *think *will
        happen, not what I *want* to happen!

        Second, I agree that book marketing suffers terribly with each
        brick-and-mortar store that goes away. And that those marketing
        opportunities are *not* replaced online.

        So, yes, I am suggesting that “impoverishment” of culture — to the extent
        that it depends on the serendipitous discovery of books — will be a result
        of the digital revolution. Not “in the name” of anything particular, but
        because the structure of information flows is changing.

        Things do change. Increased literacy in the 19th century in the US meant
        less reading aloud (because people could read for themselves.) That meant
        less poetry and more fiction. Is that “impoverishment” of culture? It's
        likely that John Greenleaf Whittier would have thought so, but Mark Twain
        would probably have disagreed.

        Mike

      • Michael57

        But in this future, neither Whittier nor Twain could be discovered. You haven't answered any of the specific questions I've asked. Cars offer immediate advantages over horses. How are ereaders superior to books, from a reader's standpoint? And again, how will authors reach readers if publishers and bookstores disappear? Unless those questions can be answered, the inevitability of this technology's adoption remains in doubt.

        Publishing is more than simple information flow. Where it is only that, as in textbook and technical content, I too foresee a migration to the digital format–because it makes sense. The content is ephemeral, subject to change, benefits from interactivity, and is currently ludicrously expensive. But it doesn't make as much sense for serious fiction, literary biography, art books, children's books, and many other categories, where content lives longer and benefits from physical publication. Not only is there little consumer demand for such migration, there is not likely to be much.

        The discussion is being driven by people who are rapturous over technology and by one company–Amazon–that is reviving the old razor/razor blades model. Publishers are being cowed into playing along, but it seems to me they are finally coming to their senses and realizing that they can control their own destinies. They need to hedge their bets and play for time, as you rightly suggest, and not give the store away to Amazon. They understand there is at least a possibility that ereaders will either be simply a fad or (my belief) a small & manageable segment of the total market.

        If you're a new author, which scenario do you prefer: trying to have your ebook noticed amidst the noise of 100,000 other new authors, or having it picked up by Knopf? If you're an established author, you still need the publisher for an advance and for marketing. Ask any self-published author how much he would love to have those advantages.

        I just don't see all this inevitability that so many posters assume.

      • Well, sorry, but I think ebooks *are* superior to print books. I have read
        ebooks primarily for ten years and exclusively for two years. Paper books
        are heavy and cumbersome to hold. They aren't always with me. And, to take
        off on a pet concern of yours, they aren't “searchable” (only “scannable.”)
        And paper books kill trees and pollute. And, in many cases, paper books will
        be significantly more expensive than ebooks. So I didn't mean to skip that
        question; I am quite comfortable making the case that ebooks are superior
        and my behavior proves I'm not kidding, at least for myself.

        Your last graf is a non sequitor. It doesn't matter a damn what a “new
        author” thinks. What matters is what will work commercially. No bookstore
        owner asks for a vote of authors before they decide to close the store
        they're losing money on. No publisher decides polls authors before they
        decide a book isn't worth the investment to print.

        We're already seeing in niches, primarily romance, a whole lot of ebook-only
        publishing because the investment required to bring the product to market is
        so much lower that way. So maybe you should poll those authors you want to
        get opinions from whether they'd prefer to be published in an ebook or not
        be published at all. That's going to be the real choice that *authors* will
        face.

        Mike

      • Michael57

        lol–we'll see.

      • Michael57
        Every *Dooms-Day* scenario you pose is a business opportunity waiting to spring forth. We just don't know its' shape… yet!

        Haste yee back 😉

      • Alex

        I agree, ebooks are superior to paper books. Not only do I save the paper from the book itself, but – since I almost always order online – I save packaging and the fossil fuels burned getting a book to me. And it's so easy to take on the subway, or to the jungles of Colombia.

        And there's no way the strategy of holding the e version back will work. Among other things, we've invested money in our e-readers, and if we break down and buy the hardcover version of a book, we'll feel like chumps. That alone gives us significant motivation to resist this strategy.

        Thanks, very interesting piece.

      • Johnny

        As someone who worked for a long time for a company that made printers (begins with an X, ends with an x…), the POD technology seems like it can't advance that much more due to physics. Theres only so much paper you can get through a paper path before it starts to burn…

        I'm not in the publishing industry, but I read a lot. I find books that look interesting in bookstores. Some of those are physical, one most definitely isn't – and that last one has recommendations which are often good. However, since moving to an ereader a few years ago (Sony's), I find more and more authors who I had never heard of, but who will give out free samples (sometimes a chapter, sometimes an entire book). When done electronically this is extremely cheap for them. This seems to be how I'm likely to find new authors in future.

        And, of course, my other way of finding new authors – recommendations from friends. I have ten friends who recommend books (and I to them), if each of us takes a punt on an unknown author twice a year, then that is a lot of new authors a group goes through. Doing this electronically is just cheaper for me and my friends.

  • Kim Johnston

    In some ways, what surprises me is how long it's taken publishers to make a move such as this. The economics of publishing have historically relied on market diversity in which no particular vendor is the position to dictate pricing terms, thereby threatening publisher margins. However, Amazon had, through its willingness to take a loss on ebooks, positioned itself as the game breaker.

    But what puzzles me most is quite how Amazon are going to respond to their vulnerability as regards their proprietary file format, Kindle's inherent redundancy re ePub files and other issues such as device compatibility (being left out of Bilo for example). Delivery platforms, supporting software are burgeoning; file formats are finally beginning to coalesce around PDF or ePub (2 weeks ago, Chinese & Taiwanese manufacturers signed off on a MOA supporting ePub as the main file format for example). Consumers may have a tolerance for a certain level of redundancy concerning the device's capabilities, but whether this will continue if access to new titles during the usual 12 week promo flurry is curtailed, would seem to shift the balance back to publishers.

