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‘Kindle books at $9.99 may shrink profit margins at publishers’
July 9, 2009 | 9:27 am
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By David Rothman
Again and again I’ve warned that Amazon may be poison for publishers. We’re not just talking about brick-and-mortar bookstores like the Trover Shop, the beloved indie in D.C. that’s going out of business partly because of Jeff B.
But what about Amazon as a threat to publishers?
We already know that Amazon will compete again them to some extent, such as through the AmazonEncore program, which will offer Legacy.
And now, from Bloomberg, comes this analysis on Amazon as a threat to publishers’ margins:
Amazon.com Inc.’s Kindle, which accelerated the adoption of electronic books, may shrink publishers’ profit margins if the online retailer gets tougher about prices it pays for digital titles.
Publishers typically earn about $2.15 per digital book versus 26 cents for a print copy, according to Sanford C. Bernstein & Co. While publishers see digital books as the future, the market is dominated by the Kindle, leaving them vulnerable to Amazon.com’s bargaining power.
Now, before it’s too bloody late, publishers need to stand up to this goliath before it’s too late. A good start would be to threaten to withdraw e-books unless Amazon agrees to make the Kindle able to read ePub, the industry standard. What’s more, publishers should insist that Amazon not use extensions to turn ePub into a proprietary format. Also, publishers should enjoy the right to opt out of Amazon’s DRM without hassles. So far the small house publishing my novel can’t get rid of the DRMed edition.
I’d also suggest that publishers encourage the U.S. Justice Department to maintain ongoing monitoring of Amazon’s policies and practices. The Bloomberg analysis is yet more indication of the need for vigilance. Remember, Amazon may not only shaft publishers but also consumers as its power keeps growing.
Some hope: Amazon’s openness to nonAmazon formats—well, just so they don’t have nasty proprietary extensions. ePub included? Meanwhile for a different perspective on Amazon, see Joe Esposito’s analysis.
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Comments:
I would suggest that Borders and Barnes & Noble might also have helped put your bookstore out of business. You can’t blame Amazon for everything.
You also can’t blame Amazon for dominating the market. There is something called competition and if competitors can’t figure out a way to compete then they don’t belong in the market. There is a popular misconception, which you seem to share, that there is something wrong with dominating a market or having a monopoly. This is simply wrong. It is perfectly legal to dominate a market, or even to have a monopoly, as long as you don’t use unlawful means of getting there. So far I have not seen Amazon violating the Sherman or Robinson Pattman anti-trust laws. If you can get a monopoly through fair competition the law can’t touch you.
If Bloomberg’s numbers are correct–or even vaguely close–it indicates publisher’s double dilemma, and double foolishness. To begin with, if they can earn so much more money per book from digital products, they need to be pushing digital like there’s no tomorrow, closing print shops, and telling those who want paper books, “Sorry (heh)… just go get the e-book version, it’s cheaper!”
It also demonstrates their other foolishness: That of tying themselves to Amazon as if they have no choice in the matter. Selling in your own online store is actually not that hard. If you really don’t like Amazon’s terms, don’t sell through them at all. Amazon has become a Burmese Monkey Trap for publishers who think there’s no other way to sell e-books. If they get pwned by Amazon’s rules and rates, therefore, it’s their own fault.
Hi, Paul. I’d go along with Steve. Meanwhile I’d suggest that B&N is Amazon NOT if for no other reason than it doesn’t dominate the commercial e-book biz–the future of the industry.
I want to see vigorous competition among Amazon, B&N, Google, you name it. I’ll not accuse Amazon of antitrust violations–just suggest that it needs careful watching by those qualified to determine if they are taking place or might if present policies and practices continue.
Amazon’s uue of nonDRMed ePub without proprietary extension would be a wonderful way of showing Jeff B’s willingness to compete fairly.
> If you can get a monopoly through fair competition the law can’t touch you.
But what’s “fair”? That’s the kicker. Also remember that antitrust laws in Europe are probably tough than ours. In the States, if I recall correctly, consumers need to suffer, at least potentially. Europe, last I knew, considered the effect on competitors to a greater extent than the U.S. does. I’d welcome thoughts from you and other other legal minds on these issues.
Thanks,
David, with the standard IANAL disclaimer
I am a bit in Paul’s camp here. Not so much because of David’s thoughts, but because of the reactions that I see on Mobileread, among other places. There are a number of people who carry on about the evils of Amazon.
I’m not sure that Amazon is really that Machiavellian. I suspect they are more disorganized on the inside than they appear on the outside. Furthermore, their real goal is simply to offer an attractive product to consumers that will generate profit for them.
If you removed Amazon from the equation, you’d have a much smaller ebook movement that was still struggling to get a foothold. We should welcome their presence.
If I wanted to write articles about the problems with Amazon’s dominant position I would write it from the opposite viewpoint.
