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The real agenda of Apple’s ebook partners: death to ebooks by Aaron Pressman
February 3, 2010 | 11:00 am
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By a TeleRead Contributor
The head of one of the big book publishers, Macmillan CEO John Sargent Jr., is out with an “open” letter about his dispute with Amazon over the pricing and timing of electronic books. It’s telling that this “open” ebook letter wasn’t released publicly and isn’t directed towards readers, book lovers and customers. It was placed as an ad in a small publishing industry trade rag and the message is for publishing industry insiders. Sargent’s message, despite a bunch of misleading surrounding verbiage, is simple: let’s strangle the growth of ebooks.
If you want to understand where Sargent and other major book publishers are coming from, I strongly recommend watching this online footage from a conference New York University hosted last September. Here you can see Sargent and a couple of fellow old media dinosaurs whine and complain about the digital world, dismiss Facebook, Craig’s List and Twitter as irrelevant non-businesses that will never make money and generally explain their plans to charge everyone for everything at every opportunity.
The real critical portions come towards the very end, in part three, as Sargent grows more animated about his opposition to giving away ebooks for free, even for promotional purposes. Despite being in charge of one of the largest publishing conglomerates in the world, he’s pretty pessimistic about the future of books. Challenged by Wired editor Chris Anderson to use digital distribution and new business models to attract new readers and expand the book market, Sargent is in full rejection mode:
“As the Internet grows, as all the other types of entertainment grow, it’s hard to imagine sitting here how we are going to convince everybody in this room to spend an extra six hours every week to consume another book. So in a way, if you look at the overall demand for books, it’s pretty hard to make that grow. We’ve tried. A whole bunch of people worked very hard to try and grow that. It’s pretty hard if you look at the demographics, how people read, to actually convince yourself that we have a growth business in books.”
In other words, what we have in books is a dying audience, a shrinking audience. And the way you extract the most revenue and profit from a shrinking audience isn’t with creative promotions and new ideas. It’s with ever higher prices. As Sargent says at a another point, in a barely veiled swipe at Amazon’s $9.99 ebook price:
“What we need is variable pricing. I think you guys would agree with this, variable pricing for content. You want a range of price points. You want to find a place — what you don’t want to do is give the consumer something for less than what they’re willing to pay for it in the rush to a new business model. Because once you get it out there it’s dangerous and hard to go back.”
Again, challenged to charge less because producing ebooks cost less, Sargent obfuscates, fixating on just one bit of savings, the printing costs of books (ignoring distribution, returns, overage, lost sales from out of print etc):
“Guys I can walk you through this. How much do you think a hardcover book costs us? A buck sixty. What are we saving? Not enough for the price point to drop from $22.50 down to $8.”
Amazon has been saying that its Kindle customers buy more total books – electronic and print – than they bought previously. It’s certainly been true in our household. I don’t have the figures at my finger tips, but I’d imagine that the whole creation and growth of Amazon.com has enlarged the book market, as well. But that’s not really happening in John Sargent’s world of mega-best sellers.
So keep in mind what Sargent was saying a few months ago when you read passages like this in his letter:
“In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.”
Leave aside for a moment the completely dishonest portrait Sargent paints of the old print book-selling world, and remember that he doesn’t believe the there will be any growth in book sales in the future. He’s not interested in a fair price for anybody — he’s interested in making sure that he never gives the consumer something for less than what they’re willing to pay for it. He wants to extract the big bucks from the big sellers and move on.
The great danger to Macmillan is that it’s the authors of those big best-sellers who are becoming increasingly able to cut him out. If ebooks really take off, an author like Stephen King or Nora Roberts can sell a lot more of their books direct to their audience with no publisher at all. And that’s why Sargent’s real goal here is not to increase competition or create a level playing field. It’s to squeeze as much profit out of a dying industry as quickly as he can and hold off the digital future for as long as possible.
UPDATE: Henry Blodget also really gets it in his post today called “Hey, John Sargent, CEO of Macmillan Books, Screw You!” An excerpt:
Did Steve Jobs seduce you with that temporary “charge-whatever-you-want” speech? Well, Steve has been known to seduce people from time to time. Just imagine what will happen once Steve has put the Kindle out of business and Steve owns the ebook platform instead of Jeff Bezos. That’s right: You’ll get held up even worse than Jeff’s holding you up today. Just ask the music industry. Careful what you wish for. So, bottom line, John, take your $15 ebooks and shove them. We’re with Amazon on this one.
Editor’s Note: This is taken, with permission, from Aaron Pressman’s Gravitational Pull blog. One thing is becoming increasingly clear to me as I follow the news and attend various conferences, such as Digital Book World. Publishers do not like ebooks, do not want ebooks and wish that ebooks would just go away. If the presentation by an author’s agent at DBW is typical, then the same can be said for agents as well. It’s going to take a long time for this to shake out, because the only real supporters of ebooks are consumers, and the industry doesn’t care much about them. Many authors, too, are not too fond of ebooks and so you won’t get a lot of pressure from them, at least not yet. PB
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Comments:
@Aaron, I’ve watched it. Anderson makes a blue sky speculation — that “the potential audience for books is larger than the real audience”. Sargent gives him a dose of reality clearly based on actual research rather than a rose-tinted fantasy of “I think”.
