As the news broke last weekend, several Tor/Forge authors immediately reacted to Amazon’s ceasing direct sales of their books by replacing Amazon’s links on their sites and redirecting their fans to Barnes & Noble and IndieBound. Among them was Cherie Priest, whose popular steampunk novel, Boneshaker, was recently honored with a PNBA 2010 Book Award, and as of 12:45pm EST on February 5th, still wasn’t available for direct sale on Amazon:

But at the end of the day, there are lots of other places selling books. In fact, if you go to IndieBound I bet you can find a number of fine, upstanding, book-selling establishments in your own neighborhood. Or if online ordering is your pleasure, Barnes & Noble has a great selection and pretty good prices (for example, right now Boneshaker is available at the member’s price of $11.51). And you can find a listing of all my books available through B&N right here, easy peasy. Don’t forget, you can also order signed copies (at no extra cost, and from anywhere in the country) through the University Book Store here in Seattle.

Another Tor author, Jay Lake, posted “An open letter to Kindle enthusiasts and ebook activists“, offering a very thoughtful take on the situation while shooting down the meme that the agency model will mean more expensive ebooks across the board:

Second, Amazon in their letter to the Kindle community cited the high end price point of Macmillan’s proposal, but didn’t cite the low end of $5.99 or talk about the dynamic pricing. This would include older books reaching that much lower pricing point and staying there, which means over time an increasingly large number of ebooks, and eventually most Macmillan titles except the very latest, would be priced well below $9.99.

That second point seems to be an important factor that’s being ignored in the outrage by the Kindle community. Many seem to assume that Macmillan is simply lying about lower prices, but why would they? That dynamic pricing model is exactly how print books are priced today, as they go from first release hardback to mass market paperback to backlist. The publisher knows how to manage that, the book buying public knows how it works. And they want your business as a book buyer, whether ebooks or print. Why would they lie about this?

Commenting on Jack McKeown’s op-ed declaring “Amazon is the Loser“, another Tor author, Mercedes Lackey, pushed back on the notion that Macmillan authors might no longer needed their services and could instead strike out on their own:

I hear a lot of calls for authors to do something else and somehow magically produce and publish, or at least sell, their own books. I do not, however, see a lot of calls for that from writers.

Anyone wonder why that is? I can tell you, because I may be one of the few people commenting that actually HAS some small business experience. Having had, and failed, in a small business, there are a thousand things you must do that are invisible to the customer to keep a small business going…

Start a book business myself? That’s the sound of hysterical laughter you hear. Thanks, I think I’ll stab myself in the eye with a fork a few times instead.

And last but not least, yet another Tor author, John Scalzi, has blogged prolifically on the Amazon situation over the past week, including the humorously scathing, “Why In Fact Publishing Will Not Go Away Anytime Soon: A Deeply Slanted Play in Three Acts“:

STRAÜMANN: Then release the book electronically to skip on all those printing costs!

SCALZI: Yes! And then sell it for a reasonable price!

STRAÜMANN (shrugs): Well, do what you want. I’ll be getting it off a torrent.

SCALZI: What?

STRAÜMANN (brandishing his electronic reader): I paid $300 for this thing! Honestly, how much do you expect me to pay to fill it?

SCALZI: So, pay people nothing to help me create a book I make nothing on, for people who will refuse to pay for it.

STRAÜMANN: I wouldn’t put it that way. But yes.

Macmillan executives should consider themselves fortunate to have such vocal support from their authors, especially among those so deeply engaged within an active, outspoken niche like sci-fi/fantasy. That, coupled with their innovative Tor.com online community, gives them the kind of connection to their readers most publishers dream of.

If niche is truly the key to publishing survival, then there appears to be at least one division of Macmillan that’s well-positioned to survive the digital transition.

By Jack McKeown, Director of Business Development, Verso Digital

I think it more than a bit of a stretch to call this a flat-out victory for either party.

Despite its feigned martyr’s pose (in Saturday night’s so-called “capitulation” letter), Amazon has suffered a public relations debacle among some very important constituencies: authors, agents, and disaffected Kindle readers. I don’t include publishers in that line-up because they have become well accustomed to Amazon’s hardball tactics for years.

Amazon effectively has had to abandon its loss-leader pricing strategy at a point well before Kindle sales have reached a mainstream tipping point. Publishers effectively will now have to abandon their declared windowing strategy, and suffer some top-line revenue erosion as an increasingly significant porton of hardcover sales slip over to lower-priced ebooks.

