On the morning of January
27th—an aeon ago, in tech time—Steve Jobs was to appear at the Yerba
Buena Center for the Arts, in downtown San Francisco, to unveil Apple’s
new device, the iPad. Although speculation about the device had been
intense, few in the audience knew yet what it was called or exactly what
it would do, and there was a feeling of expectation in the room worthy
of the line outside the grotto at Lourdes. Hundreds of journalists and
invited guests, including Al Gore, Yo-Yo Ma, and Robert Iger, the C.E.O.
of Disney, milled around the theatre, waiting for Jobs to appear. The
sound system had been playing a medley of Bob Dylan songs; it went quiet
as the lights came up onstage and Jobs walked out, to the crowd’s
applause.
In the weeks before, the book industry had been full of
unaccustomed optimism; in some publishing circles, the device had been
referred to as “the Jesus tablet.” The industry was desperate for a
savior. Between 2002 and 2008, annual sales had grown just 1.6 per cent,
and profit margins were shrinking. Like other struggling businesses,
publishers had slashed expenditures, laying off editors and publicists
and taking fewer chances on unknown writers.
The industry’s great
hope was that the iPad would bring electronic books to the masses—and
help make them profitable. E-books are booming. Although they account
for only an estimated three to five per cent of the market, their sales
increased a hundred and seventy-seven per cent in 2009, and it was
projected that they would eventually account for between twenty-five and
fifty per cent of all books sold. But publishers were concerned that
lower prices would decimate their profits. Amazon had been buying many
e-books from publishers for about thirteen dollars and selling them for
$9.99, taking a loss on each book in order to gain market share and
encourage sales of its electronic reading device, the Kindle. By the end
of last year, Amazon accounted for an estimated eighty per cent of all
electronic-book sales, and $9.99 seemed to be established as the price
of an e-book. Publishers were panicked. David Young, the chairman and
C.E.O. of Hachette Book Group USA, said, “The big concern—and it’s a
massive concern—is the $9.99 pricing point. If it’s allowed to take hold
in the consumer’s mind that a book is worth ten bucks, to my mind it’s
game over for this business.”
At the Yerba Buena Center, it took a
while for Jobs to mention books, and when he did he said that “Amazon
has done a great job” with its Kindle. “We’re going to stand on their
shoulders and go a little bit farther.” It would probably have been more
accurate to say that Jobs planned to stand on Amazon’s neck and press
down hard, with publishers applauding. The decision to enter publishing
was a reversal for Jobs, who two years ago said that the book business
was unsalvageable. “It doesn’t matter how good or bad the product is,
the fact is that people don’t read anymore,” he said. “Forty per cent of
the people in the U.S. read one book or less last year.” But if reading
books was low on the list of things that the iPad could do, it was
nonetheless on the list, which meant that Amazon had become a
competitor. “There’s a lot of heat between Apple and Amazon and Google,”
an adviser to Jobs said. “Steve expresses contempt for everyone—unless
he’s controlling them.” An Apple insider said, “He thinks Amazon is
stupid, and made a terrible mistake insisting that books should be
priced at $9.99.”
Onstage, Jobs made it clear that he would
present Amazon and its C.E.O., Jeff Bezos, with a serious challenge. He
told the crowd that five of the “big six” publishers had agreed to sell
their e-books through Apple’s iBooks store, which would open in April.
And he said that Apple, through its iTunes and Apple stores, had access
to a hundred and twenty-five million credit cards, which would make it
easy for consumers to buy books on impulse. The iPad was clearly a more
versatile device: it would provide color and full audio and video, while
the Kindle could display only black-and-white text.
After Jobs’s
presentation, guests were ushered into an adjoining building to test
the iPad. Among them was Carolyn Reidy, the president and C.E.O. of
Simon & Schuster. Smiling broadly, Reidy said, “It’s fabulous! I
want one!” The new device, she hoped, would “put digital books in front
of one hundred and twenty-five million people.” It would also “create a
competitor” for Amazon, she said—and provide publishers with leverage as
they tried to raise the price of books above ten dollars.
