Amazon's new Kindle has better margins than the company does

“There must be something in the water at Amazon.com, given its commitment to price-cutting whatever the short-term pain,” remarks Martin Peers in a Wall Street Journal report. He explains that “The retailer’s decision to introduce a new, cheaper Kindle, just weeks after slashing the price of the existing version of the device, confirms that once again Amazon is taking the long view in trying to boost its share of a market—this time, e-books.” But it could also explain why the company continues to post lower-than-expected numbers, making Wall Street still wary.

As Peers also notes, “At $139, the new device is about a third the price of the original Kindle and nearly half what the second iteration was selling for just five weeks ago.” However, “That doesn’t mean the Kindle will become ‘mass market,’ as Amazon suggests; an occasional book reader is arguably no more likely to pay $139 for an e-reader than $259 ….”

What’s more, as he continues, there’s the fact that “Amazon also faces intensifying competition. Foremost is Apple. Its iPad, while pricier, offers far more functions than simply e-reading, and some may find it more user-friendly than the Kindle. Through June of this year, 3.3 million iPads had been sold.”

There’s also the Barnes & Noble Nook, which, says a New York Times report, is about to undergo a massive promotion campaign. According to Julie Bosman,

the chain will begin an aggressive promotion of its Nook e-readers by building 1,000-square-foot boutiques in all of its stores, with sample Nooks, demonstration tables, video screens and employees who will give customers advice and operating instructions.

By devoting more floor space to promoting the Nook, Barnes & Noble is playing up what it calls a crucial advantage over Amazon in the e-reader war: its 720 bricks-and-mortar stores, where customers can test out the device before they commit to buying it.

And the coming price war, says Peers in the WSJ, might “damp investors’ appetites for companies. Amazon may be following the only path open to it, but it still risks scaring those who don’t trust the company’s commitment to the bottom line.”

Meanwhile, one player says it’s staying out of the price war: “Sony won’t sacrifice the quality and design we’re bringing book lovers to lay claim to the cheapest eReader,” says the company’s  “vice president of digital reading,” Phil Lubell, according to a Forbes report.

Nonetheless, most are predicted the $99 ereader is just a question of time.

Amazon head Jeff Bezos, meanwhile, in a USA Today report, says, “I predict we [Kindle] will surpass paperback sales sometime in the next nine to 12 months. Sometime after that, we’ll surpass the combination of paperback and hardcover.”

And I predict that he won’t show any proof whatsoever of that. And that everyone will believe him and print it as fact nonetheless.

The Andrew Wylie / Odyssey Books / Amazon / Random House story took an ugly turn yesterday when two different hastags popped up on Twitter: @EvilWylie and @GoodRandomHouse.

Among their first posts: “Sizzling summer deals! Evil Wylie just posted e-book rights to Philip Roth’s backlist on Priceline. Name your price!” (@EvilWylie) and “True Fact: @EvilWylie is the reason there are reception issues with the iPhone 4.” (@GoodRandomHouse)

True, they do go off topic sometimes, such as when GoodRandomHouse posted, “Strange…Janet Evanovich just left the @GoodRandomHouse offices, and now nobody here can find their watches or jewelry.”

However their wrath is generally more focussed, and seems destined to take down everyone in the business with them. For example, we first read about this on Publishers Lunch — and no sooner was that post published than the following appeared at @EvilWylie: “Evil Wylie loves @publisherslunch because I love eating publishers for lunch.”

This is getting out of hand, I tell you ….

Andrew Wylie stands up from his big, empty desk

Fall-out from the announcement of the exclusive deal between Andrew “The Jackal” Wylie’s new Odyssey Editions and Amazon.com continued unabated Monday.

