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.


  1. Sargent’s statement is completely self-justifying anti-consumer baloney! He wants to raise prices (about 50%) in this terrible economy. He wants to get in bed with Steve Jobs (his saviour)!! Look what Jobs did to the music industry! How can Sargent be that stupid? Speak about getting in bed with the devil.

    It is simply shocking how dumb and out of touch these publishing dinosurs are. BUT, this is a fight that MUST be won by Amazon. We can NOT let the publishers set these ridiculous prices for ebooks. Look, ebooks are here to stay and the paper books will, over the next decade, probably end up at about 30% of the adult book market with ebooks 70%. It is going to happen. Same with newspapers.

    But, we must fight these publishers NOW, keep the ebook prices down to a reasonable amount,which, I believe, the $9.99 price is for new fiction. (Non-fiction research books like history and biography are NOT part of this equation.) The publishers are NOT to be believed that that price is non-sustainable. (Maybe it is to keep their exorbitant salaries and skyscrapers in Manhattan, but not in the real world.) AND, they must give an appropriate royalty share to their authors, which is NOT discussed in Sargent’e letter. So this must be fought.

    I smell a boycott- big time. Go Amazon!!

  2. Great post Chris. The best I have read yet on the topic.

    As for what’s in the water at the Baen offices, I imagine that the physical printing and distribution costs are the same for them. They simply don’t have as much overhead in real estate, promotion and publicity, warehousing, CEO salaries, etc.

    Sargent is right. The long-term viability and stability of the (MacMillan’s) digital book market is at stake. They are holding everyone else up. Creative destruction. Let’s get on with it.

  3. I love the smoke and mirrors that Apple and McMillan are using. At the Ipad press conference Jobs lobbed a vague response to a question regarding e-book prices while having the audacity to show an Ibook store with overpriced, DRM laden books. Now I have the misfortune of being further aggravated by the gibberish of A CEO who is out in the e-pricing woods. Consumers have flocked to Amazon’s e-book store-if indeed it constitutes 90% of the market- due to its fair and equitable pricing. Chris, thank you for taking him to the tool shed on his bogus posturing. I will have to weigh in soon, my blood is absolutely boiling at this point.

  4. I’m kind of surprised that nobody has broached the subject of Kindle Software for the iPad. I would think that MacMillan would be stoked to be in a store that has the capability of catering to multiple platforms (PC/Mac/iPhone/Kindle/iPad/?) with a single proven (if disputed) format from an already proven store that is one of (if not the) largest online book seller in the world.

    As if we needed more proof that greedy idiots run publishing companies. It’s a shame that readers have to suffer them.

  5. Quote: “We can NOT let the publishers set these ridiculous prices for ebooks.”

    Actually, if you read Amazon’s latest pricing agreement, it requires that authors and publishers agree to “ridiculous” price-elevating restrictions that Amazon imposes on any sales they make elsewhere. Ebooks can’t be sold elsewhere for cheaper than the Amazon ebook price, even on an author or publisher’s own website, or if another site takes a smaller share of the retail price. And printed copies must be sold for at least a set amount higher than the the Amazon ebook price. Chris Meadows is right. Neither Amazon nor Macmillan is run as a charity. Both are living in a topsy-turvy world and both want to end up on top.

    Personally, I’m astonished by the selfishness shown by some posters. Let publishers set any price they want. We don’t have to buy their books. It is rather pitiful when some people seem to think that they should get everything they want at the price they want to pay. They sound like little children throwing tantrums to get candy.

    Finally, much of what Macmillan’s CEO said is good. Releasing ebooks on the same day as hardbacks will be great for those with ebook readers. That simply isn’t going to happen if the publisher isn’t making as much money on an ebook sale. Macmillian’s CEO is also hinting that, as sales drop off, prices will drop. Rather than see prices stuck at Amazon’s rigid $9.95 (a pitiful imitation of Apple’s 99-cent music), we might see last year’s bestsellers going for $4.95. We might even have what we see with iPhone apps–brief times when a book is free to stimulate sales. If you display a little patience, you might find you get a book cheaper in a free market than in one filled with shrill rhetoric.

    For now, relax, grow up, and let matters develop a bit further.

  6. I believe that Amazon’s requirement is that the book not LIST for more on Amazon than it LISTS for elsewhere. Certainly there are times when, for example, Fictionwise chooses to put my books on sale at a price below Amazon’s price. But I offer the same list price to all distributors. I used to, briefly, set a lower list price on books sold directly through the website (because I disn’t have to pay the 50% distribution fee). Shortly thereafter, Fictionwise changed their requirements (I hate to think I was responsible).

    Anyway, if I were a distributor, I certainly wouldn’t want someone listing their book on my site for $20 and on another distributor for $10. On the other hand, I think distributors should be able to charge less than list price if they wish.