    Working with a niche publisher publishing academic non-fiction, we also have significant problems with what our known controlled PDF turns into when converted to Amazon's AZW file format. Using InDesign inhouse allows us to readily incorporate the secondary process of ePub file production into our work flows; proprietary file reformatting adds a third tier of production costs which are frankly not sustainable, particularly as the plethora of emerging and existing e-readers or mobile device platforms are ePub compatible.

    And while I suspect the bean counters at Amazon aren't losing any sleep over a tiny niche publisher choosing to forgo using Amazon as a selling venue for our ebooks, it illustrates the risk in building redundant devices & file formats in an effort to manipulate the marketplace if the promise of instant access to your book of choice can't be met.

    • Kim,

      You're right that Amazon faces some real choices to maintain the proprietary
      Kindle format. On the one hand, they've built an installed base of a very
      large unknown number of Kindle owners who are heavy book readers and have no
      choice but to order from them. On the other hand, they're staying out of the
      game on selling other ebooks and there's an exciting proliferation of
      opportunity that they can't take advantage of.

      But we're still at a moment when the total ebook business ex-Kindle is still
      very tiny. I suspect Amazon sees no need to help it grow and figures that
      they can get their share of that business when it gets to a size that's
      interesting. And they're probably right.

      Mike

  • Mike, insightful post. I continue to expect book publishers to follow the highly successful strategy of the music industry. The record labels gave increasingly favorable terms to smaller digital music retailers (including, ironically, Amazon) to turn up the pressure on Apple until Apple caved and allowed a huge price increase in the middle of the worst recession in generations.

    It will be interesting to see whether any of the new ereaders develop real traction. One key in the music battle was that the iPod played an open format (MP3) so the music industry could sidestep Apple's control of its proprietary Fairplay DRM. But Kindle does not do open aka ePub. If the new ereaders from Sony and B&N start generating some real ebook sales, then the music playbook could work again. But if those devices don't catch on, publishers may be speeding their own demise.

    • It is true that what the publishers are doing is only a useful holding
      action of Nook and Sony (and others yet to come) catch on, as well as
      reading on iPhones, etc. If Kindle remains the only working game in town,
      time is on Amazon's side.

      Mike

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  • timbrandhorst

    Mike, as always, I really appreciate your insights.

    There's no doubt that the people making these decisions are smart. I do think they are making one mistake, though: this continuing fear of being locked into $9.99 (or lower) pricing for e-books assumes that Kindle will still be the dominant e-reader one, two, three years from now (or whenever it is that Amazon is supposed to be forcing publishers to accept a lower percentage of retail for e-books).

    The trend is clearly the opposite direction, toward a great diversity of readers and pricing. Even Amazon's recent moves, like releasing Kindle in UK/Europe in something of a rush, can be seen as an effort to wring the most value from Kindle in a shrinking window of time.

    So: if you are a publisher and you assume that Kindle will remain the dominant option, then yes, wresting control of e-book releases makes a certain amount of sense. But if you assume that Kindle's days are numbered, that it's merely a bridge to a much more robust e-reading world with multiple options, then wouldn't a smarter short-term move be to actually ENCOURAGE Amazon to sell as many subsidized/at-a-loss e-copies as possible–basically, to take the money and run?

    • Tim, good logic, but I still see merit in the position taken by the
      publishers.

      We don't know if Kindle will be dominant or not. Their play is to try to
      restrain Kindle's growth and make it less likely that Kindle will remain
      dominant. That's the strategy; it is correct if you assume that “don't know”
      is the right answer. If you assume that the right answer is that Kindle
      definitely wins or definitely loses, then the tactic may be misplaced.

      Mike

  • You nailed it Mike for sure. And one of the most important sentences is

    that what the publishers can do to Amazon today, the authors can do to the publishers tomorrow.

    So many authors are so unhappy with their publishers already – I think that its a good bet they'll be looking for alternative sooner rather than later.

    • Thanks, MJ. But I'm not sure that the top 500 or top 1000 authors are that
      unhappy with publishers (although a lot of the rest of them are, for sure.)
      The flexibility I imagine for authors doesn't extend all the way down the
      long tail…

      Mike

  • M.J. Rose

    I wouldn't be so sure Mike – i work with a lot of NYT bestsellers and I think you'd be shocked how many are not happy.

    • I guess I would be! If that's true, then publishers have a very difficult
      future in front of them. That is: assuming those authors are annoyed enough
      to forgo the advance. The advance is the publishers' too expensive trump
      card.

      Mike

  • TheMarkNews

    Hi Mike,

    I like your article and am so looking forward to seeing how the book industry will evolve with eBooks. But I recently read that the availability of the ebooks are sometimes not as accessible as once thought, check out http://www.themarknews.com/articles/511-when-fr… on the other hand it’s great that “All That’s Old is New Again,” – http://www.themarknews.com/articles/730-all-tha

    Cheers!

  • Excellent post, Mike. I fear this will end badly for the publishers. While they may think they're doing it to battle Amazon, or to protect print sales, or to maintain their desired book prices, they inadvertently end up battling their own customers, and their authors. Amazon is no more the enemy than readers and authors are the enemy.

    Amazon wants to serve readers. Authors want to reach readers. If publishers deny the readers and authors their simple wish, the readers and authors have frictionless alternatives.

    Publishers no longer exclusively control the means of production and distribution. Authors need publishers to get their paper books good placement in brick and mortar bookstores. Yet all authors, small and large, no longer need publishers to get their books into ebook stores.