Jobs,
circling the room, stopped at one of several tables piled with iPads to
talk with Walt Mossberg, the Wall Street Journal’s
personal-technology columnist. Onstage, Jobs, demonstrating how Apple
would sell books, had selected Edward Kennedy’s “True Compass” and
clicked on a “buy” icon with the price $14.99 next to it. Why, Mossberg
asked, should consumers “pay Apple $14.99 when they can buy the same
book from Amazon for $9.99?”
“That won’t be the case,” Jobs said,
seeming implacably confident. “The price will be the same.” Mossberg
asked him to explain. Why would Amazon increase prices, when consumers
were buying so many books? “Publishers may withhold their books from
Amazon,” Jobs said. “They’re unhappy.”
The next
day, a Friday, John Sargent, the C.E.O. of Macmillan, a publishing
conglomerate that includes Farrar, Straus & Giroux and St. Martin’s
Press, flew from New York to Seattle to meet with Amazon. Macmillan is
the smallest of the big-six publishers, which produce sixty per cent of
all books sold in the U.S. Like its peers, Macmillan relies heavily on
Amazon, which sells about fourteen per cent of its trade books and the
vast majority of its e-books. But Sargent was determined to force Amazon
to change the way it does business.
Traditionally, publishers
have sold books to stores, with the wholesale price for hardcovers set
at fifty per cent of the cover price. Authors are paid royalties at a
rate of about fifteen per cent of the cover price.
A simplified version of a publisher’s
costs might run as follows. On a new, twenty-six-dollar hardcover, the
publisher typically receives thirteen dollars. Authors are paid
royalties at a rate of about fifteen per cent of the cover price; this
accounts for $3.90. Perhaps $1.80 goes to the costs of paper, printing,
and binding, a dollar to marketing, and $1.70 to distribution. The
remaining $4.60 must pay for rent, editors, a sales force, and any
write-offs of unearned author advances. Bookstores return about
thirty-five per cent of the hardcovers they buy, and publishers write
off the cost of producing those books. Profit margins are slim .*
Though
this situation is less than ideal, it has persisted, more or less
unchanged, for decades. E-books called the whole system into question.
If there was no physical book, what would determine the price? Most
publishers agreed, with some uncertainty, to give authors a royalty of
twenty-five per cent, and began a long series of negotiations with
Amazon over pricing. For months before Sargent’s visit, the publishers
had talked about imposing an “agency model” for e-books. Under such a
model, the publisher would be considered the seller, and an online
vender like Amazon would act as an “agent,” in exchange for a
thirty-per-cent fee. Yet none of the publishers seemed to think that
they could act alone, and if they presented a unified demand to Amazon
they risked being charged with price-fixing and collusion.
In
Seattle, Sargent met with Russ Grandinetti, the vice-president in charge
of Kindle Content, and told him that if Amazon would not accept the
agency model Macmillan would restrict the publication of its e-books.
Sargent was giving an ultimatum: Amazon had built its business on
comprehensiveness, and if Macmillan withdrew its books it could no
longer claim to be the world’s best-stocked bookstore.
Amazon did
not react as Sargent had hoped. Before he stepped off the plane, back
in New York, that Friday evening, it had stopped selling all of
Macmillan’s titles. But, as Jobs hinted, four other major
publishers—Simon & Schuster, HarperCollins, Penguin, and
Hachette—were quietly planning to follow Sargent’s lead. On Sunday
afternoon, Amazon reversed course and announced on its Web site, “We
will have to capitulate and accept Macmillan’s terms because Macmillan
has a monopoly over their own titles, and we will want to offer them to
you even at prices we believe are needlessly high for e-books.”
This
was a somewhat cryptic statement—doesn’t every company have a monopoly
over its own products?—and publishers interpreted it in various ways.