    The 70/30 split Macmillan mentions is certainly not the standard split I’ve seen (50/50 is more like it and self-publishers at Amazon have seen much worse). Making this seem like the ‘standard’ when it’s something Amazon recently announced and something Apple has promised but not yet implemented, seems a bit disengenious.

    Regarding Baen, they’re a special case…more like Harlequin than Macmillan. They produce books to a distinct audience (neo-libertarian right-wing sci-fi readers), many of whom are willing to subscribe to them because they know what they’re getting. (Just as Harlequin has historically offered subscriptions to their romance lines…readers know what they’re getting). A subscription model for a huge general purpose publisher makes less sense (although kudos to Baen and Harlequin for figuring out how to make this model work for them).

    Rob Preece

  7. Baen doesn’t have a subscription model (unless you count the soon-to-be-defunct Jim Baen’s Universe magazine). They call it “Webscriptions” but it’s really not. You’re not “subscribing” to anything, you’re buying it outright and just getting doled out advance peeks. You can’t “cancel your subscription” after reading the first half of the books, for instance.

  8. Macmillan is on record for what they consider the proper window for reducing ebook prices:

    The Sword-Edged Blonde
    $14 for the ebook (
    $6.99 MSRP for the paperback that was released last June (

    Not enough evidence? How about:

    $14 for the ebook (
    $7.99 MSRP for the paperback that was released in April 2000, nearly ten years ago (

    I could go on and on and on. Is it any wonder that I trust Macmillan (and most other publishers) about as far as I could spit them? Amazon isn’t the White Knight in this but they’re pure as the driven snow compared to the price-gouging publishers.

    BTW, disregard that “rebate” from Fictionwise. It’s only good to save up for short stories and such, not commercial novels. I’ve yet to find anything worth spending my saved “rebates” on in the past couple years.

  9. Macmillan have no credibility on the ‘might drop prices’ front given past behaviour.

    If they are serious about that there’s a whole lot of old books they could get sorted out now, and put out some nice press releases about.

    But no.

    So really, why would we believe them?

  10. And Baen ebooks are usually looking great – good formatting, good typesetting and no OCR errors. Quite the opposite of some of the ebooks from the big houses which seem more like an attempt to make an extra buck on the cheap.

  11. Thank you! Retail price maintenance was the *very first thing* that flashed into my mind when I read about the mess. Amazon is no hero, but I’m truly amazed at the people rushing to defend Macmillan for trying to make an end run around antitrust law. Particularly given their history.

  12. I wonder if this “war” could escalate to the point where Amazon would return all Macmillan books to them as they’re entitled to do under the current publishing model. Mr. Sargent would need to rent more warehouse space.

  13. When Steve Jobs said “The prices will be the same,” it is now clear that he expected the BPHs to force Amazon to raise their prices.

    He also telegraphed this to Amazon.

    Best guess is MacMillan started to threaten to withhold books from Amazon and Amazon, forewarned, had already decided what their course of action would be and called them on it. High-stakes poker!

    Obviously Amazon believes 30% of zero sales is zero and that submitting will have the same financial effect as dropping MacMillan; zero revenue from those titles.

    This is fascinating drama.
    Never mind the good guy/bad guy baloney and the DRM hand-wringing; here we have two massive corporations *publicly* kicking each other in the groin. Gotta love it.
    I’ve nowhere near enough data to handicap the fight but I suspect the face-off won’t last long. Somebody has miscalculated here.

    Most of the commentary I’ve seen seems to think Amazon over-reacted. I’m not so sure. Reports I’ve seen suggest *some* Macmillan books remained listed early on which makes me wonder if, given Amazon’s Wal-mart-esque supply chain, those are simply the books Amazon still had in the pipeline and the de-listed items are now languishing upstream, accrueing inventory costs on somebody else. Amazon is rolling in dough so, while the fight might give pause to some potential Kindle buyers, they can probably withstand the fallout longer than MacMillan, who reportedly stand to lose as much as 20% of their sales. Given the public stances of the two sides every purchase of a MacMillan book, anywhere, is a vote for their position.

    This is a fight with an enormous splatter-potential: will the other BPHs pile on, on Amazon? Run away from MacMillan? Obviously Kindle owners have a vested interest in Amazon winning but what about owners of Adobe ebook readers? Their prices are already generally higher; do they favor Amazon prices being jacked up to their levels or higher? Do they fear an Amazon hike would lead to higher Adobe book prices? What about Wal-mart and other retailers? Do they favor mandated (higher) prices? Uniformly mandated prices? No control over *their* retail prices?

    And then there is the lawsuit potential; it is safe to say that lawsuits are coming, especially if even one more BPH joins the fray. And in the current political climate…

    Fun stuff!
    No clue how its going to play out (how strong are MacMillan financials, anyway?) or what the fallout might be. Could the “Agent” model die before iPad ships? Might the “Agent” model be a trojan horse that inspires “Big Name” writers to demand/impose similar terms on the BPHs? Might not Steven King (rightfully) argue that his books need no promotion and offer to deliver pre-proofed and pre-formatted books and demand a fixed cut of the gross?

