In a striking holiday message to Macmillan authors, illustrators and agents, CEO John Sargent surveyed the past year and next year.
Despite Penguin's recent settlement, Macmillan is continuing to fight the Department of Justice suit over e-book pricing. "There are two reasons we decided not to settle," Sargent wrote. "First, it is hard to settle when you have done nothing wrong. Much as the lawyers explain to me that settling is completely standard business procedure, it still seems fundamentally flawed to me somehow. Call me old-fashioned. The second reason is the more important one. Since the very beginning, the government's demands have never wavered in all our discussions. They still insist on the two-year discounting regime that forms the heart of the agreement signed by the [four] settling publishers. It was our belief that Amazon would use that entire discount for the two years. That would mean that retailers who felt they needed to match prices with Amazon would have no revenue from e-books from five of the big publishers (and possibly the sixth) for two years. Not no profit, no revenue. For two years. We felt that few retailers could survive this or would choose to survive this. Simultaneous discounting across the major publishers (you could think of it as government-mandated collusive pricing) would lead to an unhealthy marketplace." He added that the legal bills from the case "look like the unit sales numbers for 50 Shades of Grey."
Macmillan is not in discussions with any other publisher about combining. "This will leave us where we have always been, the smallest of the big publishers," Sargent commented. "It has never hurt us in the past, and I expect it will not hurt us in the future. Publishing trade books is, in the end, a human endeavor. The relationship between editor and author does not scale. Nor do the relationships between sales rep and bookseller or between publicist and producer."
Among other points:
Macmillan has renegotiated all but one e-book contract with retailers that allows up to 10% discounting on books priced at $13.99 and above and complies with the demands of the Justice Department complaint. The company settled with the European Union "because of many differences in their system and because the discounting change will not materially affect the market there for us."
Some 26% of Macmillan sales this year have been digital. "It is good to remember that means 74% of Macmillan's total sales are ink on paper books," Sargent wrote. "Just as in 2011, the percentage of e-book sales has remained consistent week by week through the year for the most part (the big uplift in the last two years has occurred the week after Christmas). Our e-book business has been softer of late, particularly for the last few weeks, even as the number of reading devices continues to grow.... Consumers will decide in the end how they want to read books, and we will deliver your books in all the formats they desire. Our job is to get to this final state with an even playing field for retailers, a healthy marketplace, and the maximum possible distribution of your work in all formats."
Sargent concluded by saying that "the best news as we enter this holiday season is that independent booksellers have had a good year, booksellers in general have had the time to adjust their product mix and store counts, and consumers continue to value and buy real books. Piracy continues to be an issue, but it has not exploded. More people are reading more books. The playing field in e-book retailing, while not even, has not yet tilted too far. There is a bright future out there."
