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A Victory For Old-School Publishers

Big retailers seldom acknowledge, let alone apologize for, the “needlessly high” price of the stuff they sell. But Amazon is feeling apologetic these days over having to boost the price of some electronic books.

Amazon recently lost a much-publicized tug-of-war with Macmillan, one of the country’s six largest publishers. The outcome means that, in the short term, readers will pay more for some of Macmillan’s new releases, and this is likely to be true for titles from other publishers as well. But over the long haul, Amazon is probably right when it predicts that book publishing is on the cusp of the same wrenching changes that have already struck the music industry. Readers will find ways to get what they want, when they want it, at prices that reflect the lower costs of digital distribution.

For now, however, the publishing establishment is in the driver’s seat. The dispute between Amazon and Macmillan broke into the open on Jan. 29. That day, when Amazon.com customers tried to purchase Macmillan books, they found that the “buy” buttons had disappeared. Print editions were available only through third parties and e-books for the Kindle were gone completely.

Prior to the dispute, Amazon paid Macmillan and other publishers a wholesale price for e-books, as it does for print versions of the same books. Then, it was free to sell the books at whatever price it wanted. Amazon chose $9.99 as the default price for new releases of e-books. The low price meant that the company lost money on each sale, but it got consumers hooked, tempting them to buy the Kindle reading device.

Publishers, however, were not happy with Amazon’s low price. They worried that, with e-books available for $9.99, sales of more expensive print editions, particularly hardcovers, would drop. In December, several major publishers, led by Simon & Schuster, moved to delay e-book releases so customers looking for the latest titles would have to buy hardcovers.

In January, Macmillan asked Amazon to change its method of buying and re-selling e-books to give the publisher more control over retail prices. Under the terms of a new agreement, Macmillan will be able to set prices as high as $14.99, with Amazon collecting a commission of 30 percent. Other publishers are expected to negotiate similar deals. Publishers will make less on e-books, but they will be able to keep e-book prices high enough to protect print sales.

After briefly pulling Macmillan’s offerings, Amazon reluctantly accepted the change, framing its concession as a sacrifice for the benefit of customers. Prior to the agreement, a message on Amazon’s Web site stated, “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.”

But publishers’ monopoly on popular titles may not last for long. As more people become e-readers, authors may begin to negotiate directly with companies like Amazon and Apple, which recently announced plans for an iBookstore, stocked with reading material for the forthcoming iPad. In December, Stephen R. Covey, author of “The 7 Habits of Highly Effective People” and “Principle-Centered Leadership,” caused the traditional publishing world to tremble when he transferred e-book rights for his works from his print publisher, Simon & Schuster, to a digital publisher, RosettaBooks, with exclusive retail rights going to Amazon.com.

Once the manufacture and distribution of printed pages stops being a critical function of publishing, any business or wealthy individual could potentially decide to purchase rights to a literary work, giving authors cash advances and marketing support in exchange for a share of the revenue.

Musicians are increasingly sidestepping record labels by releasing songs and albums exclusively on iTunes or through discount retailers like Wal-Mart. In 2007, "I'll Stand By You" performed by Carrie Underwood became the first iTunes exclusive track to make the Billboard Top Ten. The written word is likely to go the same way.

The transition away from paper will also make it easier for authors to self-publish, allowing them to earn more from each book sold. While self-publishing would probably not be helpful for an unknown writer, since readers are used to relying on agents and publishing houses to vet new authors, digital self-publishing could work well for an established author who can count on being noticed by readers and reviewers without the help of a big publishing house.

When Simon & Schuster announced its plan to delay e-book releases, Amazon spokesman Drew Herdener commented, “Simon & Schuster is backward-leaning. [Simon & Schuster CEO] Carolyn [Reidy] wants to corral readers, force them to buy what they wouldn’t buy if they had a choice. It won’t work. The better approach is to embrace the evolution of the book and give customers what they want. Forward-leaning publishers are going to clean up.”

While Macmillan may have gotten its way for now, the hottest new books soon will be published on the screen, not the page. Publishers who fight that shift will ultimately be the losers.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.

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