He says the growth areas of population have a culture that doesn’t read *heavily*, while the *heavy* reader segment is shrinking, with a caveat that a bubble is coming up because older people read more. He doesn’t say this means demand is shrinking overall. Nowhere does he say this, cause that’s not what it means.
All it means is that the high-demand segment is shrinking while the *low-demand segment* grows. Low demand is not zero demand. A hundred extra readers who only buy one book a year would outweigh a loss of two readers who buy twenty five books a year, right?
Sure, Sargent doesn’t say that this is how it’s actually panning out, but neither does he characterise it as a haemorrhaging of audience, and certainly not with ebooks as the culprits. All he says is that this is the situation they’re dealing with, that it’s actually difficult to *grow* that audience, that it’s difficult even, when you’re faced with these sort of stats, to “convince yourself” that there’s really all this untapped potential readership as Anderson hypothesises.
Note, he follows that by saying that they’ve *tried* and are continuing to try, but it’s difficult given the investment required to read a book; it’s “hard to imagine how we’re going to convince everyone in this room to spend an extra 6 hours every week to consume another book.” He’s not doom-mongering, saying that the way things are going soon *nobody* will be willing to do that. He’s not projecting a pessimistic scenario but *being skeptical about Anderson’s optimistic one*.
Neither does he blame ebooks and espouse some zealous loyalty to print. He doesn’t say that the only way to keep making money in publishing is to kill ebooks dead. In fact, he talks about trying out particular strategies — adding “links” and “video” to add value — that are only possible with digital media. Wherever he talks about testing and experiments, his attitude sounds pretty reasonable — absolutely willing to try it out, but cautious, skeptical of any naive faith, and often referring to results on *both sides of the argument* — c.f. his comments on Doctorow and Edmunds. What he’s mostly doing throughout is pointing to the difficulty of applying to books the sort of strategies that work with news and music — advertising subsidy, free samples, upsell based on add-ons (like buying a pet for a virtual penguin).
Point is, I don’t see a shred of evidence for a hidden agenda here. What I see is a genuine belief in variable pricing as a sustainable business model. Whether you or I see this as fair/practicable or not is a different argument. But there’s nothing in that whole panel discussion to suggest that Sargent is really out to “strangle the growth of ebooks”.
@ Hal Duncan
“Point is, I don’t see a shred of evidence for a hidden agenda here. What I see is a genuine belief in variable pricing as a sustainable business model.”
While I agree with you that the idea that publishers are out to kill the ebook is absurd, the fact is that despite what Sargent says in the conference Macmillan has been far from interested in variable pricing for ebooks so far.
After ten years of Macmillan’s handling Fictionwise prices under an agency model like the one it wants Amazon to work with (ten years in which most Macmillan ebooks whose MMPBs were already released cost way more than their respective MMPBs) one has to wonder if his statements about variable pricing are to be taken seriously.
I’m amazed at how surpirsed most authors seem to be by the anger of ebook readers, as if it is something that started from the Macmillan/Amazon feud. The fact is ebook readers are mad at Macmillan (and other pblishers) for its general mishandling of ebooks (delays in releasing, gaps in series, the general lack of titles, the “variable” pricing and much more) for quite some time now, time during which they have essentially ignored these consumers. The apparent cluelesness of authors on these issues seems to imply authors themselves were just as ignorant.
Quote: “Sargent’s message, despite a bunch of misleading surrounding verbiage, is simple: let’s strangle the growth of ebooks.”
That makes no sense. Absent things like quantity discounts, which doesn’t apply to ebooks, the “agency” scheme the industry is pushing is the same as that used for print books. I also suspect that they’re excited about the new iPad in a way they could never be about the Kindle. First, because it’s a better design and second because Apple isn’t a competitor and a foe in the same sense that Amazon is.
Those who get all gushy over Amazon’s $9.99 price are forgetting two things.
1. Amazon has been subsidizing that price by selling below cost. If you think it is doing that out of the kindness of its heart, I’ve got a bridge to sell you. Amazon wants to control this new market and, once it does, don’t expect it to keep bleeding money.
2. The dynamics of ebook distribution are very different from those of print. Once a publisher’s initial costs are covered. its costs are virtually zero, which means that it can cut prices as low as it wants. It will still get 70% of the price, with a percentage of that going to the author. It is Amazon and the other online bookstores that are stuck with fixed costs per book sold. Do a little math, and you’ll discover that as the price drops much below $10, these store’s profit margin drops very rapidly. Amazon may have an interest in dropping ebook prices to about $10 to maximize profitable sales. But there are very powerful economic incentives that will deter them from cutting prices to $5. Remember, their costs to run a store and get that book to you (via cellular) are fixed.
And keep in mind that publishers have an interesting set of incentives because, unlike Amazon, they’re not selling books in general, they’re selling specific books. Just before a new Stephen King book comes out, they may find it makes sense to cut the price of his previous ebook down to almost nothing, while including a teaser chapter or two from the new book with the old.
And last but not least, publishers may find it makes sense to do what iPhone app developers do. If they have a book that’s good enough that it ought to be selling better, rather than blow money on an advertising campaign, they’ll offer the book for free for a day or two, publicizing it though affinity groups. Watch carefully enough and act quickly and you’ll get a book for free rather than for $9.99.