The truth is, however, that $12.99 -$14.99 represents exactly the right price point for ebook versions of new hardcover releases, from both a publisher and consumer perspective. At that price range, roughly a 52-54% discount from standard hardcover prices of $25.00-$35.00, the publishers will make the equivalent unit gross margin that they make on their current hardcovers, about $6.75 per copy.

They can accomplish this because of several factors:

1. The agency model pays them 70% of list price vs. standard retail discounts of 50%;
2. Ebook royalties are established, for the most part, on 25% of net receipts vs. 15% of list for hardcovers which yields a lower per unit royalty;
3. The ebook has no physical manufacturing cost, a pick-up of another $2.00;
4. The ebook entails no physical distribution costs (packaging, order picking, shipping, etc.) for a gain of roughly $1.00-;
5. The ebook sale is a guaranteed one, affording no risk of return.

Why is this gross margin equivalency, new e-book vs. hardcover, so critical? Because at that point of indifference, the hardcover publisher ceases to worry about the potential cannibalization effects of simulatneous ebook release.

The consumer wins because the publishers’ need to engage in windowing is effectively over, except in very rare instances, e.g. very time-sensitive nonfiction releases. Our research shows that as many current ebook buyers are prepared to pay in the range of $12.99 -$14.99 as are represented by the $9.99 fanatics–about 28%. Of the remaining cutsomers, 37% have no fixed opinion about ebook prices and as are likely to be converted to the $14.99 prices as not.

Publishers now have the incentive to invest in quality formatting of all their ebook product (the current quality of scanned ebook product is atrocious), experiment with new enhanced ebook content, and spend the necessary dollars to perfect their internet marketing channels. I would call this a win/win for consumers and publishers, hands-down. Those $12.99 – $14.99 prices are likely to be around for some time as a result.

The only real loser is Amazon in its monopolistic ambitions. But it too will benefit in the long term from the heightened publisher interest in expanding the ebook market, and in the short term by actually making money on its ebook sales, as Mr. Mc Quivey rightfully points out.

As has always been true, publishing is best served by a strongly competitve and diversified distribution ecosystem.

[Ed: This op-ed in response to Jim McQuivey's PaidContent.org article, In Amazon vs. Macmillan, Amazon Is The Winner, was originally posted in the comments to that article and has been reprinted with McKeown's permission.]

Jack McKeown is the former co-founder and CEO of the Perseus Books Group, and past president of the Adult Trade Group at HarperCollins. Currently he serves as Director of Business Development for Verso Digital, the first vertical ad network for book publishers, and as president of Conemarra Partners, a media consultancy.

After Amazon startled the industry by suspending direct sales of all Macmillan books (print and Kindle editions) sometime Friday evening, in response to Macmillan’s proposing new terms of sales for ebooks, they have now announced they “will have to capitulate and accept Macmillan’s terms.”

Interestingly, Amazon made this announcement directly to their customers within their Kindle Community message board, in an announcement entitled Macmillan’s E-books:

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.

The decision to make the announcement within their own forums and their point about Kindle being “a mission” (emphasis mine) should be noted as it highlights Amazon’s direct relationship with their customers, a relationship most publishers don’t enjoy, leaving them at the mercy of intermediaries like Amazon.

Welcome to the new world of publishing.

Everything you thought you knew about the business is going to be upended.

If you weren’t online yesterday, you might have missed the NY Times report that sent a shockwave through the publishing industry:

“Macmillan, like other publishers, has asked Amazon to raise the price of electronic books from $9.99 to around $15. Amazon is expressing its strong disagreement by temporarily removing Macmillan books, said this person, who did not want to be quoted by name because of the sensitivity of the matter.”

“Macmillan is the first to draw a line in the sand but we expect not the last,” Eric Simonoff of William Morris Endeavor told Publishers Lunch yesterday.

GalleyCat has a good round-up of what’s transpired so far (and Shelf Awareness, too), and here we’ve pulled together some additional reactions to the situation from authors and other publishing professionals.

Cherie Priest, author of Boneshaker (Tor Forge, a Macmillan imprint):

Tor is a Macmillan company, so yes, that means they’ve stopped selling those books of mine which are published through Tor.*

My reaction to this is pretty straightforward: I think it’s dumb and it sucks.