    History is littered with examples of what happens when entrenched players resist the wishes of customer. My prediction: the publishers who survive and thrive five years from now will be the ones who release all formats simultaneously: hard cover, trade paper, mass market, ebook. If customers can have it now, they want it now.

    • Michael57

      “Amazon wants to serve readers.” Who knew a corporation could be so selfless?

      • Amazon's not being selfless, in their own minds (or in mine.) They attribute
        their growth and success (and so do I) to the relentless focus on the
        customer. It is part of their mission and it is a core belief that being
        focused on the customer is core to their brand. So anytime doing that
        requires a short-term sacrifice (of margin, let's say) they see it as a
        longer-term opportunity.

        Mike

      • Michael57

        I admire that core philosophy, but they had better be careful–they are endangering the business models of their suppliers. Publishers can't exist with publishing books, but they can all certainly exist without ebooks, here in 2009. They can shut off the spigot tomorrow, make no mistake. If, in focusing on the reader, Amazon is responsible for making that reader believe a new book should cost $7.99–the cost of a donut with coffee–whom are they serving, other than themselves?

      • You know, I think the person buying the book for $7.99 thinks that they're
        serving HER. Ulterior motives aside.

        Mike

    • Mark, I'd take the bet that publishers who release all print formats at the
      same time won't “thrive.” In fact, anybody who releases hardcovers at the
      same time as paperbacks once or twice will know to not bother with the
      hardcover the next time.

      And, by the way, the “customer” would have wanted the publisher to release
      the cheaper edition sooner for the past 150 years. So the empirical evidence
      on that prediction is pretty weak.

      Mike

      • If multi-format releases indicated customers don't value hardcovers, then isn't it all the better publishers start adapting their business to that reality now rather than becoming victimized by it in the future? Makes me think of how US auto manufacturers squandered their primacy. They ignored customer demand for smaller, more fuel efficient cars until it was too late. Up until recently, auto manufacturers continued to insist, “our customers value big cars, fuel price be damned.” Publishers can prolong the inevitable by building artificial scarcity for the their products, but once that tune ends it's too late.

      • Mark, it's a great idea, but it has no logical or empirical support as a way
        to make money. Multi-formats and windowing have existed for about 70 years.
        Paperback-first (which means no hardcover, as a practical matter) is
        reserved for particular types of publishing, because it won't support other
        types (like the biggest bestsellers).

        What the person buying the hardcover is paying extra for is *both* a more
        durable format *and* the opportunity to get the book earlier (or, in some
        cases, at all.) There are a certain number of people who are willing to pay
        more for the combination. In fact, in the larger scheme of trade publishing
        economics, the margin built in for initial marketing was part of what was
        taken out of the paperback price because the marketing was done when the
        hardcover came out.

        Mike

      • Roger

        Whenever this conversation comes up, we have to keep repeating “what about Baen Books?”. There IS a publisher that releases ebooks BEFORE the print street date, for cheaper than the paperback. They sell MORE HARDBACKS than they did before they started this policy. And their ebooks make money, too.

        And the irony is that Baen's paper books are distributed by S&S.

      • I completely agree with the Baen strategy. And I think releasing the ebook
        first will become the norm in the long run for logical reasons. But you
        can't really project that what will work for Baen — which is a genre
        publisher without mass-market celebrity authors — with the books on which
        these windowing strategies are now being applied. The publishers of those
        books have genre fiction and, while they might not be releasing ebooks *
        first* on those, they are also not holding them back.

        Mike

  • Troy Johnson

    >>From their perspective, Amazon is building a consumer expectation of an under-$10 price point while they are building up their audience of captive Kindle consumers.

    Amazon is not creating an expectation that ebooks should be less than $10. As a consumer, without Amazon, that is what I want. I have many more $5.99 ebooks on my Kindle than $9.99 or higher editions.

    With ebooks, publishers need to think about selling me 50 books a year at $2.99. Numerous small sales makes way more money than one sale for $19.99

    • Michael57

      Not if it costs them $6 to produce each book, they don't.

    • The bottleneck for most book readers is time, not money. You may be an
      exception, but getting most readers to increase their consumption by some
      multiple is simply not possible.

      Mike

  • John_R_Douglas

    Very interesting analysis of the publisher decision-making process and probably close to completely correct.

    You do slide by, glancingly, one major pricing issue that this decision also solves for publishers. The big publisher policy is uniformly to price an e-book at the then-current lowest available print edition price. Most e-book consumers see this as what it is–pure greed in action–and I have seen very strong comments against the idea of the sliding price scale on e-books. The reality is, of course, that once you've sunk the relatively low costs in producing e-book editions, the justification for maintaining an artificially high price for those editions is non-existent.

    When a publisher chooses to delay the release of e-book editions, they're saving themselves the anguish and abuse of trying to defend the artificially high pricing that no one (who isn't drawing a salary from the publisher) sees as justified. Simply delaying the release solves that PR problem simply by making it a non-issue.

    • John,

      I would agree that the more sensible way to price and value chain ebooks
      would be to set a retail price that is lower and a discount that is lower.
      So the $30 book would be an $18 ebook and both would cost the store $15.
      That's sensible.

      But I'd argue that it really comes out that way for the consumer now. Or
      even better. The retailers (and not just Amazon, also B&N and Shortcovers)
      are discounting ebooks so that the consumer does not pay the publisher's
      price. That's because they're the ones facing the consumer, not the
      publisher.

      This question gets a lot more complicated if publishers start selling more
      direct from their own web sites.

