Amazon’s Prices Kindle a Sense of Outrage in Macmillan Press, But Not Much Sense

Amazon, after briefly going so far as to take down all Macmillan Press books from its US website, has given in to their demands: Macmillan e-books will not be sold at the 9.99 USD (which, in my opinion, at £6.28, is already pretty steep) that Amazon wanted, but at the 12.99 USD upon which Macmillan insisted.

Macmillan’s chief executive John Sargent explained that it is important 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.” This method of compensation is presumably one that places (and prices) intellectual property above production costs; Macmillan’s suggested top price of 14.99 USD (£9.35) is higher than that of most paperbacks (especially if you know where to look; there are bargain book stores in London and Cambridge where you can get hold of brand new Oxford World Classics for £2). I’d always thought that the basic business model consisted of the following: production costs + profit margin = recommended retail price. Apparently, once e-books have removed the vast majority of production costs, Macmillan has decided that they are not left with savings + profit margin = reduced RRP, but with profit margin + profit margin = pretty much the same RRP. This is hardly fair on consumers.

The Financial Times Online explains the decision as a switch in business model: “[Macmillan] prefers the Apple “agency” model used for selling books by Apple for its forthcoming iPad device – whereby the retailer takes a 30 per cent commission – to the “wholesale” terms for Amazon’s Kindle, the current leader in e-readers. Until now Amazon has been selling e-books just as it sells regular books – buying them for half the list price then naming its own price. The publishing industry says this has artificially devalued books.” I am perhaps lacking in economic understanding, the mistake both Macmillan and Amazon seem to be making here is that they are failing to differentiate between two very different formats. An e-book is not just an electronic book, the same way an email is not just an electronic piece of mail; there are certain expectations that go with computerised information, novelistic or otherwise. One of these expectations is price (that is to say, the price I think I should to pay, compared to the expensive Amazon price, or the extortionate Macmillan price). The e-book especially will of course be devalued; if I have paid for an electronic reading device, I EXPECT for there to be a saving in the books I then buy and read. Otherwise, I will have paid more, twice over (once for the tool with which to read the books, and secondly for the books themselves). After all, the book I’m buying is virtual. It wasn’t actually ‘made’ in the traditional sense. It did not need paper, ink, a factory, factory employees, a lorry and a lorry driver to reach me. Furthermore, its publishers never have to worry about ordering enough or too little from the printer’s, so as well as removing a huge part of the cost of publication, e-books have also removed some of the risk. Apparently, however, these benefits pale in comparison to the publisher’s intellectual property rights; they own it, they distribute it, they overprice it.

Whether or not it is their right to overprice, Macmillan needs to show some foresight. The Financial Times, in a workshop in 2006, questioned: “Are intellectual property rights defensible any more? … If current trends continue on steroids will it simply become impossible to protect intellectual property rights by 2015?” In such a climate, I think the practice of pricing the law, and not the production costs, is a little unrealistic. If people feel cheated by over-priced e-books, piracy will ensue. Furthermore, Macmillan’s comment of compensating those who created and published the work is laughable when we remember how little money the authors themselves actually get. In the context of e-books, the cost and time frame involved in publishing a novel is dramatically reduced for the publisher. Not so for the author. Susan Piver, an author published by Macmillan, writes in the Huffington Post: “the lowest paid of all in this supply chain, [is] the author. Somehow, we’re never considered in this debate. If the publisher’s prices fall, so do our royalties. Which are an urban legend anyway.”

What the e-book calls for, then, is not a petty spat between two companies that are rolling in it anyway, but for an innovation of the entire industry. Whilst Amazon and Macmillan are squabbling, I predict a revolution. Authors and consumers are sick of being the ones who either get paid the least or must pay the most. To publish a book online, all you really need is a computer. In recent years, more and more authors (who at the end of the day, truly have a claim of intellectual property over their work, however undervalued it is in their contracts) have chosen to self-publish by posting their work online. At the moment, this movement is in its toddler stage, but with the advent of the e-book, I believe that in a few years time, a whole generation of authors will be publishing, distributing, and selling, their own work. This new type of publication would completely circumvent the need for companies like Macmillan. Perhaps if Macmillan spent less time being greedy about their 70% (of which about 10% goes to the author), and more time valuing their authors and consumers, they’d realise this. If they were clever, they would then find a way to work it in to their business model. If not… well, that’s capitalism for you.

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