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People all over the blogosphere have been piling on Amazon about them going nuclear in response to Macmillan telling them that it (Macmillan) wants to set prices for Macmillan titles sold as ebooks. They call Amazon a bully, and take Macmillan's side, "of course Macmillan has a monopoly on their content", blah, blah, blah.

I heartily disagree, and that's putting it mildly.

First, some basics.

Producers make stuff, and sell it wholesale to retailers. Retailers buy stuff at wholesale and sell stuff to end use customers. That's a gross oversimplification, because in the real world some producers are also retailers, and some retailers are also producers of a few items. (Not to mention I left out intermediate wholesalers.)

Now, producers sell the stuff they make for whatever they can get for it. That is, they set a price, and the retailer either pays it, makes a counter offer, or goes elsewhere. Once it is sold, they have no right to set the subsequent price it's sold for. None whatsoever - they no longer own it. It doesn't matter whether it is food, software, furniture or automobiles. That is determined by the new owners. The "value" (what it can be sold for) is determined by the market. (Note: under US law the producer does retain some liability for quality on certain types of goods.)

If the subsequent "owner" can't sell or trade the item, then it is not an actual sale, it is a rental. This has been a big issue in the software industry for a long time, and is finally being sorted out by the courts.

Retailers buy stuff from wholesalers (assuming they don't make it in-house) at whatever best price they can negotiate, and then sell it to the customer for whatever the customer will pay. Sometimes they lose money on the deal.

Grocery stores and even bookstores (among others) often have items that are called "loss leaders" because they bring people into the store to shop, and people seldom buy just the thing that is on sale. So retailers selling things at a loss in order to co-sell other things is not a new tactic.

What if some producers don't like their items being loss leaders? Suppose they try to unilaterally change the terms, tell the retailer that they will set the prices from now on, that the retailer will just be their agent, giving them shelf space, advertising, stocking, etc? What do you think your grocery store would do? The ones I frequent wouldn't carry that brand anymore, period. (IIRC, this is why restaurants are either Coke or Pepsi - because the beverage producers were able to do this little game and the restaurants didn't have the market clout to stop them.) But, who is the bully? The grocery store, for saying "Get lost, we're not going to be pushed around"?

Now lets go back to Amazon and Macmillan.

Macmillan is a primarily producer of books. Not just dead tree books, either - ebooks, audiobooks, etc. They are also a wholesaler (seller to third parties - intermediaries) and a retailer. You can go to the US Macmillan website and buy their print books. But you can't buy their ebooks there. Why? They don't publish them in an open format usable on any reader, only in a DRM laden form for the Kindle (and soon the iTampon iPad - still a closed format.)

Amazon is primarily a retailer. Their first, core, market is books. They also own a device manufacturer that produces the Kindle. They do not sell (wholesale) Kindles to intermediaries. They also act as a consignment store for third party retailers, under specific terms. While they are fairly flexible, they set their business model from within the company, and you either do business on their terms, or go elsewhere. They will negotiate prices that they will pay for what they buy from you, like any other retailer.

Now, previously the relationship between Macmillan and Amazon was producer (wholesaler) and retailer. Macmillan wanted to change it to retailer and passive agent, unilaterally, on its terms, and still wanted Amazon to do all the heavy lifting. They wanted to dictate pricing, but have Amazon take the publicity hit with its customers for raising prices. They wanted to be the tell the "grocery store" that it was unilaterally changing its terms. The store, Amazon, pulled the brand.

Now, if Macmillan wants to sell through Amazon, it can sell as a third party seller. They can even get a fulfillment deal going - like all of those other "fulfilled by Amazon" items you see. But they can't set prices and have Amazon be the seller. Also, when a wholesaler dictates to retailers (like Amazon and Apple) the final price for items it sells, and the retailers go along with it, that becomes price fixing IIRC. That could get the DoJ involved.

So, if you want a Macmillan title, order it from Macmillan. You won't get a Macmillan ebook in an open format anywhere, regardless - they are apparently one of the publishers that demanded that Amazon use DRM on its Kindle. Originally Amazon had intended not to bother with DRM at all, but the publishers refused to sell their books in electronic format to Amazon unless they were encumbered with DRM. In order to sell ebooks at all, Amazon had to cave to crippled ebooks.

It is not, however, obligatory for everyone who publishes ebooks for the Kindle to put DRM on it. In fact, Amazon just (Jan 2010) made it easier for small self-publishers to decline to do so. See Amazon adds optional DRM for Kindle publishers and Amazon Allows Some Publishers and Authors to Opt Out of E-Book DRM

The Kindle format itself (.azw) is a variant of .mobi. If you have an unprotected .azw file, you can rename it as a .mobi and read it on your PC using MobiReader. Coupled with a hopeful move away from DRM as publishers see the handwriting on the wall, and cross platform ebooks will be real.

