Round One: Macmillan

If you haven't already heard, a small war broke out in the publishing biz over the weekend. It went something like this: Macmillan had a round of talks with Amazon about increasing the price of their e-books from $9.99 each to somewhere between $12.99 and $14.99 each. When Amazon said they wouldn't do it and it was clear Macmillan wasn't backing down, Amazon responded by pulling all Macmillan titles from its e-shelves on Friday. Macmillan cried foul and, late yesterday, Amazon caved. Macmillan titles sold through Amazon will, starting next month, be priced between $12.99 and $14.99.

[EDIT: Apparently only hardcovers and new releases will be in the $12.99 to $14.99 range; Macmillan titles may appear on Amazon for as little as $5.99, as reported by Macmillan CEO John Sargent.]

What do we make of all this?

It's important to understand that Macmillan's move is based on the long-term goal of keeping e-book prices in the same ballpark as print book prices (as well as their recent deal with Apple), whereas Amazon's goal is to deflate the price of e-books to 1.) sell more Kindles and 2.) gain enough electronic market share to be able to dictate to the publishing industry what books will cost. As we've just seen, Amazon doesn't (yet) have that kind of clout, but that doesn't mean that day will never come.

To quote the Times article: "Book publishers, meanwhile, are volunteering to limit their digital profits. In the model that Amazon prefers, publishers typically collect $12.50 to $17.50 for new e-books. Under the new agency model, publishers will typically make $9 to $10.50 on new digital editions." Publishers are willing to take a short-term loss in order to maintain the status quo; their fear is that if consumers become accustomed to a $9.99 price point for new books, they'll eventually believe that's simply what a book costs, which just isn't true for their print counterparts (hardcovers). Whether this will be the case remains to be seen.

Some are concerned that Macmillan will start seeing a drop in sales if their e-books are priced in the $12.99 - $14.99 range while the rest of Amazon's e-books are sold for $9.99. Although Macmillan may see some shortfall due to lower rate-of-movement and lower profits per book (see above), I don't really think they're going to be hurt by their pricing model in the marketplace. This is chiefly because, unlike vegetable oil or aluminum foil or ball bearings, books are not fungible—that is, one book is not more or less identical to any other and therefore readily exchanged for another. Sure, individual copies of the same title are fungible—you would trade one brand-new hardcover copy of The Help for another brand-new hardcover copy of the The Help—but books in general are not (you wouldn't buy The Help for $9.99 on Amazon simply because it's cheaper than The Gathering Storm at $12.99).

Buying books is not like buying tupperware; consumers do not automatically go for the cheapest product that will get the job done. For this reason, I disagree with anyone that believes Macmillan's breaking Amazon's $9.99 standard will hurt them or the sales of their books; after all, they've competed just fine in brick-and-mortar stores where prices vary significantly from title to title already.

Finally, it's important to realize that neither publishing companies nor Amazon are charities. While both are looking to provide consumers with goods they will purchase (thereby earning profits for the companies involved), none of them believes that they "owe" customers low prices or that they should lose money to keep everyone satisfied. Most importantly, Amazon's imposition of a uniform price should not be misconstrued as the result of market pressure. Regardless of whether the market could tolerate, or even favor, a higher price point—and we'll soon see whether it will—Amazon has made its position clear. We'll see whether their predictions bear out.