Follow-up to New Yorker article on price wars - The Live Chat

This is a follow-up to the earlier blog entry about The New Yorker piece by Ken Auletta on the grand e-book pricing battles involving the Big 5 publishers,Apple, and Amazon and their strategies.
 In his The New Yorker Q&A, Auletta let us know he did not realize, when writing the article, that Apple is also bypassing publishers to work with some authors directly.

ASK THE AUTHOR
Ken Auletta had the scheduled “Ask the Author” live chat with The New Yorker readers on April 19, and the Q&A transcript gives some context indicating a bit of his own perspective on all this as well.

IS AMAZON, ALONE, GOING AFTER SELF-PUBLISHING AUTHORS?
One thing I’d forgotten to include earlier was one interesting piece of sleuthing from the March 18 New York Times article by Motoko Rich (lead) and Brad Stone, which I've quoted from quite a bit, noting the article's word choices when reporting information straight from publisher reps who were in the middle of negotations and conveying to The New York Times their unhappiness with what they called Amazon’s “threats” to them.

  It was brought back to mind when I read Auletta’s interesting live-chat responses, one indicating he may not have seen that NYT article when he replied that

' I don’t believe that Apple is offering self-publishing services aside from people submitting apps. '

That's actually fairly important, as the thrust of the last part of The New Yorker article is how Amazon is offering authors a high royalty which "one irate publisher said,"

' was meant “to pit authors against publishers.” '

I went back to Rich’s article, remembering what she wrote about a job position that Apple had posted, noting that

' Apple is not likely to give up on smaller publishers.  A new job posting on its Web site is for an “independent publisher account manager, iBookstore.”
  The posting says the person would be “responsible for building and growing relationships with small- and medium-size book publishers, self-published authors and other content providers for the iBookstore.” '

The mention of “self-published authors” in the job posting was of course interesting, I'd thought at the time.  They were entering that arena too.  Neither Bezos nor Jobs is shy about expansion, to say the least.  Also, Barnes and Noble publishes its own hard-copy books.

PUBLISHERS DON'T MIND IF APPLE IS ALSO GOING AFTER AUTHORS?
  Notice that the publishers are not complaining, in this article, about Steve Jobs' interest in going straight to authors.  The quotes from publishers and "Apple insiders" about Amazon sound almost frenetic.

  For one thing I'd been surprised to see Auletta (whose historical detail is very thorough) focus on the anger toward only Amazon -- "a close associate of Bezos" was reported to have "put it more starkly," Auletta tells us.

' "What Amazon really wanted to do was make the price of e-books so low that people would no longer buy hardcover books.  Then the next shoe to drop would be to cut publishers out and go right to authors.” '

MORE BLACKHAT STUFF
  Publisher Tim O'Reilly characterized Amazon alone of the battling groups as "ruthless" saying that

'publishers have good reason to be anxious. “Amazon is a particularly farsighted, powerful, and ruthless competitor” he says. I don’t think we’ve seen a business this competitive in the tech space since Microsoft.” '

  The one dastardly corporate entity in the publishing arena!

THE MAN IN WHITE, OR AT LEAST A WHITE HAT
  Apple's Steve Jobs, who had never sold a book, comes into the biz and tells all the large publishers he'd like to give them the higher pricing he recommended they charge (sourced in earlier stories here) but that if they wanted to publish with him, they must use his Agency model's structure and pricing for all the other bookstores, getting rid of the decades-old bookseller-wholesaler pricing that allowed bookstores to sell books lower than the publisher-set List Price if it helped drive sales in a competitive business.

  In effect, as others have noted, Jobs was successful in immediately killing the long-time bookstore model as applied to online e-books, especially Amazon's, that made lower prices on most new books possible for e-book-buying consumers, a selling point for the Kindle.  Barnes and Noble e-book pricing, with brick and mortar stores an emphasis, was not as competitive.

WHY THE WHITE HAT?
  However, as is mentioned often in the news, Steve Jobs and the iPad together are being touted as "savior" to the publishing industry that also prints our news or information.  So we won't be reading such adjectives for Jobs from Auletta's quoted publishers, or from "several literary agents, the latter reporting to Auletta that "a senior Amazon executive asked for suggestions about whom Amazon might hire as an acquisitions editor."

ENLARGING THE FIELD OF VISION
  Publishers and literary agents, watch your back.  You're overfocused on just one book-selling party's interest in going direct to authors.

  Auletta balances publisher anxiety (if not their blackhatting) with matter-of-fact reality from Amazon's Russ Grandinetti, but that isn't likely to soothe publisher nerves.  I don't think reason or history has much to do with it at this point.

