Amazon.com (Nasdaq: AMZN ) played -- and lost -- a game of chess with one of its larger publishers over the weekend.
In a tiff with Macmillan Books, the leading online retailer at one point pulled all of the publisher's titles over a pricing conflict behind a new digital agency model that Macmillan plans to implement in March.
Until a reversal yesterday, Macmillan e-books were pulled from Amazon's Kindle store. The e-tailer also stopped selling the physical books itself, leaving site availability exclusively to third-party merchants who no doubt could have taken advantage of the supply and demand shift in pricing.
It may be too early to call for a winner in this match, but Amazon isn't smelling like a champion.
Macmillan wants to dictate royalty rates and selling prices. It wants to receive 70% of e-book sales -- something that Amazon was already conceding, given certain caveats -- and have the flexibility to charge as much as $14.99 for new releases. Amazon has tried to stick closer to a $9.99 price point.
If taking down all of Macmillan's books in protest seemed overly defiant, caving in to Macmillan's wishes finds Amazon overly submissive.
"We will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books," the Kindle team posted on its forum yesterday. "Amazon customers will at that point decide for themselves whether they believe it's reasonable to pay $14.99 for a best-selling e-book."
Macmillan's plan to ram its new agency pricing model down e-book fulfillers' throats was to create deep release windows, similar to what movie studios are trying to do now in delaying DVD releases to rental discounters Netflix (Nasdaq: NFLX ) and Coinstar's (Nasdaq: CSTR ) Redbox.
It's still surprising to see Amazon cave so quickly. This reminds me of Apple (Nasdaq: AAPL ) . Major record labels wanted the freedom to bump up the $0.99 price for digital tracks through Apple's iTunes Music Store. Apple offers different price points these days, but what if it would have let Warner Music Group (NYSE: WMG ) price its singles at $1.49 apiece? Wouldn't the other majors have followed?
Amazon will let the free market decide, apparently. It's probably confident that publishers will stick to the $9.99 price, since publishers should welcome the ability to collect a nearly $7 bounty without any printing, fulfillment, or return expenses to worry about. The rub is that authors and rival publishers will begin to wonder why their books aren't worth as much as Macmillan's catalog.
It can all go downhill fairly quickly from there. Amazon may have sold "millions" of Kindle readers, but the value proposition changes if e-books aren't discounted considerably to the physical books that can at least be resold. Even the Apple iPad will run into some resistance from bibliophiles if e-book pricing is out of whack.
So who will win then? The e-book market will dry up, and with it the potential for juicy publisher margins. Amazon, Sony (NYSE: SNE ) , and Barnes & Noble (NYSE: BKS ) will discontinue their readers. Consumers will also have to take an evolutionary step back, probably weaning themselves from books given the plethora of free content to consume online.
Greed can kill the e-book revolution -- and Amazon's going from one disciplinary extreme to the other isn't helping.
Can publishers kill the golden goose of commercial e-books? Share your thoughts in the comments box below.