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The whole digital revolution just makes things more complicated. For example: How much should an e-book cost? Right now, Amazon prices most of its Kindle editions at $9.99, which is quite a bit less than the cost of your average hardcover book. "In the digital-books world, a number of the costs are removed, so we believe they should be priced lower," says Russell Grandinetti, vice president of books for Amazon. "Our approach to digital books is that we will allow that to continue."
For now, Amazon takes a loss on these books, since it buys them from publishers at the price of a regular hardcover. The company considers it an investment in getting the Kindle established as a platform. But eventually soon it's going to want publishers to start sharing the pain. This may seem a nitpicky issue, but once e-books become a significant part of the market, the price of a Kindle edition could mean the difference between the red and the black for some publishers. "That's the detonation point," says Dennis Johnson, publisher of the prominent small press Melville House. "Because nobody can make a book that sells for $9.99." Yes, you save on printing and shipping, he says, but that's only a small fraction of what it costs to make a book.
Don't get them wrong: publishers are thrilled that Amazon is putting all these resources into the Kindle. Any new retail channel for books is a godsend. They're just concerned that the precedent being set is unworkable. "Amazon picked a cost in the beginning that they believed the consumer would like, and of course, the consumer likes it," says Carolyn Reidy, president and CEO of Simon & Schuster. "Who wouldn't like a price that was significantly lower than the price the hardcover is? And we think it's too low." (Grandinetti sticks to his guns: "We believe our approach to digital books allows authors, publishers and retailers to run profitable businesses yet still pass on the savings that digital books allow to readers," he says. Right or wrong, nobody can stay on message like an Amazon exec.)
Such are the conundrums raised by a company that has attained the radical verticality that Amazon has: when it comes to e-books, Amazon doesn't just sell them; it practically owns the entire medium. Of course, they'll all have to make nice eventually, since Amazon needs publishers to survive and thrive. Or does it?
Here's an interesting factoid: last year, for the first time in history, more books were self-published in the U.S. than were published the regular way. Amazon has invested heavily in publisher-free publishing, and it's paying off handsomely. The sector has seen two straight years of triple-digit growth, and on the cultural side, the stigma associated with "vanity" publishing is wearing away.
Or if Amazon can't make a deal with the publishers, it can always just become a publisher. That's where Princess Alera of Hytanica makes her royal entrance. Last year, speaking to Publishers Weekly, Bezos pooh-poohed the idea of Amazon publishing books: "I'm not sure we have any skills per se to be a content originator," he said. "Why would we be better at it? It's a well-served industry." That it may be. But as Amazon Encore demonstrates, Amazon does have one very important skill: it gathers better data on how readers buy books than anybody else. "We're lucky enough to have a passionate customer base who comes to our store and tells us about books that they like," Grandinetti says. "Even great books can be overlooked." When they are, Amazon is the first to know about it.