Is Anyone Going to Profit from Macmillan’s Victory?
A little more than a week ago Amazon removed all of Macmillan’s books from their virtual bookshelves in order to put pressure on said publishing group. The move was Amazon’s reaction to a dispute with Macmillan over the current eBook pricing scheme, which caps the price for any eBook at $9.99. Macmillan asked for more flexibility in order to be able to raise the price for eBooks up to $14.99 (especially at the beginning right after the release of a book). Later another publisher (Hachette) demanded similar terms.
Friday night then, Macmillan’s books (printed and digital ones alike) started to return to Amazon’s online store. Apparently both parties finally reached an agreement: publishers can now freely fix prices for their eBooks (all the way up to $14.99); they’ll collaborate with Amazon based on an “agency model” where Amazon receives a fix 30% commission on every sale.
Now, I’ve already written a rather long article about how authors and publishers could profit from this new agreement because it gives them more flexibility and higher margins to work with. However Paul Carr over at Techcrunch offers a whole new (insider) perspective on the issue. And I must say that this is the single most interesting article I’ve read in a long time, not only because of the way it’s written but because his arguments are based on true insights into the publishing industry.
The real source of income for publishers nowadays are hardback sales:
The fact is that printing a hardback book, as opposed to a paperback, costs a matter of pennies more. But there is a perception amongst book buyers that they are far more expensive, a perception that it has been in no one’s interest to correct as it allows them to be sold for twice the price of paperbacks. Even with booksellers demanding deep discounts, the publishers still make a ton of profit on each hardback sale.
Since more and more people are getting an eReader (typically the consumers that have enough money for hardbacks) and since eBook sales are soaring, Amazon could have truly undercut hardcover sales by offering eBooks at $9.99. That’s why Macmillan asked to be able to price eBooks at $14.99 at the beginning. But the question is, is this actually going to help anyone?
According to Paul Carr it isn’t. Amazon on the one hand is obviously worse off. They didn’t have a chance but to give in to Macmillan and Hachette’s demands since they wouldn’t be able to sell their Kindle without the books of major publishing groups available on it and alternative eBook sources being just about a click away. In any case, compared to the previous situation, Amazon is going to lose money by applying the new agency model which reduces their earnings to a simple 30% commission and prevents them from luring customers with discounts.
But what’s interesting, is that this short term fix for the “hardcover issue” is probably going to fire back at publishers and authors REALLY quickly as well. The eBook market is entirely new and fairly untouched by piracy still. But as soon as consumers (who paid a lot for their precious eReaders in order to get their quick fix on books instantly) meet the pricing barrier that tries to force them into buying hardcovers, most are going to consider the option of turning to illegal downloads. And actually, I think most will – at least at the beginning. The development of the mp3 market is somewhat comparable to this and it is likely that we’ll see an explosion of piracy on the eBook market soon as well.
So probably the new agreement won’t be seen as a victory for long. Basically we are looking at a long term development where the traditional income source for publishers is going to disappear; where they’ll have to find other means to subsidize the parts of their businesses which generate losses and quite frankly, they’re probably going to do that by skipping “bookstores” like Amazon altogether and offering eBooks directly in the future.
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Girl Goes Tech (GGT) is about a 26-year-old, female tech-addict exploring her geeky side and writing about social media, mobile trends and applications.