John Sargent Answers Four Questions

Answers to some questions from the comments

Hi out there. I have been reading through the traffic from my last post on e-book pricing and the agency model. Rather than answer you all individually, I’ll take a shot at answering four questions that encompass the general nature of the responses.

1) What is the difference between a “hardcover” and “paperback” e book? In truth…nothing. It is simply a matter of timing.

In traditional publishing we had three formats, each at a different price. They were targeted at specific channels of distribution and were released at different times. There was some discounting by retailers, but historically not much. Then discounting became more aggressive and the channels of distribution for the formats began to blur. Currently some books never appear in paperback, some books only appear in paperback, and some books are in the market simultaneously in hardcover and both paperback formats (at three different price points). The digital edition (in almost all cases at present) doesn’t change in format over time – there is no difference in what is actually being sold. So, how should the digital edition be priced?

Some argue it should be almost free as there is little physical cost of delivery. But the physical cost of the book has never been the greatest component of cost. The authors who create the work need their rightful compensation, and they need editors. The marketing and publicity are no cheaper. And given that the ink on paper aspects of the business are still here, publishers still need warehouses, infrastructure, and all the other legacy costs of the business. Digital sales as a whole are not incremental (though some of them may be).

Some argue it should be the same price as the hardcover. After all the real value is in the ideas and the words, not in the artifact that sits on the shelf. But certainly that artifact is of some value, and the digital edition is more ephemeral than a printed book.

Some argue the digital edition should be tethered to the physical book and should be priced under whatever the cheapest available format that is currently available for sale.This has a solid feeling logic behind it, but I’m not sure it makes sense in the long run given there is no differential in format (if there are three formats availble, why wouldn’t the right price be a bit cheaper than the wieghted average of the available formats)?

In the end, an e book will be priced to reflect the value consumers put on it. We believe at first release an e book is worth more and people will pay more for it. Over time it will become worth less as demand tapers. However, some digital books will retain their value over time just like print books. Some will increase their value over time (many physical books are now only available as trade paperbacks, after they have been out in the cheaper mass market formats). So our digital pricing will vary to reflect the value of the book at the time. But in general, our plan is to price books below ten dollars after there initial sales demand slows (usually within a year).

A very long way of saying, there is no hardcover or paperback e book, but the digital edition will change in price over time to reflect its value to the reader as best we can determine it.

2) Will retailers have flexibility to price books at a discount? No, the sale price will be fixed by Macmillan. Retailers will promote and market books, but we will control the price for the book.

3) How can we trust Macmillan to carry out its pricing pledge? An interesting question in that we have never made a pricing pledge. Historically, e book pricing has been driven by a number of factors, and it may well have appeared to be inconsistent. We never promised to price books in a certain way and have actually never controlled retail prices before now. And many of our decisions on list prices were driven more by our Amazon relationship than by our relationship with consumers. Looking forward, it will be a very fast moving world. I have told you our intent on e book pricing. I cannot guarantee or pledge what price we will be charging in the future. Personally I doubt that typical prices for general interest digital books will break out over $15.00. I also believe the majority of digital books will be priced below $10.00, as most Macmillan books are now and will be on day one of the agency model.

4) Will we be re-pricing e books that have a $14.00 digital list price while there is a mass market paperback edition available? Yes! To a customer price of $9.99 or below.

John Sargent

More next week, including author royalties…

Thanks for listening and writing in your concerns.

Macmillan Sets Its Course into the Digital Future

To: Macmillan authors, their agents, and their readers

From: John Sargent

Date: March 2, 2010

After the events of the past several weeks, I have been in touch with many of you. It has become clear to me that there is far too little accurate information available in this time of unprecedented change. The issues we all face together are complex, and no news story or 140-character snippet can adequately address them. Therefore, I propose to write you occasionally, when I get a sense that there is a need for direct information.

The first topic is the e-book agency model, and how it will affect our business in the near term. Starting at the end of March, we will move from the “retail model” of selling e-books (publishers sell to retailers, who then sell to readers at a price that the retailer determines) to the “agency model” (publishers set the price, and retailers take a commission on the sale to readers). We will make this change with all our e-book retailers simultaneously.

