Sometime on Friday night, the New York Times reports, Amazon deactivated the Buy Now buttons on its website for all books published by the Macmillan group, including such imprints as Farrar Straus & Giroux, Henry Holt, and St. Martin’s Press. As of this writing, you cannot buy a new copy of the correspondence of Elizabeth Bishop and Robert Lowell from Amazon, though it’s still available from Barnes & Noble, Powells, and other indie booksellers. The same is true of thousands of other titles.
This is a bit of a stunner. Macmillan and Amazon have been arguing, it transpires, over the pricing of e-books, but Amazon yanked Macmillan’s ink-and-paper as well as its electronic books—bypassing conventional weapons in favor of first-use nuclear.
As a writer with friends who work at Macmillan imprints, my sympathies are with the publisher. To judge by the comments being left at the New York Times article on the conflict, however, quite a few people are siding with Amazon, in many cases because they believe it’s greedy of publishers to demand higher prices for e-books. Greed, no doubt, exists on both sides, living as we do under capitalism, but greed alone doesn’t explain the dispute. Yes, Amazon wants to sell e-books for $9.99 or less, and Macmillan wants Amazon to sell them for $15 or less. But as Macmillan’s CEO John Sargent explains, in a statement released today as an advertisement to the book-industry newsletter Publisher’s Lunch, Amazon and Macmillan aren’t at the moment fighting to see who can make more money on a book sale. They’re fighting to see who can lose more money. This is a very peculiar battle.
And it may only be the beginning. My sense, as a somewhat interested observer, is that the year 2010 is going to see radical change in the way books are sold. The catalyst, I suspect, is this month’s announcement of half a dozen new handheld electronic reading devices. Apple’s Ipad tablet is the most famous, but the Consumer Electronics Show at the beginning of January saw the announcement of the Skiff Reader, Plastic Logic’s Que Pro Reader, Entourage’s Edge, and Spring Design’s Alex. Not all of these are likely to make it to market, but those that do will be competing there with Sony’s Reader, Amazon’s Kindle, and Barnes & Noble’s Nook. Google seems to be planning to sell e-books soon. In other words, a large number of capitalists have been betting, lately, that increasing numbers of people want to read e-books.
Let’s leave to one side, for the duration of this blog post, the question of whether it is wise for our society to spend colossal sums of money replacing an existing technology that is durable, versatile, and aesthetically pleasing. (I will let slip this much: No, I do not care how many trees die. They should be so lucky as to be reincarnated as, say, the poems of Surrey. Ents, do you worst!) Assume, for the sake of argument, that a preponderance of these capitalists will prove lucky in their bets, and that a lot of people are going to buy these devices. That suggests, as I wrote in passing in a recent review of Adrian Johns’s new history of intellectual piracy, that a lot of people will soon be roving the internet in search of free or cheap electronically available texts.
Until recently, books have not suffered from internet-assisted piracy the way that music or film has. That’s mostly because it’s easy to make a digital copy of a CD; you slip it into a slot on the side of your computer and click Import. Making a digital copy of a physical book, on the other hand, is cumbersome, as a book pirate recently confessed to the blog The Millions. At the very least you have to turn all the pages. To do it elegantly, you even have to volunteer your services as a proofreader, which is not very many people’s idea of fun, and I say that as someone who has done his share.
But if publishers themselves are selling digital versions of their books, and all that’s needed to liberate them is a little hacking, the calculus changes. Hacking is fun in a way that proofreading is not. Let us pause here and observe a moment of silence for the death of the idea that book pirates, more literary and therefore more moral than their peers, will somehow prove honorable, stealing from the rich and giving to the poor. To the contrary, the pirate interviewed by the Millions said that he deliberately avoided stealing the works of the most successful authors, because they can afford lawyers. Instead he limits his purloining to the work of less commercial writers, such as John Barth, whom he calls “someone who no longer sells very well, I imagine.” Such nobility! “From those who have nothing, even what they have will be taken away.” If electronic reading devices catch on, the threat of piracy to book publishers—and to authors, at all income levels—is very real.
Of course, large swaths of the publishing industry have not waited for pirates in order to be undone. Since the earliest days of the world wide web, newspapers and magazines have pillaged themselves, giving their articles away for free in pursuit of larger audience share. This is now widely understood to have been a mistake. Newspapers like the Times have many more readers online than they ever had in print, but even with these greater numbers, online ads bring in tiny sums compared to print ads. And online readers pay nothing. In the journalistic world that I happen to inhabit, much of the excitement about Apple’s new device has been driven by a hope that it will offer a chance to press the reset button. People stole MP3s, but they buy ring tones. They downloaded software for free, but they buy apps. Perhaps, publishers hope, people will prove willing to buy newspaper subscriptions on their Apple tablets, even though they’ve never been willing to pay to read them in their desktop browsers. (Long Island’s Newsday recently revealed that three months after putting its website behind a pay wall, only thirty-five people have purchased subscriptions.) Thus a week before Apple announced its tablet, the Times announced that by next year, it will be charging its online readers. Will the new business model work? Will newspapers be saved? Who knows, but there isn’t much to lose by trying. In the weeks before Apple’s announcement, I found myself muttering, in an echo of a recent, very bad movie trailer, “Unleash the Kraken.” We might as well find out what the Kraken will do. At the very least, if it finishes the print media off, we will be spared having to listen to further hectoring sermons from internet triumphalists.
