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[publishing] Amazon vs Macmillan, the $9.99 price point, and market forces - Lakeshore — LiveJournal
An author of no particular popularity

Jay Lake
Date: 2010-02-08 05:49
Subject: [publishing] Amazon vs Macmillan, the $9.99 price point, and market forces
Security: Public
Tags:amazonfail, chemo, health, personal, publishing
The chemo fog is mostly clearing from my brain. Some things happened in Amazon vs Macmillan while I was checked out, most notably that the buy buttons were restored on Amazon's site for Macmillan print and Kindle titles.

I'm not convinced this is over. Amazon has still not made any sort of public statement other than the original, laughably incompetent unsigned "capitulation" note on the Kindle boards over a week ago. This compared to two formal public statements from Macmillan USA CEO John Sargent. I am very disappointed that the popular and business news cycle has focused almost exclusively on this as a "price increase" narrative, apparently single-sourcing from the Amazon note. I guess that makes better copy, but it ignores the much larger underlying story about a potentially seismic shift in the business models of publishing forced by the growth in ebooks. A shift which has benefits to consumers, as well as the exciting narrative of overturning Amazon's $9.99 pricing model.

As for my own part, I'm finally coming around to thinking Macmillan has the right of this. tnh's explanation of the "agency model", combined with earlier squibs from Charlie Stross, have largely convinced me. I will lay out my own thoughts on this in the next day or two as the chemo fog continues to clear my brain, but I want to make one point here.

The $9.99 ebook price point was not set by market forces. It was a fiat promise from Amazon to Kindle buyers as a driver to promote the Kindle platform. There's nothing magical about the number (beyond the obvious buying psychology of $9.99), and it had nothing to do with either publisher costs or publisher business models. For the media to be treating this as all about a price increase from $9.99 ignores both the history of the price point and the current business reality of publishing. It may well be that $9.99 is an eventual 'market making' price point, but that's not yet been proven. And for all that Amazon lost the boardroom PR war by not even showing up to the fight they picked, they've sure won the popular PR war so far, given the prevalence of the "price increase" narrative.

That's probably enough out of me this morning, but I'm curious. What's your take on the "agency model"? Am I right about the $9.99 price point? Am I right about the strong pro-Amazon bias in media coverage?

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Randall Randall
User: randallsquared
Date: 2010-02-08 14:15 (UTC)
Subject: (no subject)
"I'm finally coming around to thinking Macmillan has the right of this."

What? I thought it was clear you were squarely against Amazon on this from the start. Was that not what you meant to convey?!

"Am I right about the $9.99 price point?"

Frankly, I think the exact price point is irrelevant in the long run. Pricing on e-books will trend toward free, and some model other than selling copies will have to be found. The only bright spot in this for those who want to sell copies is the iPad. If people can mostly be convinced to give up general purpose computing in favor of shiny walled gardens, there's a chance that selling copies could continue to be a workable business model for ten to twenty more years (but not a certainty, of course, even in this scenario).
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Jay Lake
User: jaylake
Date: 2010-02-08 14:20 (UTC)
Subject: (no subject)
What? I thought it was clear you were squarely against Amazon on this from the start. Was that not what you meant to convey?!

Nope, I was pretty careful to say that I had no opinion (yet) on the underlying pricing dispute. Go back and read my posts. What I was very, very angry about was Amazon pulling the print lines in an ebook pricing dispute, which was a clear abuse of their market power. The print lines come through unrelated contracts and unrelated distribution channels.

Frankly, I think the exact price point is irrelevant in the long run. Pricing on e-books will trend toward free, and some model other than selling copies will have to be found.

As the case may be. That remains to be proven. I'm curious, though. If ebook prices trend toward free, how do you see authors being compensated?
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Randall Randall
User: randallsquared
Date: 2010-02-08 15:39 (UTC)
Subject: (no subject)
"Nope, I was pretty careful to say that I had no opinion (yet) on the underlying pricing dispute. Go back and read my posts."

I see.


"how do you see authors being compensated?"

I can think up a hundred ways (as can anyone, after all; ideas sure aren't scarce), but I have no idea which one, or which twenty, will win.

Various ideas:

Threshold pledge systems (my favorite).

Other patronage systems by work.

The expansion of publisher-driven series, like Doc Savage, Star Wars novels, etc, where the money is made one of the other ways, or in some peripheral fashion.

Subscription systems (that is, patronage by author).

Advertising (overt, via author appeal (if you liked this book, buy Genera brand drinks!) and via product placement) in the work.

Advertising in the delivery systems, with authors compensated by contract, which would look kinda like the publisher system we have now.

Author readings as paid performance (like concerts are now).

