Monthly Archives: January 2010

Publishing’s Weekend War: 48 Hours That Changed an Industry

The facedown lasted from Friday evening to Sunday afternoon but when it was over the landscape of the book business was permanently altered. On Friday, in reaction to Macmillan’s refusal to play the Kindle pricing game by Amazon’s rules, the retailer punished Macmillan by extinguishing the publisher’s Buy buttons on the Amazon website.

Obviously, Amazon hoped this tactic would bring Macmillan to its knees. Instead it triggered another wave of customer outrage as Kindle owners reacted just as they had in 2009 when Amazon reached into their Kindles and recaptured files without notice or explanation. Though the response of the author community was mixed, many authors were angered at becoming victims of a war they scarcely understood but they too blamed Amazon.

Amazon also underestimated the possibility that other major publishers might support Macmillan. This turned out to be a well founded concern. In the past few weeks all of the big houses except Random House conducted discussions, and in all likelihood negotiations, with Apple to forge a new retailing model that would return control of e-book pricing to the publishers, who had become alarmed that Amazon’s insistence on a $9.99 price cap would force them to accept lower wholesale terms. Conditions were ripe for mutiny, and on Friday the test of wills began. By Sunday, as Amazon realized that this was a fight it could not win, it capitulated.

I stated that this might well be a turning point for the book industry – both e-book and print – and I stand by that statement.

I also made a prediction that publishers will no longer be able to hold the line on the current 20-25% royalty rate offered to authors. In fact I guaranteed that they won’t be able to, and I stand by that guarantee as well. Authors, and more importantly their powerful literary agents, have viewed the new landscape and found it rich with the potential for profit. They perceive the current royalty level as arbitrary and without basis in the economies of e-book production and distribution. The current rates cannot and will not hold. Just as Amazon blinked in its stare-down with Macmillan, Macmillan and its Big Six companions will also blink in the inevitable confrontation with authors.

You heard it here first.

Richard Curtis

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Amazon Blinks in Macmillan Facedown: “We Will Have to Capitulate”

Boy, that didn’t take long!

Remember the pinkie bet I made ten minutes ago? I wagered that once publishers’ hands were untied from the $9.99 price ceiling on e-books we would see an increase in the royalty percentage paid by publishers to authors on e-book revenue. Well, I’m halfway there to winning it. Amazon’s Kindle team has just released a statement accepting Macmillan’s position even though disagreeing with it. The statement in part says:

“We will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”

The Kindle spokesblog added that “We don’t believe that all of the major publishers will take the same route as Macmillan.” Perhaps not, but they will now be encouraged to do so by Macmillan’s stand. I don’t think it’s an exaggeration to say this may be a defining moment in the history of the e-book industry.

Read the Kindle Team’s full statement here.

Richard Curtis

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Full Text of Kindle Team’s Statement re Macmillan

Initial post: Jan 31, 2010 2:22 PM PST
The Amazon Kindle team says:
Dear Customers:

Macmillan, one of the “big six” publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer.

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Guaranteed: E-book Royalties Will Rise When Publishers’ Hands Untied

I don’t know if people still make pinkie bets, but when I was a kid that’s what we called friendly wagers with no money at stake – just the satisfaction of being right. And I’m making a pinkie bet right now: If publishers can untangle themselves from the current e-book pricing model that ties their hands with a $9.99 ceiling, author royalties will rise. Any takers? Warning – before you extend your pinkie, you must know that I never bet on anything I’m not absolutely certain about.

Currently the e-book royalty offered to authors by five of the Big Six is 25% of the publisher’s net receipts, and Macmillan’s is even lower. Indeed, it’s the lowest in Big Publishing: 20%. And because it is, Macmillan has attracted less support from the author community for its facedown of Amazon than it would otherwise receive. Here for instance is a line from a Silicon Valley blogger that called Macmillan “evil”: “they’re trying to force all ebook vendors to adopt the new contract, while forcing authors to accept a below industry average (20% vs. 25%) on ebook royalties.”

If, as a result of negative publicity, Amazon relents on its rigid pricing formula, e-book revenues will increase and it will be so much harder – indeed, it will be intensely embarrassing – for publishers to continue parceling out the mingy royalty they now proffer. How much higher will the royalty go? Publishers will kick and scream over every point they have to give up, but in time someone will blink and go to 50%, and the rest of the industry will follow.