Things kicked off with a typically blithe, anti-publishing statement from the Authors Guild, saying “publishers have brought this on themselves” by paying “bargain-basement e-book royalty rates.” They say the rate quickly becoming standard — 25% of net — is “contrary to the long-standing practice of authors and publishers to, effectively, split evenly the net proceeds of book sales.” Of course, except perhaps — and I emphasize perhaps — for extremely rare deals for authors in the supreme sales ranks of, say, Stephen King, 50-50 deals are unprecedented in big publishing ….

So, ignorance or fibbing on the part of the Authors Guild leads it to cheer Wylie for declaring that, by Jove, 50% is what he’s going to pay … to authors whom are already being publicized and marketed by someone else. They don’t call him the Jackal — preying off the work of others — for nothing. As Boyd Tonkin noted in a perceptive commentary in The Independent,

In truth, the Odyssey Editions proposition looks full of holes: from legal doubts about whether he [Wylie] really has unassigned electronic rights, to the cost of designing, promoting and selling the e-books. With no help from publishers, Wylie has to create every aspect of his electronic imprint. That will wipe out much of the cost saving that should allow authors to receive a more ample royalty deal when a digital edition simply replicates a printed one.

On the other hand, Tonkin goes on to ask, “Does he care? I doubt it. He has scored already. The insulting offers for digital rights made to many authors by the trade-publishing giants have come into the spotlight. Wylie-Odysseus has called their bluff.” Except, er, Boyd, you just pointed out that the publisher’s rates make more sense than Wylie’s ….

Well, whatever, I guess — Mike Shatzkin, in an in-depth and often enlightening analysis at his Idea Logical blog, essentially agrees:

Even if the publishers pushing back manage to win this round with Wylie, and they well might, I don’t think the 25% royalty can hold for very long. As more and more of the business shifts to ebooks, companies without the legacy costs that big publishers have will find it easy to pay higher royalties than that and agents will keep doing the math about how many sales they can afford to lose and still end up ahead in dollars with a higher ebook royalty. As Amazon should have learned in their fight with Macmillan in January, it isn’t smart business to draw a line in the sand marking a position you ultimately can’t defend.

At least all concerned do agree on one thing — as the Authors Guild statement puts it: “any direct agreement between a literary agency and Amazon is troubling. Amazon has, time and again, wielded its clout in the industry ruthlessly, with little apparent regard for its relationships with authors or publishers or, for that matter, antitrust rules.”

Square Books' window display

A similar opinion of the deal with satanic Amazon prompted one of the more creative responses of the day: leading indie booksellers, Square Books of Oxford, Mississippi set up a display in its store window of all the books that would be unavailable as ebooks during the two year term of Wylie’s deal with Amazon. (See photo.) Included were works by Dave Eggers, Richard Flanagan, Mary Gaitskill, Ian Frazier, Philip Roth, Anne Lamott, Hendrik Hertzberg, Wells Tower, Richard Yates, W. H. Auden, I. F. Stone, and Saul Bellow. The company also posted a commentary labeled “Welcome to Wylie World” on its website, which read, in part:

HOW TO GET TO WYLIE WORLD? “DOWN THE RIVER”

Amazon is the company that, when Macmillan Publishing refused to agree to the company’s price demands, removed the ”buy” button from all the company’s titles. Amazon is the company that, once threatened by the George Orwell estate for selling 1984 without their permission, electronically removed the text from its customers even as they read it.

Amazon manufactures a reading device, the “kindle,” which requires its owners to buy digital merchandise exclusively from Amazon – a bit like our selling you books that you could read only by using the bedside lamp you must also purchase from us.  And this would be the only way you could read these books. Wylie’s authors’ electronic books will be available only via the kindle, only via Amazon, a soiling of first amendment principles that many of the agency’s authors, such as Arthur Miller and Salman Rushdie, have fought so hard to protect.

As you look at this display, we encourage you to think about the ramifications of this effort to vertically integrate the book industry and limit or exclude access to information and free expression ….