- What’s up with Barnes and Noble. This is their business. Even if ereaders haven’t been viable they should have been experimenting so that the market doesn’t pass them by.
- And how about Borders. The Amazon deal looked like a short term $$ savings, but could anyone believe it was the right move for the survival of the chain?
- Why is Apple taking so long? How many books are sold on the iPhone? I know a dedicated reader might not fit their strategy, but a more book friendly device is long overdue.
- Google I will give somewhat of a pass because they have been pursuing an ebook strategy — whether it is the right one or not, only time will tell.
- Sony also gets a pass because they have a legitimate alternative. My personal opinion (and others will disagree with me) is that they haven’t put it together as well as Amazon, but they are trying.
- But what about, Microsoft, Intel, Texas Instruments, Leapfrog, the Large Publishers (didn’t they pay attention to MP3′s), Dell, HP, the newspapers, the cell phone makers, the cell phone companies, Nintendo, … ?
- All the little startups (Cool-er, Astak, Bookeen) are great, but they don’t really have the resources to innovate in terms of hardware, software, delivery and content. In fact, they are generally just someone else’s hardware rebadged, someone else’s bookstore plus Gutenberg.
Bottom line, is that I applaud Amazon for their efforts to shape the market. It’s time for some other players with resources to recognize the opportunity and to get in to compete.
If the publishers don’t like Amazon’s pricing, why do they enable it?
The publishers *created* Amazon.
The publishers sustain it.
Lets be honest here, the reason the independent “corner” boookstores are dead or dying is twofold: catalog depth and volume pricing.
Both are issues the publishers can control *if* they would get their heads out of the sand and note that this is the 21st century and not the 19th and that a 19th century business model isn’t cutting it. That it is time they earned their keep and stopped squeezing authors and buyers to maintain their fancy lifestyles.
Don’t want Amazon to control the retail market? Then howzabout *not* giving them those massive volume discounts? Howsabout helping their competitors match their catalog?
If profit margins are squeezed could it be because their costs are not in line with the value they add to the product? When publishers have for decades been cutting back on the value they add to their product, practically abdicating content acquisition to agents, relying on retailers to front promotional efforts, outsourcing the printing and transportation of the treeware, cutting back on editorial support to writers; *Why* should they be paid the same or *more* when they do *less* to earn their keep?
Is there some natural law that grandfathers 19th century publishing houses unto eternity?
Times are tough all over; the mammals are rising, if the dinosaurs can’t keep up they *deserve* to die.
My heart fair bleeds for the big publishing houses and their high pay corporate execs and shysters in their fancy Manhattan, London, or Toronto high-rises.
Not!
Oh please. Since I got my Kindle I’ve been buying way more ebooks than I ever bought print books. I’ll probably never be able to read them all. Just publish good books at reasonable prices, and you’ll do well. Go Amazon!
Felix and Michael
F: Totally agree that the publishers could do much to turn things around. Exactly why I wrote what I did!
M: Perhaps Amazon’s hardball tactics are one reason why other companies have not devoted as much to the fight as you’d expect them to.
Thanks,
David
One thing left out of the discussion is whether Amazon is losing money on ebooks and the Kindle. Based on reports, it certainly is on NYT bestsellers at $9.99. The small local store can’t compete with such pricing over the long-term. Is that fair competition?
And what about Amazon’s insistence that 1-click shopping can only be had if you agree to Amazon’s POD service? Is that fair competition?
As for Amazon being evil, well that is in the eye of the beholder. Although I wouldn’t call Amazon evil, i also won’t buy anything from it.
David your “anti-Amazonionness” never ceases to entertain.
From the article:
“Publishers typically earn about $2.15 per digital book versus 26 cents for a print copy,…”
Yeah…blame Amazon for playing hardball with one of their suppliers. It seems at least one category of their suppliers (publishers) is just begging to be hit with the reality stick.
But yeah…its much simpler to blame the woes of an industry that takes every opportunity to shoot itself in the foot on Amazon.
Publishers are definitely not hurting from the $9.99 pricing policy, if the numbers quoted in an earlier TeleRead post are correct: Amazon is subsidizing all those books that cost more than $10 and less than $22, if I recall aright.
Now as to ‘fair marketing practices’ this is exactly what foreign companies are accused of, when they sell TVs and steel and other things here for less than they cost to make. The practice is called ‘dumping’ and is forbidden under trade agreements. The idea is that a company profitable in X uses those profits to sell Y below cost. Competitors are driven out of business, then the company raises the price of Y so that it is profitable.
Believe me, David, the publishers are the greatest fools on earth if they haven’t studied the record labels’ unhappiness with Apple’s iTunes flat rate prices. (Note that I’m not saying that the publisher are NOT the greatest fools on earth, however…)
But what companies are being hurt now by those subsidized Amazon prices? Sony, and other ebook reader device-makers, who don’t have huge profits to subsidize their sales of texts in an effort to compete with Amazon’s aims at cornering the market.