You can bet the house on that, but I’ll accept a friendly pinkie.

Richard Curtis (who is happy to disclose that E-Reads pays 50% royalty to its authors, and has paid it from Day One, 2000).

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iPad? What’s That? Amazon Netted Nearly $1 Bil Profit in 09, Kindle Big Contributor

As if to underscore its might in the rivalry with Apple that broke into a hot war this weekend, Amazon posted a 40% boost in net profits in 2009, $902 million on nearly $25 billion in sales.

Not all of it was books, but a significant contributor was Kindle, according to news agency AFP. Sales of the e-book reader helped produce a 71% profit in the last quarter of the year, making it the holiday gift of choice. CEO Jeff Bezos remains mum on actual sales of Kindle but stated that “Millions of people now own Kindles, and Kindle owners read, a lot. When we have both editions, we sell six Kindle books for every 10 physical books.” And that doesn’t include free books.

The press service added that “Forrester Research estimates the Kindle has a nearly 60 percent share of the US market followed by the Sony Reader with 35 percent and expects e-reader sales to double to six million units this year.”

We have a memo in our calendar to revisit these figures a year from now, when sales of Apple iPad and other rival devices are measured.

RC

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Macmillan Hurls Itself (and Its Authors) Against Amazon’s $9.99 Wall

Macmillan authors concerned about the fate of their Kindle editions in the hot war that broke out over the weekend between their publisher and Amazon may have no choice but to take the long view as the future of book and e-book pricing plays out before their very eyes.

Kindle customers woke up to discover that Amazon had removed the Buy buttons on its retail website for all print and e-book editions published by Macmillan, one of the publishing industry’s Big Six houses, comprising such prominent imprints as St Martin’s Press, Henry Holt, and Farrar, Straus & Giroux. The reason has to do with pricing tensions that burst to the surface after Amazon rival Apple began promoting a retail model that threatens Amazon’s ambitions to achieve hegemony over the e-book industry. (For background on that model, read Apple Promoting a New (and Radical!) Business Model for Selling E-Books? )

Publisher’s Lunch’s Michael Cader quotes a senior publishing executive as saying that “Amazon may ‘spin’ that the consumer is at the heart of the decision, but really their goal is a monopoly position in books. Publishers don’t want a monopoly – they want consumers to have choice through a number of partners and channels. They want digital pricing which allows bricks and mortar retailers to survive and thrive alongside a growing digital market…This reaction proves what Amazon’s true motives are. It is a signal to any other publishers not to change the model and weaken Amazon’s pathway to a monopoly. I hope authors, agents and publishers see what these motives are and stand by Macmillan.”

We’ll be watching the other Big Six publishers (Hachette, Simon & Schuster, Penguin, Random House, and HarperCollins) to see if they support Macmillan. If they do, it will put a lot of pressure on Amazon to reconsider its business model based on a $9.99 list price for Kindle e-books – a price that loses money for Amazon on a great many bestsellers.

A statement made by Macmillan CEO John Sargent puts the issues in perspective:

“It is [the future] that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.”

To read Sargent’s full statement click here.

Richard Curtis

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Macmillan’s John Sargent Addresses Amazon’s Action

To: All Macmillan authors/illustrators and the literary agent community From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.

You are a vast and wonderful crew. It is impossible to reach you all in the very limited timeframe we are working under, so I have sent this message in unorthodox form. I hope it reaches you all, and quickly. Monday morning I will fully brief all of our editors, and they will be able to answer your questions. I hope to speak to many of you over the coming days.

Thanks for all the support you have shown in the last few hours; it is much appreciated.

All best,
John

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What Do Amazon and Prada Have in Common?

Today a publisher brought to my attention an oddity on the Amazon.com website. It seems that you cannot purchase more than three copies of many bestsellers. On the evening of January 28, 2010 I viewed the top ten books on the Amazon.com bestseller list. In every case I was prohibited from putting more than three copies into my shopping cart. To make certain this was not a fluke, I sampled the first 50 titles on the list but did not find any exceptions to the three-to-a-customer rule.

You can see this for yourself by clicking on the following links for the top five titles, then going to the “Quantity” drop-down box over the “Add to Shopping Cart” button. (As listings change, future visitors to this posting may not find the same condition.)

