2020 history class: the missing Macmillans

 This is a fictional  classroom textbook excerpt from the year 2020.  It’s my attempt to speculate about what may happen as a result of the apparent disagreement between Macmillan and Amazon which has resulted in Macmillan’s book’s being withdrawn from direct sale on the Amazon website. 

Literature 101: the “Missing Macmillans”

The events that led up to what became known as “The Seattle E-party” are a classic illustration of the attempts of old establishments to hold on to power in a changing world.  History pivots on individual events.   It is not always the direct impact, but the symbolic that guides the future.

In 1843, two brothers formed a publishing company.  This company would grow through a century and a half to become a mighty international corporation.

In 1994, Jeff Bezos formed Amazon.com, an online bookstore.  In half a decade, it had itself become an important way for people to get what they wanted and needed through the convenience of the internet.

In 2007, Amazon introduced the Kindle, an e-book reader.  It became successful as no EBR had done before it.  It opened up the market that led to the mainstreaming of the medium that we see today, in  2020.

One of the primary reasons for its success was the then low pricing of $9.99 on popular and bestselling books.  Amazon realized that people would need an incentive to try the new technology after hundreds of years of books made from paper.  They were willing to take a loss on individual sales in order to allow readers to realize that books were the words of the author, not just the container in which those words were delivered.

This strategy was very successful, and before too long, the e-book market was experiencing explosive growth.  It was clear that the percentage of books bought and read electronically was going to become significantly larger over the next few years.

Publishers set their list prices for e-books at the same amount as for paperbooks.  While e-books were undoubtedly somewhat less expensive to produce, many of the costs of development were the same. 

The publishers saw the public and the retailers embracing the $9.99 price point.  Barnes & Noble and the Sony e-book store met the price Amazon had set.  Readers began demanding that no e-book should cost more than $9.99.

While reaping the benefits of the increased sales brought about by Amazon’s pricing leadership, publishers saw a risk in the future, when $25 for a new book would seem unreasonable.   When readers saw an e-book as a “regular book”, they would be hard-pressed to see why they should pay fifteen dollars more to have a copy of the book on paper.

Ten dollars  retail would not be a price that would cover the costs of production of a paper book.  The publisher, under the traditional fifty percent wholesale, would only be getting five dollars a book.

Then, the iPad from Apple was introduced.  Apple was not a bookseller the way that Amazon was.  They knew their expertise wasn’t in setting the price of books.   They knew they wouldn’t be able to determine what books could be set at a reasonable profit to allow for the continuation of the $9.99 price point.  They also needed to woo publishers to their new product.

Apple offered publishers seventy percent, instead of fifty.  More significantly, they agreed to allow publishers to set the price for the books.

Apple, being primarily a hardware maker, was more interested in selling the machine than the content.   Apple could be happy with someone just buying an iPad, and possibly a dataplan. 

Amazon, on the other hand, was primarily a content provider…they sold books.  It was more important to them that people continue to buy books after they bought the Kindle than it was to Apple that people bought books from iBooks after buying the iPad.

The publishers, naturally, wanted the same deal from Amazon that they had gotten from Apple.  If they could set the prices at all the stores, they could raise them beyond the $9.99.  This would let them keep the prices higher on hardbacks as well.

But wholesalers don’t set retail prices.  That eliminates competition between the stores.  Retailers lower prices for a variety of reasons.  One of the key drivers is to bring people to your store, rather than your competitors.   If the “other guy” sets the price to $15 and you set it to $12, more people may choose your store.  You may make a lower profit per item, but while the people are in your store, they may buy other things.  They may establish a loyalty that keeps them coming back for other items.  It might even be worth it to lose money on an item to get the people to come to you. 

What were the publishers to do?  The answer was to redefine the relationship.  The  publisher would no longer be a wholesaler selling items to a retailer which would then resell them to the public.

The retailer would be redefined as an “agent” of the publisher.  The agent would represent the publisher in dealing with the public.

The agent would get thirty percent of the sale price, which would be set by the publisher.  The agent would have less to do than a retailer traditionally did: more would be done by the publisher, such as gauging public demand to calculate successful price points.

Macmillan would take on the responsibility and the power of setting retail prices.

Amazon objected to this.  Amazon’s expertise was in retailing.  They wanted to the flexibility to price their products where they thought it would be most effective.  It was their pricing that had taken the e-book market from a marginal specialty item into the mainstream. 

This market was still in the early stages.  It was going to take retailing expertise to take it from well under ten percent of publishing to more than fifty percent (where it stood in 2015).

In late January 2010, the same week as the iPad’s introduction, things were at an impasse.  Macmillan was insisting that Amazon become an agent of theirs under their terms, rather than continuing in their role as retailer.

The publisher told Amazon that the new deal would commence in March.  If Amazon chose to retain their existing role, and price books as they thought was appropriate, Macmillan would withhold the e-book releases from them.  iBooks, Barnes & Noble, and Sony would presumably get the e-book releases on the same day as the hardback, if they chose to become agents.  Kindle customers would have to wait weeks or months to have the opportunity to buy the same titles.

Amazon could see that, if they gave in, other publishers would follow.   E-book prices would rise, perhaps too quickly too prematurely to firmly establish the market.   Kindle users would be angry to see a sudden significant rise in book prices.  Amazon could not continue to advertise that many bestsellers and new releases would be $9.99.

