Amazon vs. Hachette: What It’s About And Why I’m Rooting For Amazon

Send to Kindle

As you may have heard, or read, or discovered while browsing Kindle books on the Amazon site, Amazon is currently in the middle of a battle with “Big 5” publisher Hachette. The beef is over reseller wholesale contract terms (the publisher’s ‘cut’ on every ebook of theirs sold by Amazon), and Amazon has been using some strongarm tactics to remind Hachette that Amazon doesn’t HAVE to sell Hachette books at all if the parties can’t come to an agreement.

This #1 bestselling Kindle book is currently priced at $4.99 on Amazon; would you be willing to pay $15 for it?

 

First, a little background is needed.

Back when the Kindle was new and ebooks were just starting to become a thing, say 2008 or so, Amazon established wholesale terms with publishers on ebooks based on the “fixed price” (usually known as a “suggested retail price” in other industries, for other products) which was set by the publishers. Amazon could discount the actual sales price of ebooks to whatever they wanted, or even offer them for free, so long as they paid the publisher the wholesale rate that was based on the publisher’s fixed price.

For example, if the publisher’s fixed price was $15 (seriously, that’s the average of the fixed prices the Big 5 publishers were setting; on some ebooks they wanted to go as high as $18) and the publisher’s wholesale cut was 40%, Amazon would have to pay the publisher $5.60 for every copy sold or given away on Amazon. Whether the ebook ultimately sold for $10, $6, or was given away for free, Amazon owed the publisher $5.60 for every copy distributed to Amazon customers. As a result, Amazon was (and still is) actually LOSING money on many ebook sales, but they were willing to take the hit to establish their Kindle line as dominant among ereaders.

Currently #2 on Amazon’s Kindle Bestseller list, and currently priced at just $2, courtesy of Amazon.

 

A couple years down the road, publishers started to get nervous.

In 2010 publishers decided they didn’t want Amazon to have the right to set its own prices on their ebooks anymore, even though Amazon’s retail pricing didn’t affect their wholesale cut AT ALL. They feared that if Amazon were allowed to establish $9.99 in the minds of consumers as a standard price point for frontlist ebooks (new release ebooks the publisher expects to sell well), they would never succeed in rolling out their own, much higher fixed prices. And they were probably right about that, but only because the fixed prices they had in mind for frontlist ebooks were ridiculously high to begin with.

So, acting on this fear of the possible longterm impacts of Amazon’s $9.99 price point, Hachette had secret meetings and communications with other major publishers and Apple to fix frontlist retail ebook prices at higher points across ALL retail outlets, including Amazon. Amazon fought back, and soon the US Justice Department was investigating Amazon’s claims of illegal collusion among the involved publishers and Apple. The publishers and Apple were caught with their hands in the cookie jar, and the US Justice Dept. sided with Amazon. In the Justice Dept. settlement the involved publishers were ordered to pay fines and issue consumer credits, and were barred from negotiating new wholesale terms with resellers (including Amazon) for two years. That term expires in a few months.

Currently #3 on Amazon’s Kindle Bestseller list, currently priced at $9.

 

This brings us to back to what’s happening now.

Here’s what the Wall Street Journal says is being hashed out between Amazon and Hachette [note that the WSJ article is only available to subscribers, but the following passage is also quoted on Forbes’ public site]:

In the wake of the federal government’s e-book antitrust pricing settlement with publishers, publishers supply e-books to retailers at a price set by the publishers but which retailers are able to discount. Retailers such as Amazon get a roughly 30% cut of the fixed price but any discounting reduces the retailers’ actual take.

In the talks with Hachette, Amazon is seeking a higher percentage split, said an industry executive. The two sides haven’t yet reached an agreement.

The backdrop to Amazon’s push is that e-books generate much higher profit margins for publishers than print books, where the costs including paper, printing, binding, warehousing, shipping and returns. Bedi Singh, chief financial officer of News Corp NWSA -0.41%, which owns HarperCollins Publishers and The Wall Street Journal, earlier this month told analysts that margins are around 75% for e-books, about 60% on paperbacks, and about 40% on hardcovers.

Current #4 bestselling Kindle book, also currently priced at $9.

 

If those percentages are correct, publishers have been making more money than they should have on ebooks all along on a percentage basis (nearly TWICE what they make on the SAME book in hardcover format), and their ebook profits have been even MORE inflated by the contract terms that force Amazon to pay the publishers’ share based NOT on the actual selling price of the ebook, but on the publishers’ own (artificially high) fixed prices.

Amazon wants to stop losing money on ebooks and there are only two ways to make that happen: publishers can reduce their fixed prices (which they made very clear in the Justice Dept. case they have no intention of doing—they actually hope to eventually CHARGE those fixed prices on ebooks!), or they can take a smaller wholesale cut on every ebook sale on Amazon. This is what Hachette is fighting against: they want to keep ALL of their trumped-up, excessively high profit on ebooks.

Amazon has done plenty to please me as both a consumer and as an author. The major mainstream publishers have only ever worked to squeeze ever more money out of consumers (overpriced ebooks, delayed paperback & ebook releases, overpriced hardcovers) AND to frustrate and fleece authors (poor contract terms and royalty percentages, outmoded and outdated business practices, snobby ivory tower attitude coupled with blockbusters-only business model…I could go on).

Current #5 bestselling Kindle book and a Pulitzer Prize winner to boot. Priced at $7.50 by Amazon but you can bet its publisher, Hachette, would’ve liked to charge more.

