Remember the shooting war a year ago January when Amazon dimmed the Buy Buttons on Macmillan books over the issue of the agency etail business model? To refresh your memory read Publishing’s Weekend War: 48 Hours That Changed an Industry

A lot of authors were caught in the crossfire.  But the CEO’s of both companies have presented them with a gift to make it up to them.  In his letter accompanying Macmillan’s semi-annual royalty statements CEO John Sargent informs authors and agents that Macmillan and Amazon have jointly created an “Amazon Kindle Outage Adjustment” compensating them for royalties they would have received had the trade war not suspended business.  Sargent explains how the adjustment was calculated:

“…You may also see an item toward the bottom of your statement called Amazon Kindle Outage Adjustment. Most of these adjustments were processed last royalty period but some are being finalized now. We believe it was not fair that authors should suffer from the Amazon buy button takedown imposed on us for a week last year when we switched over to the agency model. So we estimated as best we could what Kindle sales would have been for that week and processed the royalties on those sales as if they had happened. Amazon felt the same way and graciously split the cost with us. Interestingly, from what we could discover, almost all non-Kindle Amazon sales migrated to other outlets.”

We agree that it is a gracious gesture on the part of both industry leaders and though there may still be some bruised feelings and lost revenue, we wanted to give credit where it is due for the good will.

There was another gift from Sargent in his covering letter which you may read in its entirety here.

Richard Curtis

Dear Authors, Illustrators and Agents,

As you all know, there has been tremendous growth and change in the digital book market over the last year, The purpose of this note is to explain two favorable adjustments we have made to your earnings on e-book sales during the past royalty period in light of the events of last year.

On April 1st 2010, Macmillan adopted the agency model for selling our e-books and, in doing so, we accomplished two extremely important goals to help ensure that the publishing business remains healthy for both you and us. The first, and most important one, was to create a level playing field for electronic book distribution. Amazon had been providing the e-book versions of new release hardcovers at $9.99, considerably under Amazon’s cost, making it very difficult for anyone else to prosper or even enter the market. Since we moved to the agency model, Apple has entered the market, Barnes and Noble has increased its investment in the business, and independent booksellers, working with Google, are now selling your books competitively in the electronic book market. Second, by successfully setting the price on the e-book versions of first release hardcovers above $9.99. We have been able to prove that the consumer does in fact place a value higher than $9.99 on first release electronic books.

The long term ramifications of both these changes are enormous. What was previously a digital business with only one real player (who was getting dangerously close to a monopolistic position, fueled by aggressive pricing) is now a much healthier marketplace where many can compete and distribute your books at prices determined by the market.

All of this is the context for answering the question I’m sure is on your mind: What about my royalties?

Your enclosed statement includes e-book royalties if we sold an e-book of your work during the May 1 through October 31 royalty period. Almost every contract we had in effect during this royalty period sets an escalating royalty (10%/12.5%/15%) based on the list price of the book. Under the agency model, the list price is the end price to the consumer, so your contractual earned royalties would therefore be the number of e-books sold multiplied by the list price of the e-book and then multiplied by the royalty rate.

Meanwhile, the publishing industry standard for electronic book royalty rates has clearly settled 25% of net receipts, which is the rate that we now offer in our publishing contracts for new books. This rate produces higher royalty earnings than the list price based rate.

We have therefore made the decision for this royalty period to increase your royalty to 25% of net receipts. We are presenting this adjustment in your attached royalty statement by first backing out your contractual electronic book royalty earnings (so you can see what they were) and then adding in the new higher royalty earnings according to new agency model calculation. We have only made this adjustment if it works in your favor (which is almost universally the case).

If you have not previously signed an amendment adjusting your contractual royalty on e-books to 25% of net receipts and you would like us to continue making this adjustment in future royalty periods, we need you to amend your contracts with us… [Contact information deleted here]

In addition to the favorable royalty recalculation mentioned above, you may also see an item toward the bottom of your statement called Amazon Kindle Outage Adjustment. Most of these adjustments were processed last royalty period but some are being finalized now. We believe it was not fair that authors should suffer from the Amazon buy button takedown imposed on us for a week last year when we switched over to the agency model. So we estimated as best we could what Kindle sales would have been for that week and processed the royalties on those sales as if they had happened. Amazon felt the same way and graciously split the cost with us. Interestingly, from what we could discover, almost all non-Kindle Amazon sales migrated to other outlets.

It is hard to see into next month never mind next year. Our business is in the midst of an enormous transformation. But do know that we are in this together and that our interests are aligned. We at Macmillan will keep working for a piracy-free, competition-friendly digital marketplace for your works, while supporting the bricks and mortar retailers for the ink-and-paper books that we all cherish. It is, as always, a great delight to be your publisher.

I hope this letter has been helpful. If you have questions about your statements please contact our Royalty Accounting Department.

All best,

John Sargent

Journalist and author Deborah Solomon, who has a regular Q&A feature in the Sunday New York Times Magazine, collars Amazon CEO Jeff Bezos for a mini-interview in this morning’s edition.

King Gillette lives! The spirit of the mogul, who transformed product marketing by giving away the razor and selling the blades, hovered over Amazon’s press conference unveiling the big-screen Kindle DX. There, New York Times publisher Arthur Sulzberger Jr. pledged to subsidize the full price of the jumbo reading device for subscribers committing to long-term subscriptions. The retail price of the DX is $489.00.