So, again, who is the bully? Amazon, for saying "No, we will determine how we do business in our store." or Macmillan, for saying "You are now just our agent, and you will price ebooks our way in your store."?


( 10 comments — Leave a comment )
Feb. 4th, 2010 10:59 am (UTC)
Funny how in all this, you don;t hear how the authors feel...given that they actually wrote the damn content that these two giant companies are fighting over. or for that matter, I don;t see us the people who buy the things, getting much of a say either. [wanna bet as to which two parties are going to get screwed at the end of it all.]

Personally, I'd say neither Macmillian or Amazon are exactly in the right here.
Feb. 4th, 2010 01:25 pm (UTC)
The authors will get screwed regardless: by Amazon slightly in the short tern, by Macmillan and Apple in the long term. Macmillan is more in the wrong, IMO. I don't want every place I go to buy an ebook to have the same price. If you buy overpriced crap from Steve Jobs, expect to pay boutique prices with it.

The publishers think of the authors as merely sources of raw material; substitutable by others. Amazon would rather deal directly with the authors, hence their self publishing platform. However, most authors really do need the additional polish of a publisher just like most bands need the additional polish of a record label recording studio team.
Feb. 4th, 2010 04:18 pm (UTC)
My issue with Amazon's stance is that they pulled a great deal off stuff 'off their shelves' without explaining why they were doing it or even notice that they were doing it, it just vanished. And that is likely going to hurt author's sales a great deal.

You're right though, Macmillan is mostly at fault here. I just think amazon should have shrugged and said, "Fine, we won't sell your e-books then" instead of pulling the paper ones as well and presented a firm explanatory press release stating the reasons...but then Amazon has never been good at press relations, I suppose.
Feb. 4th, 2010 04:54 pm (UTC)
Yeah, Amazon has never been good at press relations. Bezos is from the old school of "money talks, bullshit walks", and doesn't do much up-front press work, and then the damage control is often clumsy.
Feb. 4th, 2010 04:26 pm (UTC)
And, as we have already seen, some will cry "how evil of Amazon" and drop them like hot potato. Since I don't e-book and this won't effect my purchasing of used books that I cannot find locally, it matters little to me. Yes, both parties are just dick beating. Yes, both are being stupid. But this is a capatalistic economy and they are not breaking any laws. Just annoying their customers, that's all.

Feb. 4th, 2010 05:00 pm (UTC)
Yeah, that's the thing - the same people who whine about how evil Amazon is being for pulling Macmillan titles also whine about how evil Amazon is for "monopolizing" the book market when you can buy from barnesandnoble.com, abebooks.com, powells.com and borders.com, just to name a few. Plus, you can often buy directly from the publisher if you think Amazon takes too big of a cut, or marks the book down too much!
Feb. 4th, 2010 07:01 pm (UTC)
Funny thing with Amazon and Powells; they sell their used books via Amazon. I have seen used books from Powells offered on Amazon and then just went to Powells online store and bought them. On a $1.00 used book, Amazon lost what? $0.20? If that.

OT; Am I going to see your shining face at Pantheacon?

Feb. 4th, 2010 07:33 pm (UTC)
I'll be there for a day or two. I'm still unemployed - thank you, GWB and Wall Street gamblers. I'm living on unemployment and the proceeds from selling off my Amazon stock.
Feb. 4th, 2010 09:07 pm (UTC)
As of today, Amazon still hasn't restored the McMillan press books for sale, and yes, it IS affecting sales for those authors. Not only is Amazon being a dick for not letting McMillan set its pricing, it's still being a dick for cutting into the authors' bottom lines. Read John Scalzi's blog about this.

I will also say, though, that McMillan boosting their desired pricing is going to screw the consumer because the current bottom end for e-books at Amazon is $5.99. Just wait for that to go away.
Feb. 5th, 2010 12:29 am (UTC)
I read Scalzi's Blog, and I even commented.

If Macmillan wants to set its pricing, they need to do it as a third party seller on Amazon, through Amazon's normal method. This is what Target does - Amazon runs their store for them. But Amazon will not be a silent partner, doing all the retail legwork as if they were the owner of the material but letting Macmillan set the prices. Heck, Macmillan can even have Amazon stock and ship their dead tree editions, but control the pricing on those too - that's what "fulfilled by Amazon" is all about". If Macmillan wants control over their pricing, Amazon has a mechanism for it. But going to Amazon and saying "You are going to change your prices and become our agent in your store" isn't it.

I don't think that the $14.99 price will fly with consumers, unless publishers like Macmillan and "agents" like Apple collude to fix that as the price point for first release ebooks regardless of the vendor, thus leaving the consumer no choice.

Quite frankly, I seldom buy a book for more than $10, even of an author I like. I read enough that I can't afford to throw money around for more than that. I can't afford a Kindle, either - I read ebooks (Baen Webscriptions) on a handspring or my computer.
( 10 comments — Leave a comment )

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