Rather than address the long-term or author royalty consequences of the change (I'll save that for next time), I'll focus on the two major effects at retail. Note that these changes will apply to every e-book retailer with whom we do business:

1. Availability. All the new adult trade books for which we have the rights to publish in e-book format will be available at the first release of the printed book. We will no longer delay the publication of e-books (read: no windowing). Readers were clearly frustrated at the lack of availability of new titles, and the change to the agency model will solve this problem. We are also working hard to make more books available in digital editions. The consumer will have broader choice and much greater availability.

2. Price. We will price our e-books at a wide variety of prices. In the ink-on-paper world we publish new books in different formats (hardcover, trade paperback, and mass market paperback) at prices that generally range from $35.00 to $5.99. In the digital world we will price each book individually as we do today. Generally e-book editions of hardcover new releases will be priced between $14.99 and $12.99; a few books will be priced higher and lower. This is a tremendous discount from the price of the printed hardcover books, which generally range from $28.00 to $24.00. E-book editions of New York Times hardcover bestsellers will be priced at $12.99 or lower while they are on the printed list. E-book editions of paperback new releases will be generally priced between $9.99 and $6.99.


For physical books, the majority of new release hardcovers are published in cheaper paperback versions over time. We will mirror this price reduction in the digital world. It is too early to estimate the timing of the price reductions for those cases in which we do not issue a paperback edition. If we do issue a paperback, we will drop the digital price to $9.99 or lower at publication date (if not before). The price differential between the book and the e-book will become smaller at the lower price points.

There has been a lot of concern from e-book readers that $9.99 books will no longer be available. Most Macmillan e-books will still be priced below ten dollars. Our e-book sales over the last year clearly indicate that only about a third of our e-book business is in the digital versions of new release hardcovers. Unit sales of older books far exceed our new release hardcover sales, so the $9.99 and lower prices will continue to represent the largest portion of our business.

In short, we will continue to do what we have always done: provide the reader with a vast selection of great books over a wide range of prices.

I have not addressed illustrated books or books for young children. That will be a topic for the future as the technology advances beyond e-ink screens. I hope this has been in some way helpful. Please remember that I can’t tell you how other publishers will handle availability and pricing. I can only speak for Macmillan.

Meanwhile, there are millions of you and one of me. So, if you have questions or comments, please go to http://us.macmillan.com/ or http://blog.macmillanspeaks.com/.

Google Statement on Italian Legal Decision

In late 2006, students at a school in Turin, Italy filmed and then uploaded a video to Google Video that showed them bullying an autistic schoolmate. The video was totally reprehensible and we took it down within hours of being notified by the Italian police. We also worked with the local police to help identify the person responsible for uploading it and she was subsequently sentenced to 10 months community service by a court in Turin, as were several other classmates who were also involved. In these rare but unpleasant cases, that's where our involvement would normally end.

But in this instance, a public prosecutor in Milan decided to indict four Google employees —David Drummond, Arvind Desikan, Peter Fleischer and George Reyes (who left the company in 2008). The charges brought against them were criminal defamation and a failure to comply with the Italian privacy code. To be clear, none of the four Googlers charged had anything to do with this video. They did not appear in it, film it, upload it or review it. None of them know the people involved or were even aware of the video's existence until after it was removed.

Nevertheless, a judge in Milan today convicted 3 of the 4 defendants — David Drummond, Peter Fleischer and George Reyes — for failure to comply with the Italian privacy code. All 4 were found not guilty of criminal defamation. In essence this ruling means that employees of hosting platforms like Google Video are criminally responsible for content that users upload. We will appeal this astonishing decision because the Google employees on trial had nothing to do with the video in question. Throughout this long process, they have displayed admirable grace and fortitude. It is outrageous that they have been subjected to a trial at all.

But we are deeply troubled by this conviction for another equally important reason. It attacks the very principles of freedom on which the Internet is built. Common sense dictates that only the person who films and uploads a video to a hosting platform could take the steps necessary to protect the privacy and obtain the consent of the people they are filming. European Union law was drafted specifically to give hosting providers a safe harbor from liability so long as they remove illegal content once they are notified of its existence. The belief, rightly in our opinion, was that a notice and take down regime of this kind would help creativity flourish and support free speech while protecting personal privacy. If that principle is swept aside and sites like Blogger, YouTube and indeed every social network and any community bulletin board, are held responsible for vetting every single piece of content that is uploaded to them — every piece of text, every photo, every file, every video — then the Web as we know it will cease to exist, and many of the economic, social, political and technological benefits it brings could disappear.

These are important points of principle, which is why we and our employees will vigorously appeal this decision.