We did a little research and learned that a daily subscription to the Times in our area of Manhattan will cost $5.30 per week at current rates. At that rate, we would have to enlist for one year and forty weeks.*

It’s not a bad deal for subscribers – you end up with a Kindle that you can use for many other things besides reading the newspaper. But is it a good one for the Times? Gawker, the snarky media website, doesn’t think so. In fact, Gawker doesn’t think so at all. The site’s Owen Thomas thinks Amazon CEO Jeff Bezos “has managed to scare the press lords into shelling out their precious remaining cash into funding the distribution of his pricey e-reader…” and “…he’s cajoled the gullible likes of Sulzberger into handing him a pile of cash.”

“If he’s such a big believer in supporting journalism,” asks Thomas, “why didn’t Bezos announce he was personally giving away 160,000 Kindles to people who agreed to sign up for a newspaper subscription?”

Well, maybe Bezos never heard of King Gillette.

Read A Bigger Kindle Makes Jeff Bezos Richer and Newspapers Poorer.

RC
*(Of course, the Times would get a discount for buying Kindles in volume; on the other hand, subscribers who commit to long-term subscriptions also get discounts, so the two discounts wash each other out.)

CrunchGear’s John Biggs conducts a debate with himself about whether or not to buy a Kindle. He offers ten reasons pro and ten con, and it’s logical to conclude the results are a draw. But every consumer brings different criteria to decisions.

For instance, travelers will put great weight on carrying lots of books in one slim device. (It also helps that the Kindle works well in inclement weather.) Scholars will agree with his criticism that it’s terrible for research, reference and student applications (“Expect ebooks to hit colleges in perhaps five years and high schools and grade schools in about seven” Biggs says). For some, cosmetic beauty is a consideration, and the sleek look and feel of the Kindle (v. 2) trumps functionality. For others, such functions as highlighting, bookmarking, dictionary lookup and 16 greyscale shades are paramount.

And then there are those who love the idea that you only need one hand to read on your Kindle. What you do with the other hand was a source of great hilarity when Jeff Bezos appeared on Jon Stewart’s The Daily Show to hype the newly released device. For a good smirk, click on Bezos’ appearance, and note his laughter, which soars beyond good-natured and approaches the diabolical.

If you’re still on the fence about buying a Kindle, read 10 reasons to buy a Kindle 2… and 10 reasons not to and see if it helps you make up your mind. And keep both hands where we can see them.

RC

Dear Jeff (if I may):

I congratulate you on the honor that Publishers Weekly has bestowed on you. It is completely well deserved if not long overdue. Amazon.com is a brilliantly conceived and managed company that introduced a revolutionary paradigm, one that has both exalted the value of a tangible product, the book, and at the same time exposed the vulnerabilities of an industry built on that product. We who work in that industry are keenly aware that we are denizens of an old world that is rapidly giving way to the virtual one represented by the efficient electronic delivery of information and merchandise. Despite its flaws and problems, however, this aging book culture represents the very best values of human civilization. I know you know this. In statements you have made you have displayed a love of books for their own sake, sensitivity to those who write and produce them, and respect for those who buy and read them.

Because, like any revolutionary paradigm, Amazon.com crosses borders that for so long have been considered rigid and inviolable, it has sometimes stepped on the toes of authors, publishers, and booksellers. Your justification for doing so is that some collateral damage is unavoidable in the creation of a new world. I don’t entirely disagree with that.

But it is my hope that as you build on your success you remain aware that you possess a privilege given to very few people in any given era and hold many destinies in your hands.

I urge you to use this responsibility wisely.

Richard Curtis

Jeff Bezos, founder of Amazon.com, a company publishers and booksellers love to hate and hate to love, has been named Publishers Weekly’s Person of the Year. The announcement comes with a profile by PW’s Jim Milliot.

The past week has been a kind of High Holy Days for the trade publishing industry, offering all who work in it, from writers to agents to publishers to booksellers, an opportunity to reflect on how the industry has gone wrong, atone for our complacency, and resolve to create a better world than the one lying in shambles at our feet. If you don’t know where to begin, read Bezos’s pithy quotes and realize that the answers to these questions have all been under our noses for the fourteen years of Amazon.com’s existence. No one is saying Amazon is THE answer, but its business model so far superior to the existing one that a visitor from another world would consider pre-Amazon and post-Amazon two entirely different species.

Jeff Bezos deserves every honor accorded to him, and in a separate post I have addressed an open letter to him. Meanwhile, below are a few excerpts from Milliot’s article:

Despite, or perhaps because of, Amazon’s success, many publishers have a love-hate relationship with the company. They love the units that Amazon can move, but hate its monopolistic position. There is also some fear among publishers that Amazon’s dominance as a bookseller, together with its growing ability to publish original content, will turn one of their biggest customers into their biggest competitor.But Bezos says any such worries are unfounded. “I’m not sure we have any skills per se to be a content originator,” he says. “What would we do differently [than publishers]? Why would we be better at it? It’s a well-served industry.”

Among some of Amazon’s other controversial tactics are the selling of used books on the Amazon site and the launch of the Kindle. While many publishers and authors contend that used books hurt sales of new titles, Bezos insists that making used books available through Amazon simply makes the sale of used books, which Bezos surmises has been around forever, more efficient. “Every time you make something easier to buy, you are going to [sell] more of it,” Bezos says.

Still, Bezos is convinced that the digital future will be better for the book industry. What digital publishing will ultimately mean, Bezos says, is that “you are never out of stock, don’t have to guess at print runs, and there will be no returns.” In that utopia, publishers will sell books at lower prices, but move more units, resulting in higher revenue, Bezos predicts. But equally important for Bezos, the evolution to digital publishing will allow the book to compete with other “attractive media forms.” One digital approach that Bezos is not enamored of is reading book-length narrative accompanied by advertising, a strategy that Google could follow. “I’m very skeptical of advertising as a good [business] model for long-form narrative,” Bezos says.

RC