Saturday, January 30, 2010

Amazon vs. Macmillan

Say there are four companies in the world who make widgets. These widgets are basically of the same quality of make, the only difference is the companies that sell them. And let's say that one of those companies, Ajax Widgets, is run by a charismatic, visionary leader who, using aggressive sales tactics and undercutting the prices of their competitors, manages to claim a significantly larger share of the widget market than the other three companies. But capitalism being capitalism, that's not enough for Ajax- they want the whole pie. So they set out to crush their competition, either by selling widgets at a loss until the competing companies can't sell any widgets, or just using their deep pockets to buy up the competition. In the end, there is only one widget maker in the world. And any small entrepreneurial company foolish enough to try their hand in the widget market will be set up and destroyed with lawsuits and unfair pricing. And we know what happens next: with no competition, the price of widgets goes up. That's why the government regulates monopolies.

Well, I was planning on blogging about something else today until I saw this article in the Los Angeles Times. Seems Amazon has gotten into a squabble with one of the largest publishers in the country, and has stopped selling their books. I've said it before and I'll say it again: I think Amazon is basically a criminal enterprise. They quite obviously want to use their market share, gained from years of selling at a loss while being propped up by venture capital and money from the sale of stocks, to become the only bookstore on the planet. And when that happens, I'm guessing the prices won't stay quite so cheap. And not just that. A company that is willing to stop selling an item that its own customers want just to make a point is a company that would make sure that a book it didn't want published, say an expose on Amazon, didn't get published. I'm just saying...


Anonymous said...

Business is War.

S. Sparks said...

Interesting analysis here as well -

Anonymous said...

The key difference in this case is that Amazon doesn't manufacture the books, they just sell them. The one thing they do have a monopoly on is Kindles -- not e-readers, mind you, just Kindles. They were hoping that this would give them a monopoly on e-books (and books in general), and are having a coniption now that it turns out not to be so.

Mercedes said...

OK folks, here is a response from a real book writer, and someone who was affected by this, since Macmillan/Tor is one of my publishers. (I'm Mercedes Lackey)

Amazon's response was posted on the Amazon Kindle Forum on Amazon's site, apparently by someone who has absolutely no grasp of how publishing--or anything else--works. OF COURSE Macmillan "has a monopoly on its own titles," you moron! And Nabisco "has a monopoly on Oreos" and Ford "has a monopoly on Mustangs and Shelby Cobras!"*

The book business in general is tanking. How bad? Bad enough that almost everyone I know saw their royalty checks plummet to 50% last year, some going down to 10%. Well duh, you can't buy books when you don't have a job. (I am often forced to roll my eyes when I tell people that and they look at me bewildered and say "But I see tons of people in the bookstore when I go, how can that be?" I have to explain patiently that "Tons of people in the store does NOT equate to sales.")

Amazon has the publishers by the short and curlies. Unlike traditional bookstores, the One Ton Gorilla can demand a discount of 50% on the cover price and get it (as opposed to the chain-store's 30% and the Indie's discount of 20%). This is why a new HC, with a cover price of $25 is Amazon Priced at $15. And this is why the price of books has gone up, so publishers can keep their very slim profit margin. (And believe me, it is slim).

Macmillan's desired pricing model is not as draconian as it seems. They want $15 for the e-copy of a Hot New Bestseller--same as the heavily-discounted price of the dead tree copy, so that the e-copy does not compete with the same book in dead tree, and Macmillan can recoup their substantial investment in the book. This does NOT mean that MY new book in e-copy would be $15. Mine would likely be, oh, $12. And Joe Schmoe's would be--you got it--$9.99. Plus, in Macmillan's model, over time that $15 per e-copy would start going down. In 6 months, say, it would be $9.99. And in two years? Probably $4.99, same as a paperback.

So if you JUST CAN'T WAIT--you pay a premium. Same as with any other product.

* Now here is some irony. Amazon is claiming to be a publisher when it comes to obtaining exclusive rights to e-copies of books. Yet not that long ago I actually approached them to write Kindle-exclusive content. I wanted the same terms I would get from any of my other publishers; advance against royalties, half on signing, half on publication. I was told then, in exactly these words, "Amazon is not a publisher." (But of course I "should feel free to write the content and publish it via the Kindle platform at their generous terms of 30% royalty"**).

So.....three months ago, they WEREN'T a publisher. Now they suddenly are. Oh, except when it comes to treating an author like a professional.

** Lest you wonder why I didn't take advantage of such GENEROUS TERMS, another author ran the numbers for a series of his that was abandoned and discovered rather quickly that he would be making less money than a first-time writer.

(Oh, and one more thing. The "Advance against royalties", often shortened to "Advance" is a essentially a no-interest loan, paid out over time to an author, so that he can write the damn book without worrying about where the mortgage payment is coming from. Most of us (especially now) absolutely require these advances to keep writing. It's a gamble on the part of the publisher that your book will be profitable, because if it is not, YOU don't have to pay it back.)