But at the end of the day, there are lots of other places selling books. In fact, if you go to IndieBound I bet you can find a number of fine, upstanding, book-selling establishments in your own neighborhood. Or if online ordering is your pleasure, Barnes & Noble has a great selection and pretty good prices (for example, right now Boneshaker is available at the member’s price of $11.51). And you can find a listing of all my books available through B&N right here, easy peasy. Don’t forget, you can also order signed copies (at no extra cost, and from anywhere in the country) through the University Book Store here in Seattle.

Scott Westerfeld, author of Leviathan (Simon Pulse, a Simon & Schuster Imprint)

The real power we authors have is removing links to Amazon from our websites and such. It may not be vast money, but I’ve actually had an online retailer call my publicist at S&S to complain because my website’s BUY THIS BOOK links were biased toward the competition. So they care a little, at least.

Not that we’re at that stage, I’m just saying . . .

Plus, most people’s love of the Kindle is not its design, form factor, or reading experience, but the convenience of instant wireless purchases. Imagine those folks firing up their Kindles this weekend and finding out that they can’t buy books from certain publishers, while their Sony/Nook-owning pals can.

Random blackouts do not make customers happy.

Chuck Wendig, Screenwriter. Novelist (represented by Stacia Decker, Donald Maass Agency)

Listen, I get it: the e-book represents a powerful future, especially for the author. The author has never had the kind of distribution available that the Internet can afford: it’s like living on a swiftly-moving river, a river on which your audience lives, and all you need to do is drop your paper boat in its waters and watch it reach all the people you need to reach.

But it’s stuff like this kerfuffle that puts that in danger.

Unless — unless — it simply serves to destabilize the model so much that, its foundation shaken and crumbling, the power only shifts further away from the two Godzilla-sized creatures wrestling in the town square.

India Amos, former art director at Nextbook [now Tablet magazine]; former senior designer at St. Martin’s Press:

My queasy gut tells me that Macmillan can’t afford to play this game of chicken. It makes my heart hurt, because I worked in production at what is now Macmillan (then Holtzbrinck), and I know how thin the so-called margins are in book publishing to begin with, and I can very clearly see why many (all?) publishers want Amazon to stop selling their e-books below cost. At the same time, I can also see why nearly every commenter (or the first five pages’ worth, anyway) on the New York Times story is saying, “Suck it, Macmillan! E-books already cost too much, even at $9.99!” The biggest reason is DRM, duh, but another one is sloppy shit like this. And one of the reasons sloppy shit like that happens is that those publishers who can afford it are producing books the traditional X-Acto–and–wax way and then outsourcing their e-book production to other companies, which probably automate the conversion process, and then they’re not practicing any kind of QA on what comes back, because nobody gives a shit, because the people who make the decisions don’t read e-books.

The debate on Twitter was fast and furious and lasted throughout the day:

DigiBookWorld: RT @DonLinn: This will be ugly. Another opportunity for indies if they’re smart. \\ RT @bookateur: Will make the point at Wi5 next week.

DigiBookWorld: RT @DonLinn: I’m not disheartened by AMZN/MacMillan fight at all. It’s hastening the sorting out; constructive. Remain calm and carry on.

Draccah: rt @RonHogan: Ebooks cost same to evaluate, negotiate acquisition, edit, market & publicize (among other non-prod costs) as print

Draccah: RT @colleenlindsay: Holding back an e-edition is no different than a publisher choosing not to print mass market & hardcover simultaneously.

DigiBookWorld: RT @jasonashlock: Sargent’s cogent, frank letter will do much to win support; AMZN’s repeated failure to communicate only enrages customers.

And then just this morning, author Charles Stross offered up one of the best takes on the whole situation in Amazon, Macmillan: an outsider’s guide to the fight:

It’s interesting to note that unlike the music industry who had to be pushed, the big publishers seem to be willing to grab a passing lifeline.

Final note: to customers, Amazon would like to be a monopoly (i.e. the only store in town). To suppliers, Amazon would like to be a monopsony (i.e. the only customer in town). Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everyubody’s nuts — the authors, the customers, everyone. They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily. And if you think things would be different if I, Charlie Stross, went into self-publishing and sold my wares directly without any icky publisher to ‘help’ me … do you really think I’d get better terms out of Amazon than a huge publishing conglomerate?