    Maybe Steve Jobs is a god after all; just like Zeus, he handed the BPHs a Pandora’s box and then he made sure the box *would* be opened. Now to see just what comes out of the box in the long haul…

  14. I urge all Telereaders to click through and read the whole letter for yourself. In word and tone, it is a giant middle finger aimed directly at readers and book lovers. That big publishers which have actively aided and abetted the destruction of the independent book store market, raised prices faster than inflation for many years and tried to focus everything on big blockbusters to the detriment of quality and great midlist authors now want to strangle the growth of the ebook market is obvious. That he can possibly say he wants a level playing field to create more competition is a joke. Costco and Walmart are right now further destroying bookstore competition by selling hardcover bestsellers for LESS than Amazon charges even for the ebook versions!! And I assure you they are selling a lot more books and with John Sargent’s full support. Apple has ignited the real war war over ebooks and a lot sooner than I would have thought. It’s a war on readers and book lovers. Don’t be confused.

  15. I suspect Jobs may get a call from the DOJ soon, asking for an explanation of his comments – especially in light of MacMillan’s actions. It certainly sounds bad to me. Who came up with the agency idea, and who came up with the idea of “forcing” Amazon to swallow it?

    (I’m really surprised he let Mossberg bait him like that.)

  16. “If Macmillan wants to control prices, let them set up their own e-book retail system as Baen did and control those prices.”

    This whole issue amazes me. Some (most, all?) publishing houses have (as long as I remember) had small direct-sale businesses where customers could mail-order books at list price. Rather sensible, IMO. “Why, yes, if you want that at full list, with no middle-man profit, we’ll be glad to sell it to you.” Why the hell is Baen to only one to successfully digitize it? The BPHs should be in a position to laugh at Amazon, instead they’re playing chicken? Inconcievable!

    Maybe some of them need to go out of business, to encourage the others.

    Jack Tingle

  17. Amazon’s new 70/30 royalties agreement with publishers seems directly aimed at the Apple agreement. The percentages work out the same, only under Amazon’s upcoming (June 2010) new agreement, the retail price of the ebook must fall in the $2.99-9.99 range.

    Also, judging by the price of apps and games in Apple’s App Store, there is a very strong pressure brought to bear by the users. While games for standalone consoles can cost $30 or more, average price for games on the iPhone are $3.

    I don’t think we need any boycotts. The plain fact is, publishers will make more money selling a lot of ebooks at lower prices — even through the Apple iBookstore — than selling a handful of ebooks at the higher prices the publishers would prefer.

    Bottom line, readers simply will continue to see a ‘real book’ as a better value than any ebook edition, and will insist on lower prices for the ebook. Especially if that ebook can only be read on one or two devices.

  18. “Amazon, the 800 lb gorilla of the book marketing industry” …

    Godzilla vs King Kong.

    These are labour pains of the e-book revolution. Publishers like Macmillan and booksellers like Amazon will become redundant – and I think they know it, which is why they’re scrabbling around to grab as much market share as they can, while they can.

    Publishers select, edit, present, publicize and distribute authors’ work. Booksellers make it available.

    Which of these activities cannot be duplicated by self-publication of e-books in an environment of reliable online criticism? We’ll have a wider choice of cheaper and better e-books and, at long last, a fair reward for authors.

    Bring it on, I say!

  19. OK, there are both acting badly.

    However, you have to remember, this isn’t JUST about digital, this is about printed books and how this will impact that industry.

    Both have a lot to lose and a lot to gain and should really be working together on this.

    Just a thought.

  20. No working together here; Amazon just counted with a classic Parthian Shot:

    They are saying they will have to cave-in to MacMillan’s demands and leaving it up to readers to vote with their wallets.

    Interesting phrasing, as they describe MacMillan as a monopolist *forcing* them to raise prices to “unreasonable” levels.

    The notice of capitulation sounds like a perfect legal defense against price-fixing charges and inviting an antitrust inquiry if other publishers follow suit.

    Amazon may have found a way to do more harm to MacMillan by capitulating than by fighting it out.

  21. My take on all this is Macmillan wants eBooks killed dead. They don’t understand them, and it’s too much effort for them to adjust.

    Macmillan may be “making less money” with their new demands on Amazon, but that’s only on the eBook front. You can bet people that would have bought that now-$15 DRM-laden eBook will buy the $18 hardback instead.

    And that’s exactly how Macmillan wants it.

  22. Buying the hardback may be what Macmillan wants, but I think I will pass on that and just pick the books up at the library instead. If I really feel I have to own the books, I will just go to the used bookstore and support a local small business owner.

  23. I’m another one who will just go to the library for Macmillan books and those of their subsidiaries. In my library system it is possible to reserve a book months before its release, so when I sign up early, it doesn’t take long after publication to have it in my hands.

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