Which reminds me that I’ve strayed from my topic: Amazon. Book publishers, unlike newspaper publishers, still have a lot to lose. About nine months ago, I received an email alert from a friend whose excellent book of nonfiction had just been published and who had discovered, to his dismay, that it was accruing one-star reviews on Amazon, not because readers disliked his book but because they objected that its Kindle price was only a few dollars less than its hardcover price. (The anti-Kindle-price reviews appeared on the webpage of both the Kindle and the hardcover version and figured into his book’s combined star rating.) He was caught in the crossfire of an early skirmish of the war that went nuclear this weekend. Eventually the Kindle price of his book was lowered, though I don’t know who blinked. I remember thinking at the time that the one-star ratings were a bad sign, because they suggested that Amazon had in a way already won the dispute over e-book pricing. Consumers already felt that e-books ought to be no more than ten dollars, and felt it with so much indignation and righteousness that they were willing to punish the very author they wanted to read, if they thought he was charging such sums. (My friend, of course, had no control over the pricing of any of the versions of his book.)
Consumers had come to feel that way largely because Amazon had trained them to, by keeping the prices of nearly all its e-books below ten dollars. Though few consumers understood it then, and probably few still understand it today, Amazon did so by sacrificing heaps and heaps of cash. Most publishers have until now sold their e-books to Amazon for the same wholesale price that they sell their hardcovers—roughly half the hardcover’s list price. It is up to a retailer like Amazon whether to sell the book to consumers at its list price, as printed on the inside front flap, or at a discount. With e-books, Amazon has usually offered a discount so low that it actually loses money. That is, Amazon buys for $12 an e-book whose hardcover list price is $24.95, and then Amazon sells the e-book to its customers for $9.95.
Why would Amazon want to do such a thing? When Amazon first introduced its Kindle reading device, the reception was tepid. But Amazon improved the device in later models, and thanks to its aggressive low pricing on e-books, it now reports that the Kindle and e-books are selling briskly. In other words, with the money that it has lost by discounting e-books, Amazon has bought market share for its e-book reader and for itself as an e-book retailer. To put it still another way, Amazon sped up the American public’s adoption of e-books by unilaterally lowering the American public’s idea of what the natural price of an e-book should be. The outrage of the Amazon customers who punished my friend with one-star reviews, and the outrage of commenters siding with Amazon on the New York Times blog post this weekend about the Macmillan-vs.-Amazon dispute, suggest that it may be too late for publishers like Macmillan to alter that idea.
Newspapers have no one to blame but themselves for having taught the public that they have a right to read newspapers online for free. Publishers, on the other hand, have woken up to the unpleasant discovery that the value of their work is being cheapened in the public mind by a third party: Amazon.
Some consumers have objected that e-books must be cheaper to make than ink-on-paper books. A simple cost breakdown by Money magazine last year, however, suggested that only about 10 percent of a book’s list price goes to printing. But ink-on-paper books have to be shipped, stored, and (when they go unsold) returned, and e-books would be spared these costs, too, as this analysis suggests. Also, according to TBI Research, because e-books are likely to end up with a lower list price after the dust clears, author royalties, calculated as a percentage of the list price, are likely to be lower, too—additional savings! Yay! When all these savings are added up, do you succeed in dropping a list price of $28 to one of $9.95? That’s a big drop. Profit margins at book publishers now are rumored to be no more than 10 percent, where they exist at all. It may not be possible for a single company to publish e-books at that price and also retain the infrastructure necessary to publish ink-on-paper books.
To return to the dispute of the moment: Macmillan has probably been selling its e-books to Amazon at the wholesale price of about $12, and Amazon has been selling them retail for about $10. Macmillan says that it would like to sell its e-books at the wholesale price of about $10.45, and have Amazon sell them for the retail price of $14.95. In other words, Macmillan was offering to earn $2 less per e-book. Amazon, however, insisted that it would prefer to take a $2 loss on each e-book, instead, and became so indignant over the matter that it has now ceased selling any Macmillan titles, print or electronic. Macmillan’s proposal is known as the “agency model” for e-book pricing, and the company probably only dared attempt it because Apple has promised that it will sell e-books for its new tablet on exactly those terms. (Amazon has said that they’re willing to accept the agency model, starting in June, but only if an e-book’s list price does not exceed $9.99.)
As I said at the beginning, my sympathies in this dispute are with Macmillan. Why shouldn’t a book publisher be able to exercise some control over their product’s price? Apple, to choose a wild example, rigidly controls the prices at which retailers may sell its products, and as Paul Collins noted in 2007, the legal barriers to publishers’ exercise of such control no longer exist. Here, alas, is where the pirates come in again. Pirates don’t bother when legal copies are available cheaply and easily. What’s perhaps most breathtaking about the Amazon-Macmillan dispute is how little, finally, is at stake: should the highest price of an e-book be $9.95 or $14.95? No one dreams any more that it’s going to be $28. What’s being fought over is control, and the reason control is being fought over so viciously is that the only way such massive cost savings are going to be achieved is by consolidation—by collapsing a few of the intermediary steps somewhere between the creation of a book and the reading of it. Will you some day download your e-books directly from Farrar, Strauss & Giroux’s website? Will Amazon some day be the publisher of Jonathan Franzen’s novels? Some future between these two outcomes is more likely to happen, but precisely where the division will fall remains to be seen. Authors, in the meantime, had better ask their agents to negotiate their e-book royalties very carefully, seeing as how, while the titans rage, the financial analysts have already factored into their bottom lines the expectation that someone else will be eating our slice of the pie.