Meanwhile, by day’s end, the rumbling was becoming evident from across the pond: another big publisher, and another big retailer, had joined the protest. As a story in the Financial Times reports, HarperCollins UK CEO Vicotria Barnsley announced the company “will vigorously protect its rights and our authors’ interests by ensuring their work gets to the broadest possible audience.”  A Bookseller report notes that she added, “The only winners in this are Amazon.”

Victoria Barnsley

The Bookseller also notes that David Kohn, the head of the UK’s biggest bookseller, Waterstone’s, said it was “very disappointing to see that some of our best writers’ work is to be only available in such a limited fashion. It does not help build the market, nor does it serve readers well.”

On that, everyone seems in agreement.

It’s been a blistering few days for Amazon.com. Late last week analysts downgraded its stock from “buy” to “neutral,” as a Barron’s report detailed, citing, among other reasons, “decelerating growth” and “Increasing competitive pressures in digital media” (aka, the Apple iPad). The same day, a Wall Street Journal commentary by James Altucher concurred, suggesting short-selling Amazon stock, because the company was “overreaching,” and because “The competition from Apple (AAPL) on the e-reader side and Google (GOOG) on the cloud side present a devastating one-two punch.”

So much for what financial types think of Amazon. The next day, The Nation released online a story slated to appear in the print magazine on Monday, in which OR Books co-publisher Colin Robinson attacked the company on cultural grounds, saying “the problems caused by Amazon’s business practices extend to fundamental matters of the future of the book business and the diversity of our culture as a whole.” Explains Robinson,

The accumulated effect of Amazon’s pricing policy, its massive volume and its metric-based recommendations system is, in fact, to diminish real choice for the consumer. Though the overall number of titles published each year has risen sharply, the under-resourcing of mid-list books is producing a pattern that joins an enormously attenuated tail (a tiny number of customers buying from a huge range of titles) to a Brobdingnagian head (an increasing number of purchasers buying the same few lead titles), with less and less in between. Responding to the effects of price wars last fall the American Booksellers Association warned, “If left unchecked…predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public.”

So perhaps it’s no coincidence that on the day The Nation story officially released — yesterday — Amazon made some announcements of its own. As a Wall Street Journal story by Geoffrey A. Fowler and Jeffrey A. Trachtenberg reports, the company released a statement in which “Amazon’s chief executive, Jeff Bezos, also countered the perception that sales of the company’s Kindle e-reading device had suffered due to competition from other devices, such as Apple Inc.’s iPad.”

In fact, claimed Bezos, the company had “reached a tipping point” since having lowered the price of the Kindle and as a result had “reached a milestone, selling more e-books than hardbacks over the past three months …. Over the past month, the Seattle retailer sold 180 Kindle books for every 100 hardcover books it sold, it said.”

But of course, Amazon — as ever — offered absolutely no proof of its claims. As the WSJ report noted, “the statistics that Amazon shared were all relative—it didn’t share actual sales figures. The company has never said how many Kindle devices or e-books it has sold.”

Still, that didn’t stop some geniuses on Wall Street — you know, like those wonderful folks who brought us the Recession — from making influential forecasts based on no known reality: “That is dramatic evidence of how powerful the e-book is now,”  Citigroup analyst Mark Mahaney tells the WSJ, “…. and Amazon is extremely well positioned to take advantage of it.”

But not everyone in publishing is buying this as a death knell for print, or even necessarily the historic moment Jeff Bezos is claiming. Random House president Madeline McIntosh says, “Our conclusion is that there’s no data to prove any connection—good or bad—between growth in e-books and the growth or decline, in trade paperback sales. … If anything, we may be seeing a positive effect in which the steady pace of e-book sales helps to keep a book in front-of-mind for a growing number of consumers after hardcover momentum slows.”

Orlano Figes

Historian Orlando Figes has settled a libel suit brought against him by fellow historians Rachel Polonsky and Robert Service over his writing of pseudonymous negative reviews of their work on Amazon.com. (See the earlier MobyLives report.)