  Publishers have TWO strong book- (and hardware) sellers interested in offering authors (primarily those who'd never get a look from large publishing houses) deals for rights to their work.  Of course, if already successful authors are free from contracts or have back-lists of books they own the rights to, Amazon and Apple are just doing what comes naturally in this digital age.

  I don't think, though, that Amazon ever required that all publishers listing books with Amazon use only Amazon's own traditional wholesaler arrangement (which publishers admit gives them more revenue, on the lower-priced e-books, to share with their authors), nor would they have been interested in keeping selling-prices higher and the same at all bookstores.

THE NEW WORLD OF DIGITAL MEDIA
  The new digital world brings added possibilities, and the large publishing executives need to find ways to maximize their business, including taking advantage of the intense interest in e-book reading.
  They have literally millions of customers wanting to pay them for new e-books, with that audience growing at an exponential rate, but they treat this new market as a negative force only because of fears that e-book sales, if encouraged at lower prices than normally heavily discounted bestselling hardcover books, could "cannibalize" hard-cover sales.  They try to ignore that people who buy expensive e-readers in order to gain portability and convenience, while easing the need for physical storage space, are not going to be rushing out to buy hardcover books.  They'll have plenty of material from which to choose when wanting to read (and even more entertainment to choose from with an iPad or other e-reader-included tablet, the latter market also exploding in the next couple of months).

  They ignore that e-book buyers remember (with the help of licenses that come with digital books) that they are not allowed by the publishers to re-sell or give away the e-books they buy (although with the Nook some publishers will allow one and only one person to borrow a purchased e-book, ever, in the life of that e-book).  Macmillan's John Sargent does not allow Macmillan's e-books to be included in public libraries.

  Hardcover books will just share more selling space with e-books.  Publishers should print as many hardcovers as actually wanted by the market and lower the costs in doing that with a realistic look at the changing audiences.

 They should offer e-books with the book text only and add value-added "enhanced" editions with multimedia features, with background, context, and author interviews, in video or with informational links.

MAGAZINES AND NEWSPAPERS
There's no question that Apple's iPad is a much better match for magazines, so there is essentially no competition there vs a device focused mainly on text accompanied by infrequent black and white photos.

AGGRESSIVE COMPANIES WITH LOWER PRICING POLICIES
  Going back to the topic of aggressive companies (this is not new).   Apple apparently did not want to compete with Amazon's lamented lower pricing so they encouraged the raising of e-book prices nationwide, knowing that the publishers would of course appreciate this and feel supported by Apple, who would give them leverage with Amazon who does want to continue lower pricing, which publishers say "devalues" their books.  Of course, publishers do also fear a "too-powerful" Amazon who they feel might be able to dictate terms as publishers and Apple are doing.  There will always be competition, as we've seen.

E-BOOK PRICING MODES
 I've already explained how, on a $26 dollar book, under the old wholesaler method, the publishers would have received approximately $13 on a $10-book while the new Agency method gives the publishers only $7.

The NY Times's Rich also wrote in the March 18 column:

' ...Apple, which has effectively said that any publisher that wishes to sell its books on the iPad must offer the same terms to all booksellers.
  In other words, to do business with Apple, publishers must export Apple’s business model to all retailers.  Amazon, by contrast, has not promised to adopt the agency approach for any but the largest publishers. ”

OH, YES, BACK TO THE Q&A :-)
Some interesting responses by Auletta.

' [Yes] Authors would get a higher percentage of royalties by signing directly with Amazon to publish their books. The question is: Would Amazon be able to provide the editing and marketing support that publishers provide? '

Publishers provide this for a tiny percentage of hopeful authors.

  Auletta responds to another questioner:

' What I think midlist or unknown authors would miss if bookstores, particularly independent bookstores, keep shrinking is the word of mouth spread by bookstore salespeople customers know and whose taste they trust.

Yes, though most today read the reviews readily available from several periodicals and they also read the customer reviews on several book sites, from interested readers like themselves.

To a thought from a questioner that "the publishing industry just doens't get it yet" - Auletta replies:

' They’re getting it—probably too slowly. '

(I didn't see indications, in the article, of their getting it.)

To the question "Do you believe that e-books will become popular and accessible enough to make independent bookstores obsolete? If so, what would you estimate the time frame for this?"

'That is my fear, and the fear of many publishers. Independent bookstores are shrinking fast.  As e-book sales continue to grow exponentially, without being able to offer e-books in stores, or if they do offer them to be able to match the lower prices of Amazon or Apple, independent bookstores are menaced. How soon? Too soon.'

So, he does share with the publishers the fear of the success of e-books and its anticipated impact on independent bookstores.

  They are reacting to what they experience as a Volcano of E-books threatening (for some) to cover all with ashes.
  The solution: Preparation, keeping in mind that could actually be, instead, a mountain of opportunities for mining.