      Mike
      ——————–
      Mike Shatzkin
      /blog
      [email protected], 212-758-5670
      Founder & CEO
      The Idea Logical Company, Inc.,
      Co-founder: Filedby, Inc. http://filedby.com
      Conference Chair: Digital Book World http://digitalbookworld.com

      • eleanorandrews

        Although your theory is an interesting take, it neglects a few key observations. Amazon's sales for any title in any format equals money for pub & author. And Amazon isn't the only eBook retailer . . . this eBook delay applies to all retailers. The control aspect isn't viable in many authors' situations because some houses actually own title rights (digitally) forever. While I agree pubs do have a hidden agenda, I don't believe this is it. In my view, the short wait on eBooks forecasts another possible motive — a strategic attempt to prolong the “life cycle” of a title. With a delayed release of an eBook, the pub provides an infusion of interest and adds another cycle of promotion for the work. Meanwhile, the house nets themselves a predictable schedule of sales while skipping overblown print runs.

      • Eleanor, this post is only about the delays announced by the major
        publishers of major titles. In a very large number of of those cases, the
        advances paid were negotiated to be too high to earn out. So the author
        isn't really worried about revenue loss; in fact, the author might be
        worried about bestseller lists that don't report ebook sales! And since
        these are the biggest books and known to be in advance (that's how they're
        picked for this treatment), they tend to sell like crazy right out of the
        box and neither get nor need much secondary promotion. From a pure sales
        point of view, there is no doubt that the publisher is making a sacrifice
        not capturing ebook sales when the book is released. That's why the math
        didn't add up to me from the beginning and why I had to look for deeper
        meaning in the decision of smart executives who know quite as well as I do
        that the math doesn't add up.

        Mike

      • eleanorandrews

        Mike, I do know these are major publishers with major authors and I do agree the math doesn't add up. But think about Dan Brown's last title . . . a leading author and frontlist title without impressive sales. Also, Audrey Niffenegger's latest title had poor sales out of the box, but her first book gained in popularity! The print runs were huge and didn't make the grade in these cases. Also, an advance doesn't have to “earn out” for the publisher to make money — subrights make pubs money. Major authors come with huge subrights money that's not even included in “sales” figures.

        Eleanor

      • Eleanor, I didn't mean to suggest that contracts that don't earn out don't
        “make money” for the publisher. Most contracts with the largest authors are
        not intended to “earn out”, but they are intended to make the publishers
        money!

        That's part of the reason that the authors don't need to “object” about the
        lost ebook sales that result from the windowing strategy. In effect, they
        were already paid for those sales. It's all coming out of the publisher's
        notional take. But the publishers who are doing this think that sacrifice is
        worth making to take a measure of control back from Amazon. That may be
        right and it may be wrong, but that is the strategy and it is on that basis
        that it has to be evaluated.

        And, for that reason, I believe we won't know for a while whether it worked
        or not.

        Mike

      • dfsuther

        As a poster above said, why no mention of Baen in this discussion. They release eBooks BEFORE the hardcover (by one to two weeks), with no DRM, at a $6.00 price point. And that's led to INCREASED sales of hardcovers, not cannibalization! And these results hold for NYT bestsellers as well as for mid-list books.

        Of course, the two key parts of their approach would both be difficult for larger publishers:
        1. Disintermediation — their eBooks are sold nearly-direct (through a partner website with a VERY close business relationship), so there are far fewer middlemen taking a cut of that $6.00 price.
        2. Bundling their monthly output — 6 to 8 eBooks for $15, at least 4 books never before in bits.

        Word from insiders is that both the publisher and the author do quite well on these sales. They each net somewhere between what they'd get from a bookstore sale of a trade paper and a hardcover edition.

        So we have here a proven business model that has yielded FANTASTIC results,* and the rest of the publishing world persists in ignoring it. What's up with that?

        * According to insiders, eSales are around 20% of revenue and growing (e.g. more than foreign sales, including Canada). Hardcover sales are up. Paperback sales are up. Sell-through rates are fantastic. In part due to buzz from e-sales, they've GROWN while the rest of the industry is shrinking. And their customers actually notice and care who the publisher is! So why, oh why does the rest of the industry persist in going a different route?

      • Baen's story is an illustration of what can be done by a vertical publisher
        that simply can't be done by a horizontal publisher. A bundle of Baen's
        books, or Tor's, or Harlequin's, or Hay House's would make sense. A bundle
        of Random House's, Simon & Schuster's, or Hachette's would be much harder to
        rationalize.

        Publishers can only be direct-sellers if they consistently produce content
        that would appeal to a coherent audience, or niche. The biggest publishers
        aren't built on that principle. In fact they're built to require re-sellers
        who will “verticalize” the content for audience consumption, which is what
        retailers do when they put books into “sections.”

        So if you're looking for the reason why the model isn't copied, the
        explanation is that the number of publishers of any scale who *can* copy it
        is not large.

        Mike

      • dfsuther

        The bundles were the key part that I thought might be difficult for many of the larger publishers. But I expect that the big publishing houses produce enough books that they can stock a pretty good set of (virtual) bookstore sections on their own. And offer it up at reasonable prices through their own web site. It ain't rocket science!

        Using Tor's parent as an example, Holtzbrinck can stock a pretty good SF/Fantasy section (Tor), along with mysteries, horror, biography, “bestsellers” (and how THAT became it's own genre is a mystery to me!), “mainstream fiction,” history, and a bunch of others. And if they had attractive prices and reasonable DRM (NONE AT ALL would be ideal!), they'd be worth shopping at.

        Disintermediation is the “special sauce” that the internet provides for both end users and suppliers. By cutting out more of the middlemen, the publisher and author can make more money even as they give the customer a better deal.

