John Scalzi had some smart things to say about the contractual dispute brewing between Amazon and Hachette regarding how to price eBooks.
I read through all the comments on the piece and I’m pretty sure I didn’t actually see anyone bring up what I think is the real justification for why Amazon is pushing for this contractual change. I don’t think it has anything at all to do with publishers, authors, or even customers.
First of all, it’s completely rich that Amazon wants to put this pricing model in place. There was an email from Steve Jobs that came out during the recent “collusion” trial that predicted that Amazon would do exactly what they are proposing (taking 30% of $9.99) because “They have shareholders, too.” Based on this week’s events (both Hachette and Wall Street), the guy was nothing if not prescient.
Here’s the deal: Amazon really does believe that $9.99 is a magic price for books. (Probably all books, but definitely eBooks.) It’s clear they have some data that seems to prove that sales are particularly good there. And the comments on John’s site anecdotally back that up. Quite a few folks have stated that they simply won’t buy a book for more than $9.99. (Really? $10 is a bridge too far, I guess. And $10.99? That’s just crazy!)
Anyway, under the traditional “wholesale” pricing model publishers state a list price, but then sell the book to retailers like Amazon at a discount from that. It used to be 45-50% off for print books. Since the eBook settlement, the model is kind of a hybrid. Publishers set the price (as in the currently forbidden Agency model) but retailers are permitted to discount from that with some limitations. Discount percentages are much less – in the 20%-25% range.
To use a real example here, John’s new eBook appears to have a list price of $11.99. Using the (somewhat theoretical) 20% discount, that means Amazon’s cost is roughly $9.60. And they’re selling the book today for $10.67. So their cut is something like $1.07. But to sell this eBook at their preferred $9.99 price, Amazon would only be making 39 cents — maybe not covering their costs. (To make this a simple example, I’m ignoring publisher payments for placement, promotion etc.)
For some books Amazon is probably willing to take a loss to get to their magic price point. Or they might not be willing to take a loss on a particular book and so they price above $9.99. This probably really upsets their number crunchers.
And of course today Amazon’s profit changes based on the list price of the book and their chosen discount. For a few eBooks they might make $3, for most others much less.
Now look at the new reverse-Agency model that Amazon is proposing: Amazon sets the list price ($9.99) and gives the publisher 70% of that ($6.99). There is now no question of Amazon’s cut. It’s a nice consistent $3. I’m betting that that’s a whole heck of a lot higher than their average take on eBooks up to this point.
So with this proposed model Amazon gets what they want — probably more sales (on average), but, more importantly, more money per sale (on average). And customers generally get a consistently lower price on new, best selling, books. Publishers are the only folks who don’t appear to get what they want here (control over how their products are priced, especially for new hot-selling titles). Depending on how you view the future of writing and publishing this could be viewed as good or bad.
And true to Steve’s old email, I’m betting that moving to this pricing model would make Amazon’s shareholders a little happier than they were this week.
It really bugs me when folks (like this guy, for example) end up sounding like apologists for truly appalling corporate behavior. I’m hoping that these folks have simply been blinded by corporate spinmeisters and simply haven’t thought through the situation completely.
In this particular case, Netflix is being forced by Comcast (and apparently some other broadband providers) to pay extra transmission fees simply to allow Comcast’s customers to access the Netflix video content that those customers have already paid for.
The way that Comcast spins this is that Netflix is pushing a ton of data onto Comcast’s network and that, of course, Netflix should pay for that. When put this way, it seems reasonable that Netflix should pay more. They are “using” more bandwidth, right?
Nope.
In reality what’s happening is that Comcast’s customers are requesting to watch movies and TV shows that Netflix is providing. Those customers have paid Comcast for some amount of bandwidth and they’re simply attempting to use it. Sure all that Netflix data for all of those customers adds up, but it’s all within the Comcast-set bandwidth limits that are already in place. Again, this isn’t some random deluge of Netflix data; each video stream is heading towards a paying Comcast customer’s house.
And on the other side of the network, Netflix is paying its own ISPs handsomely for the enormous bandwidth and content delivery capacity to serve up the data that its customers are asking for.
In other words, both Netflix and Comcast’s customers have already paid for the bandwidth necessary to stream Netflix’s video content. What Comcast and these other ISPs are trying to do is charge again for that same bandwidth. Sneaky, eh?
Now of course, some folks will still be apologizing for Comcast: “Well Comcast can’t really send each of it’s customers a 10 Mbs video stream. If you add up all those streams that’s more bandwidth than they have available!” This is obviously true, but tell me how this is Netflix’s problem? If Comcast is oversubscribing its network (and it certainly is), then that’s between Comcast and its customers, not an external content provider. To solve this problem Comcast could build out more capacity, throttle its connections, charge more for faster connections, or a dozen other things. Netflix has nothing to do with it.
