The Most Unkind(l)est Cut of All: Amazon Gets Gangsta with McMillan

NOTE: This story continues to develop by the hour. Check the end of this blog entry for updates.

Last this past week, a number of authors were surprised to discover their books gone from Amazon’s website. Quite a few authors, in fact: it turns out that Amazon had pulled all of the publishing giant McMillan’s books. (McMillan’s many imprints include Farrar, Straus & Giroux and Henry Holt.)

Why? Because McMillan had just presented Amazon with new licensing and pricing demands. According to Engadget, McMillan’s new proposed deal

gives retailers a 30% commission and sets the price for each book individually: digital editions of most adult trade books will be priced from $5.99 to $14.99 while first releases will “almost always” hit the electronic shelves day on date with the physical hardcover release and be priced between $12.99 and $14.99 — pricing that will be dynamic over time.

Amazon sells e-books for its Kindle device for $9.99 and intends to hold fast to the $9.99 price point — so fast that its response to McMillan’s “hey, how about these higher prices?” was “hey, how about we kick you off our website?”

Author Charlie Stross explains that Amazon expects a bigger piece of the supply chain for e-publishing. Amazon currently licenses the digital rights for books from publishers and produces their own e-editions for the Kindle, for which they set their own prices. The terms of these deals are always the same, and quite restrictive, and, as we pointed out last Tuesday in discussing Amazon’s new licensing terms, this approach marginalizes publishers. McMillan, on the other hand, essentially wants to produce its own e-books and sell them to Amazon just like it would sell them physical books, with a higher list price already attached, an approach that keeps publishers in control. Amazon doesn’t like this approach, but unsurprisingly, Apple, which is trying to round up e-book content for its new iPad, is on board with the publisher-centric model.

McMillan is such a big publisher that if it obtains leverage with Amazon, other publishers will try the same thing, because Amazon, despite their apparent goal of taking over the publishing industry, still needs books to sell right now. As a result, Amazon is playing serious hardball, betting that McMillan can’t afford to give up virtual shelf space at the world’s #1 book retailer just to get better deal terms for its e-books. According to Amazon, publishing on the Kindle is an offer publishers can’t refuse.

Over at BoingBoing, author Cory Doctorow, an outspoken advocate of a more liberal approach to copyright who at times likes to give his own books away and as a result has butted heads with Amazon after requesting alternative licensing schemes for his books, points out that if e-book sellers would simply allow publishers to choose digital rights management (DRM) protection for their titles, rather than having it forced upon them, users could switch e-book platforms without losing access to their own e-libraries, allowing publishers to choose between e-reader sellers and allowing e-reader sellers to more easily steal customers from each other.

Amazon, of course, pursued the DRM-free route in order to break into the MP3 business against Apple’s iTunes store, since Apple had the competitive advantage in music. Amazon, on the other hand, has the competitive advantage in bookselling, so it’s hoping to lock e-books up inside its walled garden for as long as it can get away with it.

Doctorow’s DRM-optional approach is a nice idea, but Doctorow is presumably well aware that the market for e-books, like the market for cellular phone service, is an oligopoly. Oligopolists like Amazon hold so much power in the market already that they have no reason to throw the doors open to more competition without good reason. A DRM-optional approach might be pursued by some upstart in the market with little to lose, but not Amazon.

Doctorow also points out that $15 is a damn high price for a e-book whose cost of reproduction is basically zero. Our own sense is that consumers have a strong intuition regarding the lower reproduction cost of any digital product with a physical analogue, and expect the digital version to be much cheaper, even if most of the production cost of the product is in the labor used to produce it (true of both books and music). If Amazon doesn’t back McMillan down, we wish McMillian good luck with its first round of top-shelf $15 e-books, which we hope will be so outstandingly compelling that consumers won’t wince even a little at the price.

EDIT: It’s looking like Amazon will cave to McMillan, an interesting about-face given the degree of the threat Amazon posed to the publishing conglomerate. I guess Amazon needed books to sell as much as McMillan needed a place to sell them?