        I note, however, that disintermediation on a large scale might seriously annoy both distributors and large sellers (like Amazon, B&N, etc.). So there's certainly risk involved in my prescription. On the other hand, capturing a significant fraction of the distributor and retailer's cut (while leaving the rest as a significant price cut for the consumer) sure looks like a win to me.

      • Disintermediating is fine if the intermediation doesn't provide value
        commensurate with the margin it claims. But unless the publisher has a
        critical mass of product in a particular niche, the cost of bringing in
        customers will be higher without intermediation than the cost of giving the
        bookstore its cut. That's the equation publishers who want to sell direct
        need to keep their eye on, along with the fact that intermediary bookstores
        are bound to be happier with and more likely to push the books of the
        suppliers that don't aggressively compete with them.

        Mike

      • eleanorandrews

        Mike, I do agree with you on a few points:-) Over the top advances exist — from pub's POV — not to earn out. If they do, royalties kick in to create a “double-dipping” effect for the house. For the authors the opposite is true.

        Earning out the advance and gaining royalties is a big win for these authors. This alone could command a higher advance in the next round to negate possible royalties.

        In my example of Dan Brown latest, the eBook sales quickly overtook print but based on early data the pub hurried back for a second printing. Retailers reordered heavy. Many outlets lost here too. If the buyer opted out of returns, the store had to keep the books.

        Meanwhile, I agree time will tell us if their strategy will work! I'm sure many more theories exist on their moves, but we could all be wrong. Here's hoping they have a reason behind this that won't hurt pubs or authors for the long run . . ..

        Thanks,
        Eleanor

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  • stevenaxelrodtheaxelrodagency

    Mike:

    I think that you make a number of very good points in today’s post but I think the issue of publisher motivation is not fully fleshed out.

    Yes, they are trying to put some brakes on the power Amazon is wielding in the marketplace but I think that they are also very concerned about two additional issues: the health of independent books stores (plus what good will is to be gained by supporting them in a highly visible manner) and best seller lists.

    You have pointed out in the past that independent books stores play an invaluable marketing role for publishers. No one else is going to spend so much money to display the publishers’ books exactly where the readers are—and ask so little in return (it’s no surprise that they’re a endangered species).

    So I think it makes sense for the publishers to show support for the independent booksellers (who, at the end of the day, have no convincing strategy for participating in the ebook space) by holding the ebook edition off the market. And if it slows Amazon’s growing hegemony, that is a bonus.

    As to bestseller lists, until the NYT recognizes ebook sales, top commercial authors will support the publisher’s strategy of delaying the ebook releases. Notwithstanding how flawed (and positively antediluvian) its methodology, the NYT is the bestseller list of record and the only one that really counts to publishers and authors. So publishers and authors see sales that go uncounted by the NYT as something less than full sales (even though the economics should tell them otherwise). Forgoing public recognition is a bitter pill to swallow and the heart may well overrule the mind on this one.

    I also think you’re being unduly optimistic when you say that if the big publishers and B&N can restrain Amazon in the ebook space, “they can do much more than this. They can sell ebooks direct off their own web sites.”

    Amazon is so far ahead of the pack that even being number two is pretty insignificant. Though it’s hardly a scientific survey (and may not be more broadly representative), I recently totted up the ebooks sales for the recent NYT bestselling hardcover by one of my most successful writers .In the period ending 6/30/09, the first the book was on sale, the ebook sales broke down as follows:

    As you can see (and if my data is representative), Kindle absolutely dominates this space. Their only real competitor, the Sony Reader, had first-mover advantage and a highly recognizable and trusted brand, but they still have less than 1/6 the market share of the Kindle. And no one else even comes close. So it seems pretty much impossible for publishers to successfully sell books on their web sites in sufficient numbers to make up for lost Kindle sales. Impossible.

    Which makes me wonder about your assertion that, “…regardless of how this plays out from here, the power of the major author brands — through their publishers today and through their agents forever — to influence the course of development of the ebook market has been so clearly established that I (and other analysts as well) are not likely to miss the point again anytime soon.”

    I think it’s simply too soon to draw that conclusion. Yes, this hurts Amazon, as you acknowledge (“It may be that Amazon has, at least temporarily, lost an important sales tool to move Kindle devices”) but that doesn’t mean that Amazon’s loss is the publishers’ gain. Many, if not most, of these sales might simply be lost forever. Remember, except for the few (masochists, in my view) who read books on their iPhone people who buy Kindle editions have already invested better than $250 in a reader and will not be very willing to buy ebooks that aren’t compatible with that reader (nor, given their investment in the Kindle, they will they be equally willing to buy hardcovers). They’ll just be pissed, and whether their anger is directed at Amazon, the publishers or the authors, frustrating the very people who are the most avid readers of all (at least as measured by their investment in a reader) makes no sense for anyone. Cutting off your nose to spite your face is no way “to influence the course of development of the ebook market.” Rather it’s the opposite, I fear.

    My sense is that the Amazon pricing problem will solve itself when the market has a reader with a bigger screen (the much-rumored Apple iTablet?) that can run iPhone apps. Though Amazon, as you suggest, might even be making money on the combination of a $250 reader and $9.99 ebooks, there’s no way they can make money selling the ebooks alone at a loss (and there’s no business rationale selling ebooks at a loss if they’re not a loss-leader for something). If Amazon’s business shifts to stand-alone ebooks (via iPhone apps or a similar technology), their pricing strategy has to shift as well.