Amazon has always done this, though. From the very beginning, Amazon lost money, tons of it, for several years, trying to build market share. This is just how Bezos thinks. You always assume last campaign’s winning tactics will bring future success, until you are proven wrong.
And I don’t really see how epub is an effective counter-move on the part of the publishers. A far better and simpler one would be just to deny Amazon Kindle editions for best-sellers at that price.
Doing that, though, would bring in the publishers less profits than they are now winning. They would have to be gutsy and wise and dead certain that this would be a winning strategy in the long run.
From what I know of publishers’ costs – and I’ve worked for publishers – they can definitely make money if their e-books are sold at $9.99 or thereabouts. (I’ve seen recent quotes from publishers which play down the costs of physically publishing the book, which are hilariously misleading given the fact that they totally leave outs the costs of returns and other costs in the world of physical books that aren’t included in the printing and shipping to stores calculations that are trotted out) Unfortunately, I don’t see all that much of a role for bookstores in the long term; they just aren’t necessary or particularly useful to sell e-books. That’s not to say all bookstores will die, but most will.
Personally, however, I’m not embracing the Kindle; I’m not going to buy e-books that come in a proprietary format that could disappear in the decade. But I expect that there will be an e-book format I’m willing to use within the next 5 years, and then I’ll probably switch most – never all – of my book buying to to that format.
I’ve read a few articles on e-publishing (books, newspapers etc.) lately, and changing business paradigms, and I’ve seen some good points that make sense to me, that the crux of the matter is that e-publishing (and e-sales in general) is a technology business, not a writing or editing or art business. The content is just a commodity. It could be a best selling novel, it could be a song, or a movie. The product has no real physical manufacture, storage or shipping cost. Therefore once the cost of producing the original item is taken out of the equation, whomever puts the best sales channel in place wins, and that comes down to technology (and related skills). Online marketing (site usability), database and server optimization, e-payments, device compatibility etc. These are the key factors. Publishing management has generally been dealing with shipping, returns, paper weight, ink costs, trim sizes, warehousing etc. for the past several decades. They generally have no clue when it comes to how DRM affects a customer, or the screen resolution difference between a typical desktop and a typical eReader etc. etc.
The barrier to entry for self selling eBooks effectively for publishers IMHO is knowledge, and I just don’t see current management gaining that knowledge. It’s also unlikely they’ll all be fired and replaced. I think it will be a matter of the companies surviving (or not) till they are replaced via natural attrition.
I work for a large publisher. To quote our divisional president at a recent company meeting “Head office says we have to become a technology company – whatever that means?”
Inspiring words, and a clear vision of the future I must say!
We don’t even have a document check-in check-out system here, or enough server space to hold day to day projects. I have a stack of external drives under my desk to hold stuff instead! I had to use a personal FTP account to send a job to an overseas vendor because the company FTP was out of space (it generally is). And we’re one of the worlds largest publishers!
Creating and selling eBooks comes about as naturally to publishers as writing and selling software. As the world goes to “e” I see publishers morphing into editorial (including permissions) and promotional services houses. The actual production and sales will be done by a technology company.
Although for quite a while there will be a role for a general publishing house to work on the production of more technical/specialized books.
I think B&N buying eReader is significant. eReader’s representatives have said (on this very website) that their goal is to have eReader software available for every device, both dedicated reading devices and non-dedicated devices such as smartphones. I would think B&N has plans to link into that and offer ebooks through eReader, readable on a variety of devices, not just the walled garden of Amazon. I wonder if they will sell a dedicated device? If so, it must have wireless download capability to compete with Amazon. Most people I know who buy a lot from B&N are members of the discount club (I don’t buy enough to make it worth it–I tend to spread around my custom, and frankly I’m not buying a whole lot of “pbooks” these days) and if B&N sells a relatively inexpensive device, perhaps even a rebranded Jinke or Netronix device, provides wireless access, AND lets B&N members use their discount, they can make a real run at Amazon in the ebook field. And I’m sure they’ve already thought of that.
Robin:
Wow! That explain a lot.
I’ve been wondering if the big publishing houses still used Wang or DisplayWrite and it looks like they do.
FTP for file storage?
How… ’70′s…!
No wonder Adobe is taking the publishers to the cleaners!
(Somebody ought to tell Microsoft; sounds like an outfit ripe for the Sharepoint sales pitch.)
Anyway, sounds like your managers have it completely wrong: the road to survival isn’t to become a technology company–there lies a quicker death–they need to recognize that they are in the Information business. As you said, Content is what matters; *that* is your product. They need to identify where they are going to find/create content and how to add value to the authors *and* the readers. They need to understand that ebooks are no more electronic books than cars are horseless carriages.
Reminds me of a sad old joke about paradigms:
“How do you teach an old physicist new tricks?”
“You don’t. You take ‘em out back, shoot ‘em, and hire a young physicist.”