The Kind Diet – list price $29.99, Amazon price $16.49
Food Rules – list price $11.00, Amazon price $5.00
Game Change – list price $27.99, Amazon price $14.50
The Help – list price $24.95, Amazon price $9.50
A People’s History of the United States – list price $18.95, Amazon price $10.00

It was not until I clicked on #53 – What Would Google Do? (list price $17.91, Amazon price $9.18) – that the Quantity drop-down box indicated I could buy as many as 30 copies. I did not try to buy multiple copies by buying three and three and three etc. – I don’t really need one copy of Food Rules let alone six or nine or thirty – but I’m sure a clever shopper could find a way around the rule. It occurred to me however that if I did order three copies ten times, the freight and handling charges would be substantially higher than if I purchased 30 in one shot.

But that’s just incidental to the bigger question of why one must buy no more than three copies in one transaction.

I can understand this restrictive practice in the case of a high ticket item, where one $10,000 fur coat or $50,000 diamond ring per customer is enough. Pictured here is a Prada Ostrich Leather Tote listing on Saks Fifth Avenue’s website for $5,850.00. On the bag’s web page is this notice: DUE TO POPULAR DEMAND, A CUSTOMER MAY ORDER NO MORE THAN THREE UNITS OF THIS ITEM EVERY THIRTY DAYS.

But books are not luxury purchases. Why would Amazon prevent us from buying as many copies of a book as we want? After all, the more we buy the more money Amazon makes, yes?

In listing the books here I included their list price versus their Amazon.com price. I wonder if therein lies a clue to the restrictive policy. Assuming a 50% publisher discount, Amazon’s profit margin on these books is slim to none. For instance, on A People’s History of the United States (list price $18.95, Amazon price $10.00) Amazon nets about $.50 profit. Food Rules retailing for $11.00? The wholesale price would be $5.50. Amazon is selling it for $5.00, a $.50 loss. For The Help (list price $24.95, Amazon price $9.50), Amazon is losing $3.00 a copy.

Nothing unusual here: retailers in every business work on a slim margin, and loss leaders are a common competitive practice. However…

Suppose I opened a bookshop and stocked it with bestsellers purchased from Amazon. I could buy 100 copies of The Help for $9.50 each and sell them in my store for, say, $15.00. Even folding in the cost of freight from Amazon to my shop, I would make two or three dollars profit and still sell the books far beneath the publisher’s list price.

I anticipate your question: why would people buy from my shop when they could get the same book cheaper from Amazon? The answer is, some will but some won’t. That’s why we have independent bookstores (barely, but we still do have them).

If this reasoning is correct, then the Amazon’s three-to-a-customer rule makes sense: Amazon doesn’t want resellers stocking their stores with Amazon books. Why not? Because Amazon doesn’t make any money on those resales.

Authors will recognize an irony here. When their books are resold via Amazon, Amazon gets a piece of the resale of those used books but the authors get nothing. Could it be that Amazon is worried that it is not benefiting from resales that do not use Amazon as agent?

This theory could be all wet. But if it is, I invite smarter business heads than me to speculate on just what’s behind the three-book cap on Amazon’s bestseller shopping cart. Meanwhile, publishers and authors may be hurt by the curtailment of large book orders on the Amazon.com retail site.

Richard Curtis

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Apple Delivers a Cool Tool

After a gestation longer than an elephant, speculation characterized by preposterous fantasies, and a delivery witnessed by millions, Apple finally brought forth a bouncing baby iPad. Not since the Essenes have such Messianic hopes and dreams been cherished, and whether they will be fulfilled remains to be seen after technicians take it apart and consumers render their verdict. Nevertheless, it seemed difficult for tech pundits to resist the temptation to kneel before it.

