A few people asked me…

A few people asked me whether Amazon is really offering books for $5 less than the publisher wants to. If so, why wouldn't I support that? Am I just a greedy author, trying to max my profits at the expense of the poor readers? I'm not sure I understand the whole Amazon / Macmillan thing in detail, despite Scott's pretty clear explanation. But my best understanding of the situation is that:

a) Macmillan wants dynamic pricing for its electronic books, the same as we currently have with print books. So that they set an initial price they think is appropriate, somewhere between $13 - $15 for bestselling authors, where they know there's demand. There's a rush of initial sales, hopefully, from readers who don't want to wait for the price to drop. The publisher makes a good amount per book -- if they're lucky, they make enough to recoup the bulk of their costs. (Mostly, they don't recoup expenses -- publishers lose money on most fiction titles, because readers are unpredictable, and it's hard to know what will become a bestseller. The few bestsellers which make money support the rest of the books / authors, which lose money. Publishing operates on a very tiny profit margin, compared to most businesses, and is pretty much always on the brink of bankruptcy. It's gotten worse lately.) When sales drop off, Macmillan plans to drop the price, perhaps to $8.99. Some more folks will buy the book at that price. Then they'll drop it again, a few months later, maybe to a bargain $2.99. And then eventually, they'll remainder it, and it'll be selling for a penny, like my poor remaindered paperback. (sigh.)

b) Amazon, on the other hand, wants to set most ebooks (not all; they do have some more expensive titles) at $9.99 max. They're taking a loss at that price, but are willing to do so, in order to sell Kindles and encourage people to buy eBooks. I don't know for certain, but I'm guessing that they'd raise that max price at some point, when they decide enough people have Kindles and are invested in preferring eBooks. But even if I'm right about that, it might be several years off. They haven't announced any plans to drop that $9.99 price progressively, when initial demand for a book lessens. But they certainly might.

Now it gets more complex, with Macmillan also wanting to switch to agency pricing, which I think means that Amazon is now getting a straight 30% commission on sales. Before, Amazon bought the books in advance from the publisher, paying half of wholesale price (and thereby mostly losing money on most books). I'm not sure I'm getting this part right, but my understanding is that this new model will actually mean publishers get less per book, and Amazon gets more. Why do this, which will hurt the publisher's profits? Publishers claim that this move will be better for the book industry overall, helping to keep it viable (which I think means allowing other stores a better chance to compete with Amazon, which should eventually mean lower prices overall for readers.) They're afraid of Amazon becoming the electronic book monopoly, and then setting prices to suit themselves.

Anyway, that's my basic summary. I'm honestly not sure which model will result in lower prices to readers for books overall, but I think Macmillan's, except perhaps for those readers who absolutely have to have books on the day they come out. I'm not sure which model will get larger profits to authors either.

And for the record, I'm not mad at either Amazon or Macmillan. They're businesses, trying to assert that their business model is best, and trying to maximize profits for themselves in the process. That's what they're supposed to do. If anyone actually knew which business model was best, this would all be simpler.

4 thoughts on “A few people asked me…”

  1. This may be a dumb question, but do publishers decide when bookstores reduce the price of a book? I would’ve assumed that was up to the bookstore, much like (I assume) Amazon decides how much of a discount to give on the list price of the book.

    Why doesn’t McMillan get to set whatever price they want when they sell the book to Amazon, and let Amazon decide what price to set when they sell the book to consumers? If Amazon will pay McMillan $13 for the book, why does McMillan care whether Amazon then sells that book for a fixed $10, or $15 minus a penny per day, or whatever other weird structure they want.

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