Macmillan and Amazon

The hamfisted attempts of US publishers to force Amazon to raise its ebook prices to above US$9.99 have now descended into farce. (See Macmillan's letter to authors below)

This sort of activity is quite illegal in Australia, under our Trade Practices Act, and thank god for that. It is openly and brazenly anti-consumer. No Australian corporation can indulge in any action or strategy aimed primarily at forcing a retailer on price. 

We get a few things right in this country, we really do. 


To: All Macmillan authors/illustrators and the literary agent community

From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.

You are a vast and wonderful crew. It is impossible to reach you all in the very limited timeframe we are working under, so I have sent this message in unorthodox form. I hope it reaches you all, and quickly. Monday morning I will fully brief all of our editors, and they will be able to answer your questions. I hope to speak to many of you over the coming days.

Thanks for all the support you have shown in the last few hours; it is much appreciated.

All best,
John

More iPad: quite simply it is way too big!

I think I'm on fairly safe ground in predicting that Apple's new iPad will never make it as an eReader that competes with the Kindle. It's just TOO BIG!

No humungous device like this has any chance whatsoever of capturing a sizable share of the standard trade ebook market. Amazon can rest easy. Can you imagine consumers lugging this thing around just to read Dan Brown in a cafe, on a small wobbly table which can barely cope with a coffee and a Danish now?

I was eagerly anticipating the iPad as I imagined it would be roughly the same size as the Kindle but with far more screen real estate; and in color; and web-enabled. One of the Kindle's biggest design flaws for me is the fact that the keyboard takes up far too much room at the bottom, thus making the actual screen far too small. I use the keyboard infrequently - it's only a search function - but of course read from the screen constantly. The entry hall of a house shouldn't be the same size as the living room! No sense there.

The iPad will most probably become a niche device, used by sales reps for product presentations, etc, much as existing tablets are now. But it is in the textbook space that the real revolution will take place. Content combined with interactivity and communication: that's the textbook future. Most students in five years time will be lugging around iPads instead of laptops, and certainly instead of textbooks.

So there is still a space in the market for a multi-functional ebook reader that is actually aimed at the ordinary consumer who goes to a cafe, travels on public transport, and flies in planes. It ain't gonna be the iPad.

Slouching towards Bethlehem...

There is a huge textbook industry out there. Today, courtesy of the iPad, it just died..

ebooks: being customer-centric.

The ebook debate is becoming very confusing, with all sorts of people saying all sorts of things.


The only way to cut through and get some clear perspective is to do what strategists should always do, that is, see it through the eyes of the customer. Be CUSTOMER-CENTRIC. It's not easy but it's essential.


As a new consumer of ebooks, here's an early stab at what I would like to see:


1. Simultaneous publication with the first version of the print book.


Some major US publishers are getting spooked by Amazon, and delaying their ebook release dates for a few months. They're trying to protect print edition sales from being undercut by Amazon's nasty $9.99 price. Instead of seeing hundreds of thousands of new and enthusiastic Kindle owners as an opportunity they're seeing them as a threat, because some of those enthusiasts would purchase the print book if the ebook weren't available. Some. Maybe 25-30%? Let's do the math:


   Print revenues without the ebook available:    10,000 x $15.00 net = $150,000.

   Print revenues with the ebook also available:    7,000 x $15.00 net = $105,000
   ebook revenues:                                              3,500 x $12.00 net = $42,000

(I've assumed ebook sales to be 50% of the print book sales if both versions were available, as Amazon seems to be suggesting this is their current, for now at least, sales ratio).


So you can see revenues are pretty much the same under both scenarios.


2. ebook prices should be lower than the initial print version by 30% at least, and then decreased sequentially just as print books are now.


Let's look at what the customer doesn't get by purchasing an ebook: a well-designed and printed package which incudes an arresting, beautiful cover; something to place on a bookshelf for all to see and pick up for years and years; something to lend to family and friends; something to sell second hand; a felt sense of where you are and how much further you've got to go - the standard 'flick' thing. What you get instead is just the content, in a standard typeface, with clumsy accessibility. It's a pared down, decontextualised experience, well and truly.