Anyway, it’s pretty obvious that this is simply a money grab by a (de facto) monopolist and that if Comcast can get away with this double-dipping with Netflix, it’s just a matter of time before they will try to extract a similar toll on all other content providers. From there it could be a slippery slope to a kind of ISP-run Toll Gate for any kind of Internet content — kind of like the way that the cable television part of Comcast’s business works.
This is pretty interesting. It looks like Apple is moving their original Cleveland store from Legacy Village to Eton.
I wonder how Legacy Village is doing. It’s had a number of major store closures in the ten years or so it’s been open; losing the Apple Store has got to sting. The store is a clear draw in a prime location and always seems to be packed.
It’s another win for Legacy’s direct competitor Eton, which seems to be on a roll — it’s been significantly upgraded and has Cleveland’s only Orvis, North Face, Sur La Table, and lululemon stores. Eton also happens to be owned by the same folks that run Crocker Park, the west-side location of the other Cleveland Apple store. Probably not a coincidence.
Tim Bray, a well-known smart person, wrote a post today about how he’s been reading John Scalzi‘s Old Man’s War series on his Kindle (he’s apparently on book three, The Last Colony). Because of the addictive qualities of these books, he implies that he can feel Amazon siphoning money out of his wallet as he compulsively starts the next book in the series. His commentary seems to boil down to something like “Amazon makes it too easy to buy books.” I think he’s kidding, but there does seem to be an undertone of real concern there.
Now, I’ve read this entire series, and I can vouch for the books’ highly addictive nature. But unlike Bray, while reading the books I spent no time checking my wallet, or cursing Amazon, or worrying that they were getting too good at their primary business, or that they somehow might end up using their technology in dangerous ways. In fact, Amazon never crossed my mind. And actually, I spent no money at all on these books. (Sorry, John!)
See, I happen to have heard of this thing called a “library.” Amazingly enough, these library things let you read books without you having to pay for them yourself. This is particularly useful to me since books are something I like to read, but don’t like to own.
To be a little more serious, there are some reasons why a library might not be an appropriate place to obtain a book. For folks whose attention spans are so short that they that simply cannot wait at all to begin reading something, a library isn’t going to cut it. And for someone who absolutely must read a book on the specific e-reading device of their choice, again a library might not do the trick. Unfortunately Amazon, Barnes & Noble, Apple, and the publishers are trying their darnedest to cut libraries out of the mix (or at least make things really inconvenient) when it comes to e-books.
But for me novels are a perfect example of the kind of entertainment where a week or two wait doesn’t mean much. In general, novels will be just as good (or bad) next week or next year. And after all, there was a four-year wait between the fourth and fifth books in the Old Man’s War series. No amount of payments to Amazon could reduce that delay.
I’m also fortunate to prefer to read novels in hardback form. I’m sure this format will go away at some point, but for now, there’s simply no significant upside to dealing with the vagaries of e-readers and e-books. For example, and this is the real head-scratcher for me: Why purchase something (a novel) that you use once and are unlikely to ever use again, and in a format (Kindle) that you can’t sell or give to anyone else? This is an awesome deal for Amazon and the publishers. It’s a much less compelling deal for readers; it just shows the incredible value that some folks place on having a book in the format they like and in the time-frame they desire.
So what Amazon is really doing here is not only, or even primarily, charging for the content. It’s actually charging for access and for convenience, two time-honored ways of making money. There’s little point in complaining (or even joking about complaining) when you’ve made your own choice to trade more money for less waiting.
Today Apple announced the new iPhone 5 and claimed that it was the thinnest smartphone in the world. Predictably, folks who should know better claimed this statement wasn’t “fact checked” and was WRONG: that there were existing Android devices out there that are thinner and this was more of Apple’s unceasing marketing lies.
And I guess if you believe the marketing hype from the vendors and don’t actually look at the devices in question, you might think that there are phones thinner than Apple’s. But you would be WRONG.
RAZR XT910
So here’s the truth: A lot of smartphones have a relatively thin main body and a big fat bump at the end where the cameras, LED flash, and speaker are. For example, here’s some photos of the Motorola RAZR XT910, one of the phones that Strategy Analytics claims is thinner than the iPhone 5. Notice the giant blob out at the end? For some reason when vendors list the specs of their phones, they don’t include this extra depth and nobody seems to call them on it. In my opinion the actual depth of the device is this hump, not some random thinner spot on the rest of the phone.
Since nobody seems to track what this extra depth is you’d have to have the phone in hand to measure it. Some folks with the phone have said the RAZR is about 10.1 mm deep. In any case it’s quite clear the this area is far thicker than the iPhone 5.
