And Now A Word From Our Disintermediated Sponsor…

Amazon goes up against the old guard publishing industry and loses… this round.

by:

Chris Winters

You can be forgiven if amid all the hoopla over Apple's iPad last week (aka, the "Kindle Killer," or at least the most recent device to bear that moniker), you missed an interesting story in publishing playing out between the World's Largest Bookstore and one of the world's largest publishing houses.

Amazon.com is a force to be reckoned with, and its dispute with Macmillan (whose imprints include the commercially-oriented St. Martins Press and the more highbrow Farrar, Straus & Giroux, among many others) shows just how much pull it has.

Or not.

The dispute came to light via Venture Beat last Friday, when the "Buy" button on all of Macmillan's titles disappeared from Amazon.com. Buyers could still buy the books from other sellers on Amazon.com, just not from Amazon.com itself. (Note: Many of the third-party sellers are used-bookstores, and thus do not pay royalties to the publisher a seller of a new title would.)

This is the result of a pricing dispute. As a message form Macmillan CEO John Sargent explains, the publisher asked Amazon.com to sell its electronic books for up to $15, whereas Amazon.com has been charging $9.99 for all e-books on the site, primarily to promote sales of its Kindle reader. If Macmillan couldn't charge the higher prices, it would delay releasing its new titles as e-books by several months.

Amazon's response to Macmillan was to throw them out of the store.

And least temporarily. By now some (but not all) Macmillan titles are back in Amazon's store, and Amazon's been making noises about having to cave in to the publisher's demands for more flexible pricing.

So what's really going on here?

Well, what we're seeing is a classic case of technological disintermediation, or cutting out the middleman. Charles Stross, a science fiction author and blogger (some of whose books are published by Tor, a Macmillan imprint), gives a good rundown of the economics here, but the shorter version is that Amazon functions as both a wholesaler and a retailer in the same way that Wal-Mart and Costco Wholesale do. Namely: Buy at wholesale discounts straight from the publisher, sell at retail markup to the consumer, pocket the difference. (Interestingly enough, in the case of Amazon, Wal-Mart, and other big-box stores, they stand accused of pricing smaller independent stores and businesses out of every market they enter into, because