What I'd dearly like to see, and would be willing to pay extra for, would be the ability to purchase a 'print and ebook combined' package at my favorite terrestrial bookstore. If I could buy the printed version of Wolf Hall and get the ebook version thrown in for either free or another five bucks, that would be wonderful. That would entail a partnership agreement between the bookseller, the publisher and Amazon, so that when I walked out of the shop I carried the thick-as-a-brick paper version and knew that the ebook version was sitting snugly in my Kindle. A real 'home and away' package!

Regarding prices, there is a great deal of confusion in the industry on this subject. There's this quite silly notion that the ebook has to be the same price for all time. Rubbish. The whole point of sequencing cheaper versions of print books, from the initial hardback, to the trade paperback, through to the mass market paperback, is to make the book available, in an orderly fashion, to wider markets at lower prices. People don't want the mass market paperback - they want the mass market price. Ebooks therefore, where no printing costs have to be lowered accordingly to protect margins, can also undergo a lower price process. In the first year of publication they could be 70% or so of the hardback price, in the second year 50%, and finally 30%, or some such gradation.  Not all books have to follow this tradey sequence of course, but many do. You can't have a situation where the ebook is $10.00 and the paperback $8.00. (I'm talking US dollars here, as this is where the debate is. We're a long way from the action in Australia, unfortunately, and will be until local titles are readily available on the Kindle, the iPhone and then all the others).

3. Choice should be part of the standard offer.

Publishers should stop seeing the so-called 'enhanced ebook' as part of the pricing solution, as in 'Throw in some audio, video and added extras and we can charge more and solve our revenue problems'. As a customer I want to be able to chose - either the basic or enhanced version, or a print/ebook combination, or some other appealing package.

So in summary, publishers should embrace this new market aggressively and optimistically, and stop being scared witless and defensive. Focus on readers and customers and their needs and preferences. As for Australian publishers, for god's sake get off your bums and get on with it.

Game Change and Clueless Publishers

Obama's run for the White House was always going to going to be a ripe subject for an intriguing, behind the scenes, tell-all political tome. Game Change is definitely it. Published in the US by HarperCollins and re-titled, stupidly, by Penguin as Race of a Lifetime for those of us in the British Commonwealth who couldn't       possibly relate to 'Game Change' as a title, it's an absolutely fascinating read for political junkies of all sorts.

Some observations:

First, well done Penguin Australia for getting the book out on virtually the same day (Jan 11) as the US release, and for pricing it competitvely ($32.95 for 448pp, which is today's exchange plus 10% plus GST plus price point rounding, which is the fair formula).

Second, a book like this, which pulls no punches and is full of some really unpleasant revelations about so many of the major and minor players in the Democratic and Republican campaigns, could never have been published in Australia about Australian politicians because of our restrictive defamation laws.

Third, changing the title for the Commonwealth edition virtually guarantees the book doesn't capitalise on the huge publicity Game Change is getting in the world's media. I stumbled on it in Readings by accident when I was actually looking for the title Game Change, and thinking I'd probably, once again, have to go to Amazon. As will so many other junkies.

And finally, what a mess HarperCollins have made of the ebook. They're delaying the release for six weeks so as not to allow Amazon's $9.99 price to undercut hard cover sales. This is causing a consumer revolt, as it should. Clueless in the extreme. No respect for consumer choice. This is how traditional publishing will die.

Amazon and ebooks: a Dialogue

The rise and rise of Amazon: prepare for the battle.


Rachael McDiarmid:



In the past few days several US publishers have announced they will be delaying the release of e-book versions of major releases. So what does Amazon do? Well, instead of selling for the already loss-leading price of US$9.99, let's take it even lower to $7.99!!! Let's show the publishers exactly who is in charge of this ebook market. Let's offer Under the Dome by Stephen King and Going Rogue by Sarah Palin for $7.99. The hardcover for the latter is listed on Amazon as US$28.99 slashed 50% to US$14.50. Slash it by half again if you want the ebook. Bestsellers are being slashed - Stephenie Meyer's first two Twilight books for US$4.25, Stieg Larsson's The Girl Who Played with Fire at US$7.99. Slash Slash and Slash again.


What happens next? Well surprise surprise, Barnes and Noble cut their ebook prices to match. I'm now waiting to see what Sony does. They've already admitted the US$9.99 price is NOT PROFITABLE. You can read the full article here. Yet I'm taking bets as to when they'll slash their prices! Any takers?


