Amazon, Macmillan Publishing, and Price Wars

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This story broke over the weekend and got some real legs on it yesterday evening.  Amazon and Macmillan publishing have been fighting about price points and electronic books and Amazon, apparently, has caved in to Macmillan on this.  Unlike the rest of the buzz mongers, however, I’m going to tell you why this is a good thing.

On the surface, people like Henry Blodget at Business Insider are correct: this will mean higher prices for electronic books from Amazon.  It also comes from others, like Jennifer Guevin at CNet News.  The problem here isn’t with the reportage, it’s with where their information is coming from.  Both of them (and many others like them) got most of their information from Amazon’s announcement on the deal.  In this respect, Amazon pulled off a PR coupe.

Behind the scenes, however, is something a little more questionable and that makes this win for Macmillan a win for everyone else.  Why?  Because of the way that Amazon’s agreements work, which was the heart of this dispute.  The price tag of the final deliverable was just the punching bag, the fists hitting it were Amazon’s publisher agreements and Macmillan’s refusal to bow to them.

To understand this, a rough understanding of the publishing world is required.  Normally, before the Internet and, books were published, sold to wholesalers, then to distributors, then to book stores and then to customers.  Eventually, wholesalers and distributors became one and the same.  Then came Amazon.

Amazon acts as a wholesaler when dealing with the publisher and a book store to the rest of us.  There’s nothing basically wrong with this, except that Amazon often marks up its titles as if it were the local book store, dropping a few points to be lower-priced by a couple of bucks.  Thus a wholesale book might sell to Amazon for $5, but they’ll sell it to you for $19.99.  The book store, which got it through a supply chain, has a cover price of $24.99.

Before Amazon, of course, large booksellers like Barnes & Noble and others were already acting as wholesalers.  They were not, however, demanding exclusive rights or specific printing rights as part of the deal.  Amazon, on the other hand, has hefty purchase requirements they want publishers to go along with, most of them revolving around the e-book version of the publication.

Up to now, publishers were willing to concede to this because, quite literally, Amazon was the only real e-book game in town.  Now they aren’t and some publishers, like Macmillan, are beginning to question the exclusivity.

Which brings us to the current state of affairs.  By asserting their ownership rights over the electronic version of their books (through price setting), Macmillan is telling Amazon that the monopoly is over.  Of course, Amazon has a lot bigger audience to preach to, so they can get more of their story out to the public.  Macmillan really only has publications like Publishers Marketplace, in which they took out an ad explaining their side of the bargain.  Of course, most of us don’t read that publication, but many of us will get on the meme when Amazon’s announcement of their side of the story hits the ‘Net.

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