Here for instance is what Gizmodo’s blogger had to say:

  • The guts: It’s a half-inch thick—just a hair thicker than the iPhone, for reference—and weighs 1.5 pounds…It’s also loaded with 802.11 n Wi-Fi, Bluetooth 2.1 + EDR, a 30-pin iPod connector, a speaker, a microphone, an accelerometer and a compass.
  • It’s substantial but surprisingly light. Easy to grip. Beautiful. Rigid. Starkly designed. The glass is a little rubbery but it could be my sweaty hands. And it’s fasssstttt.
  • Apple didn’t really sell this point, but it’s the single biggest benefit of the iPad: speed. It feels at least a generation faster than the iPhone 3GS. Lags and waits are gone, and the OS and apps respond just as quickly as you’d hope. Rotating between portrait and landscape modes, especially, is where this new horsepower manifests in the OS.
  • iBooks: It’s an optical illusion, but just seeing the depth of pages makes the iBook app feel more like a book than a Kindle ever did for me. The text is sharp, and while the screen is bright, it doesn’t seem to strains the eyes—but time will tell on that.
  • Pictures: Pinch, zoom, whatever—like we said, it’s fast—the photo app is faster that iPhoto performs on my aging Core2Duo laptop.
  • Apps: Apps can play in their native resolution, or be 2x uprezzed for the screen. How does it look? An ATV game we tried actually looked pretty good—limited more by its base polygon count than the scaling process itself. Bottom line: it’s about as elegant solution as Apple could have offered, even if that graphics won’t be razor sharp.
  • Browsing: Over Wi-Fi, Gizmodo loaded quickly. The 9.7-inch screen is an excellent size for reading the site. You can pinch zoom, but you won’t need to. Of course, on such a pretty web browsing experience, not having Flash makes the big, empty video boxes in the middle of a page is pretty disappointing. Put differently, the fatal flaw of Apple’s mobile browser has never been more apparent.

For these features and many more, the $499 price is universally acclaimed to be a huge bargain for this seamless blend of computer, game and movie player, e-book readers, and more. As to the battery, about which many expressed the gravest skepticism, Apple claims it will run for ten hours even with intense use such as movies. If you don’t like what they’re showing on your flight to Australia, load your iPad up with half a dozen films and you’ll be there in no time.

To see Gizmodo’s hands-on test-drive, click here. You can also view an absolute feeding-frenzy of comments, blogs, tweets, and eructations. Be careful not to stick your hand in there: it will be bitten off.

As for e-books and newspapers, Publishers Weekly‘s Calvin Reid writes: “The device was demoed with newspaper content from the New York Times and supports video and audio embedded in the content. Most importantly, the iPad will support the ePub e-book standard and Apple has developed its own e-reader software, iBooks, and will also launch an iBookstore. E-book pricing is reported to be in the $15 range.” If you plan to write a book on iPad instead of reading one, there is both a virtual keyboard (left) and a pull-out.

Now that iPad is born there doesn’t seem to be much left to live for. But we will carry on as best we can, comforting ourselves with the knowledge that the Apple has scaled a pinnacle from which the view of the digital future is truly intoxicating.

Richard Curtis

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Ladies and Gentlemen, Start Your Apps

The other day we reported that Apple-watchers have taken to calling the imminent tablet The Unicorn because of all the magical properties being attributed to it – and because, of course, no one has seen it. If only there were a fly on the wall of Apple’s Cupertino headquarters, a fly with a particularly sensitive transmitter…

In fact we have one. It’s a company called Flurry Analytics. Flurry has developed tools that gather from app developers information about applications they are working on. Jenna Wortham, writing about Flurry in the New York Times, reports that “Flurry can generate reports about the location of an application’s users, for example, or how long it took a user to complete a game level.

It turns out that Flurry picked up some feedback from about 50 devices on or around the Cupertino campus and came to some conclusions about what we’re going to find under the hood of Apple’s tablet when we finally get our hands on one for a test drive.

Check Flurry’s chart below and you’ll see that the top three apps downloaded from Cupertino are for games, entertainment and news/books, followed by lifestyle, utilities, music, photography, travel, finance, social networking, weather and miscellaneous.

That games and entertainment are the # 1 and #2 apps should not surprise us, especially when one considers that the tablet’s larger screen will enable more than one user to play games on it. But the third one, news and books, raises an eyebrow in view of Apple CEO Steve Jobs’s declaration that nobody reads anymore. It sounds as if people are going to be reading newspapers and illustrated books big time on the iSlate, Unicorn or whatever it’s called.

For more speculations on the Apple tablet, read Jenna Wortham’s A Playland for Apps in a Tablet World. The speculation should end later today when Apple’s formal announcement puts us all out of our misery. But if that Flurry fly on the wall of Apple’s lab is transmitting accurate information, Apple’s announcement should be anticlimactic.

Richard Curtis

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