John_Sargent_110._V247628222_ CEO John Sargent of Macmillan has posted an open letter to Macmillan authors, illustrators, and literary agents giving Macmillan’s side of the dispute with Amazon. He talks about wanting to create “a level playing field” on which all device manufacturers can compete. He provides the details of what Macmillan wants to accomplish:

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Of course, Amazon knows that consumers are reluctant to pay over $9.99—and wants to keep that low price advantage to better compete with the iPad.

“Perceived High Prices”

There is no better illustration of this than the way authors who dare to complain about Amazon’s behavior or support Macmillan’s pricing position are, rightly or wrongly, being attacked in comments on their blog posts or forum discussions as cheap bastards. (Examples: John Scalzi, Charlie Stross, Jeffrey A. Carver.) Of course, given that their livelihoods are on the line, it is entirely understandable they would be worried.

Ironically, just a few days ago Paul Biba reported from Digital Book World that Macmillan President Brian Napack said (emphasis mine):

Piracy happens when motivation meets opportunity. Motivation: love of authors, genres; perceived high prices; lack of availability; restrictive formats; distain for media companies. Opportunity: more digital content; more file sharing sites, broad availability of titles, more pirate ready devices.

So what’s Macmillan’s solution to those “perceived high prices”? Raise them! (And I don’t see them doing anything about “restrictive formats”, such as asking Amazon to leave off DRM, come to think of it.)

Resale Price Maintenance

Personally, I tend to get a little suspicious when I hear about the CEO of a company wanting to “make less money” so someone else can “make more money” in the name of altruistically looking after the viability of the market.

Corporations don’t exist for the purpose of ensuring market viability, they exist to make a profit. If a CEO is talking about intentionally making less money, something does not add up. Anyway, shouldn’t Amazon be free to decide how much money it wants to make, or even if it wants to give it away?

What it really means is that Macmillan wants to jump ship to Apple’s pricier model and doesn’t want Amazon (or, for that matter, any other merchant) undercutting it.

When you get right down to it, I have a pretty big problem with a supplier being able to control retail prices. That’s called resale price maintenance, and it’s anti-competitive behavior.

If Amazon (or Barnes & Noble) wants to sell books at below wholesale as loss leaders to promote the sale of its Kindle (or Nook), that is their decision to make. It is up to Macmillan to either enable them to do that or not, by selling them or not selling them the e-books as the case may be.

Macmillan should only be able to decide what it charges for a book, and whether or not it will sell those books to a given retailer. It is free to attempt to set terms, but conversely the retailer is free to reject those terms—as Amazon is doing.

And the retailer is free to decide not to carry any of the wholesaler’s goods at all, just as you or I might decide to boycott a store that did something we don’t like. It might come off looking like a great big jerk (as it does in this case), but it’s a free country and a free market; that retailer has every right to do so.

If the retailer in question were a small shop such as Fictionwise or BooksOnBoard, this would hardly even be a story. But since the retailer is Amazon, the 800 lb gorilla of the book marketing industry, and their snit-fit might cut into Macmillan’s (and its authors’) bottom line, it’s suddenly a great big deal.

Are Publishers Greedy Bastards?

If Amazon looks like a jerk, the publishers are not looking much better. They continue to set e-book prices at or near the price of hardcover books, and often fail to bring them down for years afterward even when the books are being sold in paperback. And readers have historically not been happy about it, and muttered about all publishers being greedy bastards. It took Amazon’s decision to start selling e-books at $9.99 as loss-leaders to push its e-book reader to start to change that.

Why should publishers be considered greedy bastards? Because Baen, the only major exception, has been selling its e-books DRM-free at (mostly) $6 or less for over ten years now, and not only has it not harmed its print book business, it has made a profit on the e-book side as well. Baen’s $6 e-books are not loss leaders but profit-makers.

Why on earth is none of the other publishers able to do that? It’s not as if Baen relies on economy of scale; they’re much smaller than any of the other publishers we’re talking about. Instead, the publishers continue to insist that physical printing and distribution costs are the smallest fractional cost of book production, and e-books have to be sold at hardcover prices or they will lose money.

Yeah, right. Tell that to Baen.

I don’t know what Baen is doing that these other houses are not, but it seems like those other houses could do a lot worse than to learn from Baen’s experience at making cheap, DRM-free e-books turn a profit. Consumers do love their cheap and DRM-free e-books.

The Least Worst Alternative

I don’t think Amazon is any kind of a “good guy” here either, though. Let’s not delude ourselves that they’re fighting for low prices, consumer rights, Mom, and apple pie. As Cory Doctorow points out, they have restrictive (albeit removable) DRM, and ridiculous licensing terms on their e-books that they will not abrogate even when the publisher wants them to.

I like the idea of lower-priced e-books, but I also like the idea of DRM-free ones. I personally haven’t bought any Kindle books yet, and don’t know if I ever will buy any, though I have downloaded some free titles.

In the end, I don’t much like either side’s position, but I dislike Amazon’s slightly less. Again, I do not think that retail prices should ever be entirely controlled by a wholesaler. That is bad for the consumer. If Macmillan wants to control prices, let them set up their own e-book retail system as Baen did and control those prices.