But back to the giant that is Amazon. I know some publishers are trying to wrestle control away from them so they can control their own ebook destinies. Can't everyone see these price points are DEVALUING the product and the whole reading experience? And what about profitability folks? It's already fragile in the bookselling and publishing industry.


It's no use discussing what percentage Amazon, Sony, Scribd etc take on ebook sales. We already know Amazon is using their pricing strategies to make the Kindle the ereader of choice, to build market share and customer loyalty. Sony has pretty much admited the same. They invest in the technology, they need people to buy it.


While publishers benefit from the lower ebook prices in the short term (through higher sales), according to Mike Shatzkin they "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?'" Mike also shared his thoughts on the possible war over the issue, including publishers not supplying or selling e-books through Amazon, Amazon suppressing the sale of their printed books, and more.


So when and where will the battle lines be drawn? It's a'comin, folks. Wait and see...


Peter Donoughue:

Frankly, I don't think there's an issue here Rachael, apart from the entirely normal one of a retail behemoth flexing its muscles (yawn).


Publishers should relax. And Mike Shatzkin, who has always been wary of Amazon, has it wrong too. Retailers will do what retailers always do - fight for market share. Amazon wants to make it hard for Barnes and Noble and their new nook, and others, and what's wrong with that?


The real story here is how publishers are getting their strategy wrong, by delaying ebook releases. Publishers Lunch had a nice dialogue on this this morning, with top publishers all agreeing delaying makes sense: 'It's like delaying the paperback release - no different'....


This doesn't make sense. It IS different - very different. We're not talking about print dynamics, with their traditional print audiences. We're talking a new digital paradigm, with a new customer dynamic, that needs to be respected. These customers resent waiting. They don't wait weeks for the SMH to put a major story on their website just to force punters to buy the printed paper. How absurd!

Amazon and the GST

I've said it plenty of times before, and I'll say it again: calls by Australian publishers and booksellers for the government to force Amazon to charge GST to Australian customers are profoundly misplaced. As a government policy it would be just plain bad.

Here are the reasons:

1. It would dampen the pressure on publishers to keep their markups on imported titles reasonable and competitive. (And the government have relied on this pressure as a justification for not tampering with the parallel importation restrictions).

2. Booksellers should welcome this pressure, not lobby to weaken it. The most effective way for booksellers to compete with Amazon is through ramping up the pressure on publishers to be more competitive on pricing, delivery and trading terms, and certainly not by (once again!) supporting publishers in their efforts to be protected from it.

3. I'm not an accountant or tax expert, but I'm sure it's relevant that the GST is a value-added tax, not a consumption tax or sales tax. So businesses have to be in the Australian value chain to be able to deal with it administratively and financially. Businesses that charge the tax receive input tax credits for the GST charged all the way through their supply chain. Overseas businesses supplying direct to consumers are, by definition, not in the supply loop. Nor are they subject to Australian law. This is why calls to 'slap a GST on Amazon like US states that impose their sales taxes', are naive. It's apples and oranges. If ever Amazon sets up a distribution centre in Australia, that's when they'll be forced to charge GST.

4. The Rudd government has just decided that Amazon is the savior - a friend of booksellers, printers, authors, readers, because of the pressure it puts on publishers to ratchet up their performance. So does the industry really think the government will now agree to protect publishers from that competitive rod up their arse?

5. Booksellers have one huge advantage in competing against Amazon - they don't have to charge freight. If that sizable impost doesn't currently deter Australians from purchasing from Amazon, then an additional 10% GST won't make one skerrick of difference, and is frequently washed away by currently fluctuations anyway. Why do booksellers keep banging on about this? Go to the publishers instead and bang on about the need for better, more responsive terms. That would be entirely productive.

6. It's simply not a good look for the trade to be arguing that book buyers should be lumped with another tax. And it's not a good look to keep arguing in Canberra for additional protection. Talk of 'levelling the playing field' is a dead give-away. It's how rent-seekers frame it.

It really is time the book trade grew up, and began to focus on the real issues facing it. There is so much that could be done if all parties stopped being distracted and absorbed by ephemera.