Ideas that seem likely to have some impact, but which I, personally, dislike:

The success of the iPad (as mentioned above; Apple and the textbook publishers are betting on this).

Funding by government (like the performer subsidy in Canada from CD/DVD blank media sales).




A lot of these basically require the author to have a good reputation, which may well mean that authors will have to release quite a lot of work free before trying to get paid for writing. Various review systems could mitigate that (Consumer Reports has one model, but that sort of thing could be easily done for free as a hobby until the reviewer developed a high reputation, with written works).




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Edward Greaves
User: temporus
Date: 2010-02-08 14:42 (UTC)
Subject: (no subject)
I find that notion dubious. In my experience, the vast majority of folks are willing to pay what they consider a fair price for something. Notions of what that fair price is, will, naturally be different from individual to individual. But if iTunes proved anything it's that, if you can find a good price point, people would rather just buy it than go through the hassles of piracy.

What is often ignored in the rush to assume everyone wants everything to be free is that what most people want isn't free, its convenience. Which is why the Kindle made a big splash to begin with. Ebooks had been around for a long time. Ereaders for years and years, before the Kindle came along. What Amazon did with the Kindle that gave it any real traction (and with millions sold, I consider that substantial traction compared to any other dedicated device) is they made it easy/convenient.

Clearly, millions of people have no problem buying into the system to pay for books and get what they want. If they can get it cheaper, I don't think people will complain, but I think they'll be just as happy to keep paying so long as they see the price as fair market value.
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Randall Randall
User: randallsquared
Date: 2010-02-08 15:45 (UTC)
Subject: (no subject)
The success of iTunes is a point for my argument. You can buy virtually any song for 99 cents now. A decade ago, you could buy a CD single, if you could find one, for four to eight times that, and if you couldn't find one, you typically had to pay fifteen to twenty dollars for the song you wanted plus a bunch of songs you didn't care about. The effective price of unlimited listens for a random single song has dropped by an order of magnitude in less than a decade, after holding steady or increasing for many decades previous.
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Laurel Amberdine: orbitals
User: amberdine
Date: 2010-02-08 16:18 (UTC)
Subject: (no subject)
Keyword:orbitals
I agree. Just made a quick survey of my 2009 music purchases: about 18 albums and 65 singles, all DRM-free digital downloads. This, after not buying anything for nearly a decade during the 90s because I was so irked at RIAA.

A number of those singles I bought after the artist himself gave me a free copy of the song, just because I wanted a legit sale racked up.

Convenient + reasonable terms + decent price = lots of sales. For an ebook I think that's a widely-readable format and somewhere around $5. (I don't actually mind DRM, so long as it isn't locked to one fallible device and going to go obsolete on me.)

The only ebooks I've bought are from Baen webscriptions, though I was thisclose to buying some Tor titles from B&N... until the recent conflict. Once Amazon pulled the titles, B&N's prices went up. Grr.
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Laurel Amberdine: sky
User: amberdine
Date: 2010-02-08 15:13 (UTC)
Subject: (no subject)
Keyword:sky
I suppose $9.99 wasn't set by market forces, but it was set by one of the most savvy retailers in existence. IMO, Pricing is going to be absolutely crucial. After thinking about and debating the issues involved, some not-initially-obvious aspects occurred to me.

In bookstores, selection is limited, prices are almost entirely unvarying, and only the big boys get shelf space. Oh sure, there are a few discounts, but for the most part, a mass market paperback is priced much like any other. Widespread digital distribution will change all of this: selection, prices, and access. Small presses will get a chance at exposure just the same.

(Note, not saying anything about self-published stuff. Whole other issue, and I really like the work editors do.)

There was an interesting bit in Publisher's Lunch recently, with Madeline McIntosh of Random House speaking at ABA's Winter Institute.
McIntosh took on pricing control and decisions directly as one of the reasons Random House has "not acted quite as quickly as others [in accepting Apple's offer]." She expressed a series of concerns that publishers "have no real experience at setting retail prices." McIntosh cited a recent visit to Powell's, where with used books and new books sitting on the same shelves "they set the prices on every single unit in a unique, demand-based way." And she admitted that "we in New York are very disconnected from the price at which our goods are sold in this country, and that can be different in Miami and Kansas City and Portland."
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Jay Lake
User: jaylake
Date: 2010-02-08 15:19 (UTC)
Subject: (no subject)
Some excellent points there. I'm not convinced Macmillan is right in the larger sense, ie, there may be (and probably are) better models than they've proposed. I am increasingly convinced the current model is a loser for the publishers, which is bad for them, and for anyone like me who's invested in the current system. And frankly, bad for readers, assuming readers are willing to assign value to what publishers do. (And if they're not, boy are they in for a surprise... Intermediation is not inherently a bad thing.)
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Edward Greaves
User: temporus
Date: 2010-02-08 18:04 (UTC)
Subject: (no subject)
I find that shopping digitally just isn't the same as physically. That is to say, that the lack of actual shelves and physical product means I'm not quite as likely to browse. That might be just me. Or it might reflect a failure of the current technology to represent for me, what it is I do when I browse the store. I only know this: when I'm browsing a phsyical store, I'm much more likely to try out a book. When browsing digitally, I'm happy to create wish-lists, etc, but almost never bother to actually purchase and read.