According to a Press Association report,

As part of the settlement agreed on Friday, Prof Figes has circulated an apology and retraction in which he accepts that his denial of responsibility for the reviews was false.

He also withdrew any adverse imputations that an email he sent had conveyed against Dr Polonsky and Prof Service, and apologised for instructing his previous solicitor to write to Prof Service threatening libel proceedings for suggesting that he had written the reviews. Prof Figes and his wife also agreed to pay Dr Polonsky and Prof Service damages, and their legal costs, partly on the indemnity basis - the highest rate.

He also gave an undertaking not to repeat the allegations, not to post pseudonymous reviews of their works, and not to use fraud, subterfuge or unlawful means to attack or damage them in their professional capacity.

From Microsoft's patent application for the "Virtual Page Turn"

Has Microsoft done to Apple and Amazon what Amazon had just done to Barnes & Noble — that is, secretly patent key technology crucial to their competitor’s e-reading device?

Last week, a MobyLives report detailed how Amazon secretly patented technology used by B&N’s Nook E-Reader. Now, a report from the Register says Microsoft had similarly filed an application with the US Patent and Trademark Office for a patent on what it called the “Virtual Page Turn” — “the animation of a page-flip when a user makes the appropriate gesture on an ebook’s touchscreen,” one of the key features of the iPad and the Kindle.

From application number 20100175018:

A page-turning gesture directed to a displayed page is recognized. Responsive to such recognition, a virtual page turn is displayed on the touch display… The virtual page turn curls a lifted portion of the page to progressively reveal a back side of the page while progressively revealing a front side of a subsequent page… A page-flipping gesture quickly flips two or more pages.

Microsoft applied for the patent back in January of 2009, perhaps as part of its development on the Courier foldable tablet, which the company abandoned in April.

Still, no one seems terribly concerned. “Microsoft could stir up some licensing trouble for Apple, Amazon, and others who have page-turning animations in their apps,” says the Register report, but trouble seems “unlikely.”

Another report, from TechCrunch, concurs, saying “the action that is being patented seems fairly obvious, which may prevent the patent from being awarded. After all, it is nothing more than an animation of a page being turned, an “invention” which goes back to the days of Guttenberg.”

Sony has quietly entered the e-reader price war by significantly reducing the price of its popular device from $349.99 to $299.99, just days after both Amazon and Barnes & Noble cut the prices on their devices. As a report in the Financial Times notes, “The pricing moves by the three e-reader pioneers comes as Apple’s iPad table computer threatens to eat into the market, which is expected to more than double to 5m units this year from 2.2m last year.”

Sony’s e-reader is the second most popular device, after the Kindle, with approximately 30-35% of the market, says the FT. It credits Amazon with control of 60-65% of the e-reader market.

As the FT report recaps,

Without that cut, Sony’s top-end e-reader would have been close in price to Amazon’s most expensive Kindle, the Kindle DX, which came down in price to $379 from $489.

Amazon has also lowered the price of its cheaper version of the Kindle to $189, while Sony also cut the prices of its Touch Edition to $169.99 from $249.99 and the basic Pocket Edition to $149.99 from $169.99.

Barnes & Noble had kicked off the price cuts last month by lowering the price of its Nook to $199.

According to the FT, most of these moves are motivated by fear that “the iPad, which can also function as an e-reader, will take a significant share of the market ….”

Amazon's patent

As the headline to an Endgadget report puts it, “Amazon Kindle dual-screen e-reader patent granted, Barnes & Noble Nook potentially in trouble.”

As Nilay Patel reports for Endgadget, the US Patents and Trademark Office …

… just granted a 2006 Amazon patent on e-readers with secondary LCD displays (like the original Kindle’s scroller-navigation panel), and several of the claims are potentially broad enough to cover the Nook and many other devices with both electronic paper and LCD displays. What’s more, Amazon agreed not to file for any corresponding foreign patents during the four-year approval process and thus wasn’t required to publish the patent application — meaning this is likely a complete surprise to the entire industry. Yeah, it’s juicy.