    Rather than waiting on Apple, though, there’s a strategy the publishers could put in place now that, at least for the moment, will beat Amazon at their own game (or perhaps make Amazon more amenable to a compromise that benefits both parties). Publishers could simply raise the “Digital List Price” of the ebooks they offer on Amazon by, say $10 per book. Amazon defines the Digital List Price as “the suggested retail price set by the publisher.” Since Amazon claims that an algorithm sets the Kindle price based on factors other than the Digital List Price and it’s not a set discount from the Digital List Price, if publishers set their Digital List Price on new hardcovers $10 higher than the price of the hardcover itself under the current system, Amazon would have to pay publishers an extra $5 per ebook sold but readers would still get their ebook edition at $9.99 (at least for the bestsellers on every publisher’s list). That would increase the publisher’s margins, decrease Amazon’s and keep the readers happy.

    I agree heartily with your final observation, that “it’s hard to imagine this battle ending peacefully anytime soon.” The question in my mind is who’s going to be collateral damage and how many of the wounds will be self-inflicted.

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  • stevenaxelrodtheaxelrodagency

    Sorry, my ebook format sales breakdown was itself mis-formatted. Here's the data:

    Adobe E-book 4%
    Microsoft Reader 2%
    Palm Reader 5%
    Mobipocket (Kindle) 78%
    Sony Reader 12%

    • Thanks.

      Mike

    • 1eleanorandrews

      Those numbers show the heft Amazon brings to the sales table today, but S&S spoke about future considerations. Like with stock portfolio's, Kindle's past performance may not predict future performance. How much will B&N's Nook cut into Kindle's eBook market, if at all?

      Also, I posted my reply to your original post in reply to Mike and I've copied it here:

      . . . stevenaxelrodtheaxelrodagency's post ended with a interesting question . . . “collateral damage and how many of the wounds will be self-inflicted.” The answer could be forthcoming.

      The NYT has a related article published on 12/12/09 that all parties may want to read. “Legal Battles Over E-Book Rights to Older Books”
      By MOTOKO RICH

      This writing foreshadows how messy situations could become as pubs travel backward in search of digital rights for previously published works.

  • Troy Johnson

    HarperCollins Clarifies eBook Delays, Plans Free, Enhanced eBooks
    http://bit.ly/90er0m

    Excerpt: In addition, we will be testing very low-price and free eBooks to gauge consumer appetite for a variety of digital price points and formats.

    • Thanks, Troy. Harper has one thing very right: experimentation is what is
      called for right now and they seem to be doing it.

      Mike

      • 1eleanorandrews

        Mike, stevenaxelrodtheaxelrodagency's post ended with a interesting question . . . “collateral damage and how many of the wounds will be self-inflicted.” The answer could forthcoming.

        The NYT has an interesting article published on 12/12/09 that all interested parties may want to read. “Legal Battles Over E-Book Rights to Older Books”
        By MOTOKO RICH

        From: Eleanor Andrews
        I was unable to log in – no worries just created a new login!

  • KC

    It's not about Amazon. It's about the online theft of ebooks. Each time a popular book comes out these days, it is almost immediately pirated, costing the publisher (and the author) thousands of sales. Torrrent sites abound and publishing the e-book at the same time as the novel just increases the ease of the pirate's job. Losing early sales also decreases the chances that the book will make the best seller lists.

    • Sorry, Karen, except for your last point about the bestseller lists, I have
      to disagree. The publishers are not prevented piracy by withholding ebooks;
      they're fostering it and I think they know that. Books that have never had
      an ebook edition (Harry Potter) are ubiquitously available on pirate sites
      and the argument is made by many that withholding the ebook actually drives
      otherwise honest ebook readers to grab a pirate copy because it's the only
      thing available. And the argument is also made that the cheaper the ebooks,
      the less likely is piracy. There is absolutely no basis to the notion that
      publishing an ebook enables piracy; pirates are perfectly capable of working
      from a printed book.

      Mike

  • Nat Sobel

    Mike,
    As someone who wrote to publishers, urging them to postpone their ebooks for at least 4 months, I bear some responsibility for what has been happening. Sure I want to save hard cover books, I love owning hard cover books. My house is full of books shelves. These books are my lifelong friends.I also know that if I can put the brakes to Amazon, and the soon to enter the market, Apple, I might also be protecting my authors from a future in which most of the advance is computed by publishers on the 7.95 list price ebooks will be sold at.
    When you strarted out, could any author have made a living based on the advance from his mass market paperback house?
    More to the point, what do you think will happen when a very few companies control the ebook market? One only has to look at what finally killed off the mass market paperback for that answer.Once the method of distribution is controlled by a few, the delivers of that product will be squeezed for better discounts.
    To avoid this scenario, publishers, agents and writers have to save the hard cover book, before it is too late. In two months, just two months, it will be too late.
    Most of the bloggers are on the side of the readers. It wasn't all that long ago when you were are bright young guy at S & S. Do you ever remember any reader complaining about having to wait a year for the paperback of their favorite bestseller/ And do you remember how much the income from that market helped many hard cover houses to prosper?
    You are right to look behind what is happening, but missing the real point of survival.
    I'll even send you a copy of the latter I sent to 16 publishers. Why should an agent care? Duh.

    • Nat,

      I think you're mixing me up with Mike Shimkin. I was never at S&S. But I
      have been around a long time.

      Long enough not to buy the notion that the history of mass-market paperbacks
      have much to do with the future of ebooks. I also don't buy the notion that
      we're at the edge of the apocalypse. Whether Reidy and Young and Murray took
      this stand now or not, this battle has a long way to go. One of the later
      notions is that the battle for the ebook future is between Apple and Google,
      not Amazon at all! In any case, Amazon will have plenty of competitive
      pressure in the ebook space, whatever publishers do.