The way Amazon is handling this may seem clumsy and brutish, but they don’t owe ANY publisher space on their virtual shelves, any more than they owe space to any specific clothing, electronics or toy manufacturers. Why should Amazon keep taking a bath on frontlist Kindle books just so publishers like Hachette can keep lining their pockets with ebook profit margins far higher than what they earn for the same book in print formats?

For as long as there have been ebooks, consumers have been saying publishers have no justification for charging such high prices for them. Publishers have responded that it takes just as much overhead expense to produce and distribute ebooks as print books. Now that the margin percentages are public knowledge, we know publishers were lying about this while quietly pocketing the extra money they’ve been making on ebooks, and doing all in their power to keep and even increase those ill-gotten ebook profits.

Publishers, like any other business, deserve to make an honest profit for quality products. But the Big 5 have shown over and over again that they don’t want to make an honest, if small, profit, they prefer to engage in deceptive and illegal business practices. They’ve finally, grudgingly accepted that ebooks are the future and have since started doing everything in their power to maximize profits in that area, all the while playing the victim card. ENOUGH!

 

Speaking only as a consumer, I hope Amazon wins this round against Hachette. I think all consumers should be hoping for the same thing, because Amazon can’t keep losing money on ebooks forever and if Hachette wins, either mainstream Kindle book prices will go up or Kindle book availability will go down (due to Amazon no longer stocking ebooks from publishers who won’t play ball). Either way, readers lose.

 

Print Friendly

12 Comments

  1. Comment by Greta van der Rol:

    You’ve put an excellent case. I certainly balk at paying over $13 for an ebook by ANYBODY. And it has happened often – for the big names.

  2. Comment by Cathryn Cade:

    Agree that in this case I’m on Amazon’s side. They’ve only ever been transparent and fair in their dealings with me as a self-published author.

    Also, I refuse to pay the high prices for ebooks that trad pubs charge. There are so many talented authors writing today, I can boycott the higher priced books and still have plenty to read.

    I don’t charge my readers that much and yet–gasp–I still make money. So could trad publishers if they made some changes. Attempts to create strangleholds on customers and contractors rarely work–not when those people have as many choices as authors and readers do today.

  3. Comment by patnlew:

    I appreciate what Amazon offers readers. They have made it more accessible for us to receive literature especially for those of us who live in rural areas and don’t always have easy ways to get the urban areas. Thank you, Amazon and we hope you win this case. When you win, we readers win also!
    Patricia Walter

  4. Comment by John Holt:

    There is no way that I would pay more than $3 for an ebook, and there are more than enough available at that price by very good Indie authors – so as far as I’m concerned I don’t need the so called mainstream authors or publishers. Sooner or late they will wake up to the fact that there is a lot of good stuff available at very reasonable prices, and they will find great difficulty at selling their (the mainstream) stuff.

  5. Comment by disappointed AGAIN IN Hachette:

    I have to say I very rarely pay over $2.99 for an ebook. If higher priced I will borrow the ebook from the library or just not read it. I average 3-5 books a week, sometimes more. If I am going to pay $9.95 or more for an ebook I could just as easily get it from book of the month club for $9.95 hardback with free shipping.

  6. Comment by Clydell Baker:

    I am not a big reader, but since I got my Kindle Fire for Christmas , I read mores than I ever. Thanks to Amazone I will be able to continue. My husband retires soon and if prices go up I will not be able to read .

  7. Ping from Publishers Battle Amazon Over E-Book Pricing:

    […] L Hamilton of The Digital Media Mom, does a great job explaining the controversy and why Amazon, who appears to be the bully fighting […]

  8. Comment by KV:

    What the publishers are doing with audio books vs “E Book Text to Speech” enabled format is criminal and discriminates against the visually impaired people like me. The Big Five no longer allows Amazon to sell ” Txt to speech” enabled e books. So to read and listen to an e book on a Kindle, a visually impaired person, has to buy the e book and use Amazon “Whispersynch.” Steven King Book, Doctor Sleep is $7.99, Whispersynch Audio $12.99, full Audio unabridged $26.00!!!!!! Five years ago I could buy the $7.99 ebook and have both. They were Text to speech enabled. I was able to buy books at the same price as fully sighted people! Publishers came out and said to make the audio enabled books it was more costly and harder to do, so therefore they were changing more money. It is Utter nonsense. Now I am back to getting ebooks Big Five from the Library and Audio books from the Library. I no longer buy any E books from the Big Five. I no longer read ANYTHING from Hatchet, Simon and Schuster, and Penguine. PERIOD.

  9. Comment by Douglas J. Lawrence:

    I agree with the Amazon position. Yes I own and use seven Kindles ! Nevertheless the profit margins are ridiculous on the face of it. Perhaps we bibliophiles need to circulate a petition to those involved, on how we (as the consumer) feel about the subject.

  10. Comment by Mick Rooney:

    Excellent piece, April, and well explained. You hit the nail on the head RE Amazon taking a hit when it chooses to heavily discount a title. The publisher still gets the same pound of flesh no matter what and this is something that gets lost in the mainstream media coverage.

    It’s all hyperbole and good vs evil; poor old humble Hatchette and big bad bully-monster Amazon. It’s hard to fathom publishing conglomerate like Hachette trying to play the victim. Less we forget, one of the publishers found guilty of corporate collusion not so long ago in a bid to inflate the price of e-books.

  11. Comment by Sheogorath:

    IMHO, $9.99 is a good price for a new release ebook. If the hardcover book is $15 on release, then I don’t want to pay anything over $10 for the electronic version that has no distribution costs over and above the bandwidth that’s already been paid for. I’m glad that some people are acyually able to see through the publishers’ BS.