The Right Battle at the Right Time

February 2, 2010. Macmillan’s current fight with Amazon over e-book business models is a necessary one for the industry. The stakes are high, particularly for Macmillan authors. In a squabble over e-books, Amazon quickly and pre-emptively escalated matters by removing the buy buttons from all Macmillan titles (with some exceptions for scholarly and educational books), in all editions, including all physical book editions. Thousands of authors and titles are affected; hardest and most unfairly hit are authors with new books published by Macmillan that are in their prime sales period.

Yet if Macmillan prevails, the eventual payoff for its authors (and all authors, if a successful result ripples through the industry) is likely to be significant and lasting.

For those of you who may have missed it, here’s the story so far:

Last Thursday, Macmillan CEO John Sargent informed Amazon that beginning in March, it would offer Amazon access to a full range of e-book titles only if Amazon were willing to sell books on an “agency” model that would pay Amazon 30% of e-book proceeds and allow Macmillan to set its own retail price for e-books. (Currently, Amazon buys e-books as a reseller at a discount of 50% off the retail list price and sells at the price it chooses.) Macmillan’s price under its agency model, in many cases, would be higher than the $9.99 ceiling that Amazon has been seeking to impose on the industry.

If Amazon didn’t find the agency model acceptable, Sargent said Macmillan would expand its “windowing” of e-book editions. “Windowing” is the practice of waiting until a particular edition of a new book has been on the market for a while before making cheaper editions available. Publishers have for decades waited until the hardcover sales window has closed before opening the sales window on paperback editions, for example. This helps protect the sales channels for hardcover books. Windowing e-books is similarly believed to help protect a publisher’s sales channels for physical books. The risk with windowing is that some owners of e-book devices are angered that low-priced e-book editions aren’t available as soon as books are released in hardcover form.

This was a bold move by Macmillan. Amazon has a well-deserved reputation for playing hardball. When it doesn’t get its way with publishers, Amazon tends to start removing “buy buttons” from the publisher’s titles. It’s a harsh tactic, by which Amazon uses its dominance of online bookselling to punish publishers who fail to fall in line with Amazon’s business plans. Collateral damage in these scuffles, of course, are authors and readers. Authors lose their access to millions of readers who shop at Amazon; readers find some of their favorite authors’ works unavailable. Generally, the ending is not a good one for the publisher or its authors — Amazon’s hold on the industry, controlling an estimated 75% of online trade book print sales in the U.S., is too strong for a publisher to withstand. The publisher caves, and yet more industry revenues are diverted to Amazon. This isn’t good for those who care about books. Without a healthy ecosystem in publishing, one in which authors and publishers are fairly compensated for their work, the quality and variety of books available to readers will inevitably suffer.

Macmillan’s move is timely because, at the moment, the e-book market is still far smaller than the physical book market, but the e-book market is growing quickly. The longer Macmillan waited, the more difficult the transition.

Amazon didn’t wait for March, when Macmillan’s new policy is slated to go into effect; it decided to hit Macmillan immediately and comprehensively, removing the buy buttons for nearly all Macmillan titles, in all editions. This is a direct attempt to use its clout in the physical book industry to enforce its business model in the e-book industry. In some ways, it was an unusual exercise of power for Amazon. The company has used the tactic of turning off buy buttons on several occasions before, but, with major publishers it’s usually selective, and doesn’t turn out the lights on nearly all titles. That treatment is reserved for smaller publishers. (Authors receive no advance warning of Amazon’s treatment of their titles, nor can they do anything about it.)

Amazon, it appears, overreached. Macmillan was a bit too big a foe, and Amazon’s bullying tactics were a bit too blatant. (For a flavor of media reaction, see this story in Fast Company.)

Sunday evening, Amazon announced that it would have to “capitulate” to Macmillan, “because Macmillan has a monopoly over its own titles.” (By this definition, nearly every company exercises a monopoly over its products.) We’re all still waiting for that capitulation: Macmillan’s books still weren’t available on Amazon on Monday evening.

If Macmillan does indeed prevail, the economics of authorship in the digital age are likely to improve considerably. We may go through some rough stretches to get there, however.

You’ll be hearing more from us on this matter soon.

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