      I don't think this battle will be resolved in the next two months; it might
      not be resolved in the next two years. Brick-and-mortar is hurting, but it
      is still the venue where most of the books get sold. We're headed to a scary
      future, but not in the next 9 weeks.

      You're right that we have a bunch of bloggers now, as you say, “on the side
      of the readers” but sometimes demonstrating little understanding of the
      economics of the business. Even for those of us who presumably do understand
      those economics, the right answer to questions like “price” and “timing” are
      not transparent.

      Mike

    • 1eleanorandrews

      Nat, I worked in the business end of a house and lived through December 2008. Nevertheless, I believed recovery was possible — until today.

      I just witnessed the coffin lid shut on hardback books through an article in the New York Times . . .

      “Top Author Shifts E-Book Rights to Amazon.com”
      By BRAD STONE and MOTOKO RICH

      Eleanor Andrews

      • Eleanor,

        In the long run sense, recovery is not possible, was never possible. The
        long arc of change is shifting away from our business in many ways: the
        shift from print books to digital, the shift from store purchasing to
        online, the shift from horizontal to vertical, and, ultimately, a flood of
        content that will make generating revenue from *selling *content an
        increasingly difficult proposition.

        But one robin doesn't make a summer and Covey's move, while inevitable and
        one that will certainly be imitated, is not going to suddenly spark a
        mammoth exodus. He's unlike other authors in many ways and, let's remember,
        he is continuing his relationship with Simon & Schuster for most of his
        publishing, not terminating it.

        We're on a path to demise of the industry as we know it, but the course of
        this will be over years and Covey's move is just one of many significant
        events we'll see along the way.

        Mike

      • 1eleanorandrews

        Mike,

        March 2009 S&S lowered authors royalty on eBooks following Random House's example in October 2008.

        In 2007, S&S had protests against them during BEA and had Author's Guild ignited when they announced print rights wouldn't revert to authors. S&S's argument was that technically the books weren't out of print as long as the titles were in their database.

        S&S is an advocate of this format. They released Stephen King's ebook back in 2000!

        Major authors can jump ship and go to amazon but the “little guy” goes where?

        The business is dire condition since most authors are getting reduced eBook royalties. The pubs can't make money even with ebooks sales, printing in all venues (periodicals, newspapers, and books) are on life support, and jobs loss surges through suppliers in all of the print industry during the worse recession in years.

        It's not just a matter of “containing” Amazon, but it is a matter of survival.

        Eleanor

      • No disagreement here. Survival is getting harder for everybody that figured
        out how to make the 20th century model work. It is working less and less
        often these days.

        Mike

      • 1eleanorandrews

        However, it doesn't seem like players in this industry have figured out a profitable 21st century model.

        Amazon is leading the pack on ebooks but their core business isn't books. They're a virtual department store with both new and used products. They're profitable in many areas and can take a loss in the book segment and offset it elsewhere.

        Agents are worried about their clients while brick & mortar stores want people to shop. Now big name authors will start leave pubs for bigger ebook royalties.

        Meanwhile, pubs are desperate for sales. Many houses have changed their discount matrix to let order amounts determine discounts to move more product and reduce returns. This technique obviously created the most recent price war on new Hardback titles by Walmart, Amazon and others.

        On delaying eBooks, David Young of Hachette Book Group said, “We're doing this to preserve our industry. I can't sit back and watch years of building authors sold off at bargain-basement prices. It's about the future of the business.”

        I believe him.

      • Eleanor, the core problem is that we're flooded with free and cheap content
        now; we weren't 10 or 15 years ago. All of that is competing with what we
        want to sell. Supply grows faster than demand and revenues drop. That's
        inexorable.

        Mike

    • Kathy Feller

      Well, as a customer, I've certainly complained about waiting a year for a paperback of some books I wanted to buy. Of course, no one in publishing would have heard my complaints because there wasn't a way to complain to publishers about it.

      I buy a lot of books, and I love hardback books (for certain types of books) too. But I have passed up books because the price, space it would take on my bookshelf, and such was too high. I doubt I ever remembered to buy them a year later. So the publisher and author lost that sale.

      Do you really think that most customers will bother to take the time and effort involved to notify a publisher that the wait time for the paperback was too long? No, they'll just buy something else.

      • Kathy, surely it depends on the book. Pop fiction being read a year later,
        who cares? A political book that's in discussion in the news right now sure
        wouldn't be as appealing a year from now.

        But publishers know they lose sales when they raise prices. For them it's
        not about getting the most sales they can, it is about the most total
        margin: revenue received minus the direct cost of manufacturing the books.
        Publishers take in a LOT more dollars per copy on hardcovers, and so do
        authors. They're making up for the books you don't buy from the revenue they
        get from people who look at the equation differently, at least for that
        book.

        Mike

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  • Wade

    I would like to say that for this particular issue, Amazon has the upper hand I think. Jeff Bezos isn't stupid, this is a man that took a $300,000 loan from his father and built it into a $20 Billion empire in less than 6 years.

    Look at it this way:

    A hardcover book retails for $27.95. The publisher sells the book for half of that, say $14. Out of that $14, $6-8 goes to pre-production, printing, and marketing, $4 goes to the author, and the rest is shipping / wholesale costs. Amazon sells this book, which they purchased for approx $14, for $9.99, taking a $4.01 loss on each book.

    This pricing schedule gets much worse on a paperback, of which authors get a smaller mount because of the lower retail price. With a paperback, the author could end up getting $1-2 for their trouble, with the publishers making slightly more because of higher print volumes.

