Wednesday, February 10, 2010

E-Book Publishing Wars

The e-publishing issue is just beginning to explode into the public eye. At first, I thought the tussle was among the big tech companies over Digital Rights Management (usually referred to as DRM), because someone is going to end up as obsolete as the Betamax. Who’s going to come out on top—Amazon, Apple, Barnes & Noble, someone new? Though DRM is inherent in the struggle, the fight now is over market share.

Right now, Amazon supposedly pays a publisher 50% of the list price. Let’s make that price $25. Therefore, Amazon pays X Publisher $12.50. Amazon turns around and sells that book to download to a customer’s Kindle for 9.99.

According to Association of American Publishers, the e-book market soared 200% in November of 2009, to $18.3 million. E-books make up only about 4% of the market, and Amazon has a near monopoly of e-books. They also corner approximately 10-15% of the book market.

Amazon’s fourth quarter (2009) sales rose a whopping 42%, to $9.52 billion. Their net income growth was 71%, to $384 million, and is attributed to Kindle profits and e-book sales. Estimates based on their accounts place Kindle sales at around 2 million in 2009, and the market is just beginning to skyrocket. Amazon CEO Jeff Bezos said "We sell six Kindle books for every 10 physical books. This is year-to-date and includes only paid books -- free Kindle books would make the number even higher." These numbers come from a Daily Finance story, Wednesday, February 10, 2010, see link: http://www.dailyfinance.com/story/company-news/amazon-macmillan-start-e-book-price-war-and-amazon-loses-fo/19338550/ .

Publishers are struggling to retain a piece of this pie. Thursday, MacMillan’s CEO John Sargent offered a new proposal to Amazon. Either use what he’s calling the “agency model," or stick to the wholesale model. With the “agency model,” the publisher keeps possession of e-book files, sets prices for its digital editions, and pays a 30% retail commission to retailers. In the wholesale model, retailers buy stock at 50% off the list price. See Sarah Weinman’s article:
http://www.dailyfinance.com/story/company-news/publishers-try-to-protect-e-book-prices-from-apple-amazon/19324040/

Where do authors fall into this picture? Right now, we’re pawns. Take a look at Amazon’s latest offer: “70% Royalty Option for Kindle Digital Text Platform, scheduled for June 30, 2010.” http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1376977&highlight

The conditions of these new royalty options are stringent. (bullets below were taken from above link on Amazon’s site)
• The author or publisher-supplied list price must be between $2.99 and $9.99
• This list price must be at least 20 percent below the lowest physical list price for the physical book
• The title is made available for sale in all geographies for which the author or publisher has rights
• The title will be included in a broad set of features in the Kindle Store, such as text-to-speech. This list of features will grow over time as Amazon continues to add more functionality to Kindle and the Kindle Store.
• Under this royalty option, books must be offered at or below price parity with competition, including physical book prices.

Amazon will provide tools to automate that process, and the 70 percent royalty will be calculated off the sales price.
I worry about clauses like, "books must be offered at or below price parity with competition, including physical book prices," and in particular, the “digital list price must be 20% below the lowest possible physical list price for the physical book.” And I haven't even touched on the FREE e-books. Another time...

What are your thoughts?

9 comments:

Brian Rush said...

Regarding Amazon's conditions for the new royalty agreement (which according to private email I received from them won't be available until June), most of them are pretty straightforward. Whatever title you're publishing there has to be priced within that range, can't be for sale elsewhere cheaper, and has to be at least 20% under the physical book price for the same title. I don't think free Kindle books have anything to do with this, because a free book falls outside the range they want (too low) and so wouldn't be eligible. (Anyway free books don't pay royalties.) The part that confuses me more is the business about other functionality. I took that to mean the author or publisher gives Amazon the permission to make the book compatible with these functions or maybe add them itself? Otherwise I don't get it. I will say that 70% is pretty nice, although not the top in e-book self-publishing. That would be Smashwords at 85%. But Amazon has more people visiting the site and so more potential sales.

Rick Blechta said...

Like I said on Tuesday, it's the Wild West all over again.

We need a sheriff to straighten things out!

I recommend Charles' friend Rick. He can bend steel with his bare hands...

Vicki Delany said...

This seems to be the same problem that there has always been with monopolies. Why should Amazon be setting rules? Because they can. Why should they be dictating prices,and prices below cost? To drive the competetors out of business. What happens when the competitors are gone? Prices go up and Amazon sets even more rules. See the outrage over their de-ranking of gay books a year or so ago.

Dana King said...

Vicky,
I agree with you about Amazon, but why should Macmillan be able to dictate prices to retail outlets? Anything else you want to buy (cars, stoves, clothes, shoes, etc.) the manufacturer sets a wholesale price and a suggested retail price, but it's still up to the retailer what will actually be charged. That's what makes the whole concept of "sales" possible.

Vicki Delany said...

Dana, isn't this exactly what happened with manufacturing in North America? Push the prices down so far that companies that pay good wages and benefits can no longer compete? Right now Amazon is taking a loss on Kindle books it's selling for $9.99. They don't plan on taking a loss forever.

Debby (Deborah Turrell) Atkinson said...

Apple is negotiating with the big 6 publishers to set their prices higher, too. Wild West indeed. Reminds me of U.S. politicians (and others). Correct me if you see it differently, but I saw Amazon's 70% royalty offer as a way to lock in authors at very low prices and keep them within the Kindle format. What will the price of those books be? A dollar or two?

Rick Blechta said...

Vicki, you're absolutely right.

I really wish that some of the REALLY big name (ie: wealthy and sought after) authors would band together and speak up about this. All the jockeying for supremacy in the e-book world -- hell, the whole publishing industry -- in killing the producers, meaning writers. Since we're always at the back of the line, the pickings will always be slim.

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