Makes me wonder if I'm alone in that aspect (ie, a simple quirk of my personality) or if there's something more to the experiential difference between the two.

Your last quote is something I've been thinking about a lot. I wonder if the publishers quite understand that they lack depth when it comes to retailing. Sure, they've been selling books for ages, but mainly selling in bulk to distributors, etc, and sometimes in niche markets directly to end users. Now, with this agency idea, they are going to be playing out directly in the retail space which strikes me as a very different market space indeed.
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cathshaffer
User: cathshaffer
Date: 2010-02-08 16:04 (UTC)
Subject: (no subject)
I think the agency model could be a more sensible way to approach this kind of product than a wholesale/retail pricing scheme, because there's no physical product exchanged and endless copies can be made nearly for free, so the concept of a "wholesale price" is pretty meaningless. However, I am not comfortable with retail prices being set by the publisher--I think that is anticompetitive. As it is currently, I have a choice as to where to bring my book buying business. I pay a bit more at my independent bookstore, but I appreciate their high level of service and connection to the community. If I want a bestseller at a huge discount, I can get it at Sam's Club or Walmart. If I need to get book buying done in a hurry, I can order from Amazon or B&N online or some such. Each of these retailers has priced its products independently based on their costs and business practices. Having the publisher, on the other hand, setting prices means that ebooks by a given author/publisher will cost exactly the same no matter where you buy them--so sales, no discounts, no loss leaders, no premium for purchasing from a boutique retailer. We already see this in play with Apple products, which, for some inscrutable reason are never on sale, never a loss leader, never priced higher or lower than the MSRP. I don't know how Apple enforces this, but I think it's bad. (And probably no coincidence that they've instigated this whole thing with ebook publishing...hmmm...)
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Edward Greaves
User: temporus
Date: 2010-02-08 16:19 (UTC)
Subject: (no subject)
Which is amusing, when you consider it wasn't all too long ago that Steve Jobs is the one quoted as saying something to the effect that no one reads anymore.
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Laurel Amberdine: orbitals
User: amberdine
Date: 2010-02-08 16:21 (UTC)
Subject: (no subject)
Keyword:orbitals
Actually, you almost always get a discount on Apple products from Amazon. ;)

(I think it's just demand. No need to lower prices if the things are flying off the shelves.)
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Edward Greaves
User: temporus
Date: 2010-02-08 16:08 (UTC)
Subject: (no subject)
Jay, I don't understand why you think that no market forces were involved. Amazon has, and does, price ebooks above the $9.99 value. (Such as Green, which currently is listed as $14.80 for the Kindle edition) There was a huge outcry (mostly fueled by an error in belief that Amazon had promised no books above $10 mark) among the Kindle owning populace and they refused to buy books over the $10 mark. That looks a lot like market forces at work to me. Perhaps spurred by someone willing to take a loss as a loss leader, but why is that any different than when I picked up Orson Scott Card's novel Seventh Son at a very low for a paperback price (from the publisher. I think it was either $2.99 or $3.99 in an era when normally I'd be paying $6.99-8.99 for a new paperback.) The publisher was willing to take a hit on that book, hoping that I'd buy the rest of the series at full value. Which I did. Same as when Tim Pratt's first novel was being "sold" on Kindle for free. I got the first one, liked it, and that led directly to my buying the next three at normal cost. I don't see why it's reasonable in those latter two cases, but isn't from the Amazon side of the house.
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Jay Lake
User: jaylake
Date: 2010-02-08 16:15 (UTC)
Subject: (no subject)
Jay, I don't understand why you think that no market forces were involved.

Because the $9.99 price point was a Kindle loss leader by fiat. Not based on letting prices float to demand, for example.
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Mary Dell
User: marydell
Date: 2010-02-08 17:12 (UTC)
Subject: (no subject)
The $9.99 price point was very important to me when I bought my Kindle, because the thing cost 400 clams, but now that I've owned it for a couple of years, my overall savings on book purchases have offset what I paid for it. The media isn't focusing a lot on that element of it - that Amazon started off charging a sky-high price for their reader, and used the 9.99 price and "free" wireless delivery model to make the pill go down easier.
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