Antonio Tombolini is the owner of Simplicissimus Book Farm, and he is with any probability the most authoritative advocate of the digital shift in trade publishing in Italy, as his firm started distributing e-book readers years ago, when e-books seemed – and actually were – a distant vision. He published last week on his blog a post on the Amazon/MacMillan/Apple issue, and I asked his permission to translate it for Inchiostro Elettrico.

So… I apologise for the rough translation, and thank him for his kindness:

Apple, Amazon, MacMillan and the e-books war. But… isn’t someone missing?

by Antonio Tombolini

Poor Publisher, MacMillan, that plays as David, succeeds in imposing Amazon, that plays as Goliath, his victory after two years of ruthless oppression by the latter, in the name of the Good Guys, that is those who do not want to kill books, and just want – oh, yes they do - the greater good of the authors and of beaux arts. And the strength to David-MacMillan comes from Apple, the Good Samaritan.

But what exactly was the oppression that Goliath-Amazon forced on David-MacMillan? Thanks to his uncontrolled power, Goliath-Amazon imposed to the ebooks of Poor Publisher sold in the Kindle Store the prices Amazon decided, depriving Poor Publisher of any control on the prices of his own products, and putting at risk – indirectly – author’s revenues. It’s the wholesale model, where the retailer (Amazon) asks the producer (MacMillan) the net price for the goods he wants to buy, and then it’s the retailer that decides the price to which he will sell the product to the consumer.

After two years of such a ruthless oppression, enter Good Samaritan-Apple, and he suggests publishers, with his iBooks, a different model, the so-called agency model: the retailer (Apple’s iBooks) doesn’t buy any goods, but acts as a sales agent on part of the producer (MacMillan), and is repaid with a commission. It’s now the producer/publisher that decides the final price to the consumer, and the agent/iBooks only asks for a commission.

So what’s the victory of David-MacMillan? Well – thanks to Good Samaritan-Apple that tells no way, with me and my iBooks it’s you that decide the price of your ebooks! – he is able to rebel against Goliath-Amazon and manages to win in the end: from now on Poor Publisher will sell his ebooks at the price he prefers. And that is true also in the Kindle Store of Goliath, that has to concede defeat.

Ok. But what’s the reality of things?

Who really is MacMillan? Certainly not a Poor Publisher: on the contrary, it’s one of the big six.

Thanks to MacMillan’s victory, their ebooks will be sold in the Kindle Store at 14.99$ instead than 9.99$: a weird kind of healthy competition, the one desired by MacMillan’s CEO, a competition that wants prices to go 50% up for the consumer!

In this whole story it’s bizarre that the world of the Good Guys (MacMillan and Apple) totally forgets that there is a player in the market that they may want to consider: the consumer, the one that spends the money that make firms survive. It’s bizarre that MacMillan, that any publisher actually, does not understand that the one that is making the rules, in the end, is the one that measures the added value, and that in the end it will be the consumer to impose his price to ebooks: and everybody knows – unless one wants to trick himself – that the 9.99$ threshold is already too high for who’s buying ebooks, and is accepted only now, given the rudimentary phase of the market. But soon, let’s say in three years’ time, an ebook will not cost more than 5$ (or 5€): and if there’s a way to earn an income (and there is, there definitely is!) it’s a matter that authors, publishers and booksellers will have to solve on their own.

What would a similar choice to MacMillan’s one from all of the big publishers bring? What will happen if they are to raise ebooks prices to 12/15$?

An accelerated extinction. Authors will realise that in this way they will earn less, for the simple reason that less (legal) ebooks will be sold. And they will shift to the opportunities of self-publishing (first among them the one of, surprise, Amazon), selling at a lower cost their ebooks but getting 70% of the incomes. As some Paulo Coelho did, for example.

So, what should publishers do?

Lots of things: anticipate the requests and expectations of the market, that is pricing ebooks less than 5$/€, offering them now, without being forced by the market, starting now the reorganisation of their production costs.

Realising that in the ebooks’ world (as the majors of the music world are showing) the reduction in production costs is more than proportional to the reduction in the incomes, that anyway will come.
And this means that in the ebooks’ world the publisher (and the author) may earn more than what is earned now: but in order to do so he must focus on his job as a publisher in this new world starting from now, he must focus on the added value that he may give compared to self-publishing.

To sum up, I mostly agree with this:

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I asked Antonio the permission to publish his post because he underlines in a convincing way that, as I mentioned before, the reader is your master and that publishers have to focus on the added value they can give to ebooks.

It is true that people pay more – and will probably continue to pay more – than 9.99$/€ (and sometimes even more than 14.99$/€) every day, but that will hardly be the rule. In the end the market will push prices down, as already happened in other industries.
Not only: it seems that publishers keep reasoning only about production costs. This can be understood, also because mammoth firms that have to change their workflow must spend a whole lot of money right now. Nevertheless, they seem not to think enough on the value perceived by the reader. They seem to think that the reader will simply adapt to the prices.

An underlying reason is certainly the fact that they do not want for low ebooks prices to harm the paper books prices and they want to keep them competitive. It is also true, as for example Mike Shatzkin tells, quoting Michael Cader on Publisher’s Lunch (subscription only, sorry), that publishers are in fact lowering their margins with the agency model, and are ready to lower their prices in a not-too-distant future (I’ll try to tackle all these aspects in future posts).

But now the question actually is, at least for some of them, why not doing it now, why not boldly go where no publisher has gone before and try to build for themselves a different image?

Most of the business lies in the quality of the titles, but the quality itself is not only the story or style or depth of research of the book: it’s also the reader experience, and it’s also the brand. Why not build for themselves an “innovator” brand in the e-books business? There seems to be a crack open to reach a new audience that could be missed if publishers will stick too much to the standard business model, that is not efficient in the new market. Moreover, lowering the prices to the consumer and building a new image may have the nice side-effect of pushing not only ebooks sales but also the sales of traditional books, as it happened in the past and is happening right now (think Coelho, think Doctorow, or think Wu Ming in Italy).

A wild thought: waiting too much in lowering the prices will also open a wide space for smaller publishers but especially for independent editors / publishing communities (Cursor, anyone?) that could take advantage of the agency model and its sibling proposed by Amazon for lower priced e-books.

As Antonio says:

in the ebooks’ world the publisher (and the author) may earn more than what is earned now: but in order to do so he must focus on his job as a publisher in this new world starting from now, he must focus on the added value that he may give compared to self-publishing.

If he won’t do so, somebody else will step in.