Amazon vs Book Publishers

As many are already aware, there is a fight being waged to control prices of digital books. Amazon initially set prices lower than their own costs to boost sales and popularity of their Kindle e-reader. The Amazon $9.99 price for all digital books upset publishers who said this would destroy the publishing business...The publishers desired a so-called "agency model" that would let them set prices and have Amazon act as a vendor or retailer who would get 30% for selling.

Simply put, my dear interested readers (and I KNOW there are many out there!), we have two adversaries with very different motivations. One wants to set lower prices and accumulate a large content inventory (question quality) to sell digital devices. NOT good for writers...While the other wants the power to set high enough prices to pay for good talent to produce future quality content that will result in higher profits realized from content-driven work rather than "at-the-moment" digital devices. GOOD for writers.

Donald Marron, The Christian Science Monitor, says this about the subject waging war:


What will the future of publishing be as the book world goes digital? The latest battle between Amazon.com and book publishers may offer a hint.

Over at the New Yorker, Ken Auletta has a fascinating piece about the future of publishing as the book world goes digital. Highly recommended if you a Kindle lover, an iPad enthusiast, or a Google watcher (or, like me, all three).

The article also describes an unusual battle between book publishers and Amazon about the pricing of electronic books:

Amazon had been buying many e-books from publishers for about thirteen dollars and selling them for $9.99, taking a loss on each book in order to gain market share and encourage sales of its electronic reading device, the Kindle. By the end of last year, Amazon accounted for an estimated eighty per cent of all electronic-book sales, and $9.99 seemed to be established as the price of an e-book. Publishers were panicked. David Young, the chairman and C.E.O. of Hachette Book Group USA, said, “The big concern—and it’s a massive concern—is the $9.99 pricing point. If it’s allowed to take hold in the consumer’s mind that a book is worth ten bucks, to my mind it’s game over for this business.”

As an alternative, several publishers decided to push for an “agency model” for e-books. Under such a model, the publisher would be considered the seller, and an online vender like Amazon would act as an “agent,” in exchange for a thirty-per-cent fee.

That way, the publishers would be able to set the retail price themselves, presumably at a higher level that the $9.99 favored by Amazon.

Ponder that for a moment. Under the original system, Amazon paid the publishers $13.00 for each e-book. Under the new system, publishers would receive 70% of the retail price of an e-book. To net $13.00 per book, the publishers would thus have to set a price of about $18.50 per e-book, well above the norm for electronic books. Indeed, so far above the norm that it generally doesn’t happen:

“I’m not sure the ‘agency model’ is best,” the head of one major publishing house told me. Publishers would collect less money this way, about nine dollars a book, rather than thirteen; the unattractive tradeoff was to cede some profit in order to set a minimum price.

The publisher could also have noted a second problem with this strategy: publishers will sell fewer e-books because of the increase in retail prices.

Through keen negotiating, the publishers have thus forced Amazon to (a) pay them less per book and (b) sell fewer of their books. Not something you see everyday.

All of which yields a great topic for a microeconomics or business strategy class: Can the long-term benefit (to publishers) of higher minimum prices justify the near-term costs of lower sales and lower margins?