Whether this means Macmillan is any better placed to adapt to the post-internet order is an entirely separate issue which I can’t begin to address here.

But Amazon, in declaring war on Macmillan in this underhand way, have screwed me, and I tend to take that personally, because they didn’t need to do that.

UPDATE: Author Tobias S. Buckell’s “Why My Books Are No Longer Available on Amazon.com” has deservedly received a lot of attention, so much so that his site apparently crashed. Fortunately, SFWA has mirrored his insightful post:

If Amazon is a marketplace, they would just let a publisher putting out expensive books to shoot themselves in the foot. But what we’re seeing is a very aggressive move, designed to shock and awe the publishers. This really has nothing to with what customers want and everything to do with Amazon using its very large position to leverage itself into remaining number one. They deep discount books, often at a loss, because then once they have a customer, there’s so much more to sell you. Speaking as an Amazon Prime member, I understand. If Amazon loses customers elsewhere, because of books, they lose the ability to leverage the wide of their item selling.

…

Yes, we’d all like cheap books. I’d like cheap gas too. And milk has gone up. I’m working in a recession. I know this stuff hits the wallet. But the genius of a market economy is that we let companies try to charge what the market can bear, and let sales and results sort it out.

During the 70s the government tried to put artificial prices on gas, resulting in shortages as hoarding occurred. Most economists that I’ve read demonstrate that while artificially blocking a higher price sounds like a good idea (populism), it’s actually bad economic news.

That’s why your gas, milk, and other items aren’t pegged to a maximum price ceiling.

When a manufactured thing initially comes out, the initial investments to make that thing are still there. As a result, with designed jackets, new cars, new medicine, the price is initially higher. Over time, as those investments are recouped, the unit cost comes down.

It’s not surprising that publishers would like to do this with eBooks.

The whole post, as with the others excerpted here, is worth reading in its entirety.

UPDATE: In response to Amazon’s surprisingly fast and cagey capitulation, Scott Westerfeld wades into the fray with a smart analysis, and offers this conclusion:

All discussions of this event will draw commenters who think they magically know how books should be priced, and who say there is no reason for electronic editions to be more than $9.99. A quick note to them: You don’t know what you’re talking about. Seriously, your back-of-the-envelope calculations are crap. The printing costs of a book are generally between 3% and 10% of list price. So in most cases, 10% should be your “first-printing” e-book discount, not 50%. That may seem weird to you, but that’s because all the cheap stuff on the internet is backlist (like Baen Books), subsidized/coerced (like Amazon), self-published (no editing or marketing costs), or promotional (like when I gave Uglies away for free). Yes, the “long tail” of backlist books may become very cheap, or free, but not the new stuff, which is what this discussion is all about. (UPDATE: Also, see comments 1 and 9.)

PS: Hey, Amazon. When cutting off publishers, don’t start with the one that has the most science fiction writers. We will blog you dead!

2010 is undoubtedly going to be a year of tumultuous change in the publishing industry, and as evidenced at Digital Book World last week, there is a crackling energy, a sense of urgency, a thirst for innovation, and a hint of optimism that, unlike the music industry, which was dragged kicking and screaming into their digital transition, we just might get this thing right.

Are you still optimistic?

Note: This is an excerpt of a message that ran as a paid advertisement in a special Saturday edition of Publishers Lunch.

To: All Macmillan authors/illustrators and the literary agent community

From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure 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.

…

Read the rest of the letter at Publishers Lunch.

Brian Napack’s piracy plan made me laugh.

And then it made me excited because I figured it would make for an excellent rant. I heart controversy and what better way to spark discussion than to write about the president of Macmillan and the dumbest plan in the history of publishing?

Then I logged onto Twitter.

Well… That totally popped my balloon. Everyone was tweeting about it, and worse, everyone agreed with me. I thought I had made some incredibly insightful discovery; one that would catapult me into publishing awe. Apparently this was not the case.

Here’s a sample tweet:

redrobinreader: That’s the sound of NY pubs imploding RT @jane_l So to sum up, Macmillan’s digital strategy is to a) fight piracy and b) fight piracy…

Okay, so I wasn’t the only person to notice that Macmillan’s plan was lacking, and after a bitchfest with Guy LeCharles Gonzalez, I realized neither was I the first.

