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    « Amazon: A Third Wave Rocks Publishers' Leaky Boat, Pt 3 | Main | Amazon: A Third Wave Rocks Publishers’ Leaky Boat Pt. 1 »
    Monday
    Dec062010

    Amazon: A Third Wave Rocks Publishers' Leaky Boat, Pt 2

    In the first post in this series, we examined the trends in the business of publishing and selling books over the last 40 years including the consolidation of publishing houses by a handful of conglomerates, the arrival and dominance of big box retail chains Borders and Barnes & Noble, and finally the growing market control exerted by Amazon. The result has been the elimination of over 2/3 of independent booksellers and many small to mid-sized independent publishers.

    Today, we’ll look at how the eBook and particularly Amazon’s dominance in the eBook market has accelerated those trends.

    To establish a market for its Kindle eBook reader Amazon set the price for all of the eBooks it would sell at $9.99. “Amazon’s handling of e-book pricing – and publishers’ response – will have perhaps the most far reaching effects on the industry,” said Onnesha Roychoudhuri in a recent Boston Review article.

    The price was set without consulting publishers. A large publishing house, selling a twenty-dollar hardcover book to a bookseller or Amazon at a 50% discount receives about $10. From that amount the publisher must pay about $3 in royalties to the author, printing costs of $2 or more, approximately $1.20 for distribution and $2 for marketing. That leaves the publisher $1.80 for the rest of its costs. “Ebooks reduce the cost of printing, binding and paper, but royalties tend to run higher and all other costs are largely unchanged,” reports Roychoudhuri. “Publishers account for these costs when they slap a cost on a book, so Amazon’s decision to set prices irrespective of them set off a wave of anxiety.

    Amazon tried to allay the fears of publishers by paying them the price they would have received on for a printed book. In essence, Amazon made the decision to take a loss on the book to assure market dominance for its Kindle.

    Publishers are concerned that Amazon’s willingness to pay the costs of its ebooks will not last forever. “There is no way they can continue to sell…at a loss,” says Johanna Vondeling, vice president of Berrett-Koehler, a san Francisco business book publisher. “Eventually they’re going to change their minds on this, and I think all publishers should be worried about what’s going to happen when they do. They are going to keep the ebook price where it is. They’re going to turn around and say to publishers, ‘Tough. All we’re going to pay you on is the split of $9.99.’”

    Amazon hasn’t succeeded in maintaining ebook prices exclusively at $9.99.

    John Sargent, CEO of Macmillan, whose imprints include Farrar, Straus, and Giroux; Henry Holt; Picador; and Times Books, attempted to negotiate a different ebook price, Amazon removed the buy button from all Macmillan titles. Sargent wrote a post on the Macmillian blog exposing Amazon’s tactics. Amazon backed down and announced that the publisher “has a monopoly over their own titles” and, therefore, could control pricing.

    Smaller publishers don’t expect to have the same success. Johnny Temple of Akashic Books said, “If we had a room full of lawyers, maybe we would be working with them and thinking about future terms. But we’re just trying to stay in business.”

    “The conceit is that the market demands the $9.99 price tag,” says Roychoudhuri. “But in the case of ebooks Amazon is the market.”

    However, the market may be changing. The introduction of the Apple iPad was accompanied by an agreement between Apple and publishers that allowed publishers to set prices for their titles over a range beginning at $9.99.

    Today, Google announced its entry into the ebook market. A post on the Google blog said that the Google eBooks Web Reader available from the Google eBookstore. The Google ebooks will run on laptops, netbooks, tablets, smartphones and e-readers including applications for Apple and Android devices. (But notably not the Kindle.) Books can be store in online accounts and accessed as one might log into a gmail account.

    What the entry of these new players into the ebook market may mean remains to be seen.

    In our next post we’ll look at how changes in book publishing and distribution have affected readers like you and me.

    Click here to read Onnesha Roychoudhuri’s article “Books After Amazon” in the Boston Review.

    Click here to read the Wall Street Journal’s article “Apple in Talks With Publishers”

    Click here to read Google's blog post, "Discover more than 3 million Google eBooks from your choice of booksellers and devices"

    

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