Amazon Threatens Publishers as Apple Looms
By MOTOKO RICH and BRAD STONE
Published: March 17, 2010

http://www.nytimes.com/2010/03/18/technology/internet/18amazon.html?hp

Amazon.com has threatened to stop directly selling the books of some publishers online unless they agree to a detailed list of concessions regarding the sale of electronic books, according to two industry executives with direct knowledge of the discussions.

The hardball approach comes less than two months after Amazon shocked the publishing world by removing the “buy” buttons from its site for thousands of printed books from Macmillan, one of the country’s six largest publishers, in a dispute over e-book pricing.

Amazon is the largest online seller of printed books and the biggest e-book seller in the United States, and it is trying to use its clout to hold on to its early lead in the e-book market. But the last time it went down that path, it was widely accused of abusing its position.

An Amazon spokesman, Craig Berman, declined to comment on any talks with publishers.

The company is pressuring publishers just as Apple is also preparing to sell digital books for reading on its iPad tablet, which will reach the market in early April.

After a weekend of brinksmanship in January, Amazon effectively conceded that it could not stop Macmillan from setting what it described in a post on its Web site as “needlessly high” e-book prices. The company says those prices should reflect the reduced cost of distributing digital works.

Five of the country’s six largest publishers — Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin — have already reached deals with Apple to sell their books through its iBookstore, which will be featured on the iPad. (The holdout is Random House.)

Under those agreements, the publishers will set consumer prices for each book, and Apple will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99.

Amazon has agreed in principle that the major publishers would be able to set prices in its Kindle store as well. But it is also demanding that they lock into three-year contracts and guarantee that no other competitor will get lower prices or better terms.

Apple, for its part, is requiring that publishers not permit other retailers to sell any e-books for less than what is listed in the iBookstore. So the publishers have sought to renegotiate agreements they have with Amazon under which they sold books to it at wholesale, allowing Amazon to set the consumer price.

Amazon has built up a 90 percent share of the American e-book market, in part because it sells most new releases and best sellers at a heavily discounted standard price of $9.99. Many Kindle owners have said the low price motivates them to buy more e-books, but publishers feared that the price would eventually erode their profits.

According to three people briefed on the discussions, publishers are reluctant to sign three-year contracts because the digital book world is changing so rapidly and they want room to adjust as it takes shape.

Amazon has also begun talking with smaller publishers that have not yet signed contracts with Apple. In those conversations, according to one person briefed on the discussions, Amazon has said it prefers to retain its wholesale pricing model, as opposed to Apple’s so-called agency model.

But some of these smaller publishers have begun talking with Apple, which has effectively said that any publisher that wishes to sell its books on the iPad must offer the same terms to all booksellers. In other words, to do business with Apple, publishers must export Apple’s business model to all retailers. Amazon, by contrast, has not promised to adopt the agency approach for any but the largest publishers.

Amazon appears to be responding to the Apple threat by waging a publisher-by-publisher battle, trying to keep as many books as possible out of Apple’s hands, while preserving as much flexibility as it can to set its own prices.

But if Amazon tries to enforce its demands by removing “buy” buttons from some pages again, some believe it could harm its reputation in the eyes of customers and the publishing industry.

“They cannot remove the ‘buy’ buttons from two major publishers’ lists without doing serious long-term damage to their own brand,” said Mike Shatkzin, chief executive of Idea Logical, a company that advises book publishers on e-books.

If Amazon does stop directly selling books from some publishers, many of those books will still be available from outside sellers that use Amazon’s site as a storefront.

Amazon may have more leverage with smaller publishers, which typically sell their books in fewer outlets and thus tend to rely more on Amazon for sales. Amazon may believe that if it can keep those publishers from moving to an agency model, Apple will choose not to sell their e-books, and Amazon will be seen as having a broader selection.

Amazon’s strategy “is to work very hard to limit participation in the agency model to only the big four or five firms that are already announced,” said Evan Schnittman, vice president for global business development at Oxford University Press. “This would leave 50 to 60 percent of the content out there subject to the standard distribution terms, enabling Amazon to promote and price as it does today, and forcing Apple to have to compete with Amazon’s strength.”

Apple is not likely to give up on smaller publishers. A new job posting on its Web site is for an “independent publisher account manager, iBookstore.” The posting says the person would be “responsible for building and growing relationships with small- and medium-size book publishers, self-published authors and other content providers for the iBookstore.”

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