The Apple-Amazon Ebook War Begins: Amazon Deletes Macmillan Books

[Dave Farber <dave () farber net>]

Begin forwarded message:

> From: Edward Hasbrouck <edward () hasbrouck org>
> Date: January 30, 2010 7:23:48 PM EST
> To: Dave Farber <dave () farber net>
> Subject: Re: [IP] The Apple-Amazon Ebook War Begins: Amazon Deletes  
> Macmillan Books

> It's not obvious from the outside, but Amazon.com has been selling  
> books
> below its wholesale cost in order to keep the price at US$9.99.
> Presumably, it thinks the subsidies are worthwhile in the short run in
> order to establish its monopoly, or at least leadership, position.
>
> The current economics work like this (as I found out during  
> discussions
> with my print publisher over licensing of a Kindle edition):
>
> My book sells for $21.95 in hardcopy (softcover).  Typically, the
> wholesale price to Amazon or the other largest distributors is 50% of
> cover price, or $10.98. Most print publishers (collusion? what  
> collusion?)
> have set the nominal "cover price" of the e-book to be the same as  
> that of
> the hardcopy.  That goes along with their bogus claim to authors  
> that e-
> book rights are part of print rights, and that the e-book is a "book  
> sale"
> on which only the royalty percentage of 10-15%, not the rights license
> percentage of typically 50%, is due the author -- even when it is
> described to the end user as a "license" not a sale.
>
> Print publishers thus set the "wholesale price" of the e-book  
> version as
> the same the wholesale price of a hardcopy, or 50% of the cover price.
>
> Under current arrangements, Amazon's wholesale cost is set by the  
> print
> publisher, but the retail selling price is up to Amazon. So when  
> someone
> buys a copy of the Kindle edition of "The Practical Nomad: How to  
> Travel
> Around the World" for $9.99, Amazon is paying my publisher $10.98 (of
> which I get either $1.65 if it is considered a book sale, or $5.49  
> if it
> is considered a license of subsidiary rights).  Amazon is  
> subsidizing the
> transaction by $0.99, plus its transaction costs.
>
> To recap, of that $9.99:
>
> Amazon loses $0.99 (loss-leader subsidy)
> Print publisher retains $9.33 after royalty payment to author
> Author gets $1.65 (royalty)
>
> Macmillan is proposing that rather than "sell" e-books to Amazon for  
> "re-
> sale" (again, a hypocritical position in light of the end-user license
> terms, but all-important to the author/print publisher revenue split  
> under
> most current contracts), Macmillan would appoint Amazon as its  
> "agent" for
> the "sale" of e-books by Macmillan, so that Macmillan would control  
> the
> pricing, with a 70% Macmillan / 30% Amazon revenue split.  What  
> percentage
> of Macmillan's 70% would go to the author remains unclear, although I
> presume there will be the same dispute over whether the book sale or  
> the
> subsidiary rights license clause of the author-publisher contract  
> governs.
>
> Under this model, if the Kindle edition were to sell for $15, Amazon  
> would
> get $4.50 and the print publisher $10.50 (with the same issues of  
> how much
> of that $10.50 would actually be passed on to the author). In other  
> words,
> Macmillan is proposing a scheme under which print publishers would get
> less on each sale, even at higher retail prices, and Amazon *much*  
> more,
> in exchange for print publishers (1) getting control over retail e- 
> book
> pricing, and (2) preventing Amazon from continuing to subsidize the
> development of a dominant or monopoly role as e-book retailer.
>
> Macmillan's position is made more clear here:
>
> http://www.publishersmarketplace.com/lunch/free/
>
> Of course, once answer for how to maintain lower prices is for  
> authors to
> license e-book distribution directly, without involving the print
> publisher at all.  That's the *real* threat to print publishers.  
> Whether
> it involves an author licensing a Kindle edition or selling DRM-free  
> PDF's
> form the author's web site, cutting out the lion's share of current  
> e-book
> revenue currently going to print publishers gives the potential for  
> lower
> prices for e-book readers *and* higher revenues for writers.
>
> There's much more analysis in today's special edition of the free, but
> subscription-only, Publishers Lunch e-mail newsletter.  I don't know  
> if
> you can get today's edition if you subscribe today, but you might:
>
> http://www.publishersmarketplace.com/lunch/subscribe.html
>
>
> ----------------
> Edward Hasbrouck
> <edward () hasbrouck org>
> <http://hasbrouck.org>
> +1-415-824-0214



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