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War of words as Amazon defends its pricing of e-books

Alistair Fairweather

The online retail giant’s battle with the publisher Hachette goes to the very heart of the massive changes that pummel the publishing industry.

For more than six months Hachette, a large publisher, has been wrestling with Amazon – the largest online retailer of its books – over pricing. (Reuters)

Publishing books seems like a noble and romantic business. You might imagine publishers in waistcoats, discovering new authors, delivering knowledge and enjoyment to the world, and wearing little glasses at the ends of their noses. Alas there is nothing noble or romantic about Hachette’s dispute with Amazon.

For more than six months Hachette, a large publisher, has been wrestling with Amazon – the largest online retailer of its books – over pricing. The dispute soon escalated from private negotiations to a public brawl with all the hallmarks of a schoolroom hair-pulling fight.

In May this year Amazon began disrupting sales of some of Hachette’s titles by delaying their delivery. Books previously listed as “immediately available” suddenly required buyers to wait several weeks. Hachette, as well as several of its authors, launched a furious counter­attack in the news media.

And things got uglier after that. In early July Amazon publicly offered to pay all of the revenue for sales of Hachette’s e-books directly to authors. Representatives of Amazon claimed the company was simply acting in the best interests of authors by removing them from a conflict that was severely hampering their sales. Opponents claimed Amazon was simply trying to buy the authors’ loyalty.

What’s all the fuss about? In a nutshell: Hachette wants the right to charge higher prices for e-books (around $15 a book) and Amazon wants to cap the price at $9.99. Hachette claims that Amazon is trying make up the difference by squeezing the percentage it pays to the publisher. Amazon counters that $15 is simply too expensive for an electronic version of a book.

Electronic vs print
In a post on its site amazon.com last week, the company laid out its argument in full for the first time. Its vast stores of customer data show that, at lower prices, e-books sell disproportionately more copies than at higher prices. This increase in sales, Amazon says, more than makes up for the loss in revenue per unit.

This makes intuitive sense, and it is hard to argue with Amazon’s data. E-books, unlike their paper counterparts, have almost no marginal cost. It costs Amazon as much to deliver e-books to thousands of readers as it does to deliver a single printed book. This encourages it to think in units rather than fuzzy values like quality, and to favour the volume of sales over the perceived value of those units.

But this kind of cold calculus is anathema to Hachette. Books, it says, are not like any other consumer good. Any deal with Amazon would need to “value appropriately for the years ahead the author’s unique role in creating books, and the publisher’s role in editing, marketing, and distributing them ... ”

Amazon agrees wholeheartedly with the former – it believes that authors should receive significantly more of the revenue than they currently do – 35% rather than 25%. Its statement is full of snide statements to that effect: “We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call.”

But Amazon clearly does not believe traditional publishers add that much value – certainly not enough to justify the kinds of percentages they demand.

It pays authors who publish directly through its platform, without going through a publisher, as much as 70% of the revenue. Many thousands of them now make a full time living as writers, having never signed a traditional book deal.

More than pricing

Even worse, most of these authors don’t bother to print their books. Why go to all that expense when you’re making millions from hassle free e-books? Publishers such as Hachette still make a large percentage of their revenue from printed books.

Although they will not admit it, this is part of the reason why they want higher prices for e-books – to make them less attractive than printed books over which they have more control.

And this is the real crux of the issue: to Hachette this dispute is about much more than pricing. It’s about long term relevance and, ultimately, survival. If the majority of authors began to deal directly with Amazon, it would simply cease to exist. If Hachette does not retain the trust and loyalty of its authors, it is doomed.

It would be easy to paint Amazon as the bully and the villain. For years both publishers and other content owners, as well as retailers, have been warning that Amazon’s growing market power would be used to squeeze them out of business. They see the online giant as a relentless, self-serving machine bent on total domination.

But the picture is a lot more complex than that. The e-book marketplace about which Hachette is haggling was created entirely by Amazon. The Kindle marketplace ran at a loss for years while Amazon gathered a critical mass of customers. The research and development on its Kindle readers alone would have run into billions of dollars.

So you can understand Amazon’s reluctance. One of its suppliers – an entity that should consider it as customer – wants to dictate what Amazon can charge in its own store. Imagine a supplier to a grocery chain or a clothing store trying the same thing. “No, you have to charge R50 for my lettuces because they are nicer than my competitors. If you don’t my farmers will be cross.”

Alternative

Publishers still treat Amazon as though its market power was simply given to it on a plate, rather than earned by consistently pleasing millions of customers for nearly two decades. They complain about the inflexibility of its e-books platform, and about Amazon taking too much of their revenues, but none of them have come up with an alternative.

If publishers believe that Amazon is bad for authors and readers, then they should put their money where their mouths are. They should start a competing platform and launch their own device. If they really are better then readers will flock to their offering.

And if we, as readers, are truly worried about Amazon’s tactics and its growing might we should stop buying its books – electronic or printed. We should take a stand against its growing monopoly and side with the authors and publishers against the unfeeling machine.

Except I’m not convinced that Hachette is any more noble or altruistic than Amazon. It is also a business – and a very large one at that.

What really bugs Hachette, I think, is that it no longer has the market power that it once enjoyed. And, frankly, I don’t think it’s our moral duty to prop up ailing industries.

Yes, publishing books might still seem like a noble and romantic business, but it’s still a business in the end. If both authors and readers prefer Amazon’s way of doing business, then it will win. And no amount of chest-thumping and moralising will change that fact.


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