 Barnes and Noble is wisely encouraging visits to their store with the Nook's bonus store-features and encouraging discovery of its e-reader by non-store regulars at Best Buy stores.

I liked the advice he gave to a questioner.

'You’d have to be a fool not to worry.  The challenge, however, is not to be immobilized by fears, to think of the digital world as a challenging opportunity. '

I couldn't agree more.

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Amazon won't be undersold on book pricing

The New York Times's Nick Bilton confirms what many of us suspected: that Amazon would not have agreed to a fixed pricing that allowed Apple, Barnes & Noble, or any other bookstore to offer a lower pricing than Amazon's despite Macmillan's insistence on higher pricing while Apple has negotiated a $9.99 pricing for bestsellers.

There were several news stories that asked if Apple might have 'burned' or 'undercut' Amazon by suggesting that publishers raise e-book prices, with four publishers then pressuring Amazon to go along with this because they'd have Apple to rely on based on Apple's recommendation of those higher prices.

MacNewsWorld, in an article Feb. 18, titled "Apple's E-Book Pricing Flip: Chaotic or Cunning?," wrote:

'Apple's reasons for the pricing change, if the report is correct, remain murky.  They could be evidence that Apple's gaming the market.  "Apple's trying to play both sides of the fence," Andrew Eisner, director of content at Retrevo, told MacNewsWorld.  "On the one hand, it's trying to appear friendlier to book publishers with its willingness to let them charge higher prices; on the other, they know they're going to be out there doing battle with the likes of Amazon and Wal-Mart (NYSE: WMT), who already skirmished in a book price war late last year."

Or, Apple could be wracked by internal dissension. "It sounds like there could be several different people working on this, and I wonder if Steve Jobs was involved at all," Rob Enderle, principal analyst at the Enderle Group, told MacNewsWorld. "It does seem like the change is kind of fast, and it's scaring all the publishers." '

  After the ensuing brouhaha with Macmillan's John Sargent insisting on his $15 new e-book pricing, the NY Times found that Apple had inserted language into their "Agency" agreements that the publishers, whom they'd encouraged to raise their pricing, would have to allow Apple to sell e-books for $9.99 once they hit the bestsellers list.

  What?  Yes.   They'd be allowed to do what has been Amazon's policy all along.  Note all the Amazon Kindle marketing about NY Times bestseller books for $9.99 since the birth of the Kindle.

  So, we're to think that the publishers had no idea of the $9.99 bestseller-provisions going into their 'Agency' agreement with Apple?  If they weren't aware, then Apple inserted these in a later version.

At any rate, I'd opined in the comments-area here that Amazon's lawyers would have added language to ensure that Amazon would not be undercut by any other book-selling entity   (if any new changeover to the Apple-style "Agency" agreement effective March 2010 had been signed or finalized with Macmillan so soon after the iPad launch and corresponding Macmillan deal with Apple's Steve Jobs).

 In fact, the NY Times wrote at the time that there was "likely" some kind of language to protect Amazon plus a bit more:

' So what did Amazon hold out for?  The company would not comment, but it is likely that Amazon demanded that no other e-book vendors, such as Apple, get preferential access to new titles, or any kind of pricing advantages.
  Amazon may also have negotiated terms into its agreement with the publisher that would allow users of Kindles or Kindle software to lend e-books to each other. '

Today's NY Times article by Bilton makes it clear that Amazon hasn't been standing still in this area:

' Amazon...is determined not to be out-priced by Apple or any other rival.

Since December [before the iPad launch], Amazon has been pushing publishers to sign a new round of legal agreements that would guarantee that the Kindle price for their content is always the same or lower than the price on other electronic reading devices, such as the iPad or the Sony Reader.  The clause, a variation of a legal concept known as “most favored nation,” would guarantee that Amazon’s customers would always get the best price for electronic versions of magazines, newspapers and books. '

What I didn't know was that "many e-publishing contracts with Amazon are still in a month-to-month cycle as the publishers negotiate to try to gain more revenue or more control over their content."  For some reason I had just (wrongly) assumed they were yearly or at least quarterly (which Macmillan's appears to be).

The article also notes Amazon's more complex negotiations with newspapers and magazines, which has to do with the "tiny slice" of revenue (typically 30%) for the publishers.   I've written earlier that insiders have been quoted as saying that Amazon shares the rest of the revenue with the wireless providers, who deliver the subscription content on a daily (or more frequent) basis.

  Despite subscription-publisher discontent with the Amazon contracts, some are considering signing the new Amazon contract while offering for the iPad a free, limited application for their content, as they'd rather not lose their current subscribers on the Kindle.  Also, the publishers have not been ecstatic about their current negotiations with Apple.

When the Kindle can display richer types of media (probably near the end of this year), subscription publishers could then, Bilton writes, release a paid product that looks and works the same across multiple devices.