One executive said that Amazon capitulated in order to show that
“pricing is out of its control”—that is, to blame publishers for higher
prices. The head of another house said, “Amazon was incandescent with
rage. They switched because they figured out that if all publishers
withdrew their books Amazon’s business was dead.” Whatever the
explanation, Amazon’s announcement was good news for publishers. John
Sargent had called negotiations with Amazon a “chess game,” and he
seemed to have won the opening gambit.
Even though Sargent’s
tactics had worked, publishers seemed uncertain that they were
sustainable. “I’m not sure the ‘agency model’ is best,” the head of one
major publishing house told me. Publishers would collect less money this
way, about nine dollars a book, rather than thirteen; the unattractive
tradeoff was to cede some profit in order to set a minimum price.
“Amazon forced us,” one publisher said. “They chose to do something
irrational—lose money—in order to gain a monopoly. That was destructive
to publishers and retailers and authors. They brought this on
themselves.”
Publishing exists in a continual state of
forecasting its own demise; at one major house, there is a running joke
that the second book published on the Gutenberg press was about the
death of the publishing business. And publishers’ concerns about Amazon
are reminiscent of their worries about Barnes & Noble, which in the
eighties began producing its own books, causing publishers a great deal
of anxiety without much affecting their business. Unlike Barnes &
Noble, though, Amazon generates more than half of its revenues—which
total about twenty-five billion dollars a year—from products other than
books. Many publishers believe that Amazon looks upon books as just
another commodity to sell as cheaply as possible, and that it sees
publishers as dispensable. “Don’t forget,” the chief of a publishing
house said, “Bezos has declared that the physical book and bookstores
are dead.”
Amazon.com opened for business in
Seattle in July, 1995. Although sales were brisk, it took seven years to
generate a profit, and analysts made a sport of predicting its
collapse. Bezos was unmoved by criticism. When Charlie Rose, in 2009,
asked him to describe his outstanding talent, he said it was his focus
on the long term and a “willingness to be misunderstood.” Like other
successful Internet companies, Amazon emphasized winning the trust of
consumers. “Our vision,” Bezos has said many times, is to be “the
world’s most customer-centric company.” Part of the appeal to consumers
was low prices; Amazon sold many books, particularly best-sellers, for
little more than the wholesale price, or even at a loss. In the long
term, Bezos believed, lower prices would expand Amazon’s market share,
its stock price, and its profits.
Amazon had a profound effect on
publishers’ business, creating a place where customers could reliably
find books that were no longer being promoted in stores. Backlist
books—those which sell reliably over time—are vital to publishing
houses. At Random House, more than fifty per cent of revenue is
generated from books like “The Prophet” and “Mastering the Art of French
Cooking,” which provide steady profits that allow editors to make more
adventurous gambles on new books. With Amazon, “people could find
backlists,” David Young, of Hachette, said. “You were no longer hoping
and praying that you would find that spine on a shelf.” Carolyn Reidy
said that in a three-month period online venders typically sell copies
of twenty-five hundred Simon & Schuster titles that bookstores don’t
stock.
Bezos had devised a more efficient way to buy books. And,
with the arrival of electronic books, he began to think of ways to
replace paper entirely. E-books had undeniable advantages for
publishers. There would be no more returns, warehouse fees, printing
expenses, or shipping costs. The obstacle was that no one knew how
e-books should be read. Computer screens weren’t portable enough, and
for many readers cell phones were too small. E-books remained a niche
market, mostly neglected by large trade publishers.
Late in 2007,
Amazon released the Kindle, which presented a decent simulacrum of
printed pages and could wirelessly download a book in sixty seconds.
Arthur Klebanoff, the co-founder and C.E.O. of the e-books publisher
RosettaBooks, said that, once the Kindle became available, “it took
Amazon ninety days from launch to generate more revenue from my
hundred-book backlist than I was getting from all my other distribution
platforms combined.” There are now an estimated three million Kindles in
use, and Amazon lists more than four hundred and fifty thousand
e-books. If the same book is available in paper and paperless form,
Amazon says, forty per cent of its customers order the electronic
version. Russ Grandinetti, the Amazon vice-president, says the Kindle
has boosted book sales over all. “On average,” he says, Kindle users
“buy 3.1 times as many books as they did twelve months ago.”
But
publishers also recognize the similarity between Amazon’s strategy and
that of iTunes. One publisher said, “Get market share, and when you get
far ahead it is hard to catch up. Bezos’s game, like Jobs’s before him,
is to get the device and get eighty-to-ninety-per-cent distribution on
the device, and you own the game.”
The analogy
of the music business goes only so far. What iTunes did was to replace
the CD as the basic unit of commerce; rather than being forced to buy an
entire album to get the song you really wanted, you could buy just the
single track. But no one, with the possible exception of students, will
want to buy a single chapter of most books. Publishers’ real concern is
that the low price of digital books will destroy bookstores, which are
their primary customers. Burdened with rent and electricity and other
costs, bricks-and-mortar stores are unlikely to offer prices that can
compete with those of online venders. Roxanne Coady, who owns R. J.
Julia Booksellers, an independent bookstore in Madison, Connecticut,
said, “Bookselling is an eight-inch pie that keeps getting more forks
coming into it. For us, the first fork was the chains. The second fork
was people reading less. The third fork was Amazon. Now it’s digital
downloads.”
According to the American Booksellers Association,
the number of independent booksellers has declined from 3,250 to 1,400
since 1999; independents now represent just ten per cent of store sales.
Chains like Barnes & Noble and Borders account for about thirty per
cent of the market, and superstores like Target and Wal-Mart, along
with clubs like Costco, account for forty-five per cent, though they
typically carry far fewer titles. As a result, publishers, like the
Hollywood studios, are under enormous pressure to create more hits—more
books like “Twilight”—and fewer quiet domestic novels or worthy books
about poverty or trade policy.
Bookstores, particularly
independent bookstores, help resist this trend by championing authors
the employees believe in. “In a bookstore, there’s a serendipitous
element involved in browsing,” Jonathan Burnham, the senior
vice-president and publisher of HarperCollins, says. “Independent
bookstores are like a community center. We walk in and know the people
who work there and like to hear their reading recommendations.”
But
the cost of maintaining knowledgeable staff and browsable store space
contributes to higher prices, which many consumers are unwilling to pay.
A best-selling hardcover that is seventeen dollars at Amazon.com
commonly sells for as much as twenty-eight dollars at a bookstore. The
Apple adviser said, “The Internet makes everything available and
cheaper. I compare bookstores to video stores ten years ago. Now I use
Netflix or I download movies.” Book buyers understandably want both the
convenience of the Web site and the intimacy of the store. But this
obliges publishers to essentially run two businesses at once: a
traditional publisher that sells bound books to stores and an electronic
business that sells e-books online. “I think consumers, like
publishers, are living in parallel universes,” Burnham says. “Consumers
are educated to have a multiplicity of choices. They still like to go to
a bookstore, while they also want everything available online.”
Tim
O’Reilly, the founder and C.E.O. of O’Reilly Media, which publishes
about two hundred e-books per year, thinks that the old publishers’
model is fundamentally flawed. “They think their customer is the
bookstore,” he says. “Publishers never built the infrastructure to
respond to customers.” Without bookstores, it would take years for
publishers to learn how to sell books directly to consumers. They do no
market research, have little data on their customers, and have no
experience in direct retailing. With the possible exception of Harlequin
Romance and Penguin paperbacks, readers have no particular association
with any given publisher; in books, the author is the brand name. To
attract consumers, publishers would have to build a single,
collaborative Web site to sell e-books, an idea that Jason Epstein, the
former editorial director of Random House, pushed for years without
success. But, even setting aside the difficulties of learning how to run
a retail business, such a site would face problems of protocol worthy
of the U.N. Security Council—if Amazon didn’t accuse publishers of
price-fixing first.
The iBooks store seemed to
provide a solution, which helps explain why five of the big-six
publishers signed up without much apparent hesitation. The only holdout
was Random House, the largest of the big six. Markus Dohle, the chairman
and C.E.O., said that he shared the concern about the price of e-books
but believed that publishers are being hasty in making agency-model
deals with Apple or Amazon. “The digital transition will take five to
seven years,” he said. “For me it’s not a question of a week, or a
hundred days.”
Dohle, who is forty-one years old, rose as an
executive on the printing side of Bertelsmann A.G., the parent company
of Random House, and moved to the U.S. in 2008. He believes that as an
outsider he sees the challenges to the industry more clearly. “If you
want to make the right decision for the future, fear is not a very good
consultant,” he said. Before accepting “a significant change in the
business model,” he wants to take time “to talk to all our
stakeholders,” including authors, agents, and booksellers. “For us in
the publishing industry,” he said, “Amazon has been the fastest-growing
customer. I think it’s a great company.” He welcomes Apple’s entrance
into e-publishing, but says, “If you do a deal with Apple on the agency
model, then it means that you have to do agency deals with all other
e-booksellers.”
Michael Shatzkin, the C.E.O. of Idea Logical, a
media-consulting firm, believes that Random House is holding out for a
better deal. So do many of Dohle’s peers. But Shatzkin, who writes a
publishing blog, also noted on the blog that by maintaining the status
quo—selling e-books to Amazon at hardcover prices and letting Amazon
take a loss—Random House will be making the most of its short-term sales
and profits. “Random House will collect more money for each e-book sold
than their competitors do while the public will pay less for each
Random House e-book,” he wrote.
Dohle has also resisted
“windowing,” the practice of delaying the release of e-books, which has
become common among other publishers. Windowing isn’t a new idea;
publishers have long withheld paperbacks to encourage hardcover sales,
and in the movie business DVDs often appear a year after theatrical
releases. But with e-books windowing can act against the best interests
of publishers and authors. On January 11th, HarperCollins released the
hardcover edition of “Game Change,” by John Heilemann and Mark Halperin;
the e-book didn’t go on sale until February 23rd. The hardcover’s first
print run, seventy thousand copies, sold out soon after it was
released, and for nearly three weeks bookstores around the country had
no copies in stock. The authors and the publisher were deprived of
income, as potential readers found other books to buy.
Amazon’s
Russ Grandinetti thinks that windowing is a mistake. “It won’t work,” he
says. “Over time, people will read what they want. When a book comes
out, authors need all the publicity they can get. To put up an arbitrary
barrier and keep it out of the hands of someone who might evangelize
that work is a bad business decision for the author. Not to mention
frustrating for the customer.”
According to Grandinetti,
publishers are asking the wrong questions. “The real competition here is
not, in our view, between the hardcover book and the e-book,” he says.
“TV, movies, Web browsing, video games are all competing for people’s
valuable time. And if the book doesn’t compete we think that over time
the industry will suffer. Look at the price points of digital goods in
other media. I read a newspaper this morning online, and it didn’t cost
me anything. Look at the price of rental movies. Look at the price of
music. In a lot of respects, teaching a customer to pay ten dollars for a
digital book is a great accomplishment.”
In Grandinetti’s view,
book publishers—like executives in other media—are making the same
mistake the railroad companies made more than a century ago: thinking
they were in the train business rather than the transportation business.
To thrive, he believes, publishers have to reimagine the book as
multimedia entertainment. David Rosenthal, the publisher of Simon &
Schuster, says that his company is racing “to embed audio and video and
other value-added features in e-books. It could be an author discussing
his book, or a clip from a movie that touches on the book’s topic.” The
other major publishers are working on similar projects, experimenting
with music, video from news clips, and animation. Publishers hope that
consumers will be willing to pay more for the added features. The iPad,
Rosenthal says, “has opened up the possibility that we are no longer
dealing with a static book. You have tremendous possibilities.”
It
remains an open question whether consumers accustomed to paying $9.99
for an e-book will be willing to pay $13.99, or more, regardless of
extras. Tim O’Reilly, the e-books publisher, has found that the lower
the price the more books he sells. O’Reilly’s company sells e-books as
apps for the iPhone for $4.95, and he says that they generate “a lot
more volume” and profit than his company loses in hardcover sales.
Jason
Epstein believes that publishers have been handed a golden opportunity.
The agency model, he says, is really another form of the consortium he
proposed a decade ago: “Publishers will be selling digital books
directly to the iPad. They are using the iPad as a kind of universal
warehouse.” By doing so, they create opportunities to cut payroll and
overhead costs. Epstein said that e-books could also restore editorial
autonomy. “When I went to work for Random House, ten editors ran it,” he
said. “We had a sales manager and sales reps. We had a bookkeeper and a
publicist and a president. It was hugely successful. We didn’t need
eighteen layers of executives. Digitization makes that possible again,
and inevitable.”
Amazon seems to believe that in
the digital world it might not need publishers at all. In December, the
Simon & Schuster author Stephen Covey sold Amazon the exclusive
digital rights to two of his best-sellers, “The 7 Habits of Highly
Effective People” and “Principle-Centered Leadership.” The books were
sold on Amazon by RosettaBooks, and Covey got more than half the net
proceeds. One publisher said, “What it did for us was confirm that
Amazon sees itself as much as a competitor as a retailer. They have
aspirations to be a publisher.”
A close associate of Bezos puts
it more starkly: “What Amazon really wanted to do was make the price of
e-books so low that people would no longer buy hardcover books. Then the
next shoe to drop would be to cut publishers out and go right to
authors.” Last year, according to several literary agents, a senior
Amazon executive asked for suggestions about whom Amazon might hire as
an acquisitions editor. Its Encore program has begun to publish books by
self-published authors whose work attracts good reviews on Amazon.com.
And in January it offered authors who sold electronic rights directly to
Amazon a royalty of seventy per cent, provided they agreed to prices of
between $2.99 and $9.99. The offer, one irate publisher said, was meant
“to pit authors against publishers.”
Grandinetti concedes that
Amazon has tried to make more direct deals with authors: “We’re
constantly looking for ways we can do something more efficiently.” He
suggested that this was nothing new. “There’s a long history of
booksellers in the publishing business,” he said, mentioning Barnes
& Noble. Major publishers, he points out, all sell books directly to
consumers on their Web sites. “It seems like they’re in our business,
so it’s a strange argument to worry about this in the other direction,”
he said. But publishers’ sales through their own Web sites are
negligible, and though Barnes & Noble’s publishing program
antagonized publishers, it did not threaten a wholesale devaluation of
their products. O’Reilly believes that publishers have good reason to be
anxious. “Amazon is a particularly farsighted, powerful, and ruthless
competitor,” he says. “I don’t think we’ve seen a business this
competitive in the tech space since Microsoft.”
For the time
being, Apple’s entrance into the book market has given publishers a
reprieve. A close associate of Bezos said, “Amazon was thinking of
direct publishing—until the Apple thing happened. For now, it was enough
of a threat that Amazon was forced to negotiate with publishers.”
Asked to describe her foremost concern, Carolyn
Reidy, of Simon & Schuster, said, “In the digital world, it is
possible for authors to publish without publishers. It is therefore
incumbent on us to prove our worth to authors every day.” But publishers
have been slow to take up new technologies that might help authors.
Andrew Savikas, O’Reilly Media’s vice-president for digital initiatives,
is shocked that publishers have done so little to create digital
applications for their books. “Nothing is stopping publishers from
putting apps for books on iPhones,” he said. “There are fifty million
iPhones in the world. That’s a great customer base.” Budget-conscious
publishers have also reduced the editing and marketing and other
services they provide to authors, which has left a vacuum for others to
fill. Author Solutions, a self-publishing company in Bloomington,
Indiana, has ninety thousand client-authors. For books that attract
commercial interest, the company has partnered with publishers like
Harlequin to release them through traditional channels, but with more
generous royalties.
Jane Friedman, who served as president and
C.E.O. of HarperCollins, left in 2008 and established Open Road
Integrated Media, an e-book venture. She plans to acquire electronic
rights to backlists, sign up new authors (with fifty-per-cent
profit-sharing), and form a self-publishing division. “The publishers
are afraid of a retailer that can replace them,” Friedman said. “An
author needs a publisher for nurturing, editing, distributing, and
marketing. If the publishers are cutting back on marketing, which is the
biggest complaint authors have, and Amazon stays at eighty per cent of
the e-book market, why do you need the publisher?”
Publishers
maintain that digital companies don’t understand the creative process of
books. A major publisher said of Amazon, “They don’t know how authors
think. It’s not in their DNA.” Neither Amazon, Apple, nor Google has
experience in recruiting, nurturing, editing, and marketing writers. The
acknowledgments pages of books are an efficiency expert’s nightmare;
authors routinely thank editors and publishers for granting an extra
year to complete a manuscript, for taking late-night phone calls, for
the loan of a summer house. These kinds of gestures are unlikely to be
welcomed in cultures built around engineering efficiencies.
Good
publishers find and cultivate writers, some of whom do not initially
have much commercial promise. They also give advances on royalties,
without which most writers of nonfiction could not afford to research
new books. The industry produces more than a hundred thousand books a
year, seventy per cent of which will not earn back the money that their
authors have been advanced; aside from returns, royalty advances are by
far publishers’ biggest expense. Although critics argue that traditional
book publishing takes too much money from authors, in reality the
profits earned by the relatively small percentage of authors whose books
make money essentially go to subsidizing less commercially successful
writers. The system is inefficient, but it supports a class of
professional writers, which might not otherwise exist.
Madeline
McIntosh, who is Random House’s president for sales, operations, and
digital, has worked for both Amazon and book publishers, and finds the
two strikingly different. “I think we, as an industry, do a lot of
talking,” she said of publishers. “We expect to have open dialogue. It’s
a culture of lunches. Amazon doesn’t play in that culture.” It has “an
incredible discipline of answering questions by looking at the math,
looking at the numbers, looking at the data. . . . That’s a pretty big
culture clash with the word-and-persuasion-driven lunch culture, the
author-oriented culture.”
Most publishers mistrust Amazon and
think it is unnecessarily secretive. It won’t tell them details about
customer habits, or the number of Kindles sold, or what it costs to make
a Kindle. It won’t even disclose the percentage of revenues its book
sales represent, saying only that “media”—movies, music, and
books—accounted for fifty-two per cent of sales in 2009.
Publishers
say that the negotiations with Apple were less contentious. There were
arguments over the price of e-books, with publishers wanting the top
price set at seventeen dollars and Apple insisting on fifteen. “Once
Apple had determined that they were going to accept the agency model,” a
publisher said, “they were very tough: Take it or leave it.” But the
Apple people “had a much more agreeable feel than Amazon did. They said
they would share some consumer data about buying e-books. We have no
such data from Amazon.”
Publishers have another
recently converted ally: Google, which not long ago they saw as a
mortal threat. In October, 2004, without the permission of publishers
and authors, Google announced that, through its Google Books program, it
would scan every book ever published, and make portions of the scans
available through its search engine. The publishing community was
outraged, claiming that Google was stealing authors’ work. A consortium
of publishers, along with the Authors
Guild, filed a lawsuit, which was resolved only in the fall of 2008,
when Google agreed to pay a hundred and twenty-five million dollars to
authors and publishers for the use of their copyrighted material. John
Sargent, who was part of the publishers’ negotiating team, said the
agreement is a huge accomplishment. “The largest player in the Internet
game agreed that in order to have content you have to have a license for
it and pay for it, and that the rights holder shall control the
content,” he said. Whether or not the settlement is
ultimately approved by the U.S. courts, Google will open an online
e-books store, called Google Editions, by the middle of the year, Dan
Clancy, the engineer who directs Google Books, and who will also be in
charge of Google Editions, said.
Clancy said that the store’s
e-books, unlike those from Amazon or Apple, will be accessible to users
on any device. Google Editions will let publishers set the price of
their books, he said, and will accept the agency model. Having already
digitized twelve million books, including out-of-print titles, Google
will have a far greater selection than Amazon or Apple. It will also
make e-books available for bookstores to sell, giving “the vast
majority” of revenues to the store, Clancy said. He suggested that in
trying to dominate the market Amazon and Apple were taking the wrong
approach to business online. “It’s much more of an open ecosystem, where
you find a way for bricks-and-mortar stores to participate in the
future digital world of books,” he said. “We’re quite comfortable having
a diverse range of physical retailers, whereas most of the other
players would like to have a less competitive space, because they’d like
to dominate.”
For now, many publishers believe
that they have won the chess match that Sargent started. “We have three
behemoths now competing,” the C.E.O. of one house said. “So one of them
can’t force us to do anything unless the others go along.” Early sales
of the iPad are promising: Apple said that more than three hundred
thousand sold the first day, and analysts have guessed that between five
and seven million will be sold this year. And a dozen other digital
reading devices were on display at the Consumer Electronics Show, in Las
Vegas, in January, providing more competition for the Kindle.
Publishers
have another reason to hope. The recession has changed the thinking of
Silicon Valley companies, shaking their faith in advertising as their
only source of revenue. YouTube has begun charging for some independent
movies, in an effort to compete with Netflix, and its managers know that
to succeed it must have professionally produced content that
advertisers—and consumers—will pay for. As digital companies begin
charging for content, they are met in the middle by old-media companies
looking for ways to charge for what they produce. The incentives for old
and new media to form partnerships seem to converge.
“Ultimately,
Apple is in the device—not the content—business,” the Apple insider
said. “Steve Jobs wants to make sure content people are his partner.
Steve is in the I win/you win school. Jeff Bezos is in the I win/you
lose school.” Jobs recently met separately with New York Times, Wall
Street Journal, and Time Inc. executives to demonstrate the iPad’s
potential to make money for newspapers and magazines. Jobs, who had a
liver transplant last year and has battled pancreatic cancer, has begun
to think about his legacy, the insider said. “He’s in a hurry to create
in the next two years what he may have been thinking about in the next
ten years. What keeps him going is his vision. Nothing is going to stop
him, except death.” The insider said that Jobs was pleased with his
advocacy of publishers: “He feels like he’s their champion.”
For
the moment, Jobs is the publishers’ best ally. “Steve is very proud that
Macmillan put a gun to Amazon’s head,” the insider said. But in the
long term Apple and Google will not necessarily be better partners than
Amazon. One day, they, too, will complain about the cumbersome
publishing process, or excessive prices. Just days before the iPad went
on sale, on April 3rd, there were rumors that Apple might list
best-sellers for as little as $9.99. Apple agreed to the agency model
for just one year, and, as publishers are acutely aware, Jobs has a
history, with music and television companies, of fighting to reduce
prices. One publisher said, “Maybe Apple will want to come back in a
year and bite our heads off.” The iPad may even make it possible for
Amazon to reach new consumers. Apple now offers about sixty thousand
e-books, far fewer than Kindle does, and Amazon has launched an app that
allows it to sell e-books on the iPad. No matter where consumers buy
books, their belief that electronic media should cost less—that
something you can’t hold simply isn’t worth as much money—will exert a
powerful force. Asked about publishers’ efforts to raise prices, a
skeptical literary agent said, “You can try to put on wings and defy
gravity, but eventually you will be pulled down.” ♦
*The original piece described publishers’ costs
incorrectly.
2010/03/03 07:03
wedding.hwp