Amazon Is Doing to Publishers What Apple Did to Record Labels

UPDATED: If you’re interested in books, either the old-fashioned kind or the electronic kind, you’ve probably caught wind of a major dustup going on between Amazon and book publisher Macmillan over what price Macmillan should be allowed to charge for its e-books. Macmillan took out a full-page ad in the magazine Publishers Lunch to inform authors, retailers and readers that Amazon had yanked all of its books from the company’s electronic store.

According to several reports — the most detailed (if confusing) of which comes from author Charlie Stross — Amazon didn’t take kindly to Macmillan’s proposal for a new book-pricing structure, which would see new books, both printed and electronic, priced at $14.99 and then gradually dropping in price over time. Amazon is apparently not impressed with this idea at all, and would like virtually all of its e-books to be priced at $9.99 or lower. [digg=]

In fact, the new royalty rates that the retailer offered to authors and publishers in advance of the Apple iPad announcement requires them to guarantee that their books will not be priced any higher. Amazon seems miffed that Macmillan is not only proposing to raise prices, but is also playing footsie with Apple about book sales on the iPad.

As Amazon and Macmillan retreat to their respective corners, with Apple waiting in the wings, authors have been taking sides on the dispute, and many of them seem to be siding with Macmillan, including John Scalzi and Cory Doctorow of BoingBoing. Why not let the publisher charge more, or have a more flexible pricing scheme, they argue? It’s better for the consumer, etc. (there’s another good overview of the fight here).

One thing no one seems to be talking about, however, is how similar this is to the strategy employed by another large consumer technology company whose name begins with an A. In effect, what Amazon is doing — trying to maintain a fixed, low price for e-books to help stimulate the market, both for e-books and the Kindle — is almost exactly the same as what Apple did several years ago, when it was putting the screws to the major record labels on music prices through the iTunes store.

Virtually every major record label tried to boost prices for their songs, or at least get Apple to agree to a variable-pricing model, which would let them charge a higher price for the current hits that customers wanted most, and lower prices for older songs from the “back catalog.” Apple repeatedly refused, until a year or so ago, when negotiations began to modify prices in just such a way. The two sides reached an agreement a year ago.

So why did Apple not get criticized the way Amazon is now? Perhaps because not enough musicians had blogs, and authors do. Or it could be that no one in their right mind would have thought of supporting a record label — one of the most reviled corporate entities of the modern age — whereas many feel more kindly towards a book publisher. In any case, the issue is the same: The labels wanted to charge more to preserve their profit margins from the compact disc, and Apple wanted to charge less to spur market growth.

If you’re trying to decide which side is right, ask yourself this question: Why should consumers support the right of book publishers to charge whatever they want for their product? Since when does the manufacturer or distributor of a thing get to set the price? Surely the retailer is the one that should be allowed to determine the price, based on market demand and a host of other factors (including what price the manufacturer charges him to supply it). In this case, that retailer — or the closest thing to it — is Amazon.

Wal-Mart doesn’t charge whatever Kimberly-Clark says to charge for its toilet paper; the store charges whatever it thinks the market will bear, or whatever it needs to charge. Admittedly, toilet paper and books are somewhat different (depending on whose book you are reading) but the principle is the same. If MacMillan wants to have its e-books on the Kindle, or its printed books in Amazon’s online store, then Amazon gets to decide what to pay for them. Even if a quasi-monopolistic situation has developed with the Kindle, Apple’s iPad should ensure that it is shortlived.

Update: According to a post in Amazon’s Kindle Community forum, the company has decided to capitulate to Macmillan and allow the publisher to charge higher prices for its books. Obviously having Macmillan books in its stores means more to the retailer than winning a price war. The somewhat passive/aggressive post states:

Dear Customers:

Macmillan, one of the “big six” publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, 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. Amazon customers will at that point decide for themselves whether they believe it’s reasonable to pay $14.99 for a bestselling e-book. We don’t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

Kindle is a business for Amazon, and it is also a mission. We never expected it to be easy!

Thank you for being a customer.

Thumbnail photo courtesy of Flickr user bass_nroll. Post photos courtesy of bass_nroll and Flickr user gadl.