The real agenda of Apple’s ebook partners: death to ebooks

The head of one of the big book publishers, MacMillan CEO John Sargent Jr., is out with an “open” letter about his dispute with Amazon over the pricing and timing of electronic books. It’s telling that this “open” ebook letter wasn’t released publicly and isn’t directed towards readers, book lovers and customers. It was placed as an ad in a small publishing industry trade rag and the message is for publishing industry insiders. Sargent’s message, despite a bunch of misleading surrounding verbiage, is simple: let’s strangle the growth of ebooks.

If you want to understand where Sargent and other major book publishers are coming from, I strongly recommend watching this online footage from a conference New York University hosted last September. Here you can see Sargent and a couple of fellow old media dinosaurs whine and complain about the digital world, dismiss Facebook, Craig’s List and Twitter as irrelevant non-businesses that will never make money and generally explain their plans to charge everyone for everything at every opportunity.

The real critical portions come towards the very end, in part three, as Sargent grows more animated about his opposition to giving away ebooks for free, even for promotional purposes. Despite being in charge of one of the largest publishing conglomerates in the world, he’s pretty pessimistic about the future of books. Challenged by Wired editor Chris Anderson to use digital distribution and new business models to attract new readers and expand the book market, Sargent is in full rejection mode:

“As the Internet grows, as all the other types of entertainment grow, it’s hard to imagine sitting here how we are going to convince everybody in this room to spend an extra six hours every week to consume another book. So in a way, if you look at the overall demand for books, it’s pretty hard to make that grow. We’ve tried. A whole bunch of people worked very hard to try and grow that. It’s pretty hard if you look at the demographics, how people read, to actually convince yourself that we have a growth business in books.”

In other words, what we have in books is a dying audience, a shrinking audience. And the way you extract the most revenue and profit from a shrinking audience isn’t with creative promotions and new ideas. It’s with ever higher prices. As Sargent says at a another point, in a barely veiled swipe at Amazon’s $9.99 ebook price:

“What we need is variable pricing. I think you guys would agree with this, variable pricing for content. You want a range of price points. You want to find a place — what you don’t want to do is give the consumer something for less than what they’re willing to pay for it in the rush to a new business model. Because once you get it out there it’s dangerous and hard to go back.”

Again, challenged to charge less because producing ebooks cost less, Sargent obfuscates, fixating on just one bit of savings, the printing costs of books (ignoring distribution, returns, overage, lost sales from out of print etc):

“Guys I can walk you through this. How much do you think a hardcover book costs us? A buck sixty. What are we saving? Not enough for the price point to drop from $22.50 down to $8.”

Amazon has been saying that its Kindle customers buy more total books – electronic and print – than they bought previously. It’s certainly been true in our household. I don’t have the figures at my finger tips, but I’d imagine that the whole creation and growth of has enlarged the book market, as well. But that’s not really happening in John Sargent’s world of mega-best sellers.

So keep in mind what Sargent was saying a few months ago when you read passages like this in his letter:

“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.”

Leave aside for a moment the completely dishonest portrait Sargent paints of the old print book-selling world, and remember that he doesn’t believe the there will be any growth in book sales in the future. He’s not interested in a fair price for anybody — he’s interested in making sure that he never gives the consumer something for less than what they’re willing to pay for it.
He wants to extract the big bucks from the big sellers and move on.

The great danger to MacMillan is that it’s the authors of those big best-sellers who are becoming increasingly able to cut him out. If ebooks really take off, an author like Stephen King or Nora Roberts can sell a lot more of their books direct to their audience with no publisher at all. And that’s why Sargent’s real goal here is not to increase competition or create a level playing field. It’s to squeeze as much profit out of a dying industry as quickly as he can and hold off the digital future for as long as possible.

UPDATE: Henry Blodget also really gets it in his post today called “Hey, John Sargent, CEO of Macmillan Books, Screw You!” An excerpt:

Did Steve Jobs seduce you with that temporary “charge-whatever-you-want” speech?  Well, Steve has been known to seduce people from time to time.  Just imagine what will happen once Steve has put the Kindle out of business and Steve owns the ebook platform instead of Jeff Bezos.  That’s right: You’ll get held up even worse than Jeff’s holding you up today.  Just ask the music industry.  Careful what you wish for. So, bottom line, John, take your $15 ebooks and shove them.  We’re with Amazon on this one.

Good work.

  • zoewinters

    I think we should start a betting pool for when traditional big publishing dies, because seriously I didn't know anybody could pack that much stupid into one business. If I was a Macmillan author I'd cry myself to sleep at night for selling my rights to such boobs.

  • Mark F

    >He’s not interested in a fair price for anybody — he’s interested in making sure that he never gives the consumer something for less than what they’re willing to pay for it.

    Isn't that the exact definition of a fair price? You sell a item for what the consumer is willing to pay for it.

  • The language he used in his letter conflicts with the language at the forum. How is the most someone will pay equal to “fair”? I'm not following. Just to take a very extreme example, if it cost a drug company $100 per pill to make a drug including R&D etc and the sick people who need the pill will pay $1,000,000 is that fair?

  • sunwriter

    “Guys I can walk you through this. How much do you think a hardcover book costs us? A buck sixty. What are we saving? Not enough for the price point to drop from $22.50 down to $8.”

    So he just admitted to screwing people over?

  • ecw0647

    This analysis reveals how this “caving in” is a really good deal for Amazon:

    I think this is all really the first salvo in a much larger war to destroy discounting of books. The publishers really hated the extreme discounting going on in the big-box stores last Christmas and they see this as a way to gain control over retail pricing.

    The Leegin decision of the Supreme Court in 2007 gives manufacturers more control over the pricing chain by legalizing the setting of a minimum price, something that had been illegal under the 1911 Dr. Miles decision. Good summary here:

    The German company that owns Macmillan is on record as hating ebooks, so this provided them with a nice opportunity to kill two birds with one stone. Whether it works or not remains to be seen. I can already feel the warmth from lawyers rubbing their hands together in glee.

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  • SplinteredMind

    The big problem is that yanked authors' wares from being on sale to strongarm MacMillan. As MacMillan beats their chest, their authors take the brunt and fans turn their ire towards In this battle, the readers and authors are the ones being hurt.

  • I think it's pretty obvious who is on the side of the vast majority of authors and readers for the long haul.

  • SplinteredMind

    Right, but by pulling books Amazon angered fans of those authors. It also hurts the wallets of those authors who are innocent bystanders in this battle. This puts a large portion of the reading audience against judging by the overall groupthink on Twitter. made a choice, and I respect their right to dictate how they conduct their business. I just wonder if there had been a better way. Considering that caved by Sunday night, I’m thinking they lost in this standoff. Perhaps the move was ill conceived, even if they were on the right side of the argument.

  • Amazon seemed to have had a gut-level response that only took a couple days to overcome by rationality.

    I have limited compassion for the authors. They made a decision to be dependent on Amazon, but Amazon is not a public institution dedicated to book selling. A couple days cut off from this overwhelmingly critical source of income is a small price to pay for a wake up call about the wagon to which they've hitched their fortunes.

    Amazon might not be a white knight, but at least the path they are blazing has a future for literature. Unlike MacMillan.

  • Totally agree. Another interesting piece of the puzzle today as the
    WSJ reports apple trying to convince TV producers to slash iTunes
    video prices in half to generate huge boom in sales. Puzzling to say
    the least why Apple would move in the exact opposite direction for
    ebooks with a 50% price hike.

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  • Perfect timing! I am so glad I read your article when I did!

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