More was at stake.  Paper book prices were going to inevitably increase.  Paper would become more expensive, as was the case with many natural resources.  The cost of delivery of a physical product was also likely to rise.  Eventually, books would become luxury items, as they were before dime novels and penny dreadfuls. 

The future availability of books depended on keeping production and delivery costs at a point where they would be affordable to anyone who wanted to read them.

On Friday, January 29, 2010, Amazon stopped selling all Macmillan books at the Amazon website.   It was not worth it to carry those titles in order to surrender pricing control.  

A hue and cry arose from the populace.  Amazon was villified for keeping books from readers.  What was obvious to most people was that the book they wanted to read wasn’t available.   It was, in a sense, like a public transit strike: all that many people see is that they can’t get to work as easily.  The factors that led to the strike are not always first on your mind when you are driving to work with a hundred thousand other people

The issue was not resolved, and the books were not restored to the store.

Amazon took a short term loss, as did authors and readers.  Macmillan stayed with their agency deal with iBooks.

Some other publishers took a similar position.  Amazon also stopped selling their books.

Readers were angry.  Some of them sold their Kindles to buy other devices.

Shares of Amazon dropped.  Despite strong performance, the public perception was that Amazon had lost.

The iBooks store opened as expected, and high iPad sales figures were tweeted. 

Over time, however, an interesting trend developed.

Readers began to develop new habits.  Many of them owned both an e-book reader and an iPad.  Given a choice between a fifteen dollar book from an author they knew and a ten dollar book from a well-reviewed new author, they began to explore more possibilities.  They loved reading, and their horizons broadened.  They began to go back to read classics (many of them, such as Kipling, Carroll, and Tennyson had ironically been published by Macmillan in the nineteenth century). 

Price alone does not a market make, though.  Nothing would make consumers totally forego the new and the familiar.

Fortunately, another factor was the growth of independent e-publishing.  Reluctantly at first, some established authors began to publish books without the traditional publishing houses.  This was not an easy decision.  They were grateful to the companies that had mentored them, that had first made them known.  They had old friends in the publishing industry, especially editors who had helped them make their books better…who had made them better authors.

Slowly, though, some brave authors just wanted to reach their readers.  They didn’t want to be part of the politics of publishing any more than they had wanted to do the things publishers had done for them.  They were artists, for the most part…business was not what had brought them to create.

A new type of “author’s partner” rose.  The author retained the rights, and published the books through independent platforms, like Amazon’s own Digital Text Platform, and Smashwords.  These Author’s Partners, sometimes people who had left successful careers with the publishers, would edit, proofread, and handle the legal issues.  The authors, in turn, would pay them for these services…sometimes a set fee, sometimes as a percentage of the sale.

This was possible because independents received a much higher percentage of the sale of the book than they did with a traditional publisher.  Once the twin barriers of production and distribution were removed, it became possible to publish without a giant corporation.   The author could share those revenues with others who contributed to the book.

Authors also had retained the rights to many “backlist” titles, some of which had been allowed to fall out of print by publishers, for which it didn’t make economic sense to keep physically printing small runs.  Readers who wanted something that had not read by a well-known author had that need met…even if it had been written twenty years earlier. 

Legislative changes around so-called “orphan books”, those that were still under copyright but for which rightsholders could not be located, resulted in the republication of books as e-books which had not been available for years.  These orphan books did not require rights negotiations, and were often published by independents.

Independent publishers, who had found difficulty getting into physical bookstores, were able to compete in the digital world.  Some of those which had a small presence in the early 2000s became power players in the 2010s.

These factors created a new variety of reading options:

• Well-known authors who independently published new works
• Established authors who independently published backlist works
• Unknown and lesser known authors who independently published new works
• Public domain works often made available for free
• Orphan works made re-available
• Independent paper publishers which moved aggressively into the e-publishing market

In this new, more complex marketplace, Amazon thrived.  By being the only major distributor with lower prices, they bounced back from the temporary loss of the “Seattle e-party” of 2010.   Publishers who embraced the new technology also succeeded, and readers became less tied to specific types of books. 

This led to the relatively inexpensive and worldwide distribution of books which we see today in 2050.

—

Is this really how it would go?  Maybe, I’m just speculating.  🙂  It’s possible that Amazon’s e-book business will simply be crushed by the new model, and that they get out of that field.  They have a lot of segments to their business, including electronic storage.  I think it’s unlikely, though.  My guess is that Amazon will continue to be a major player.  I do think independent publishing of some sort is going to become an increasingly important factor.  That is what I think Macmillan may be missing.  They may feel like they (and the other major publishers) are the only purveyors of what the public wants to read…right now, they certainly have the lion’s share.  I’ve always felt that industry leaders lose that position not when they underestimate the competition, but when they overestimate the public’s loyalty to them. 

I have invited Macmillan to contribute a statement to ILMK.  I like publishers…I have bought books because they came from a specific publisher, for example.  In my ideal world, nobody loses, but it just doesn’t always happen that way. 

I’m sure some of you will see the possibilities very differently.  The iPad looks cool: it has color and video.  Apple has a pretty good track record, and if someone wanted to give me an iPad, I’d take it in a heartbeat.  It’s possible that people are willing to pay fifteen dollars for an e-book, and that they don’t care that much about the passive lighting and long battery life of EBRs. 

This is fiction, not prediction.  Yes, I have a message in it, but I freely admit that it may go very differently from this story.  I’m interested in what you think…feel free to comment on this post and let me know.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog