The Empire Strikes Back

Whatever else may be happening in the book business these days, it’s now clear that the publishing industry has decided to fight back on the fundamental issue of pricing its products. It’s also clear that this is a concerted effort, as against the general aimless flailing demonstrated over the previous six months.

After a protracted price decline took hold last fall and accelerated toward the holiday season, the core issue of product pricing came to a head at the end of January when Amazon pulled Macmillan’s titles from its site rather than agree to Macmillan’s demand that e-book prices be raised. (Amazon has an interest in keeping e-book prices low because it spurs demand for Amazon’s e-reader, the Kindle.)

Despite Amazon’s large customer base and beloved-brand status, after only a few short hours people began excising Amazon’s dead links from the consumer loop and pointing those links to other sites carrying Macmillan’s products. Demonstrating once again the shallow loyalty of online associations, as well as the vast difference between hosting and controlling a social network, Amazon was also reminded that even though it is (or rather was; more on this in a moment) one of the publishing industry’s biggest wholesale customers, from the point of view of the end user it’s just another easily replaced retailer. (Because of its Kindle e-reader Amazon is also a direct competitor for publishing dollars, further weakening the publishing industry’s interest in supporting Amazon’s pricing decisions.)

Sufficiently humbled by the experience, Amazon relented, providing everyone an opportunity to draw the wrong conclusions about who won and who lost even though the jury is still out. The only issue that was settled was the question of who will be calling the shots on pricing. Whether those prices will be met or rejected by consumers remains undecided, and it remains the obvious basis on which other interested parties can attempt to compete.  

Impressively — particularly given previous stumbles — the publishing industry quickly signaled that it does not intend to allow the question of consumer sentiment to be answered in a vacuum. Ten days after the Amazon/Macmillan dust-up, beat reporters at the New York Times ran an article about how an uptick in publishing prices might be received by consumers:

In the battle over the pricing of electronic books, publishers appear to have won the first round. The price of many new releases and best sellers is about to go up, to as much as $14.99 from $9.99.

But there may be an insurgency waiting to pounce: e-book buyers.

Without mentioning Macmillan by name, yet reflecting the conventional wisdom that Macmillan had cleaned Amazon’s clock, the article defined the new front in the battle to control book prices as one between consumers and publishers. Would consumers meet publisher pricing demands for both physical content and e-content? Marion Maneker, a publishing-industry insider and beat reporter for Slate/The Big Money, immediately attacked the Times’ reporting:

The standoff over e-book prices can best be seen in this needlessly provocative New York Times article. Motoko Rich and Brad Stone rehash some well-worn arguments.

Several days after that NYT piece, Michael Hyatt and others reported on an equally dismissive industry note from Publisher’s Marketplace/Publisher’s Lunch (subscription) owner Michael Cader:

[Mr. Cader], the editor of Publishers Lunch Deluxe, took issue with the article, noting that “some people will automatically take it seriously, despite the anecdotal reporting and absence of any data.” He then exhorted,

[P]ublishing people who care about these pricing discussions need to get in the online forums and start issuing press releases and find other ways to address readers honestly about price. The price landscape, and shift to an agency model, is honestly baffling to most people and there are a lot of price myths out there.

Marion Maneker again weighed in on exactly that point:

Publishers say the physical costs of a book—paper, printing, warehousing, shipping and handling returns—account for only about 10 percent of the total. Digital distribution does not erase the need to spend on author advances, editing, marketing, and other functions.

Yes, Virginia, that can be true.

A few days later, The Consumerist pushed back and the battle was on. Agent Richard Curtis, a powerful voice in the publishing industry, posted a blog post on Cader’s call to educate the civilians. Digital Book World picked up The Consumerist scrap a few days after that.

A week later — this past weekend — one of the Times’ reporters published a piece attempting to detail the pricing of e-books. The piece was framed in exactly the manner that Mr. Cader had called for:

But publishers also say consumers exaggerate the savings and have developed unrealistic expectations about how low the prices of e-books can go. Yes, they say, printing costs may vanish, but a raft of expenses that apply to all books, like overhead, marketing and royalties, are still in effect.

All of which raises the question: Just how much does it actually cost to produce a printed book versus a digital one?

Marion Maneker again weighed in and dismissed the Times’ reporting, downplaying the threat posed by e-books, while The Atlantic’s Michael Kinsley yukked up the numbers.

In my own view this Times’ story did nothing to shed any light on actual industry costs and profits for either books or e-books. If anything the cited numbers simply validated traditional costs associated with the publishing business, including conventional overhead, despite the fact that the digital revolution is clearly picking up steam. While this self-serving view of costs is certainly a positive sign for people who draw paychecks from publishing companies, consumers remain under no obligation to support a pricing lifestyle to which the publishing industry has simply become accustomed.

However, I do believe two conclusions can be drawn from the sum of these events. First, over the past thirty days the publishing industry has finally taken a strategic stand. That stand is predicated on publishers controlling the price of their goods in the marketplace, to such a radical extent that a new business model is being embraced. Called the agency model, retailers will now get a percentage of the price of each transaction (as a real estate agent or literary agent does), rather than purchase goods at wholesale and then set their own retail price.

(As mentioned earlier, it is in this sense that Amazon is also no longer a wholesale customer of the publishing industry. Interestingly, the agency model is the same model that Amazon and Apple employ with other content providers. Amazon charges a percentage for selling self-published books through its online store, and Apple does the same for music and apps on its iTunes and iPhone sites.)

Second, it looks as if Macmillan CEO John Sargent, fresh off his Amazon-humbling (if potentially short-term) victory a month ago, has become the de facto spokesman for the publishing industry. Following the full-court public-relations and press offensive documented above, which was clearly intended to secure control of pricing and legitimize prices in the eyes of consumers, Mr. Sargent signed his name to a blog post on Tuesday that further addressed some of those issues. The post appeared on a new [and now defunct] Macmillan blog that was apparently launched expressly for that purpose.

As interesting as it is to note what’s being said, it’s equally telling that there seem to be no dissenting or off-message voices coming from the other publishing firms. Whether Mr. Sargent’s fellow CEO’s will remain silent for long is a legitimate question, as is the degree to which the industry can hold the line on pricing when each individual company stands to profit (at least in the short term) by undercutting others on price.

Leaving aside conspiratorial or anti-trust concerns about price fixing or collusion, it seems to me that the publishing industry has finally gotten control of its message, and I think that’s probably for the best. Market forces will play out regardless, but calming the waters will allow people affected by the changes taking place in publishing to consider their options, and that’s particularly important during this time of ongoing macroeconomic uncertainty. They bought themselves some time, but they still have to make the transition.

As to what this all means for me, or for anyone interested in publishing directly to readers, it means that prices will stabilize a bit more, affording independent authors a better chance to figure out what their own products are worth in the marketplace of ideas. It also probably means that new opportunities for writers will continue to grow both inside and outside the traditional publishing pipeline, as corporate publishers move to embrace (rather than become remaindered by) digital alternatives.

— Mark Barrett