The grant is, as Patel notes, “in plain English,” and seemingly “covers any device with both an electronic paper display and a second smaller LCD display next to it.”

In the words of the USPTO, the grant is for:

A handheld electronic device comprising: a housing; an electronic paper display disposed in the housing and having a first surface area; and a liquid crystal display (LCD) disposed in the housing proximate the electronic paper display, the LCD having a second surface area that is smaller than the first surface area of the electronic paper display.

Patel says “we don’t know if Amazon has any plans to actually sue anyone over this patent yet, but we’re guessing there’s a flurry of legal activity happening at all the major e-reader manufacturers right now ….”

Hello?

Yes, we all know that yesterday Amazon was down for a little over five hours.  Of course, everyone in publishing went nuts, for various reasons.  (We, on the other hand, may have heard some whopping in our office. “Was it true they were hacked!?”).

Regardless, the complaining continued long past the retailer’s blackout. But I was surprised at some of the complaints.  Galleycat’s Jason Boog posted some this afternoon:

Debut novelist Tracy Davis wrote: “I had this huge campaign aimed for today for all my Facebook and Twitter friends who had bought my novel and loved it to tell all their friends about my book My Husband Ran Off with the Nanny and God Do I Miss Her. DO YOU KNOW HOW MANY TEXTS AND E-MAILS I RECEIVED COMPLAINING THAT THE NOVEL WASN’T EVEN AVAILABLE???? I looked like an idiot and lost a ton of sales, as well as my credibility!”

Now this just made me sad…  This author’s response is that the brief unavailability of a single website made her look “like an idiot… [and lose} a ton of sales, as well as… credibility” — ?!?!?  What!?!?

Believe it or not, Amazon.com is NOT the only online bookstore.  In fact, it would have been a great opportunity to amend the campaign and send people to Indiebound to support independent brick & mortar booksellers, or to Powell’s, (or even to BN.com for crying out loud).  Unfortunately I think the whole outage showed us, yet again, how dependent we are — AND how little effort we, as an industry, make to release ourselves from this suffocating relationship with Amazon.  How can we expect bookstores to support debut authors–handsell their books, host events–if we drive all of our online traffic to Amazon, a company they can’t begin to compete with?

Just some thoughts.

iPad and Kindle go toe to toe

Dan Gallagher at the Wall Street Journal reports here that Amazon.com is having more and more difficulty holding onto its lead position in market share for e-readers, a struggle that took a dramatic turn yesterday: “Despite its early lead in the fast-growing e-book market, Amazon.com Inc. (AMZN) faces growing competition from tech giants Google Inc. (GOOG) and Apple Inc. (AAPL), according to one analyst. Marianne Wolk of Susquehanna downgraded Amazon to a neutral rating on Monday. In a note to clients, the analyst cited ‘intensifying competition’ in the e-book market, which is creating more uncertainty around the company’s Kindle business.”

“Amazon sells the Kindle e-book reader as well as electronic versions of books for the device. Last week, the company cut the e-reader’s price to $189 from $259. The company has never disclosed specific sales data for the device, though analysts believe the Kindle accounts for about 60% of the existing e-book market,” according to the WSJ.

The Kindle is facing quite a bit of competition now (see above), with Sony, B&N and the mighty iPad coming on strong in the marketplace. The WSJ quotes analyst Wolk as saying, “‘With moves pending by Apple and Google, rising competition is raising the uncertainty regarding eReader, eBook, and Book profit growth rates, capping the contribution to Amazon’s valuation from these sectors. Thus, we are less confident in the multiple expansion we previously forecast.’”

Amazon shares were down 1.4% in trading Monday. The WSJ reports, “The stock is down about 20% since peaking at an all-time high above the $150 mark in mid-April, on a split-adjusted basis.”

Mother of God, is this the end of Ricco?