Apple went on for some time in today’s iPhone 5 announcement about all the work they had to do to fit the iPhone 4S’s camera into this new thinner form factor. As everyone is well aware, the Android phone vendors simply do not spend the time and money on such things. Hence all the “humps”.
So, while it is theoretically possible that there is a smartphone thinner than Apple’s, nobody has definitively pointed one out yet. I’m guessing that Apple did their homework on this one.
The new St. Ignatius HS Mall is getting closer to completion: http://bit.ly/oMBaon
I was somewhat annoyed but certainly not shocked when my high-school-entering daughter’s textbooks and other required reading material ended up costing us several hundred dollars. And this was purchasing many of the books used. It’s well known that publishers, losing customers in other aspects of their business, are using their textbook publishing divisions to make some extra cash.
At one point it was assumed that e-books would completely take over the textbook market and would help drive down costs. So far that hasn’t happened much. The primary e-book customers seem to be folks who want to carry all their books around in a more convenient format. The e-books themselves often are priced similarly to the printed version.
There has been some innovation in the area though. For example. Amazon today announced Kindle Textbook Rental. The rental price paid increases the longer you keep the book.
The new Amazon service would be ideal for situations where there is a long reading list for a class. The student would then only need to rent books for the semesters where those books are being used. It doesn’t look like much would be saved for traditional full-year textbooks. A quick glance at some of the pricing indicates that renting the book for the school year costs roughly the same as buying the e-book.
Believe it or not, as I was looking in to the rental pricing I noticed that in some cases the new hardback versions of textbooks are actually priced lower than e-books. Of course, used hardback copies always cheaper than e-books. And with the Kindle books, there’s no option to sell the book at the end of the year.
So despite the new possibility of lowering e-book costs by renting, it seems that in many cases the lowest cost is. as it’s always been, the used-book market.
One of the things I wonder about a lot is this whole idea that while we used to be able to do/build/have certain things in the past, we are now apparently no longer able to. This is despite the overall wealth of the US now being far greater than it was when we used to do these things.
For example, where we once built public buildings (stores, churches, schools, courthouses) in monumental ways and with fine materials, we now cut corners. We place what should be important buildings in poor locations. We put a school in a field at the edge of town. We put a courthouse in a rundown neighborhood. There is an uproar if anyone tries to do more than the basics when designing or building anything with tax money.
I was again reminded of this when I read this article in the NY Times about the precipitous decline in school libraries.
In the “old days” every school had a library and librarian. The library was a central part of the school experience. It was well used, funded and maintained.
Then over time, things began to change. First we started getting behind on updating the library collection. This is brought up twice in the Times article:
- A “library, whose books were so outdated that some still referred to the Soviet Union without reporting its demise.”
- “[T]he principal of one of the six high schools that share the building said the books there were too outdated to be usable.”
When a collection is not appropriate for use, it’s not surprising that fewer people use it.
Then we started sharing libraries between schools, eliminating the ability for many kids to simply stop by the library during their school day. It now required a special school trip — maybe even in a bus — to go to the “school’s” library. Not surprisingly this further marginalized library use.
And now finally, we’ve simply stopped hiring, and have moved on to firing, librarians. While many folks seem to feel that Google can somehow replace a librarian, this is obviously not really the case. Curators and experts are needed no matter what situation we are in.
Basically, we’ve said that these things, school libraries, which were apparently mandatory and expected in the first part of the 20th century are now way too expensive. And because they are too expensive, we first marginalize them and then eliminate them.
And the subtext here, of course, is the incredible hole we’ve dug for ourselves in education overall.
As the President mentioned in his Twitter Town Hall yesterday: “For us now to give short shrift to education when the world is more complex than ever, and it’s a knowledge-based society and companies locate based on whether they’ve got skilled workforces or not, that makes no sense.”
Again, back to my main point: How could we afford this stuff in the past? Why can’t we now? Where is all the money going instead?
Gruber: “If you use more than 2 GB per month you’re going to pay more, but this strikes me as fair, because most people don’t use that much data.”
Wired: “Video streaming and online gaming use much more bandwidth than web browsing or e-mailing. For instance, Netflix ranges from .3 GB per hour to 1 GB for normal resolution movies and up to 2.3 GB per hour for HD content.”
Average hours per month Americans spend watching TV: 164 (Nielsen, Q4 2010)
Hours per month Americans could spend watching HD TV¹ via:
- Comcast xfinity: 108
- ATT U-verse: 108
- ATT DSL: 65
- Time Warner Roadrunner (trial): 17
- Verizon Wireless: 4
- ATT Wireless: < 2
¹ On the most expensive data plan.
