In one of his first public comments after the news broke last week that Amazon had removed the buy buttons from Macmillan's print books and e-books to protest the publisher's move to an agency model to sell e-books, Macmillan CEO John Sargent said the change was more than just about e-book prices; it was about establishing viable business models for the decades ahead in which print and digital book content will be important to readers and publishers. The new business model, Sargent wrote in his open letter to agents and Macmillan authors, must encourage healthy competition, and be stable and rational. The model “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.”
Hachette CEO David Young struck much the same chord when he sent his letter to agents late Thursday outlining Hachette's plan to move to an agency model. Like Macmillan, Hachette will make less money on e-books sold under the agency model, but Young stressed that the publisher “is taking the long view on e-book pricing, and this model helps protect the long-term viability of the book marketplace.”
The Macmillan and Hachette announcements served to answer some of the questions raised at the Digital Book World conference held on January 26—27: what will e-books be priced at, and when should they be released? In terms outlined by Sargent, Macmillan said it will start charging $12.99 to $14.99 for new e-books under an agency model, and this will give Amazon—and all other e-booksellers—a 30% commission. Both Macmillan and Hachette also said they will release most e-books simultaneously with the hardcover.
The three other publishers that have reached deals to sell e-books with Apple through the iPad—Penguin, HarperCollins, and Simon & Schuster—appear headed in that direction as well. Although none of these three houses have announced new terms of sale for e-books, all are certain to do so. In addition to selling e-books through the agency model, these publishers are expected to release most e-books simultaneously with the hardcovers. An S&S spokesperson said the publisher, which in December announced that it planned to delay the release of the e-book editions of 35 of its frontlist titles for three months, will soon move back to releasing most e-books and hardcovers simultaneously. And at the American Booksellers Association's Winter Institute last week, Madeline McIntosh, president of sales, operations, and digital for Random House, said she sees no reason to window e-books. “I haven't been convinced that it's good for the author or consumer to delay the release,” McIntosh said. “My fear is that the consumer who has fully embraced the technology will buy another e-book that is available or lose interest altogether. What if I train the consumer that the best scenario is to get it free?” (RH has no deal with Apple yet nor has it suggested it will soon move to an agency model.)
Others in the industry, however, believe delaying the e-book release is still in the best interest of creating a healthy overall market. Trident Media chairman Robert Gottlieb, who has been outspoken on the need for windowing, said a move to an agency model doesn't change his thinking, noting the release dates should be set on a case-by-case basis, “regardless of any overarching agreements.”
Peter Hildick-Smith, founder of the research firm Codex Group, said windowing the release of print formats has worked well for the industry up until now, and he sees no reason to change that and risk cannibalizing hardcover sales. Hildick-Smith said his data show growing consumer confusion over whether to buy print or digital books. Consumers, he said, are borrowing more of their reading material until they see how the pricing issues will be settled.
Another issue the Amazon-Macmillan fight—dubbed MacmillaZon by one industry insider—led to is a temporary clarity on e-book royalty rates. In an update last week on the dispute with Amazon, Sargent said Macmillan was willing to consider a new royalty rate for digital books, and the Authors Guild later confirmed that the publisher is scrapping its recently instituted 20% rate and returning to a 25% rate on net receipts, which is the de facto industry standard. Agents have indicated they expect to see the royalty rate for e-books go even higher.
Macmillan, by far the smallest of the six largest trade houses, received praise from coast to coast for being the first publisher to stand up to Amazon on its $9.99 price point for e-books, a figure all publishers detest. At the Winter Institute in California, booksellers gave Macmillan a standing ovation when association president Michael Tucker commended the publisher for standing up to Amazon's pricing. On Twitter the hash tag #supportmacmillanauthors cropped up, as industry watchers championed books—and where to get them—by those most damaged in the showdown, the authors who had the “buy button” on their books removed from Amazon. And, early last week, the Authors Guild posted a message on its site saying the fight was a necessary one, while the Association of Authors' Representatives applauded Macmillan for implementing new terms, noting that it has always believed new works should carry the highest prices.
Not all parties backed Macmillan, however. In the only public comments made last week by Amazon, the Kindle team posted a blog entry saying they believe the new terms would hurt e-book sales, but that the e-tailer would eventually capitulate since—in a phrase that has mystified publishers—“Macmillan has a monopoly on its own titles.” Reactions from consumers, posting on sites, blogs and forums, to the elimination of the $9.99 price ran the gamut from an acknowledgment that even $14.99 is a pretty good deal on a new title to continued efforts on the Amazon forums to organize a boycott of titles priced over $9.99. The Boycott Anything Over $9.99 forum on Amazon's Kindle Community had more than 7,000 posts late last week, and while the debate is heated, most seemed to lament the move to higher prices.
Amazon's actions further convinced publishers of the need to support competitors to the giant e-tailer in any area. The emergence of Apple and its willingness to establish an agency model with higher prices moved the pricing power back to publishers, at least for e-books. Amazon has been losing money on the $9.99 e-books, but was willing to let them be loss leaders to grab market share, sell more Kindles, and, according to Hildick-Smith, increase the overall amount of money consumers spend at Amazon on e-books and print books. Given the benefits it saw from selling $9.99 e-books, Amazon had been deaf to publishers' complaint that the artificially low price was endangering the entire trade book business model, until Apple came along and provided publishers, and buyers, a digital alternative.