He pointed out that it was impressive for Napack to bring up a plan at all: “Usually these guys skirt around the issue and don’t put forth a solid plan.” Instead of playing the politician, Napack produced a concrete proposal of Macmillan’s next steps, regardless of its ability to actually be effective.

[NOTE: DBW Members can listen to the entire presentation here.]

Let’s go over Macmillan’s provocative strategy (you know, the one no one has ever tried before):

1. Target facilitators

2. Target pirates

3. Pursue legislation and enforcement

Apparently they’re going to hire people specifically to fight book thievery. The next generation of publishing wannabe’s will attend interviews like this:

Interviewer: What did you major in?
Wannabe: Pirate studies!
Interviewer: You’re hired!

(Let me just point out this puts my Facebook ads in a whole new light. That light looks like crap, by the way.)

What a supreme waste of time and energy. Not to mention money. Aren’t book publishers not really hiring? Isn’t big publishing in a bit of a pickle?

It’s not like taking down all pirated books is going to increase sales. People download illegal copies because they don’t want to shell out the dough for the “real” thing. If the illegal copy goes away, the “real” thing might as well not exist. So not only will Macmillan have wasted the money hiring someone to beat piracy, but now no new readers are finding their books.

I, for one, am much more likely to purchase a print book if I already know it’s going to be awesome. Most people (especially poor college grads like myself) don’t buy books to read them once. This is one way where pirated books can be incredibly useful.

4. Create a viable consumer marketplace

This is a much needed plan of attack that hopefully won’t have youth running for the torrent hills… and yet Napack spent a grand total of two seconds on it. This could have been an entire panel discussion. An entire conference.

We need more Netflix-type rental systems or something along the lines of eMusic where you can download a relatively unpopular song for something like $0.20. Oooh, and free trials! (Except see no. 6; not sure these two can exist in harmony.)

5. Protect content in-house

According to Napack, Macmillan has a little problem reigning in its employees as apparently many illegal eBooks are created from prepublication sources. He made it seem as if Macmillan employees are the biggest group of pirates around and didn’t even mention the fact that prepub copies are available to other people as well, for advance reviews to create awareness and increase sales.

That’s the whole point, right?

I find it very hard to believe that the lucky few in publishing who are still employed are going to not only encourage book piracy, but partake in it.

6. Protect content in the marketplace (basically limit free eBooks in whatever capacity – giveaways, galleys, etc)

Maybe these copies get leaked, but we can’t deny their effectiveness! Just last night I signed up for a free sample of Seth Godin’s Permission Marketing. The promotion went like this: I provided my email address; I got first four chapters delivered to my inbox. What’s not to love?

If bookstores continue to shut down left and right, readers have a limited ability to physically browse through books. Free chapters of eBooks = browsing in the digital age.

7. Engage in public education

If that’s not a euphemism for “scaring the shit out of kids who don’t know any better”, I don’t know what is. Here’s the image I have in my head: you know those commercials you see a lot in movie theaters? The one where some teen is downloading torrents and another is stealing a DVD?

Big booming voice: YOU WOULDN’T STEAL A CAR.

That’s the one. Here’s a favorite parody of mine: “YOU’D PROBABLY STEAL A WALLET… Regardless, this advertisement is annoying.”

Final thoughts

I’m not condoning piracy (sort of), but if major publishers are only going to look at the “legal” side of things and spend precious time and money fighting the inevitable, they are going to crash and burn.

I’m poor, I understand technology, and I guarantee I can find any book online, for free, in 10 minutes or less. You can delete and sue all you want, but at the end of the day the internet is a wide and limitless place, meaning it’s a waste of time, money and energy to fight it. Embrace the change and find another way to make money without a) annoying your audience, b) suing your audience, and c) losing you audience by wasting cash on completely ineffective “precautions”.

Instead, how about hiring people to create awesome new avenues of affordable, accessible and reader-friendly eBooks? Create a system where libraries can lend out digital copies as well as physical ones. My family gets books from the library all the time and we share them with each other until they’re due.

This is called lending, not thievery, my friends.

The whole point of a conference like Digital Book World, filled with over 500 book and tech nerds, was to create an environment to explore new possibilities. Possibilities no one has tried. Sir Brian, do you honestly think no one’s attempted anti-piracy plans before?

I guess we all know now which major publisher is going to tank first.

Marian Schembari digs social media and books. Usually at the same time.