    Amazon wants to modernize and change the process. First, the up front costs for the publisher are considerably less. In addition, there are no wholesale / shipping costs. On a $9.99 ebook, if the publisher sold it to Amazon (or whoever) for $8-9, the publishers costs are reduced to approximately $3. The author can make $3 per book, but $3 on every book, and the publisher profits $1-2 per book. This is significant.

    Throw in the increasing availability of e-readers and e-books in general, and the toll paper books take on the environment, and the fact that paper books can only get more expensive, and you have a recipe for change.

    What the publishers should do is band together and not allow one company to monopolize the market. They should end all exclusive contracts with companies such as Amazon or start releasing e-books in a format that can be accepted by more e-readers.

    I am an Electrical Engineer with significant background in Software Engineering and I can tell you that getting around Amazon's rules with the Kindle is not hard at all. A properly formatted file can be sent directly to the Kindle with all rights management intact without paying Amazon a dime.

    Another note is that an e-book never needs to “go out of print.” It would make a lot of sense to institute some sort of time-based pricing schedule. For the first 6 mos – 1 Year, the pricing is at $9.99 with the breakdown specified above; after 1 year, the pricing goes down to $7.99, with the author and publisher giving up $1 each; after 2 years (when most books are at the end of their paperback print run), drop the price to $4.99 and break it down at $1.50 for the publisher, $1.50 for the Author, and $2 for the distributor (who at this point is the only one that has any overhead at all).

    This is a huge source of income for authors and publishers that they don't currently have. Distributors like Amazon already make $1 or more off used books being traded on their site when you count the percentage of the sale they charge, the transaction fee, and the added traffic on their site.

    Perhaps this is what Amazon is trying to get across to the agents. It's more money for everybody all around.

  • I agree with the comments that it's about control (and probably little else). One problem is that in the process of attempting to achieve such a futile outcome the 'industry' will disenfranchise it's customers.

    Having worked in and around the music biz during its digital evolution I understand the motives and rationale, even sympathise, but there is no way it's the correct strategic decision.

    This is unfortunately another case of a 'content' industry trying to protect a failing business model.

  • 1eleanorandrews

    Mike,

    Agreed . . . your words ring true.

    Thanks,
    Eleanor

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  • callmefordiner

    I think the point missed in all of this is that Amazon and other manufactures makes most of their money now from other products. They are all ready fighting back by slashing prices on new releases from the publishers. The only ones that will be hurt are the Independent Bookstores.
    What the impact on the consumer will be a gradual devaluing of books and an expectation of books being inexpensive.
    We are in the infancy of a Technological revolution that will change the fundamental paradigm of publishing/bookselling/reading. I would compare this revolution to the invention of the Gutenberg press which, at first was sloppy but look at it now. There does need to be improvement (i.e. capturing some of the ethereal quality of a book-this technology is all ready out there)
    The Publishing Industry can either work with the Ereaders or lose a lot of money as new publishers will spring up to take advantage of this technology as it matures. Ones especially vulnerable market is textbooks.

    • Quite right that Amazon is much bigger than the book business and they use
      book pricing strategically to serve other interests, including choking
      competition that is dependent on books alone. It is also true that the
      bestseller business in brick-and-mortar is dominated by mass merchants who
      make their money on other items, not books, as well.

      Mike

  • callmefordinner

    One example to look at as a possible model is the film industry. In the 80's when VHS was the format, the film industry priced their movies for a few months at such a high price that this gave rental stores a chance to make some money.
    Now fast-forward to early 90's and dvd- Right out of the gate, the film industry priced DVD's at about the same price paid by rental stores and this hurt them.
    The same type of revolution is going to happen in books. Price-points, royalties etc.. will have to be worked out but the change is coming and What we see today in Ereaders is not really what the final format will be but if the publishers take an in your face approach as opposed to working to make this paradigm shift work then they will hurt themselves.
    Finally, some publishers are actually hurting themselves in the public's mind by the quality of the bookbinding that we now see.

    • You are certainly a versatile critic of publishers. Very few commenters to
      my e-oriented posts comment on the binding quality!

      You're sure right, though, that a lot has yet to be worked out in the ebook
      space: what the product is, what it will cost the consumer, and who gets
      what along the way are all far from settled.

      Mike

  • callmefordiner

    Just wanted you to know that I meant no disrespect. Your blog was very well written and timely. Best wishes and continued success

    • I took no umbrage. Your post really *was* well thought-out. It's just more
      of a point-by-point rejoinder than I care to engage. I appreciate the time
      you took and I know from many comments from many people that the thoughtful
      responses I get are very satisfying to readers of the blog. (And I take them
      down if I think they're spam or not constructive.)

      Mike

    • Your post is really good and informative. I’m surprised that your post has not gotten any good quality, genuine comments. You have done a great job by posting this article. Thanks !!!

  • Great post Michael but wouldn't this qualify as collusion?

    Amused by the notion that the customer has no part of the value equation around ebooks. Do the publishers really think us readers are idiots? I stopped buying $25 compact discs in 1991 because of this kind of thinking.

    In any case, all it will take is one house to embrace lower prices for this plan to go up in flames.

    • Mark, let's remember that the prices to consumers today are being set by
      retailers, not by publishers, and are quite independent of the prices
      publishers charge.

      Mike

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  • Mark, let’s remember that the prices to consumers today are being set by

    retailers, not by publishers, and are quite independent of the prices

    publishers charge. 

  • JG

    This has happened to me many times:

    “I’d have bought the ebook right now if it were available right now, particularly for those cheap ebook prices, but I just can’t wait to read this new book, so I’ll pay extra to read it sooner in a format which isn’t the one I prefer.”

    • Not a very attractive choice. But “windowing” is already really passe.
      Mike